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5 Things You Should Know About Golden Agri-Resources

Ser Jing - Golden Agri-Resources First Quarter Results (pic)Take a look in your kitchen and you may be surprised to find a variety of foods, from ice cream to confectionery that contain a highly versatile vegetable oil known as palm oil. But did you realise that same oil may be lurking in your shampoo, soap and lipstick and is even used for biofuel?

Palm Oil

Palm oil is a vegetable oil derived from the oil palm tree. Optimal growing conditions coupled with cheap labour and a rapidly increasing worldwide demand brought this West African native plant to the Asia Pacific region, where it is now grown in vast plantations.

Today, most of the world’s oil palm is now grown in Indonesia and Malaysia. What’s more, both of the world’s largest palm oil producers are listed on the Singapore Stock Exchange: Wilmar International (SGX: F34) closely followed by Golden Agri-Resources Ltd (GAR) (SGX: E5H).

Golden Agri-Resources

Eka Tjipta Widjaja was born Oei Ek Tjhong in China, but his family fled to Indonesia when he was aged seven, following unrest in their homeland. Using his new Indonesian name, Widjaja sold biscuits from a rickshaw as a teenager in the 1930s and went on to sell provisions to Indonesian troops.

Sinar Mas

Widjaja founded his industrial company, Sinar Mas in 1962, and added paper and pulp mills, oil palm plantations and even banks to his group over the following years.

In 1996, he founded his new company Golden Agri-Resources (GAR) – an agribusiness focused on the cultivation of oil palm trees. The company processes the fresh fruit bunch into crude palm oil and palm kernel – and refines this into cooking oil, margarine and shortening.

China

Whilst GAR’s major operations are in Indonesia, it also has a substantial presence in China where it has integrated operations, including a deep-sea port, soybean crushing plants and produces refined edible oil products.

Deforestation and Haze

Of course, the quick increase in the world’s palm oil production has been widely condemned, with producers facing criticism for not taking environmental and social best practices into account. Deforestation for palm oil plantations has destroyed the habitat of many endangered species and caused the eviction of forest dwelling people.

What’s more, the choking smog created by farmers illegally clearing their land by burning has resulted in horrific levels of pollution for the Indonesian people, as well as their close neighbours in Singapore and Malaysia.

Unilever

Indeed, in 2009, the Anglo-Dutch consumer-goods behemoth and massive palm-oil consumer Unilever acted with its feet, turning its back on the Sinar Mas Agro Resources and Technology (SMART) (which runs the Indonesia palm oil operations of GAR) due to its unacceptable environmental practices.

A public campaign highlighting the devastation caused by deforestation by environmental organisation Greenpeace soon had Swiss food and beverage giant Nestle, French multinational Carrefour and US fast food chain Burger King following suit.

Sustainable Palm Oil

Things had to change and GAR was forced to ensure environmental sustainability of its operations.

Golden Agri-Resources and SMART swiftly adopted some new green policies, gained Roundtable on Sustainable Palm Oil (RSPO) certification and resolutely proclaimed to be “absolutely against burning.”

In 2011, it was rewarded for its efforts with a purchase order from Unilever (Nestle soon followed suit).

But did you know…

  1. Eka Tjipta Widjaja and family occupy position 2 of Forbes’ Indonesia’s 50 Richest list, with a net worth of a cool $7bn.
  2. Golden Agri-Resources is Indonesia’s largest palm oil plantation group
  3. Eka Tjipta Widjaja was once known as the “King of Copra” (the dried kernel of the coconut from which coconut oil is extracted).
  4. Eka Tjipta Widjaja has 15 children
  5. Palm oil is not only versatile; it’s highly productive too, with a yield (amount of oil produced per hectare per year) far surpassing other vegetable oils, whilst costing less to produce.

Today, Golden Agri-Resources manages 471,000 hectares of total planted area in Indonesia, which equates to 5.5% of Indonesia’s oil palm plantation area – but with an output of nearly 10%, the process is incredibly efficient.

Supply outstripping demand…

But things haven’t been fair sailing for palm oil producers in recent months. With the supply of oil palm currently outstripping demand the company will be hoping to see the balance shift in its favour again soon.

But on a positive note, Golden Agri-Resources can take comfort in the fact it offers its shareholders decent geographic diversity, with a quarter of its annual revenue being generated by its operations in China, with India, Indonesia and Europe making up another third.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Alison Hunt doesn’t own shares in any companies mentioned.