Case Study Essay Example

emerged as one of Indonesia's wealthiest men despite dropping out of school as a teenager. Tanoto took advantage of collaboration between the Indonesian government and World Bank that allocated low-priced land for private investors interested in cultivating palm oil to develop rural regions. He founded the first Asian Agri plantations which covered approximately 10,000 hectares in Sumatra known as "the wild, wild east." Later on, Tanoto acquired multiple small plantations and built mills for extracting Crude Palm Oil (CPO) and palm kernels.In 1986, Asian Agri partnered with government programs that sought to integrate smallholder farmers from Java into commercial agriculture. These programs aimed to empower rural Sumatra by providing financial support to underserved residents. Participants from Java received government loans to acquire two hectares of land near the commercial agricultural "nucleus," which were referred to as "plasma" programs due to their cell-like structure (Kindred & Bell, 2010, p.2).

By 1989, Asian Agri had amassed approximately 30,000 hectares of plantations along with a small refinery and mill for processing CPO into specialized oils (Kindred & Bell, 2010, p.2). Over time, they expanded their palm oil growth areas and heavily invested in research and development. This initiative focused on various aspects such as fertilizer inputs for different soil types, husbandry practices, disease and pest control (Kindred & Bell, 2010,p.2). Additionally, the company enhanced its refining capabilities and established a plant for producing shortening and margarine.

The price of palm oil has seen a significant increase from $60 to $130 per metric tonne over time (Drimmer 2007,p.22), surpassing the price of soy. Exhibits 1&2 provide production trends of palm oil in Indonesia,Malaysia,and other regions from1970-2009.These data points when combined with

general knowledge about palm oil justify Tanoto's positive outlook for its future (Drimmer 2007,p.22).Despite economic challenges worldwide, particularly in developed nations which account for over 45% of global markets, there is still a growing demand for palm oil and its byproducts. In contrast to tea, coffee, and flowers that have experienced declining prices in international markets, the price of palm oil continues to rise. Several indicators support the belief that palm oil has a promising future (Reuters 2010, p.1). One important indicator is the significant increase in production levels in recent years. According to Bruce (2010), global palm oil production has surged from around 430,000 MT in 1970 to approximately 45 million metric tonnes by 2009. The text also highlights the substantial growth of Indonesia's palm oil industry where the harvested land area expanded from100k hectares to over5 million hectares.In just one year -in2009-Indonesia produced more than20 million metric tonnes of palm oil accounting for around44.44%of global production.Approximately80%of this output was exported to international markets making it roughly half of all global exports of palm oil to these specific marketsDrimmer (2007,p.10) predicts that there will be an increase in production of palm oil due to the availability of land for expansion in certain countries.The table provided below shows the potential for expansion in key producer and uncultivated countriesThe perception of palm oil farming in Indonesia and other nations has undergone a significant change, as farmers now recognize its value as a crop. Previously, farmers in Asian countries did not prioritize palm oil farming due to cultural beliefs and low market prices. However, despite the challenges faced by farmers, palm oil remains profitable with low production

costs and high yields. It has become an affordable and readily available food source in Asian countries (Bruce 2010, p.5).

According to the data presented in the table below, palm oil has the lowest fat content compared to other edible oils. This makes it a preferred choice, especially in European markets where obesity-related illnesses are prevalent (Drimmer 2007,p .15). Palm oil is advantageous for commercial food production as it does not contain trans fats like many other edible fats on the market do.

Table: Edible Oils and Their Fat Content Percentages

There is currently a growing focus on green and sustainable energy instead of fossil fuels due to global attention towards climate change. Developed economies that experience extreme winter weather conditions have contributed significantly to global warming through their reliance on fossil fuels. However, there has been an increase in the production of bio-diesel using vegetable oils like rapeseed oil in Europe.The change in perception regarding palm oil production offers a positive future for all stakeholders (Reuters, 2010). Sukanto Tanoto's Asia Agri is a successful palm oil industry firm operating in Indonesia and other Asian countries. To ensure success both domestically and internationally, it is crucial for the company to adopt policies that enhance their operations. Firms that failed to implement best practices during the 2008 economic crisis faced severe consequences and had to be supported by their governments (Kindred & Bell, 2010). Therefore, regardless of the industry, it is vital for any organization to prioritize best practices.

In order to address criticism from non-governmental organizations, Asia Agri should prioritize sustainability throughout its operations - from farming to exporting final products (Drimmer, 2007). The expansion programs implemented by the

firm have led to deforestation and put species such as orangutans and tigers at risk while also contributing significant carbon emissions through logging activities. Indonesia ranks third in greenhouse gas emissions after the United States and China (Djalalov, 2006), faces accusations of severe environmental management violations that have damaged its global brand value.

To address these issues, the organization should review its policies, particularly regarding interactions with local communities.Investing in social activities such as tree planting, environmental clean-up, supporting talented students, and educating the community about healthy food consumption is essential in Indonesia. It is important for companies like Asia Agri to manage expansion rates by acquiring neighboring land instead of deforestation during the crucial expansion of palm oil production. This approach supports controlled growth, benefits the environment, and reduces operational costs (Djalalov 2006, p.55).

Effectively managing palm oil in Indonesia is vital for Asia Agri and its industry peers to achieve success in both short-term and long-term goals. By investing at least 15% annually in research and development (R&D), companies can allocate a significant portion of their resources to develop improved palm oil seedlings that are resistant to extreme weather conditions and have higher productivity per hectare.

To generate improved sales domestically and internationally, adopting modern marketing methods is key. Companies can effectively promote their products on search engines like Yahoo and Google, as well as social media platforms including Facebook, Twitter, and MySpace. This cost-effective approach enables them to reach a wider audience.

In addition to these efforts, embracing an active role in promoting sustainable resource management is crucial. Asia Agri has successfully reduced carbon dioxide emissions and raised awareness about conserving the environment among the local

community (Drimmer 2007, p.12).Asia Agri has implemented proactive measures to mitigate negative impacts despite challenges in environmental management. To further enhance productivity, it is crucial for the company to maintain its investment in research and development (Bruce 2010, p.7).