Drought, wildfires inflict double whammy on Indonesian crops

JAKARTA (BLOOMBERG) - Wildfires, smoke and drought are inflicting an increasingly painful toll on Indonesian agriculture, hurting everything from oil palm plantations to rubber trees and rice fields.

Raging forest fires in Sumatra and Borneo might curb supplies of palm oil and rubber, while a longer-than-usual dry season in Java has wilted some of the country's rice crop, which is the main staple for 270 million people. Indonesia is the world's top producer of palm oil and second-largest supplier of rubber.

Smoke from illegal burning to clear land in Indonesia has been worse than usual this year and spread across South-east Asia, causing flight disruptions and respiratory illness for thousands of people. While Indonesian President Joko Widodo ordered a crackdown on arsonists, there may be little respite soon, as the rainy season won't start before late October, the weather bureau says. Forest fires to clear land have also wrought havoc in the Brazilian Amazon.

Drought and haze have set back ripening of oil palm fruit and disrupted operations at plantations and mills, potentially slowing production growth this year to about half last year's rate of 13 per cent, said Mr Joko Supriyono, chairman of the Indonesian Palm Oil Association. Dry weather normally takes a while to show up in production, with a greater impact likely to be seen in 2020, he said.

The worse-than-expected dry weather in Sumatra and Kalimantan in Indonesia and Sabah in Malaysia could reduce output from older palm trees, according to Mr Marcello Cultrera, institutional sales manager at Phillip Futures in Kuala Lumpur. The haze from the forest fires has a small impact on palm oil extraction rates and output in the very short term, he said.

Farmers in Sumatra and Borneo are using illegal slash-and-burn techniques, which are much cheaper than other methods, to clear land for oil palm, pulp and rubber plantations. More than 320,000ha have been burnt in the first eight months of the year, according to the National Disaster Mitigation Agency.

The Indonesian government has said that only about 22 per cent of forestry business permit holders, or 2,179 firms, have submitted mandatory reports on forest fire control, suggesting a lack of commitment in preventing fires on their land. Still, oil palm plantations are generally not the source of burning, according to the Council of Palm Oil Producing Countries. Fires recorded in plantations have usually spread from neighbouring areas, it said.

Rubber trees are also at risk. Output, already hit by fungal disease, could plunge 20 per cent from 3.67 million tonnes last year, as drought and forest fires disrupt tapping, said Mr Erwin Tunas, executive director of the Rubber Association of Indonesia. The haze blocks sunlight that is crucial for photosynthesis, the group says.

While Java, Indonesia's top rice producer, hasn't been hit by wildfires, a prolonged drought has parched farmland, damaging more than 250,000ha of rice and causing more than 580,000 tonnes of losses, according to Mr Edy Purnawan, director of crop protection at the Agriculture Ministry. The government is urging farmers to plant seeds suitable for dry land for the small harvest in the fourth quarter, to make up for the losses, he said.

While the area affected is small compared with Indonesia's total rice plantings over about nine million ha, a less-significant crop failure last year helped spur an increase in imports to the highest in six years. Ample stockpiles with state-owned Bulog will probably prevent major new imports this time round.