Palm Oil Revenue at Risk

Failure to Meet Buyers’ Procurement Policies Results in Lost Revenue

As more and more palm oil traders and producers establish No Deforestation, No Peat, No Exploitation (NDPE) policies, palm oil growers that choose not to meet these standards have lost revenue and are putting potential future revenue at risk. Austindo Nusantara Jaya, Sawit Sumbermas Sarana, and Provident Argo are all growers that have not chosen to achieve buyer NPDE requirements, and as a result, each company is facing buyer turnover, loss, as well as an increasingly less diverse buyer base.

This report applies a Monte Carlo simulation technique to determine 2016 quarterly revenue at risk for three selected palm oil producers. The scenarios are based on a situation where each company has buyers that suspend purchases, from an undiversified buyer base, due to a failure to meet each buyer’s NDPE policies requirements. The scenario is based on actual revenue lost by these three companies in 2015 due to not meeting buyers’ NDPE policy requirements. After running 1,000 iterations, the analysis presents a 5% probability of revenue at risk.

Key Findings

All three companies lost revenue due to non-compliance with buyers’ policies, failing either to identify the risk potential of their non-diversified buyer portfolio or to undertake timely action to mitigate, transfer or avoid it.

  • Austindo Nusantara Jaya (ANJT:IJ): 2016 35% quarterly revenue at risk based on Q4 2015 actual revenue losses of 10% when ANJT did not meet buyers’ NDPE policy expectations.
  • Sawit Sumbermas Sarana (SSMS:IJ): 2016 42% quarterly revenue at risk based on Q4 2015 actual revenue losses of 0% to 5% when SSMS did not meet buyers’ NDPE policy expectations.
  • Provident Agro (PALM:IJ): 2016 37% quarterly revenue at risk based on Q4 2015 actual revenue losses of 15% when PALM did not meet buyers’ NDPE policy expectations.

The industry-wide trend toward NDPE policies began in 2013 with Wilmar International, followed by Golden Agri-Resources, Musim Mas, Apical, and eventually other key palm oil buyers. In doing so, the traders sent a clear signal that NDPE policy adoption and compliance would be a requirement for their upstream growers. The three growers profiled in this analysis could have forecasted the threat of reduced revenue, yet none satisfactorily adapted to their buyers’ NDPE policies.

Accordingly, this analysis presents ANJT, SSMS, and PALM as case studies, focusing on the development of each company’s revenue at risk exposure. The paper presents an analysis of their 2015 revenue losses as well as a Monte Carlo simulation of each firms’ forecasted 2016 revenue at risk, if these companies continue to maintain an undiversified buyer base and do not comply with their buyers’ NDPE policies.

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