What happened to Palm Oil and Tourism Industries?

A Business Analysis during Covid-19 Pandemic

By Nicholas Alexander; International Business student; 6th semester

As the Pandemic still haunts Indonesia’s economy, more businesses have started to oversee the possibility of creating and modifying their business models in the midst of struggling for opportunities. On the other hand, some say that there is a need to conduct an analysis of what has been the major issues in some of the major industries in the year 2020. Palm oil and Tourism industries have been the major contributors to Indonesia’s GDP, which eventually collapses due to the pandemic milieu. Nicholas Alexander, a Binus Business School student, majoring in International Business, now studying in semester 6, has a thorough analysis of the two industries.

Palm oil contributes 1.5% to 2.5% of Indonesia’s GDP (Joelianto, 2018). Indonesia is also the world’s largest palm oil producer, and it is responsible for 53% of the global palm oil production (Joelianto, 2018). Additionally, the palm oil exports accounted for 15% of Indonesia’s exporting activities, meaning that it plays a big part in Indonesia’s exports, with 75% of the exports going to China, India, the European Union (EU), and Pakistan. The palm oil export covers a large proportion of Indonesia’s export value in September 2020 with USD 15 billion of USD 117 billion (​GAPKI,​2020).

Despite the rough year 2020 was to all industries that include palm oil. Indonesia’s palm oil industry is predicted to rise in the future because it is shown that increases were nearing the end of the year. The article stated a 9.5% increase in October from September, meaning that it increases. The article also stated that Indonesia’s CPO exports are predicted to be 36 million to 37 million tons in 2021, increasing from what was predicted previously at 24.9 million, considering that the world still experienced the Pandemic. It may probably be because of the higher prices than the exports, but there was an increase in the value that contributed positively to Indonesia’s GDP to recover the economy. According to gapki.id (2020), the prices of CPO in the third quarter of 2020 was USD 666 per ton, and it rose to USD 855 per ton in the fourth quarter. Because of this, there was a surplus of USD 13.82 billion in Indonesia’s trade balance in CPO in September 2020 compared to the deficit of USD 2.4 billion in September 2019 (​GAPKI,​2020).

Further indication that it will rise in the future was a 10.7% increase in export value in October from September. This means that exporting activities were beginning to restart again at the end of the year. It may not increase all at once as there are many uncertainties, but there are indications that the palm oil industry will experience better outcomes in the future. If we are looking into the numerical value itself, it can increase because the finance minister imposed a progressive tax on palm oil, meaning that there will be increases in price if the country wants to buy more palm oil. When this happens, the numerical value will increase since countries will purchase out of necessities, translating well to Indonesia’s GDP and the industry. There was an increase in domestic demand for palm oil because of the newly introduced palm oil blended biodiesel. So, domestic demand is also growing.

There are also many indications from the article that the CPO industry in the future will be better. It may not increase early at the beginning of the year because it was mentioned that the La-Nina weather phenomenon would interrupt exports. Nevertheless, there will be growth later on as projections indicated that there would be a 1.2% year-on-year increase in domestic consumption to 15.8 million. The production also grew 0.9% from September to October and reached 4.7 million tons, which is also a 4% growth from 4.5 million tons of CPO production in 2019. If production is growing, then that means there are demands for it. Some companies may predict a reduction in production, like Mirae Asset Sekuritas, which predicted a decrease from 43 million tons to 42 million tons, but the numbers are not significantly big and considering that it is only a prediction and can increase it later on when the time comes. PT Astra Agro Lestari was confident that production would increase.

Based on the data from the article, the future of Indonesia’s palm oil will increase over the years and could begin as early as 2021. Many indications proved that it began to grow in late 2020, considering that the Pandemic is still roaming around. Palm oil is considered a necessity, and many countries need it. Those countries will want to import more when they ease restrictions. Not to mention the domestic demand that is growing due to it being necessities. So, palm oil in Indonesia will see a growing trend in the future. It does not mention any specific year, and the future can be 1 to 5 years from now. Due to the fact, all the indications are growing, and the palm oil industry will increase and probably steadily first in 2021 as the Pandemic is still going on.

On the other hand, the tourism sector also plays a big role in Indonesia, especially in Bali. According to knoema.com (2020), the tourism industry accounted for USD 77.3 billion and 4.8% of the GDP. Unfortunately, the tourism sector was hit very hard during the Pandemic as Bali lost a lot of its tourists, and Bali is known for its tourism industry. According to baliplus.com (2020), Bali experienced an 89% decrease in tourist arrivals in June 2020 compared to June 2019 from 1.47 million foreign visitors in June 2019 to just 158,250 foreign visitors in 2020. The numbers in July 2020 increased by 0.95% to 159,760 in July, but it was still unable to boost recovery. Additionally, a decrease of 64% of tourists entering from January 2020 until July with 3,25 million compared to 9.18 million in 2019 (​BREAKING NEWS: How can Indonesia save tourism?​ 2020).

According to Aklhas (2020), Indonesia lost about Rp 85 trillion or about USD 5 billion in tourism revenue because of Covid-19. Some many hotels and restaurants suffered. They both lost about Rp 70 trillion combined, and flights and tour companies lost Rp 15 trillion. Many employees working in the tourism sector became jobless and suffered economically as there were more than 95% of employees in the sector got dismissed without compensation. In the three months of the Pandemic in Indonesia, 2,000 hotels and 8,000 restaurants closed down because they could not operate any longer.

Furthermore, the government recently imposed PPKM Jawa-Bali to trigger more problems for the tourism industry (Aklhas, 2020). Nugraha (2020) stated that the rate of hotel occupancy in Jakarta alone would likely fall below 10% to 20% compared to normal conditions with an occupancy rate of 60%. According to Fardah (2020), Jokowi is confident that Indonesian tourism will increase when the Pandemic eases because people cannot wait to travel and the anticipation. Furthermore, Thornhill (2021) stated that Bali is voted as the number of tourist destinations in 2021, beating locations such as London and Paris, meaning that the tourists’ interest in traveling to Bali will grow, which will help rebound the sector to a positive spectrum.

Comparatively, both the palm oil industry and tourism industry experienced a downward trend during the Covid-19 Pandemic. The production of palm oil for some companies like PT Astra decreased by 16% in October 2020 compared to October 2019, while in the tourism sector, foreign visitors decreased exponentially by 89% in June 2020 compared to June 2019. In the brighter spectrum, both sectors experienced slight increases in the following month after experiencing unpleasant decreases; palm oil production increased 0.9% from September to October, resulting in 4.7 million tons, while the foreign tourist increased in July to 159,760 from 158,250 in June. Both sectors may still experience a little rough situation at the beginning of the year with La-Nina for palm oil mainly because of interruptions for exports as well as the weather itself and PPKM Jawa-Bali for the tourism sector with hotel occupancy in Jakarta expected to be only in the 10 to 20 percent range. Both sectors are also expected to grow in 2021. For the palm oil industry, it was mentioned that the domestic demand for palm oil increased CPO productions combined with the increase in price per ton would generate more revenue later on as countries would want to resume trade of palm oil. For the tourism industry, the government planned to help by giving stimulus – especially Bali – for the industry to rebound in 2021, and Bali was voted as the number 1 tourist destination in 2021, which will trigger demand from foreign tourists to travel to Bali, which will boost Indonesia’s tourism as a whole. ​To conclude, both sectors experience similar conditions and would likely rebound in the future.

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