The selling price of palm oil products and their derivative products is strongly influenced by international and domestic market prices, where price fluctuations are influenced by a number of factors beyond the control of the Company, such as the following:
Any significant fluctuation in the market price of CPO will affect the price of the Company's products, which may have a negative impact on the business activities, financial condition, performance, and business prospects of the Company and its Subsidiaries.Risk Management
The Company cannot avoid the risk due to price fluctuations that occur in the international market for CPO commodities and their derivatives. The company will try to mitigate price fluctuations with efficient and effective cost control through mechanization and appropriate and measurable use of resources. In addition, the Company will hedge CPO on the Kuala Lumpur Derivative Exchange.Risk of bad weather conditions
The productivity of fresh fruit bunches is highly dependent on the weather conditions in Indonesia. Rainfall that is too high or dry season that is too long will cause a decrease in overall plantation productivity/a decrease in FFB yields from the Company's suppliers. Too much rainfall will cause poor pollination of plants and a decrease in the effectiveness of fertilization, while drought results in reduced fruit bunches and lower oil extraction rates. Very high levels of drought can also cause fires on plantation land.
Historically, CPO prices will usually increase when supply decreases due to the impact of weather conditions so that in the end will reduce the negative impact of lower production levels, this can have a negative impact on activities business, financial condition, performance, and business prospects of the Company and its Subsidiaries.Risk Management
The Company seeks to mitigate this risk by actively monitoring weather changes and making weather predictions. In addition, the company has built many fire towers to monitor fires. The company also ensures that all ditches are washed 1-2 times a year to reduce the risk of flooding.Risk of pest attack
Inadequate oil palm cultivation procedures can cause the fresh fruit bunches of the Company and its Subsidiaries to be very vulnerable to pests and diseases such as insect pests, rats, viruses, ganoderma fungi and pests. These can infect oil palm FFB so that the oil palm plants die and or decrease in quality.
If this happens, the harvested area of the Company and its Subsidiaries will decrease and productivity will also decrease. Moreover, the Company and its Subsidiaries also need to implement additional procedures to eradicate these pests and will incur additional costs for the Subsidiaries.
If the Subsidiary Company is unable to handle or minimize pest attacks, it can have a negative impact on the business activities, financial condition, performance, and business prospects of the Company and its Subsidiaries.Risk Management
The spread of the Covid-19 Virus pandemic that has been going on since the end of 2019 has become a major challenge for most industries globally. To anticipate the spread of the Covid-19 virus, various countries have adopted lockdown policies and limited import activities of various commodities, including CPO. So that Indonesia's palm oil exports experienced a significant contraction.
If the pandemic lasts for a long time so that it continues to affect the demand and prices of the Company's and Subsidiaries' products, then this may have a negative impact on business activities, financial condition, performance and prospects the Company's and Subsidiaries' businesses.Risk Management
Indonesia has many companies producing similar products. As a commodity product, the price of CPO is determined by the international market price which is also used for domestic sales. As a producer whose products are currently marketed both domestically and abroad, the Company faces competition at home and abroad from companies that also produce similar products or substitute products that may affect the market conditions of their products. If the supply of products increases beyond the level of demand or the selling price of substitute products becomes more competitive, the selling price may also decrease, thereby reducing the Company's profit level.
The palm oil industry also competes with other vegetable oils in the biofuel segment because most biofuels are produced from vegetable oils including palm oil, rapeseed oil and soybean oil. Palm oil is a vegetable oil that is not too expensive when compared to other vegetable oils, where most other vegetable oils demand a significant premium over the price of palm oil. these other vegetable oils as an alternative to palm oil in biofuel production, resulting in a decrease in demand and prices for palm oil.Risk Management
Negative campaigns related to environmental impacts, sustainability principles, and social conflicts caused by carbon emissions from CPO production are still intensively carried out by several international organizations. In the campaign, CPO is considered as the main cause of the phenomena of global warming, illegal logging, and climate change. These negative campaign practices can lead to a decrease in global demand for CPO and may have a negative impact on the business activities, financial condition and performance of the Company and its Subsidiaries.Risk Management
To anticipate this risk, the Company has formed an ESG committee which is responsible for maintaining a balance between the interests of society, the environment, and sustainable economic profitability. The Company implements efficient practices through conservation of biodiversity, soil and water, and ensures safe and stable conditions for all employees and the surrounding community. The company protects forests, peatlands, human rights and cooperates with farmers, non-governmental organizations and other stakeholders to implement sustainability principles.Risk of changes in foreign exchange rates
Although the Company uses Rupiah as its functional currency and financial reporting, the selling price of CPO is correlated with foreign exchange rates, especially USD. Fluctuations in the exchange rate of the Rupiah against foreign currencies can affect profit margins which in turn can have a negative impact on the financial performance of the Company and its Subsidiaries.Risk Management
To reduce the risk of foreign exchange rates, the Company always hedges the exchange rate when exporting CPO. The Company also avoids bank loans in USD