Financial Profitability and Sensitivity Analysis of Palm Oil Plantation in Indonesia

• Main Authors: Tereza Svatoňová, David Herák, Abraham Kabutey
• Format: Article
• Language: English
• Published: Mendel University Press 2015-01-01
• Series: Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis
• Subjects: capital cost; fresh fruit bunch (FFB); labour need; plantation; recurrent cost and sensitivity analysis
• Online Access: https://acta.mendelu.cz/63/4/1365/

Oil palm cultivation in Indonesia is increasing. This study investigates the financial and economic aspects of establishing an oil palm plantation using data collected in 2014. The financial case study is undertaken from the perspective of company in North Sumatra, Indonesia. A spreadsheet model was used to develop and calculate the net present value (NPV), return of investment (ROI), internal rate of return (IRR) and payback period (PP). Sensitivity analysis of the NPV to the default discount rate (10%) was included. A 8,000 ha plantation over 25 years was estimated to result in a positive NPV of USD 10,670 with a ROI 73.50% and an IRR at 14.83% and payback period of 6.75 years. Establishing an oil palm plantation seems to be very profitable investment on the basis of the assumptions made. System is tested on sensitivity in different capital and recurrent costs and in selling price of raw material, while change in selling price of FFB is more sensitive to NPV than change in investment and recurrent costs Discount rate is also one of the factors affecting NPV and system is tested between 5–15% change in discount rate.