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Financial Profitability and Sensitivity Analysis of Palm Oil Plantation in Indonesia

Author

Listed:
  • Tereza Svatoňová

    (Department of Mechanical Engineering, Faculty of Engineering, Czech University of Life Sciences Prague, Kamýcká 129, 165 00 Praha 6-Suchdol, Czech Republic)

  • David Herák

    (Department of Mechanical Engineering, Faculty of Engineering, Czech University of Life Sciences Prague, Kamýcká 129, 165 00 Praha 6-Suchdol, Czech Republic)

  • Abraham Kabutey

    (Department of Mechanical Engineering, Faculty of Engineering, Czech University of Life Sciences Prague, Kamýcká 129, 165 00 Praha 6-Suchdol, Czech Republic)

Abstract

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.

Suggested Citation

  • Tereza Svatoňová & David Herák & Abraham Kabutey, 2015. "Financial Profitability and Sensitivity Analysis of Palm Oil Plantation in Indonesia," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(4), pages 1365-1373.
    • Handle: RePEc:mup:actaun:actaun_2015063041365
    DOI: 10.11118/actaun201563041365
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    References listed on IDEAS

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    1. Mekhilef, S. & Siga, S. & Saidur, R., 2011. "A review on palm oil biodiesel as a source of renewable fuel," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(4), pages 1937-1949, May.
    2. Lim, Steven & Teong, Lee Keat, 2010. "Recent trends, opportunities and challenges of biodiesel in Malaysia: An overview," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(3), pages 938-954, April.
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    Cited by:

    1. Erwan Hermawan & Adiarso Adiarso & Sigit Setiadi & Dudi Hidayat, 2023. "Strategy for the implementation of sustainable green fuels in Indonesia," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2023(1), pages 103-139.
    2. Tomáš Saller & David Herák, 2023. "Utilisation of rheological models for describing the mechanical behaviour of oil palm empty fruit bunches under compression loading," Research in Agricultural Engineering, Czech Academy of Agricultural Sciences, vol. 69(4), pages 199-205.
    3. Tomas Saller & David Herák, . "Utilisation of rheological models for describing the mechanical behaviour of oil palm empty fruit bunches under compression loading," Research in Agricultural Engineering, Czech Academy of Agricultural Sciences, vol. 0.
    4. Sharvini, S.R. & Noor, Z.Z. & Stringer, L.C. & Afionis, S. & Chong, C.S., 2022. "Energy generation from palm oil mill effluent: A life cycle cost-benefit analysis and policy insights," Renewable and Sustainable Energy Reviews, Elsevier, vol. 156(C).
    5. Harahap, Fumi & Silveira, Semida & Khatiwada, Dilip, 2019. "Cost competitiveness of palm oil biodiesel production in Indonesia," Energy, Elsevier, vol. 170(C), pages 62-72.
    6. L. Kiely & D. V. Spracklen & S. R. Arnold & E. Papargyropoulou & L. Conibear & C. Wiedinmyer & C. Knote & H. A. Adrianto, 2021. "Assessing costs of Indonesian fires and the benefits of restoring peatland," Nature Communications, Nature, vol. 12(1), pages 1-11, December.

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