Agriculture Shares Feel the Heat From Forest Fires


OCTOBER 02, 2015

Jakarta. Some publicly-listed plantation firms in Indonesia are struggling with an increasing number of forest fires in their concessions, putting further pressure on agriculture stocks amid low commodity prices and slowing demand.

Plantations in Sumatra and Kalimantan are an facing uphill battle against fires that have forced the government to declare a state of emergency amid one of the country's worst droughts in nearly a decade.

The fires are causing massive haze problems in Sumatra and Kalimantan, but also in Singapore and Malaysia.

"The occurrence of forest fires does have an impact on agriculture shares because it has a direct impact on sales, especially if the fire occurs in productive areas," said Guntur Tri Hariyanto, an analyst at rating agency Pefindo.

"With low commodity prices, production volume and sales volume become very important. A company will have to boost its sales volume, but if production decreases because of the fires, some companies will have to buy the goods to uphold their contracts, thus increasing cost," he added.

Agriculture stocks within the Jakarta Composite Index, or JCI, have collectively fallen by 29 percent so far this year, ranking among the top-three worst-performing sectoral indices so far this year.

Actual effects from the forest fires and haze crisis, which have occurred in the past month, are likely to be seen in the production volume and the sales volume of plantation firms during the third quarter, according to Guntur.

Companies are scheduled to release financial statements for the July-September period in the next few weeks.

In a listing on the local stock exchange on Thursday, Sinar Mas Agro Resources and Technology, the agribusiness arm of Sinar Mas Group, reported that roughly 239 hectares of planted area in its concessions in Jambi and Central Kalimantan has caught fire between Aug. 1 and Sept. 25.

Shares of SMART, which is among the largest agribusiness firms in Indonesia with a total of 139,100 hectare in oil palm plantations, lost 1.1 percent to Rp 4,400 each on Friday, dropping 47 percent so far this year.

Jo Daud Dharsono, president director of SMART, maintained that the fires have started outside of the company's concessions -- sparked by the drought from the El Nino phenomenon -- and he noted that the company has applied a "zero-burning" policy since 1997.

Last week, Austindo Nusantara Jaya, whose shares closed unchanged at Rp 1,610 on Friday, also reported in a listing on the local bourse that 356 hectares of its 17,998 concession area in Sumatra and Kalimantan were on fire as of Sep. 22, citing "wind-borne sparks" from fires outside of the plantation area.