On 1 October 2005, for the second time after 1 March 2005, the government of Indinesia reduced the fuel price subsidy by increasing the price of fuel by an average of 126%. Some analysts and most Indonesian said that the government did not increase the price but replace the fuel price. The increase has been a shock for Indonesian, especially for the poor, those have a fixed salary, and most small business.

In Indonesia, estate crop subsector is a subsector that uses a substantial fuel either as a source of energy in the processing unit/plants and trasportation of products (raw materials) that are generarly bulky. Therefore, the jump of fuel price will have a substantial impacts on the estate crops subsector, spacially for sugar, oil palm, rubber, coffee, cocoa, and tea industry. As we know, in general estate crop products are bulky. For example, the rendement of sugarcane is only 6%-10% while that of oil palma is between 17%-22%. This causes the the effective transportation cost of estate crops to be relatively high because the it includes the cost for transporting “rubbishs”.

The share of fuel costs in estate crops are varied, depending of commodity, products, tecnology applied, and management efficiency. In general, the cost of fuel on estate crops industries range from 2.2% – 10.1% per kg product (Tabel 1). As seen in the table, oil palm (crude palm oil-CPO) has the highs fuel cost shre, followed by sugar and rubber. This implies that these industries will suffer more from the increase of fuel price.

As predicted, the highest increase of production costs due to the increase in fuel increase has been occurred on oil palm and sugar industries. For CPO industry, the 126% increase on fuel price causes an increase on production cost of 9.1% - 12.7% (Table 1). Similarly, the production costs of sugar will also rise by around 8.1% - 11.5%. The production cost of rubber will rise by around 6% -7%, while that of tea round 3.8% – 5.9%. Production cost of coffee and cocoa will also rise, although with a lower rate of around 3%.

Tabel 1 The Impact of a 126% Fuel Increase on Some Estate Crops' Producton Cost

Product	The share of Fuel on Production Costs (%)	Impacts on Production Costs (%)
Rubber (SIR 20)	4.9 – 5.7	6.1 – 7.2
Oil Palm (CPO)	7.2. – 10.1	9.1– 12.7
Tea (dry tea)	3.0 – 4.7	3.7 – 5.9
Kopi (dried coffee bean)	2.0 – 3.0	2.5 – 3.8
Cocoa (dried cocoa bean)	2.0 – 3.0	2.5 – 3.8
Sugar	6.4 – 9.1	8.1– 11.5

Because Indonesia as price taker in estate crops' international market, the prices of these estate crops will not be affected by these production cost incrases. In other words, the Indonesian producers will receive the same price although the production costs are increasing. This situation will give a long-run pressure to the the development of Indonesian estate crop industries.

Under this depressing situation, there are some efforts that can be implemented to minimize the negative impacts of fuel price as follows.

Re-designing system/management to increase efficiency on harvesting, transporting, and processing. This can be effectively realized on plantations that areas are well consolidated and the products are bulky such as oil palm and sugarcane. Sugar for example, the efficiency of transportation cost can be increased by making a better schedule for planting and harvesting.
Increasing the use of alternative energy. There are some potential sources of alternative energy that can be used in estate crops such as geothermal , wood, coal, and solar energy. Moreover, geothermal, wood and solar energy are environmentally friendly and renewable . For example, technology of solar energy for cocoa processing has been developed and implemented, while coal can be used in rubber and sugar processing.

Although the increase of fuel prices has depressed estate crops industries in general, this depressing situation has also create some oportunities. Under this pressure, esatte crops can be re-directed as alternative source of energy (biofuel). This new oprtunities are very prospective, especially for CPO and sugarcane. The development of CPO-based biodiesel has indicetad that this product can be competitive under the current fuel price. Experiences in several countires such as in Jerman dan Austria have showed that biodiesel the future of energy sources. In addition, Malaysia has been very eager to develop CPO-bsed biodisel. A bit late, Indonesia has also developed CPO-based biodiesel, such as done by Indonesian Oil palm Research Institute, Institut Teknologi Bandung. From these pilot plants, the production cost of producing biodiesell was around Rp 4000 - Rp 5500/litre, depending on technology and the price of CPO as the raw material. Under the current price of fuel (between Rp 4500 – Rp 5400/litre), CPO-based biodiesel is one of Indonesia's future energy becaue in the next decade, Indonesia is predicted to be the biggest CPO-producing countires. The development of ethanol from sugar as an alternative of energy source also has a big potential. Brazil has demonstarted how this country use switch policy by placing sugarcne as source or energy (ethanol) and sugar in facing the pressure of price increase of fossil fuel. When the price of sugar low or the price of fossil fuels are high, the proportion of sugarcane processed to be ethanol are increased, and vice versa. This strategy is also considered as a form of risk-reducing strategy to overcome fuel and sugar price fluctuations in the international market.

Moreover, various by-products of oil palm can also be used as sources of energy. Forexample, a CPO plant with a procesing capacity of 200.000 ton fresh-fruit bunch (FFB)/year yields 44.000 tones empty fruit bunch (EFB) . The heating value of EFB is 15.5 MJ/kg. With the efficiency of energy conversion is around 25%, energy that can be produced by EFB was estimated 1.9 MWe ( megawatt-electric ). EFB can also used to produce biogas. Moreover, various wastes of CPO can be also processed to be charcoal by using a relatively simple technology.

To conclude, the hike of fuel price in Indonesia has depressed the development of estate crops so the welfare of the smallholding. This price increase has caused the production costs increasing of around 2.5% - 12.7%, depending on the crops. However, this situation has also created new opportunities/market for estate crops as sources of biofuel, especially for oil palm and sugarcane. This new direction of estate crops has some advantages, namely, (i) renewable (ii) environmentally friendly; (iii) sustainable because availability of raw materials (CPO and sugarcane); (iv) lower proc risk due to product diversification such as in the case of switch policy energy in Brazil

(The writer is a professional staff in Centre for Alleviation of Poverty through Secondary Crops' Development in Asia and the Pacific, Bogor , and a senior researcher in Indonesian Research Institute for Estate Crops, Bogor ).