Don't put all your eggs in one basket. PT Jaya Agra Wattie, a listed plantation company has done that by growing both rubber and palm oil, with production split almost evenly between the two. This strategy allowed the company to be one of the few plantation companies that recorded a profit last year, in the time of low commodity prices.
The company last year recorded revenues of Rp 682 billion; up 126% from Rp 301 billion in 2008. Meanwhile net profit was Rp 150 billion, a decrease of 17% from Rp 181 billion last year, though since 2008 its net profit has grown 62% from Rp 93 billion. Currently the company has a market capitalization of Rp 1.3 trillion and share price has been stable at Rp 350 for the past year (although the shares have declined 25% from its offering price in a 2011 IPO). For the ability to maintain promising growth the company was awarded as one of the Best of the Best companies in 2013.
In theory, the company hopes that a decline in the price of one of its commodities could be offset by stable or rising prices in its other commodity. In reality, the strategy usually works but is not foolproof: last year, both rubber and palm oil prices fell. For rubber, prices fell 33% from Rp 41,200 to Rp 30,800/kg while palm oil decreased 4% from Rp 7,400 to Rp 7,100/kg. Though both dropped, the company could still keep its growth steady, as its palm oil production increased 67% from 27,166 to 45,357 tonnes a year, while rubber output rose 8% from 9,886 to 10,693 tonnes a year.
With Rp 682 billion revenue last year, 51% was from palm oil while rubber contributed 47%. Meanwhile in 2011 when the rubber prices were healthier, rubber contributed 65% and palm oil 35% from revenues of Rp 647 billion. Because of its mix, the company also could maintain its rubber plantations after the crisis in 2004 when the price of rubber slumped and many other plantations switched to palm oil. “We maintained our rubber plantations because we believed in their potential and our vast experience with them,” Harijadi Soedarjo says.
According to Harijadi, rubber and palm oil are very different crops. Rubber has a higher gross margin than palm oil, and last year the company recorded a 45% gross margin for rubber and 33% for palm oil. Rubber trees can also grow without fertilizer; the production also can be controlled easily as rubber trees can be tapped anytime, and the processed rubber can be stored, while the fruit of palm trees must be harvested or will spoil.