VIII. COMPANY INFORMATION
7. Business Prospects and Strategy
The Company and Subsidiaries’ business lines have promising prospects with high growth level.
Indonesia, as an agricultural country, has still a lot of potentials for developing seed, pesticides
maturing stage; thus, giving an opportunity for the Company to develop its business in each segment within agriculture industry. In the future, the Company plans to develop the paddy seed production.
From the Company’s standpoint, demand for paddy seeds will increase in line with the government’s program to increase production of the national staple products. Also, the Company believes that paddy seed business will give bigger contribution in the Company’s income. The business prospects can be explained as follows:
Business Prospects of Primary Plant Seed
Increasing Demand and Price for Corn Commodity in Domestic and International Markets Market demand for corn as a commodity will continuously increase in line with the increase in human population in the world for commodity consumptions and will increase the function and useful of the commodity. On other hand, the inventories of corn have not yet fulfilled the market demand since production processes of corn are not yet in maximum capacity. The in balance on demand and supply of corn commodity causes the price of corn to increase in the domestic and international markets. An increase in the commodity price will be profitable for corn farmers since the farmers will be inspired to plant corn and will support other farmers to start planting of corns.
The Company is expecting to increase sales of hybrid-field corn seeds in line with increase in farmer interest to increase productivity of corn field and develop corn commodity.
Low Level of Hybrid Field Corn Seed Utilization
Utilization level of hybrid-field corn seed of Indonesian farmers is still low, which is about 25% of 3.5 million hectares of harvested area in 2006 (Source BPS). This level is still low as compared with the utilization level of hybrid-field corn seed in Thailand, which reaches 100%, including Vietnam and Philippines that already reached about 50%. At present, the government recommends farmers to use hybrid-field corn seed that are proven to increase the productivity and resistance against plant diseases. Along with the awareness of farmers to use hybrid field corn seed, the Company has an opportunity to increase the sales of products. Through its research and development facilities, the Company is capable to continuously produce and introduce new seeds by providing the high quality seeds to farmers and finally able to maintain its market position. The total of new varieties seed depends on level of competition, how superiority is the competitor’s products and changes in market demand including pest and plant-disease attacks. However, with the research and development facilities, the Company will always in introduce new products in the pipe line, which is normally each year of about one to two news of type per plant varieties.
Availability of Unplanted Land Field
The total unexplored land area in Indonesia is still plenty, up to million hectares. This contributes an opportunity for the major development of corn planting that may result to an increase in hybrid- field corn seed demand. With the 11.4 million hectares of planted paddy or about 5 million hectares irrigated per year, the potential of hybrid paddy is about 75,000 ton per year or equivalent to Rp2.25 trillion per year.
Indonesia has still vast potential field for developing paddy plants, comprising about 24.5 million hectares of wet rice fields and 76.3 million hectares of dry field, the detail of the total potential areas are as follows:
1. Wet Rice Field
The potential wet rice field categorized based on land classification are about 13.26 million hectares, spreading through out Sumatera (2.01 million ha), Jawa (1.12 million ha), Bali and
2. Swamp and "Pasang Surut" Field
The potential swamp and "pasang surut" rice fields which are appropriate for rice field development are about 3.51 million hectares, spreading through out Sumatera (1.92 million ha), Jawa (0.12 million ha), Kalimantan (1.01 million ha), Sulawesi (0.31 million ha), Maluku and Papua (3.51 million ha), the total potential swamp and "pasang surut" rice fields that can be utilized is about 0.93 million hectares, therefore there is still about 2.57 million hectares remaining area that can be developed as rice fields (BPS 2003).
3. Dry Field
The potential dry fields that can be to develop for seasonal plants, especially paddy, are about 25.33 million hectares. Meanwhile, the total dry fields that have been utilized are relatively small; thus there is a vast opportunity for paddy plant development in Indonesia.
(Source: "Rencana Aksi Pemantapan Ketahanan Pangan 2005-2010", Institute of Agriculture Research and Development, Department of Agriculture, 2005)
Development of Other Supporting Industries
Most of the corn products are used as mixtures for livestock’s feeds. With the current economic growth of Indonesia, the consumption of chicken and egg also is expected to increase likewise, therefore, the livestock feeds industry will increase and the demand for corn as its main raw materials for feeds production will increase as well. Overall, an increase in corn demand will result to an increase the demand for corn seeds.
Paddy as Main Staple Plant in Indonesia
Paddy is the main staple plant in Indonesia. Therefore, hybrid-field paddy seeds have great potential in the market. Hybrid-field paddy seed production is expected to increase at an average production up to 2 tons per hectare.
Proven in Several Countries
The technology of hybrid-field paddy seeds has been proven and accepted by farmers in several neighboring countries such as China, India, Vietnam and Philippines.
Business Prospects of Vegetable Seed Low Level of Utilization
As a country with low technological development and agricultural knowledge of the farmers, Indonesia still has a large potential for the utilization and development of superior vegetable seeds.
Increase in Production Quality
Along with the increase in global competition and demand for high-quality vegetable seeds, the Company is capable to produce vegetable seeds that can compete with domestic vegetable seeds in the market.
Business Prospects of Pesticide Products Demand from Agriculture Industry
As a developing agricultural country, Indonesia’s demand for supporting production products such as pesticides and fertilizers will continuously increase.
Superiority in the Market
The Company expects to increase its market for pesticide products due to its experienced labor supports and broad marketing networks.
Operational Strategy
a. High-Quality Human Resources. The development of high quality employees has been the Company’s main focus to face the expected market competition in the future. The process developing people includes (1) selection based on appropriate predetermined standards, (2) routine and continuous technical and managerial trainings for employees based on employees competence and the Company’s needs, (3) Employees’ achievement based on employees’
performances, valuations of employee on an annual basis, the valuation determines the Company’s appreciation for employees through salary increases and promotions, (4) providing opportunity for an extended study, especially for employees working in the technical area and have a good performances.
b. Product Development. The speed of product development process is expected to produce more varieties of superior seeds that are capable to adapt in various weather and area conditions.
c. Continuous Development. The production process and product quality will be continuously improved line with the Company’s growth.
d. Continuous Improvement in Introducing Products. The Company is committed to develop the marketing area in the introduction of the products in the market.
e. Improvement with the Supporting Parties’ Cooperation. Cooperation with the Department of Agriculture and other supporting organizations shall always be maintained.
The development of human resources activity is a continuous process including the implementation of the above mentioned.
Increasing Production Capacity
About 30% of the proceeds from the Public Offering will be used by the Company for the construction of corn and paddy seed manufacturing plant located in Kabupaten Kediri with a production capacity of approximately 10,000 tons per year. The total capital investment for this corn and paddy seed manufacture plant will be approximately Rp55 billion of which Rp54 billion will come from the proceeds of the Initial Public Offering and the Rp1 billion will be sourced from the Company’s internal fund. The construction of this plant will start in the second semester of 2007 and is expected to be completed in the second semester of 2008.
The breakdown of capital expenditure budget for the plant construction is as follows:
(In Rupiah)
Type of Costs Amount
Land 28,000,000,000
Building 8,000,000,000
Machinery 14,000,000,000
Facility 5,000,000,000
Total 55,000,000,000