Cattle Under Oil Palms: The Figures in Focus

An analysis of production costs, operational expenses and returns on investment reveals the financial merit of grazing cattle within oil palm plantations.
  • Ranch workers provide water for the cattle at PT BKB, one of IACCB’s partners for SISKA

In November 2019, the Indonesia-Australia Commercial Cattle Breeding (IACCB) Program released the long-awaited results of research into integrated cattle and oil palm production (SISKA) in Indonesia.

Conducted over three years in larger oil palm plantations across four Indonesian provinces, the research concluded that well-managed SISKA enterprises have strong commercial potential.

“SISKA enterprises can produce feeder cattle at an average of 320 kilograms for around the same or lower liveweight cost than the cost of imported Australian Brahman Cross feeders,” said IACCB Strategic Program Advisor, Mr Paul Boon. 

“Production costs in Australia are approximately 30% cheaper than in Indonesia, but the freight cost from Australia adds about 25% to CIF (cost, insurance and freight) costs.”


Crunching the Numbers on Viability

The IACCB research took into consideration the outcomes of SISKA projects at four commercial plantations across Indonesia: PT Buana Karya Bhakti in South Kalimantan; PT Kalteng Andinipalma Lestari in Central Kalimantan; PT Bio Nusantara Teknologi in Bengkulu; and PT Superindo Utama Jaya in Lampung.

Our modelling particularly highlights the economies of scale and returns on investment achieved when comparing organic herd growth from 300 to 750 breeders, with purchasing an additional 300 breeders in year four to grow the herd to 1300 head by year 10.  The organic growth model is less likely to be of interest to a commercial company level, whereas the more rapid scale-up shows considerable promise.

Highlights of the research findings include:

  • One SISKA project was able to produce feeder cattle for less than the lowest cost for imported Australian feeder cattle. 
  • Calving rates varied between a low of 43% and a high of 69%, with calf mortality rates ranging from 5% to 15%. 
  • Average daily gains across the four projects ranged from 0.3 kilograms to 0.6 kilograms per head per day.
  • A positive cash flow can be achieved by the fourth year under the SISKA model.
  • The projected internal rate of return on the investment in cattle grazing is between 10.7% and 16.2%. 
  • For a herd of 300 cows allowed to increase organically over 10 years, the net present value at the 10th year is relatively low at  about $58,500 (with 750 cows in the herd by the 10th year). 
  • For an initial herd of 300 cows supplemented by an additional 300 cows procured in the fourth year, the net present value increases to about $800,000 (with 1,300 cows in the herd by the 10th year).

Expertise is Essential to Realising Potential

The IACCB experience has proven that sustained commercial viability of the SISKA model can only be achieved when the plantation operations and the cattle enterprise become mutually supporting.

In other words, the plantation provides feed (native grasses, palm fronds and palm kernel cake) for the cattle, while the cattle eliminate the need for weeding services and deposit organic matter that potentially increases fresh fruit bunch yields.

Under the SISKA model, professionally managing the herd is the key to commercial success. It is especially important to ensure that key productivity indicators, such as weaning rates and average daily gains, are reached in an efficient and cost-effective way. 

Achieving these outcomes requires access to experienced staff, from ranch managers to wranglers, who have a passion for the cattle industry. These people possess the technical skills and experience to proactively identify issues in the herd and take immediate action.  

A lack of suitable cattle industry managers and supporting staff in Indonesia is presently the key barrier to industry growth, and this is why the Partnership continues to invest heavily in skills development within the Indonesian sector (see article on page 16). 


Real World Examples of SISKA's Success

PT SUJ is investing in the expansion of infrastructure and the development of 30 hectares of pasture.

Commercial potential is perhaps best measured by the desire of enterprises to invest more money. 

After experiencing positive outcomes using SISKA, two IACCB project partners have each decided to invest more than $500,000 to expand their herds, build additional infrastructure, and procure equipment.

In South Kalimantan, PT Buana Karya Bhakti is planning to expand its herd to 600 productive cows by acquiring another 300 head. The company is also establishing a SISKA Centre of Excellence, which will function as a training centre for people from government and the private sector. 

In Lampung, PT Superindo Utama Jaya is expanding their Nakau herd to 1,000 head, including about 550 female breeding stock comprised of around 50% Brahman Cross and 50% local cattle. The company is also investing in the expansion of infrastructure and the development of 30 hectares of pasture.

In Central Kalimantan, PT Kalteng Andinipalma Lestari is discussing plans to scale up its cattle breeding enterprise through an increase to the cattle herd, an expansion of grazing areas, and the development of more pasture.