Calculation of Raw Material Costs for the Palm Oil Supply Chain Value Added Using Modified Hayami Method

Abstract

The stakeholders in the palm oil supply chain (POSC) are the smallholder farmers who produce fresh fruit bunch (FFB), the traders, CPO factory who produces CPO from FFB, refinery who transformed CPO into frying oil, the distributors/retailers, and the consumers. The palm oil tree regularly produces FFB from its third until 24th year of life.The output of the farmers is measured in its weight (tonnes), so are the outputs of the trader, the CPO factory, the refinery, and the distributors/retailers. However the input to the farmer must be measured differently because the main raw materials are bought in the form of seedling or young palm-oil tree, to be planted on the field and regularly bear FFB to be later sold in tons. The objective of this study is to build a calculation model to allocate the raw material prices of the seedling. Original Hayami method to calculate single company added value was modified to facilitate calculation of the added value of supply chain network of companies. The calculation is based on the crude palm oil (CPO) factory capacity of processing 30 tons of FFB per hour, calculated for a year. The life-cycle-cost approach was used to calculate the appropriate cost of the raw material. Using this approach the raw material cost is IDR 1,012/kg, and the the total POSC added-value is IDR 13,011 per kg of product. It is expected that the modified Hayami added value calculation method can be later applied to larger and more complex industries.