Forest risk commodities

Palm Oil

Palm oil is the leading edible oil by production volume and is found in a wide variety of products used globally every day, including chocolate, soap and cosmetics. It is also an important cooking oil in many countries and is used in other industries including the livestock and meat sector, and, increasingly, biofuels. The success of palm oil as a global commodity lies in its tremendous versatility, and in its high yields and low production costs. This makes production of palm oil economical within the limited agricultural land available globally. Historically, however, the industry has brought more land into production rather than working to improve yields on existing estates.

If grown sustainably, palm oil has many advantages. It is highly productive compared to other major oilseed crops - best in class plantations can generate up to 10 times more oil per unit area than soybean, rape or sunflower1. Its cultivation and processing require less fertilizer, pesticide and fuel energy per tonne of oil. Simple substitution with alternative crops could therefore have negative environmental and climate change impacts overall.

Palm oil also represents an economic opportunity for hundreds of thousands of smallholder farmers, who represent a significant part of the supply chain, and offers some governments a means to combat poverty. For these reasons, penalizing palm oil expansion per se may not be feasible or economically responsible. Urgent effort should instead be focused on ensuring it comes from sustainable sources and minimizing deforestation risk.

Supply

The scale of the palm oil industry is vast. Global production of palm oil doubled between 1997 and 2008 and this demand was mainly met by Indonesia and Malaysia. Global palm oil output was over 50 million tonnes in 2011, almost all of it from Indonesia and Malaysia (51% and 36% respectively)2, which has helped to transform the economies of these countries. Palm oil production is also rapidly expanding into other areas of the world, including western and central Africa, Latin America and Papua New Guinea3.

Demand

  • India and China are the largest importers of palm oil; in 2011/12 the two countries accounted for 35% of global imports, while 14% went to the EU-274.
  • Market demand for palm oil and its derivatives in Europe and the US has increased rapidly as food manufacturers seek alternatives to hydrogenated materials for health reasons. Palm oil is also used widely in processed foods, demand for which is growing steadily in increasingly affluent emerging markets. Growth in demand has also been prompted by expanding biofuel markets in the European Union and by demand for food in Indonesia, India and China.

Palm Oil as a Forest Risk Commodity

  • Cutting down or burning tropical rainforests to plant oil palm releases large quantities of stored carbon. A study by Achten et al (2011) estimated that the conversion of carbon-rich peatlands to oil palm plantations would require just over two centuries to pay off the carbon debt5.
  • Plantations grown on deforested land, and particularly on carbon-rich peatlands drained for agriculture, make palm oil production a major regional source of global emissions in Indonesia and Malaysia, where the majority of global production occurs. A study by Carlson et al. (2012) found that deforestation for development of oil palm plantations in Indonesian Borneo is becoming a globally significant source of CO2 emissions6.
  • Malaysia and Indonesia have good forest conservation laws and vast areas of forest under protection, but institutional weaknesses mean that even protected areas are vulnerable to land clearance. Many of Indonesia’s national parks have suffered deforestation for illegal logging and palm oil plantations and recent research has shown that oil palm plantations are increasingly responsible for deforestation in Indonesia7.
  • Forest conversion has a major impact on biodiversity. Palm oil plantations have replaced the habitat of many endangered species, including primates such as the orang-utan.
  • Some oil palm plantations provide not only employment but also housing, water, electricity and infrastructure, including roads, medical care and schools. However, in the process of setting up the plantations, land inhabited by local populations is sometimes seized and livelihoods jeopardized by migrant labour. Palm oil, whilst an undoubted wealth creator and valuable foreign exchange earner, replaces diverse farming systems with export-oriented monocultures and incomes dependent on the fluctuations of the international market.

NGOs raising awareness of the issue

  • In 2007, Greenpeace released the report ‘Cooking the Climate’, which highlighted how, through growing demand for palm oil, multi-national corporations are driving the widespread destruction of peatlands and rainforests.
  • In 2009, the Environmental Investigation Agency (EIA) and Telapak released the report ‘Up for Grabs’ which revealed massive land grabs for plantations in Papua, threatening vital forests and exploiting local communities.
  • In June 2012, the Greenpeace report ‘Frying the Forest’ explored the widespread destructive impacts India’s use of palm oil is having on Indonesia’s rainforests, tigers and the global climate.
  • In September 2012, Greenpeace released the report ‘Palm oil’s new frontier’. This report charts the rapid expansion of the palm oil industry in western and central Africa by multinational companies through a series of large-scale plantation projects.

Corporate perspective

A number of multi-national corporations are beginning to recognize the negative social and environmental impacts associated with unsustainable production, and have set targets for sustainable palm oil. General Mills, McDonald’s, Johnson & Johnson, Procter & Gamble, Walmart, Marks & Spencer, Unilever, Nestlé, and others have all made commitments to source only Certified Sustainable Palm Oil (CSPO). Agribusiness giant Cargill has made a public commitment to offer only certified sustainable palm oil in select countries by 2015 and worldwide by 2020.

Sustainability mechanisms for the palm oil industry

  • In 2003, the industry and concerned stakeholders established a roadmap for the development of independent third party certification through the Roundtable on Sustainable Palm Oil (RSPO). In 2005, the RSPO Principles and Criteria for Certified Sustainable Palm Oil (CSPO) were adopted, creating a voluntary certification scheme. According to the RSPO Secretariat, as of June 2012, approximately 12% of total global crude palm oil produced was CSPO certified8.
  • Green Palm is a certificate trading program designed to support RSPO-certified palm oil production.
  • Indonesian Sustainable Palm Oil (ISPO) is a national program and certification. By 2014 all palm oil plantations in Indonesia will be required to comply with ISPO standards. The ISPO standards were not designed through a multi-stakeholder process and are thought to be less rigorous than the RSPO criteria.

1 RSPO. (2006) Factsheet: Palm Oil
2 USDA. (2012) Oilseeds: world markets and trade
3 IFC. (2010) Key issues in the palm oil sector
4 USDA. (2013) Oilseeds: world markets and trade
5 Achten WMJ, et al. (2011) Implications of biodiesel-induced land-use changes for CO2 emissions: case studies in tropical America, Africa, and Southeast Asia. Ecology and Society 16, 14
6 Carlson KM, et al. (2012) Carbon emissions from forest conversion by Kalimantan oil palm plantations. Nature Climate Change, Letters
7 Gilbert N. (2012) Palm-oil boom raises conservation concerns. Nature 487, 14-15
8 RSPO. (2012) RSPO continues to make headway towards its vision

Global palm oil production

Five year average by weight (2007-2011)
Source: USDA.

Global palm oil production 

Global palm oil consumption

Five year average by weight (2007-2011)
Source: USDA.

Global palm oil consumption 

 
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