Palm oil comes from the fruit of the oil palm tree, and is considered a versatile, high-yielding super crop. It can be separated into a wide range of distinct oils with different properties, which makes it ideal for a wide variety of products. The yield is far greater than for other vegetable oils, while production costs are low. Palm oil is used as the base for most liquid detergents such as soaps and shampoos; in confectionaries and foods such as margarine, ice cream, chocolate and ready-to-eat meals; it is the base for lipstick, waxes, and polishes; and it used as an industrial lubricant and as a biofuel.
Palm oil production is one of the reasons for the fast economic growth of Indonesia and Malaysia, who transitioned from developing countries to fast-growing emerging economies within a decade. However, this growth has not been without costs as the unsustainable production of palm oil in these countries have had important environmental and social impacts.
Demand for palm oil, whose annual global production is valued at around US $50 billion, is soaring; consumption may triple between 2000 and 2050. Booming global demand, stricter environmental policy and limited room for the industry’s expansion in Asia, have led palm oil producers to look towards West-Africa. Companies are also betting on an increase in demand from the European Union for palm oil as a sustainable fuel, and West Africa is the closest palm oil-producing region.
(Some of) The costs
The palm tree only grows in tropical areas, where indigenous forests have the most species of trees per hectare, and a vast amount of biodiversity. A report published in 2007 by the United Nations Environment Programme (UNEP) showed that palm plantations are the leading cause of deforestation in Indonesia and Malaysia. In Malaysian Borneo, 87% of the forest has been converted to plantation, threatening orang-utans and elephant populations. Plantations do not support the same variety of wildlife as the rainforest they replace. Fires are often used to clear areas of forests for palm-oil plantation, which has been cited as the major cause of air pollution, and releases CO2 and methane to the atmosphere contributing to global warming.
Companies and governments often have conflicting relationships with indigenous people who have lived for generations in the reconverted forests and who claim customary rights to the land. Plantations can also create conflicts if the rights and livelihoods of communities are ignored, which can also impact companies’ reputation and their ability to expand and produce as planned. Furthermore, the loss of wildlife habitat pushes populations of large animals towards humans, increasing human-wildlife conflict.
West-Africa – the new frontier
Given the constraints and restrictions on logging and the acquisition of land that palm oil plantations face in Southeast Asia, investors are looking into Africa, where concessions for new plantations are more freely available. The oil palm is native to west Africa, but up to now most of production is small-scale. Many African states look at the fast-paced economic development of Indonesia and see palm-oil as the perfect source of FDIs and fast economic growth. In the past decade, however, politicians in west Africa and countries of the Congo basin have leased out around 1.8m hectares of land for palm-oil plantations. However, South-East Asia also provides a stark example of the dangers of unsustainable palm-oil production and giving ‘carte blanche’ to corporates in return for investment. A growth-versus-conservation battle is in the offing.
In addition, weak land titles and blurred lines between customary and state ownership can result in conflicts between state, palm-oil company and communities they seek to displace (or whose traditional way of life is threatened). In 2009 the Cameroon government signed a deal with Herakles Capital, an investment fund in New York, to clear approximately 70,000 hectares in the south west, the majority of it forest. This was done in secret and with non-disclosure agreements, but the deal was leaked in 2012, showing a number of irregularities – activists and academics found it would have a detrimental impact on the local environment, remove land and livelihoods from thousands of people, and bring little economic return for the country and its people. Herakles eventually had to slim down its plans for a plantation.
Because producers bear no cost of the environmental damages, it is often easier for them to go look for cheaper and easier solutions elsewhere. Constraints on the supply of palm oil can get palm oil producers to internalise the negative environmental impacts associated with its production. This is done by driving-up the firm’s marginal costs upwards to the point that they reflect social and environmental costs of their productive actions.
This is what the Indonesian and Malaysian governments sought to do by protecting areas of forests and applying more restrictive legislation with regards to deforestation. This process of bringing the cost of deforestation to the forefront of the production process in Southeast Asia took a long time. Hopefully, the time needed to incorporate similar measures into the production decisions in West Africa should be shorter than it was in Southeast Asia.
It is therefore important to increase the current pressure on governments to force palm oil produces to internalise the external social and environmental costs. There are many ways to do this, from the top-down to the bottom-up. For instance:
Investors, pension funds, hedge funds can divest from unethical palm-oil companies. For example in 2012 Norway’s government pension fund pulled out of 23 palm-oil firms deemed “unsustainable”.
Producers and corporates that consume large quantities of palm-oil can join the Roundtable on Sustainable Palm Oil (RSPO). It is a certification scheme, comprised of a large, international group of palm oil producers, palm oil buyers, and environmental and social groups, that has created credible standards covering the environment, local communities and labour standards.
Individuals can either boycott companies that do not buy sustainable palm-oil, or send them letters asking them to change their habits. Environmental activists and concerned organisations regularly keep track of ‘good’ companies and ‘bad’ companies. The WWF Palm oil buyers score-card is a good example of this (http://palmoilscorecard.panda.org/). This tracks the performance of European companies against a set of criteria relating to their commitments to, and actions on, responsible purchasing of palm oil.
Demand transparency and accountabi
lity from governments who sell land to palm-oil producers; asking them what environmental and social precautions have been put in place.