Palm Oil FAQ

What’s the Problem with Palm Oil?

Palm oil is not inherently good or bad. It is simply an edible vegetable oil derived from the fruit of palm oil trees, which have been cultivated for thousands of years. Today, it is the world’s cheapest edible oil and a common ingredient in a host of products from instant noodles, breads, breakfast cereals, and chocolates to shampoos, lipsticks, candles, and detergents. When produced responsibly, it can benefit countries by providing sustainable livelihoods, improving infrastructure, and contributing to a nation’s Gross Domestic Product. Palm cultivation also has a greater oil yield per hectare than other oil crop, in theory requiring less land to produce more oil. This issue is, of course, the manner in which palm oil is produced – the social and environmental consequences of the unbridled expansion of plantations to meet global demand.

A semi-wild Sumatran Tiger (Panthera Tigris Sumatrae) is seen at the Tambling Wildlife Nature Conservation rescue centre, which is part of the South Bukit Barisan National Park.

Indonesia and Malaysia together produce 86 percent of all palm oil on Earth. As is increasingly the case with many globally traded agricultural commodities, the past few decades have seen a greater and greater pursuit of more and more land for cultivation. The result is that the palm oil sector has been a primary driver of global deforestation as tropical forests are converted into plantations. Prime habitat for critically endangered species such as the orangutanSumatran tiger, elephant, and rhino has been destroyed, and the associated clearing and burning of forests has been a major source of carbon dioxide pollution. Adding insult to injury, palm oil plantations in Southeast Asia have too often been established on top of carbon-rich peatlands, which emit enormous amounts of carbon dioxide when cleared, dried out, and burned. Finally, while the palm oil industry may provide jobs, there is also a well-documented history of negative impacts on workers and local communities and Indigenous Peoples that may be forcibly removed from their lands to make way for more company owned-plantations. Palm oil production has even been tied to with slave, forced, and child labor.

Worldwide, large-scale agriculture is pushing deeper and deeper into the heart of some of the Earth’s most carbon-rich and biologically diverse ecosystems. 71 percent of all tropical forest loss is caused by the expansion of agriculture. More than a third of large-scale palm oil expansion between 1990 and 2010 resulted in direct forest loss in Indonesia, Malaysia, and Papua New Guinea, according to the Roundtable on Sustainable Palm Oil.1 Princeton University and the Swiss Federal Institute of Technology estimate that between 1990 and 2005, 55 – 60 percent of palm oil expansion in Malaysia and Indonesia occurred at the expense of old-growth forests.2

According to the U.N. Food and Agriculture Organization, palm oil production nearly doubled between 2003 and 2013.3 Today, palm oil is grown in 43 countries worldwide, and production is only projected to increase. Palm oil was responsible for an average of 270,000 ha of forest conversion annually from 2000–2011 in major palm oil exporting countries.4

A 2016 Duke University-led study examining deforestation associated with plantation development between 1989 to 2013 in 20 countries, found high levels of palm oil-driven deforestation in Southeast Asia and South America suggesting a rapid transition from forest to plantation during the study period.5 In Southeast Asia, 45 percent of sampled plantations were forested in 1989. For South America, the percentage was 31 percent. Looking forward, the study projected the largest intact forested areas threatened by future palm oil development are in South America and Africa.

Impacts on People

gp-fires2At a community level, the large-scale plantation model causes the loss of traditionally used land and livelihoods, and the reduction in availability of renewable resources like timber, medicinal plants, nuts, fruit and game – resources particularly important to the world’s poorest people. In some cases, the expansion of plantations had led to people being evicted from their lands. In Southeast Asia, forest burning is a common – albeit often illegal – approach to clearing the land, with serious health and environmental consequences.

Singapore’s government is currently pursuing legal action against Indonesian companies for fires allegedly caused by oil palm expansion. In May 2016, Singapore obtained a court warrant against the director of an Indonesian firm linked to the 2015 fires that caused over S$700 million in damage to Singapore’s economy.

May 2016 satellite imagery showed over 730 fires in Indonesia, clearly a sign that forest management and land-use issues are not yet fully addressed – and Singapore, Malaysia, and Indonesia all continue to issue haze advisories because of consistent and serious public health concerns.

Impacts on Biodiversity

gp-orangutanThe conversion of a tropical forest ecosystem into a monoculture plantation landscape also has obvious implications for regional ecological services such as erosion prevention, flood control, water filtration and fisheries protection. Such conversion reduces overall plant diversity and eliminates the many flora and fauna that depend on natural forests.

In Southeast Asia, clearing forests for palm oil plantations has destroyed critical habitat for endangered species such as the orangutan, rhinoceros, elephant, and tigers, which have all been pushed to the verge of extinction. These animals require large contiguous forest areas. As plantations have expanded, habitat continues to be lost, forcing orangutans to travel into plantations in search of food – where they are too commonly regarded as pests and killed. According to the Centre for Orangutan Protection, in 2006 alone, at least 1,500 orangutans were killed by palm oil plantation workers. The Orangutan Conservancy states that orangutans have lost well over 80 percent of their habitat in the last 20 years, and the number of orangutans remaining in Borneo and Sumatra is about 45,000. That is down from up to 66,000 a decade ago. There is a real chance that orangutans could soon be extinct in the wild, especially as palm oil encroaches into the last areas of intact habitat such as the Leuser Ecosystem on the island of Sumatran in Indonesia.

Impacts on Climate Change

gp-firesDeforestation of tropical forests also releases large volumes of climate warming gases into the atmosphere. In Southeast Asia, the problem is compounded by the fact that much of the deforestation occurs on natural peatland; forested bogs that formed over thousands of years from the accumulation of partially decayed vegetation and organic matter in wet conditions where flooding slows rates of decomposition. They are the most efficient carbon sinks on Earth – until they are dried out and burned, and the carbon dioxide is released into the atmosphere.

Indonesia has 65 percent of the world’s tropical peatlands, with Malaysia adding another 10 percent. Combined, this represents a carbon stock of 60 billion tons, which is equivalent to nearly seven years of global fossil fuel emissions. Already, the conversion of peatlands to palm oil plantations is contributing hundreds of millions of tons of CO2 to the atmosphere each year. Indonesia is currently the third-largest emitter of greenhouse gases in the world after the US and China, with 85 percent of its emissions profile coming from rainforest and peatland destruction. Deforestation in Indonesia alone is responsible for 5 percent of global greenhouse gas emissions, which is more than the combined emissions of all transportation vehicles in the U.S. each year.6

Palm Oil Consumption Trends

As of August 2016, annual global palm oil production measured was approximately 65.5 million metric tons, up from approximately 56.4 million metric tons in 2012. This translates to a 16.1 percent gain in four years, or a compound annual growth rate (CAGR) of 3.8 percent, well ahead of the CAGR of global population growth (1.1 percent) or global GDP growth (-0.3 percent). The following table shows a breakdown of the current top palm oil producing countries:7

po-t1-consumption-trends

While palm oil grows best in tropical, low-lying regions with consistently high humidity and temperature levels, it can be (and is) consumed all over the world. As a result, palm oil is an enormous export industry for the top producing countries. As of August 2016, approximately 64 million metric tons of palm oil were consumed globally, up from approximately 55.5 million metric tons in 2012. This translates to a 15.3 percent gain over four years, or a CAGR of 3.6 percent. The following table shows a breakdown of the top current palm oil consuming countries:8

po-t2-consumption-trends

While the vast majority of palm oil is produced in Indonesia and Malaysia, the industry is fragmented amongst dozens upon hundreds of different players. The following table illustrates the top five producers in the industry by market capitalization, as of market close September 21, 2016:9

po-t3-companies

While global palm oil consumption has grown modestly between 2007 and 2015 at 2.9 percent, the majority of growth is seen in emerging markets such as Bangladesh, Czech Republic, Egypt, Myanmar, Nepal, Nigeria, Philippines, South Africa, and elsewhere.

po-t4-countries

 

  1. http://www.wwf.org.au/our_work/saving_the_natural_world/forests/palm_oil/palm_oil_and_deforestation/
  2. http://wwf.panda.org/what_we_do/footprint/agriculture/palm_oil/environmental_impacts/forest_conversion/
  3. FAOSTAT database. Rome (Italy). Food and Agriculture Organization of the United Nations. c2015. Available from:http://faostat3.fao.org/home/E.
  4. [Henders S, Persson UM, Kastner T. Trading forests: land-use change and carbon emissions embodied in production and exports of forest-risk commodities. Environmental Research Letters. 2015;10(12):125012. doi: 10.1088/1748-9326/10/12/125012.
  5. http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0159668
  6. http://www.banktrack.org/show/pages/banks_and_palm_oil
  7. USDA
  8. Ibid.
  9. Info taken from BigCharts.com and Yahoo! Finance website. Exchange rates were MYR/USD = 4.10 and SGD/USD = 1.35; The market capitalization is represented in $US at the close of U.S. stock markets on September 21, 2016