Trouble for Palm Oil

Palm oil, the world's cheapest cooking oil and a versatile product that is used in everything from biofuels to chocolate chip cookies, has always been under fire from various quarters, first allegedly because of its adverse effect on cholesterol – since disproven – or because of concerns over tropical deforestation to plant oil palm plantations.

However, in recent months the ante has been raised considerably. The oil palm industry beat back an attempt in December at the United Nations Conference on Climate Change in Copenhagen to curb additional planting under a World Bank proposal called Reducing Emissions from Deforestation and Forest Degradation in Developing countries (REDD).

But the industry's relief has been tempered by the fact that in Dec. 11, Unilever, the world's biggest user of the oil, suspended a US$32 million contract with subsidiary of the giant Sinar Mas Group until the Indonesian conglomerate proves its plantations aren't contributing to deforestation. Also, just three days before, in a program called "The End of the Jungle," the BBC accused the Malaysian government and the palm oil industry of "laying waste to last remaining rainforests of Borneo in what has been described as a corporate land grab."

Now the plantation companies are concerned that other major European Union and US importers, particularly Procter & Gamble and Nestle, may follow Unilever, especially as the global warming debate heats up and also that concerns grow over the destruction of the habitat of the orangutan, a cuddly ally of the environmentalists whose habitat is being destroyed at an alarming rate. Scientific American recently quoted Richard Zimmerman, director of Orangutan Outreach in New York, as saying Indonesian tropical forests are wiped out at a rate of six football pitches a minute for palm oil planting. As many as 20,000 orangutan have been killed, according to the report. A recent Jakarta Globe article called attention to massive deforestation of ostensibly federally protected forest areas on the island of Riau, with 2,000 hectares of forest leveled in 2008.

"When you fly over Borneo today, all you see is mile after mile of oil palm plantations where only a few years ago you would have seen pristine tropical rainforest," Zimmerman told the publication. "The forest is simply gone. And every creature living in it has been slaughtered." Some 85 percent of the forest on the island of Sumatra has been wiped out. Kalimantan, the Indonesian portion of Borneo island, is now the focus of massive oil palm planting.

On the Malaysian side of Borneo, according to the BBC, IOI Group, which sells palm oil in more than 65 countries, is bulldozing vast tracts of rainforest for oil palm plantations.

"…from a distance, the plantations look quite green and lush, in reality they are barren: the life has basically gone," the report found. "It's estimated that only 3 percent of the primary rainforest of Malaysian Borneo remains. Logging has devastated much of the land, but now campaigners say the palm oil plantations have taken over. And it's not just the forest that's gone. Since the early 1990s whole communities have left - driven, they say, from their farms."

Between them, Malaysia and Indonesia produce 90 percent of the world's palm oil – with world demand at 48 million metric tons annually and growing. Virtually all of the major plantation companies belong to the Roundtable on Sustainable Palm Oil, an alliance between consumers and producers which ostensibly subscribes to best environmental practices. Unilever was a founding member.

But both the Unilever decision on the Sinar Mas subsidiary and the BBC show on IOI have exposed vast differences between promise and practice. In addition, both the Malaysian and Indonesian governments fully backed the two companies, attesting that they were protecting the environment. In effect, those events make the Roundtable look like an utter sham and make it questionable whether it has the credibility to allow importers to work together with exporters in concert to bring up environmental standards.

As environmental groups have raised awareness of concerns about the loss of primary forest and carbon sinks, the palm oil industry has become increasingly concerned. The Intergovernmental Panel on Climate Change estimates in a new report that preventing carbon release from deforestation is "the climate change mitigation option with the globally largest and most immediate carbon stock impact per hectare in the short term." Deforestation, the body said, "may account for up to 25 percent of global total anthropogenic emissions and is said to be the largest single source category in the developing world."

An industry group, World Growth, headed by Alan Oxley, an Australian lecturer and skeptic about climate change, has been established and is bitterly disputing Greenpeace's efforts, saying environmental groups, by their actions against palm oil producers, are themselves potentially devastating to the poor, with tens of thousands of jobs that could be lost in palm oil plantation. Palm oil, the industry group said, can generate returns of more than US$3,000 per hectare while village farming generates less than US$100 per hectare. Malaysia's oil palm plantations alone, which directly employ 580,000 jobs, support two million livelihoods, World Growth argues.

Oxley has aggressively sought to contradict environmentalists, arguing that development and forestry experts have shown that two-thirds of forest clearance is driven by low income people in poor countries searching for land, habitation and food production. He describes environmentalists as "Europe-based activists who don't provide data that can be verified," peddling science that "cannot be substantiated or severely exaggerated."

World Growth calls oil palm plantations "very effective carbon sinks - a stark contrast to the propaganda by Greenpeace, Wetlands and Friends of the Earth."

The question is what happens next. As a Reuters analysis pointed out, if European buyers of palm oil get stickier about requiring Indonesian companies to observe strict environmental standards, there are roughly 2.5 billion people in India and China alone who have no qualms whatsoever about buying Indonesian and Malaysian palm oil, by far the largest staple oil in Asia. It is far cheaper to produce than either soybean or corn oil and requires virtually no fertilizer. According to the Reuters analysis, the EU accounts for only 14 percent of consumption, down by 20 percent over 1999 because of environmental concerns.

Not only is palm oil by far the most popular cooking oil in Asia, just-auto.com, the automotive industry's online analytical publication, says that "Rising energy consumption and environmental issues has now shifted the focus towards biofuel use, particularly in transportation. Though the biofuel industry is in its initial stages in Asia-Pacific, there is a huge potential for its development in the region." Any downshifting of oil demand in the west appears to be matched with an upshift of demand in Asia.

The world biofuels market, the publication forecasts, is likely to grow by 1.47 percent on a compounded annual basis through 2015, with global ethanol production reaching 25.07 million gallons by 2014. Consumption in China, the report says, "is likely to move faster than the production and expected to attain a CAGR of 2.51 percent from 2007 to 2015.Ethanol consumption in India is anticipated to move at a CAGR of over 2 percent during 2007 -2015. "

One thing is certain, however. The credibility of the Roundtable on Sustainable Palm Oil has been severely damaged, perhaps fatally. The credibility of the Malaysian and Indonesian governments, as regards protection of their tropical rainforests, is equally at risk.