Is Sustainable Palm Oil viable?

Neil Brown

This article was published by Alliance Trust Investments on 29 March 2016.

Palm oil appears in about half of all packaged products sold in the supermarket and is the most widely used vegetable oil on earth and a major contributor to tropical economies. With the global population rising to nine billion by 2050, consumption of palm oil looks set to increase. But how can we ensure this growth is managed in a more sustainable manner to reduce the negative effect it's having on climate change and biodiversity?

If you have showered and brushed your teeth today, it’s highly likely you will have consumed palm oil. Appearing in about half of all packaged products sold in the supermarket, palm oil is the most widely used vegetable oil on earth1. It’s also a major contributor to tropical economies, where this natural capital helps to lift local communities out of poverty, through the creation of one worker per eight hectares of production. Palm oil is likely to provide a solution as the world struggles to feed nine billion people by 2050 with less available land. For example, it is the highest yielding edible oil crop using nine to ten times less land per ton of oil produced. The higher yield and lower labour costs in South East Asia produce an affordable product for the merging consumer.

Despite these positive characteristics, there are some fundamental problems associated with elements of palm oil production. The impact of some unsustainable practices can be described by the following:

•Large scale deforestation– the burning of invaluable timber and the remaining forest undergrowth, emitting large quantities of carbon into the atmosphere. The loss of forestry leads to reduced CO2 absorption. Tropical deforestation is responsible for approximately 20% of world greenhouse gas emissions2. The secondary climate change impacts are pronounced with loss of rain capture, changing the water cycle, leading to desertification and reducing soil quality.

•Loss of biodiversity and habitat for endangered species– two thirds of all plant species and 50% of all animal species are found in tropical forests. Specifically, one third of all mammal species in Indonesia are considered to be critically endangered as a consequence.

•Air pollution– the recent forest fires in Indonesia have resulted in greater daily carbon emissions than the US and a substantial rise in respiratory conditions.

What is the solution?

Standardised and enforced operating standards within the palm oil industry. The long-established Roundtable on Sustainable Palm Oil (RSPO) aims to unite stakeholders within the industry and establish policy and certificate sustainable palm oil standards. Around 96% of the world’s palm oil is now governed at some level by their tripartite standard3:
1. No deforestation of high conservation value (HCV) lands or high carbon stock (HCS) areas
2. No development on peatlands
3. No exploitation of rights of indigenous peoples and local communities (FPIC)

The Roundtable of Sustainable Palm Oil certifies c.20% of global palm production. Additionally, a new standard established by the Council for Palm Oil Producing countries (CPOP) was set up by Indonesia and Malaysia in October 2015. Surprisingly, from a consumption perspective only half the certified production (i.e. 10% of total volume) is purchased as such.

Transparency in complex supply chains

The palm oil supply chain has inherent complexity and inadequate transparency. The Zoological Society of London’s SPOTT tool highlights how companies are adopting and implementing sustainability policies. In terms of trading, palm oil is one of the highest traded agricultural commodities with 75% of production crossing borders. This means the trading companies are gate-keepers to the growers. Wilmar, Asia’s leading agribusiness group, appears significantly ahead of peers following the launch of its “Sustainable Dashboard”, which maps over 800 suppliers, as it attempts to rid its entire supply chain from unsustainable palm oil.

From a consumption perspective, more value needs to be ascribed to traceable and sustainably produced palm oil. Ethical and transparent labelling can raise awareness. Five major European countries recently committed to sourcing 100% sustainable palm oil by 2020 as part of the European Sustainable Palm Oil Project (ESPO). However, lower income consumers in developing countries (e.g. India and China) are less willing to pay a premium for sustainable palm oil.

Finally, since the middle of last decade there has been a growing demand for palm oil for biodiesel. Governments have seen this as a quick fix to reduce GHG emissions, however there are two key issues: ‘food versus fuel’ and the impact of increased biofuel production on access to land and forest resources. Notably, using palm oil for fuel serves the more affluent, car-driving, segment of society with higher purchasing power, potentially crowding out poorer elements of society. An increase in the price of palm oil can lead to significantly more of the lower-income population living in hunger.

In summary, demand for palm oil should remain strong, driven by its relative low cost to other vegetable oils and higher yield characteristics. With the global population rising to nine billion by 2050, consumption of palm oil looks set to increase. It is imperative that this growth be managed in a sustainable manner, under globally enforced guidelines; otherwise the consequences for climate change and biodiversity are likely to be severe.


3 Calculated by Chain Reaction in December 2014,

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Monday, March 28, 2016, 11:00 PM