Trouble for Palm Oil

The west grows more skeptical of the palm oil growers' promises of environmental sustainability

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.

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