Palm Oil Production: An Intersection of Environmentalism, Economy And Politics

Mohammad Nadimur Rahman*

Palm oil is an edible vegetable oil derived from the mesocarp of the fruit of the oil palms (Elaeis guineensis). Although native to Africa, it is cultivated chiefly in Malaysia and Indonesia. According to statistics, these regions hold almost 85 percent of global palm cultivation. Some part of Africa and Latin America grows oil palm trees as well. Currently, more than 20 billion hectares of land in the world are used for Palm cultivation.

Cost and nutritional value

Palm oil has a relatively higher yield and lower production cost. It is a productive crop that offers a far greater output at a lower cost of production than other vegetable oils. Its farming requires significantly fewer pesticides and chemical fertilizers than coconut, corn or any other vegetable oil source.Besides, palm trees bear fruit for 25-30 years, and they can produce 3.5-4.5 tons of oil per hectares. With a rapid increase in its global demand, palm oil covers almost 35 percent of the global cooking oil market. Its primary market is European Union, United States, China and India.

Palm oil is used in several products like cosmetics, foods and beverages. According to nutrition experts, palm oil contains vitamin-A and Vitamin-E. It also contains antioxidants. Due to the absence of cholesterol, it can be used as an alternative to those oils that contain cholesterol. For this reason, palm oil is used in several foods like ice cream, cookies, cake and bread.

Palm oil and Southeast Asia Economy

Being the biggest and second-biggest producer of palm oil, Indonesia and Malaysia account for more than 85 percent of the production for the world market. Malaysia currently accounts for 39 percent of world Palm oil production and 44 percent of world exports. Moreover, the palm oil industry accounts for 5 to 6 percent of Malaysia's GDP, which is approximately 16.1 billion US dollars. About 5.7 million hectares of land in Malaysia are used for Palm oil cultivation.

Like Malaysia, Indonesia's economy is also highly dependent on Palm oil production. As it has the highest yield and lowest production cost, a vast number of small farmers livelihood depends on Palm oil cultivation. As a result, palm cultivation is increasing day by day in Indonesia.

Palm oil and EU environmental campaign

Economically, the palm oil industry seemed quite prosperous for the southeast Asian countries, but a campaign against the industry became a setback. In 2017, the European Parliament issued a resolution effectively refusing to recognize palm oil as a renewable biofuel feedstock because of the deforestation, social conflicts and labour rights issues associated with its production. Western media and academia have reiterated this thesis.

In 2014, the EU changed its labelling laws making it easier to spot palm oil on ingredient lists. It also decided to impose an import tariff on biodiesel from Indonesia. On the other hand, on March 7, Swiss voters in a nationwide referendum narrowly backed a free trade agreement with Indonesia to abolish duties on industrial products, including palm oil.

One of the main issues with palm oil cultivation is deforestation and loss of biodiversity issues, owing to the need to expand its farming. The problem grew more prominent when the Indonesian government involved in slash-and-burn activities in 2015 and 2019. The actions caused a tremendous amount of haze to the country and the countries around it, mainly Malaysia. Lots of activities were disrupted or limited due to the smoke. Moreover, deforestation led to the death of many animals. A statistical report showed that these activities produced around two billion tons of CO2 emissions.

Malaysia and Indonesia's Anti-Thesis

Being a crucial component of their economy, Malaysia and Indonesia have endeavoured to clear the air about the debates on palm oil sustainability. The countries have signed pacts and have made enacted policies towards sustainable cultivation of the crop. In fact, in 2019, Malaysia set to halt all expansion of oil palm plantations to dispel the oil's reputation as a driver of deforestation.

As the anti-palm oil campaigns continue, Malaysia and Indonesia have decided to read the riot act to the European Union, which they believe discriminatesagainst palm oil to protect its own vegetable oil producers. In December 2019, Indonesia filed a suit against the EU at World Trade Organization. Malaysia also followed suit on January 15 2021. They have even threatened to ban imports of certain European goods. 

The duo has criticized the EU for being hypocritical. For instance, Indonesian officials have criticized how Europe's rapeseed oil depends on fertilizers that affect marine biodiversity. Similarly, Europe has also been criticized for not applying the same standard to nickel, which production Indonesia tops too. The silvery-white metal used in batteries is equally high demanded in Europe. Like palm oil production, nickel mining is also associated with environmental and social problems. However, the EU might have turned a blind eye because it does not produce an alternative.

By and large, it is worthy of note that palm oil is not only produced on a large scale. Thus, any policy for or against it will affect small-scale farmers too. A study by agricultural scientists from the University of Göttingen and the IPB University showed that the rapid expansion of oil palm has also contributed considerably to economic growth and poverty reduction in local communities. This claim corresponds with stats on how there are over 2.7 million palm oil smallholders in Indonesia and 600,000 in Malaysia.

Conclusion

Having discussed the nutritional and economic values of palm oil and claims against and for palm oil cultivation, it is essential to seek a fairground that will benefit the people and the countries involved.

For starters, environmental conservation is critical, and every country should be conscious of this.  Thus, good policies need to be taken for Palm oil cultivation without disrupting the environment. One is to cultivate Palm in those areas where there are empty lands available. In this case, investment can be made outside countries for palm cultivation. For instance, Malaysia has FDI for Palm cultivation in Indonesia (52%), Papua New Guinea (31%), and some other regions in Africa and Latin America. In this way, the Indonesian government can initiate some policies on investing in Palm oil cultivation outside the countries instead of slash-and-burning activities.

The EU palm oil policies indeed suggest an unwarranted witch-hunt on the two developing economies in Southeast Asia. This is because, as destructive as the oil palm may be to the environment, it may be better than the alternatives in terms of yield per hectares of land. Thus, sanctioning palm oil does not solve environmental problems but instead creates more.

Even though sustainable palm oil cultivation may be difficult, it is not a mirage after all. It is, in fact, a healthy option. Experts have suggested optimizing the yields on the already-cultivated land, mosaic landscapes, where oil palm is combined with patches of forest and other crops in agroforestry systems, as ways to protect biodiversity and ecosystem functions. In addition to this, farmers training, as well as mechanization, are equally important.  Of course, the climate and financial issues need to be concerned to initiate these policies.

 *PhD Student (Economics), Erciyes University