What is Palm Oil and Where Does it Come From?

Oil palms on school ground in Bengkulu Utara.  Even
the area around the mosque is used for oil palms.

I remember flying into Kuala Lumpur International Airport a few years ago to begin the year of research funded by my first Fulbright award.  From around 25,000 feet the Malay Peninsula appears to be covered by a blanket of what you would assume to be lush, tropical rainforest.  As you descend for landing though, you notice that it's not primeval rainforest, but rather kilometer upon kilometer of a certain type of palm tree which extends as far as the eye can see in all directions.  As you ride away from the airport you notice that the trees are spaced in neat, exact grids, and beneath them grows nothing at all.  This was my first look at the oil palm (Elaeis guineensis).  Last week when I traveled to Bengkulu province on the southwest coast of Sumatra I saw another oil palm-dominated landscape.  Since palm oil grows well in tropical lowlands, the coastal regions around Sumatra have gone over to the tree crop in a big way. 

Palm Oil: The Basics

Photo from FAO oil palm page

Elaeis guineensis originally comes from West Africa, where the fruit of the plant has been used for thousands of years.  During the Age of Exploration (15th-17th centuries) the plant made its way to the New World and from there on to Southeast Asia, where it thrived.  In 1960s Malaysia's Department of Agriculture started doing research on the tree crop which led to widespread cultivation on the Malay peninsula.  Oil palms are mainly grown for their fruit, which yields palm oil.  The tree itself yields 10-40 kilogram bunches of small fruits that kind of look like dates.  Palm oil has a lot of saturated fat, but not nearly as much as coconut oil, which comes from another type of palm.  It's used mainly by the food industry (82.3%) and according to the Rain Forest Action Network it's "used in 50% of all consumer goods, from lipstick and packaged food to body lotion and biofuels" (1).

According to the Food and Agriculture Organization (FAO), by 2008 there were more than 13 million hectares of palm oil in the tropics, a 300% increase since 1961.  Indonesia and Malaysia are the world's leading producers of palm oil (together they produce about 85% of the world's palm oil), and in both of those countries palm oil is on the increase.  It's estimated that since 1990 more than half of the huge increase in palm oil has come at the expense of forests.

What's driving the expansion?  Well, palm oil is extremely profitable, and the prices have increased rapidly over the years.  In 2006 crude palm oil (CPO) fetched $478 per ton, but by 2008 the price had more than doubled to $1,196 per ton.  Palm oil is harvested twice a month after the third year after planting, and so it provides a ready source of cash to villagers that cultivate it, but most oil palms are grown on huge estates operated by large companies using high-yielding clones and efficient processing techniques.  The market for palm oil is tied to other vegetable oils, and so global trends and events directly and indirectly affect the price.  For instance, a substitute for palm oil is soybean oil, which is a major crop in the US.  However, in the mid-to-late 2000s, much soybean land in the US was given over to production of other crops to be used in ethanol (soybeans are used in a lot of foods), and so the demand and hence the price of palm oil increased dramatically.  Increasing incomes in South, East, and Southeast Asia are also driving palm oil production, since most of it is exported (the major importers are China, Europe, and India) for the food processing industries of emerging countries.

Can't See the Forest for the Oil Palms...

As I mentioned in a previous post, palm oil is the crop of choice in the districts of Mukomuko and Bengkulu Utara in Bengkulu province.  I described some of the environmental impacts of the oil palms themselves, including the fact that they are very thirsty trees, and are thought to be lowering the water table in the region due to their high water demands.  This in turn makes the coastal regions more susceptible to erosion, which is a big problem in the region.  But there are also problems with the palm oil business; most of the land in these districts has been granted to big companies, and the local people, who are mainly farmers, are forced to grow their crops further away from the coast in the direction of the mountains.  Though most of them also choose to grow oil palms, the price they can get is lower because the condition of the roads and the distance to market cuts into their profits. 

I started thinking about this a bit more today as I was doing some background reading for a project I might be working on in the near future.  The project is related to the REDD+ (Reducing Emissions from Deforestation and Forest Degradation) framework which aims to reduce greenhouse gas emissions by addressing forest clearance, which is said to account for about 18% of all carbon dioxide emissions.  In theory REDD programs provide support (money) directly to local communities in an effort to get them to stop cutting and burning trees.  The idea is to help them to find alternative livelihoods and enlist them as partners in the fight against global warming.

Anyway, REDD is really big in Indonesia now, and there are a lot of international organizations interested in getting REDD programs going in Indonesia.  Some of these efforts are aimed at slowing the spread of oil palm cultivation, since oil palms, though they are trees, sequester about one-tenth the amount of carbon as an equivalent area of rain forest (26 megagrams of carbon per hectare as opposed to 225 megagrams for an average hectare of rain forest).  The objective of many REDD programs is to alter the cost-benefit calculations of farmers since it's assumed that they make their decisions based on how much money they can make for a particular activity.  Thus in order to convince a farmer not to convert forest to oil palms, you have to make the forest more valuable to him in terms of cash money.  One of the studies I read, though, found that under the current REDD framework, given the way the programs are implemented and funded, it will always be in the farmer's best interest to convert forests to oil palms.  This is pretty discouraging.  You can see accumulated profitability curves in the graph below.  

However, the authors of the study brought up some exceptions.  REDD could be more profitable if the soil is bad, thus limiting the productivity of the oil palms.  Or if the infrastructure (roads) are so bad that they increase the costs of production for the farmers so that it's actually better to join a REDD program.  I immediately began thinking of Bengkulu Utara and Mukomuko, since my rear end still hurts from riding my motorcycle across tens of kilometers of bumpy, gravelly roads.  The people in these districts deal with these conditions all the time, and they complain that it really makes it difficult to make a living.  Nevertheless, villagers are still converting forests to oil palm.  So why not target these areas for REDD projects?  It seems to make more sense in these areas where the economics support the project rather than some other places where you're swimming against the tide.  And if villagers opted to participate in REDD initiatives, it would decrease the pressure on the district government to provide roads to new plantation areas (though it would not relieve the district government of its responsibility to improve the roads to the villages themselves, an area in which they've been terribly remiss).  

I'll likely write more on REDD in the coming weeks if I get more involved in it.  Since it seems to be "the next big thing", there's a lot to talk about.  

Notes

(1) Take this with a grain of salt because the Rainforest Action Network is sometimes wrong about stuff.

References and For Further Reading

There's a lot of information out there on palm oil, but the study I cited in this post is

Butler, Rhett A, Lian Pin Koh, and Jaboury Ghazoul.  2009.  REDD in the Red: Palm Oil Could Undermine Carbon Payment Schemes.  Conservation Letters 2, pp67-73.