Economic, environmental impact of palm oil

Palm oil is often associated with tropical deforestation above all else. A study published in the Annual Review of Resource Economics [pdf] reveals that rapid expansion of oil palm has also contributed considerably to economic growth and poverty reduction in local communities, particularly in Asia.

For the study, the agricultural scientists from the University of Göttingen and the IPB University Bogor (Indonesia) evaluated results from over 30 years of research on the environmental, economic, and social consequences of oil palm cultivation in Africa, Asia, and Latin America. They combined the results from the international literature with their data from Indonesia, which they have been collecting since 2012 as part of an interdisciplinary German-Indonesian Collaborative Research Centre (CRC 990).

The research data show that the expansion of oil palm in some regions of the world—especially Indonesia and Malaysia—contributes significantly to tropical deforestation and the loss of biodiversity. Clearing forestland also leads to substantial carbon emissions and other environmental problems.

“However, banning palm oil production and trade would not be a sustainable solution,” said study author Matin Qaim, an agricultural economist at the University of Göttingen, in a press release. “The reason is that oil palm produces three times more oil per hectare than soybean, rapeseed, or sunflower. This means that if palm oil were replaced with alternative vegetable oils, much more land would be needed for cultivation, with additional loss of forests and other natural habitats.”

Banning palm oil would also have negative economic and social consequences in producing countries. “It is often assumed that oil palm is only grown on large industrial plantations,” said Qaim. “In reality, however, around half of the world’s palm oil is produced by smallholder farmers. Our data show that oil palm cultivation increases profits and incomes in the small farm sector, in addition to raising wages and creating additional employment for rural laborers. Although there are incidences of conflicts over land, overall, the oil palm boom has significantly reduced rural poverty in Indonesia and other producing countries.”

“The goal should be to make palm oil production more environmentally and climate-friendly,” said study coauthor Ingo Grass, an agricultural ecologist at the University of Hohenheim. “High yields on the already-cultivated land are important, in order to reduce additional deforestation. Mosaic landscapes, where oil palm is combined with patches of forest and other crops in agroforestry systems, could also help to protect biodiversity and ecosystem functions.”

The authors conclude that developing and implementing more sustainable production systems are challenges that require both innovative research and policy making. Clearly and fairly defined land rights and improved access for smallholder farmers to training, credit, and modern technologies would be important steps forward.