Economy / Southeast Asia

Palm oil—environmental costs and the problems behind lobbying

by Kathy Xu
Length 12 min

Palm oil is known for its versatile and pervasive use in not just cooking but almost all processed foods. It is one of the cheapest and most efficient vegetable oils available. In recent years, the industry has seen heavier scrutiny and regulation. Palm oil farming has dire consequences for the environment, namely the destruction of Southeast Asian rainforests and depletion of orangutan populations, alongside other keystone species such as elephants, tigers, slow lorises, and other species. This has spurred environmental lobbying against palm oil across the globe.

However, is there more to the problem?

What is palm oil, where does it come from, and why is it in everything?

Palm oil—the ingredient you see when you flip over the packaging of almost any processed food, cosmetic product, or toiletries. Often generically labelled as vegetable oil, one would be surprised at the myriad of other alternate names that palm oil can be masked under, including terms like beta carotene, glycerin, and lecithin.

How did palm oil become one of the most popular and widely used crops in the world, accounting for about 35 percent of all major edible vegetable oils globally? Being a highly efficient crop, it can be harvested all year round rather than seasonally and thrive best in tropical climates. It also yields an average of ten tonnes of fruit per hectare, almost three times higher than soya, sunflower, and rapeseed crop oil yields. Palm oil is also more versatile than other vegetable oils as it can be processed at different boiling points to be used in a variety of products from food items, to beauty products. Given its versatility, it is one of the most sought after oils used in the agro-foods and biofuels industries.

An illustration showing the process of how palm oil is derived, from plantation to manufacturing.
How palm oil is derived.

The environmental problem

The palm oil plant grows best in tropical and humid temperatures, which makes Indonesia and Malaysia ideal locations to grow the crop due to its climates.  As the commercial value of palm oil went up, deforestation across huge plots of land resulted to meet the growing demand. When lands are burnt and cleared for palm oil plantations, huge amounts of carbon is released into the environment, which ultimately leads to global warming.


Who are the exporters of palm oil?

A study done in Sumatra, Indonesia, has also shown that palm oil plantations do indeed have a negative impact on the wildlife biodiversity. As palm oil plantations are monoculture, they are less biodiverse than rainforests. Insects are important indicators for energy transfers that sustain rainforest ecosystems, and the same study showed that less insects are found in palm oil plantations. With the environment producing less energy, it gets harder for orangutans and other species to survive.

Aside to biodiversity loss, most palm oil plantations that are cultivated on converted peat swamp forests that are highly endangered. Peat soil contains a lot of carbon and when drained, it releases a lot of carbon dioxide that adds to the warming of the environment. Fertilizers and pesticides are applied to palm oil plantations leading to run offs of harmful substances into the streams from the plantations and may affect the balance of the stream ecosystems. The resulting haze from palm oil plantation burning leads to respiratory problems for people, while the polluted streams would affect those that depend on the stream water for their daily lives.

In Indonesia and Malaysia

Palm oil plantations across the world, concentration of mills in Indonesia and Malaysia (data from Global Forest Watch) (

Indonesia is the world’s largest exporter of palm oil. Approximately 70 percent of its palm oil is from the Sumatra island while 30 percent is from the Kalimantan island. The export of palm oil yields high economic value for Indonesia, and provides needed employment opportunities for its population. The production of palm oil is the very central to the economy of Indonesia as the country is not only the world’s biggest producer, but also the biggest consumer of palm oil. The dependence on the economic benefits of the palm oil industry is high as palm oil exports comprise 11 percent of total export earnings in 2012.

Malaysia is the second largest producer of palm oil after Indonesia and produces 39 percent of the world’s palm oil while accounting for 44 percent of exports worldwide. The palm oil plantations in Malaysia take up about 57,400 square kilometres of land use in Malaysia, spread out across all of the 13 states of Malaysia. Sabah has the highest percentage of palm oil plantations in Malaysia, accounting for 31 percent of the nation’s total output. According to a study done to analyse the impacts of palm oil plantations in Sabah, the orangutan population has seen a 90 percent decline, but there was positive impact of increased and more reliable income among the villagers. Not only is palm oil highly profitable due to its efficiency, it also offers far higher wages than work in other crops. Wages in oil palm are two to seven times greater than average agricultural wages in Indonesia.

Malaysia and Indonesia are the biggest global players in the palm oil industry and dominate 85 percent of the world’s supply given the ideal climates and availability of land these two countries possess, for harvesting palm oil crops.


Can palm oil be sustainably sourced?

At present, there are four key certifications regulating the palm oil industry and ensuring sustainability. Two of them, the Indonesian Sustainable Palm Oil, and the Malaysian Sustainable Palm Oil, are government-led standards that are mandatory to their respective countries. Of greater significance is the Roundtable on Sustainable Palm Oil (RSPO), which are based on voluntary standards. The RSPO is a not for profit entity that brings together all stakeholders in the palm oil industry to implement and develop standards to follow for sustainable palm oil.

A recent study shows that even though the RSPO was able reduce deforestation, forest fires were not regulated. The certification was given to companies with good and bad practices alike, as a result of poor standards and weak enforcements, disincentivizing good behaviour.

As such, reforms to RSPO certification, alongside other alternative solutions beyond certification need to come in place at a time where time is limited, as the schemes meant to slow down the environmental impacts of palm oil plantations have not been effective enough to slow down deforestation. A more stringent and effective RSPO, coupled with forest conservation policies, could possibly make sustainable palm oil a more achievable reality.

There is urgent need for palm oil sustainability—the industry is due to cause irreversible and devastating impact on the environment, such as severe pollution and biodiversity loss. How can the multi-million dollar global demand for palm oil be met without putting further strain on existing ecosystems?

Another question also arises out of this discussion: why is the palm oil industry is the only industry that is under scrutiny and pressure to be certified sustainable? What about the alternative vegetable oilsthat have far less efficient yieldslike soy, rapeseed, sunflower and soya? These alternative vegetable oils produce lesser yields than palm oil, which would mean that they require much greater land mass of crops to be able to produce as much as palm oil plantations would. This would mean the alternative vegetable oil crops might also contribute to deforestation when requiring much more land to produce more oil.

Vegetable oil yield efficiency of different crops

EU regulations and lobbying: myths and realities

Among the latest developments in the palm oil industry is the new EU Renewable Energy Directive (RED) introduced in January 2017. It seeks to reduce contribution of palm oil to biofuels in Europe be targeted at zero percent by 2020. This entails possibly  banning palm oil imports from entering the EU. The sustainability criteria of the EU RED does specifically exclude biofuels (palm oil only) from previously forested land of Malaysia and Indonesia, from counting towards the renewable energy targets of the directive. Malaysia’s plantations minister has described this to be discrimination against palm oil producing countries like Indonesia and Malaysia, as other oilseed crops are still allowed to continue operating under the RED. Should this directive become reality, it will have ramifications for both Malaysia and Indonesia. Europe accounts for 20 percent and 14 percent of Indonesia’s and Malaysia’s palm oil exports respectively.

For years, the anti-palm oil lobby in Western nations have pushed for soybean, sunflower, and rapeseed oil—all of which are Western exports— as alternatives. In France a Nutella 300 percent tax was imposed because it contains palm oil. Both France and Belgium also implemented a sansa huile de palme (no palm oil) logo on food cartons. In Iceland, supermarkets have banned palm oil in their locally made products by the end of 2018.  While these actions taken appear to be driven by conservation reasons, it is also possibly caused by protectionist economic motivations in favour of EU produce, such as rapeseed oil.

Many have also questioned EU’s lack of transparency in its handling and funding in the EU Life+ Programme, which is the union’s financial instrument for environmental projects since 1992. Two of the larger beneficiaries are the World Wide Fund for Nature (WWF), and the Friends of the Earth Europe (FoEE) who have received USD147 million over the last fifteen years. These two groups are known to lobby against the use of palm oil for environmental reasons, highlighting, sometimes overly, the plight of orangutan populations. It is possible that green lobby groups such as the two mentioned do so to sustain funding for their operations. The EU Life+ Programme has been used to fund other EU directives before, such as the EU Energy Efficiency Directive. It would not be a far stretch for them to also fund the EU RED.  


What then for Malaysia and Indonesia?

The truth is, palm oil extraction in Malaysia and Indonesia does indeed pose environmental problems. Yet, planning for action taken against palm oil, such as the EU ban to phase out the use of palm oil in transport fuels by 2030 , would only serve to harm countries such as Malaysia and Indonesiacountries that are heavily reliant economically on palm oil exports, especially so for the small farmers of rural communities who have been alleviated from poverty thanks to the palm oil cultivation industry.

However, it is important also to not just turn blindly to alternatives like rapeseed, soya and sunflower oils as a knee jerk reaction, without looking deeply into the issue. These alternative crops are just not as efficient or versatile as palm oil and they would hence require much more land as a result, to cultivate the same yields as palm oil, which would then also come at the cost of deforestation and greater biodiversity loss.

The complex economic relationships between Malaysia and the EU countries prove tricky to navigate as well. Britain has not made its stand clear on whether they support the RED bans, but they do fear jeopardising their bilateral relations with Malaysia and their deal to be able to sell arms to Malaysia. In the face of protests against possible protectionism by the small scale palm oil plantation farmers, the proposed Palm Oil ban from 2021 was completely removed from the final RED text that was agreed in Strasbourg on 13th June. However, a final vote is still required in the EU Parliament and Council to confirm the RED Directive

Indonesia and Malaysia are also currently planning on working together to push back against the EU trade barriers lest other palm oil importing countries choose to follow suit. There are plans to conclude talks between both countries over the course of August and September 2018, on how to do so.

Also, Indonesia has claimed to have developed a way of making palm oil biofuel for airplanes greener and ready for use in 3 years time. It would purportedly be made entirely of palm oil and will meet the Euro IV required reduced emission standards for green biofuel, in a bid to increase the need for palm oil use in the EU countries.

Given the EU impending bans and the push back from Malaysia and Indonesia, it is important to wait and see if global shifts in palm oil imports and exports would ensue.