Palm Oil

Over the last two decades, palm oil production has expanded more rapidly than almost any other agricultural commodity. Palm oil expansion in Indonesia and Malaysia is the leading cause of carbon dioxide emissions, rainforest destruction and human rights challenges.

This brief provides a summary of the main environmental and social factors that affect palm oil production worldwide; however, it spotlights key players in the U.S. value chain and provides examples of actions being taken by companies operating or headquartered in the U.S.

KEY TAKEAWAYS

Palm oil production has more than tripled during the past two decades. It is used in many goods that people use regularly, from processed foods and cosmetics, to detergents, chocolate and biofuel.
Palm oil sourcing has attracted significant and growing attention and debate by NGOs, investors, companies and consumers due to the commodity’s significant environmental and social challenges.
The palm oil sector employs millions, and a large proportion are smallholders. While the industry is creating economic opportunity, the rapid and poorly managed expansion of production is linked to human rights challenges, large scale deforestation and significant greenhouse gas emissions from the clearcutting and burning of tropical forests.
About 90 percent of palm oil is grown in Indonesia and Malaysia, where production is the leading driver of habitat and biodiversity loss - notably for endangered animals, such as orangutans and Sumatran tigers.
Investors should address business risks in the palm oil supply chain through direct engagement with their portfolio companies and support of relevant policies and multi-stakeholder collaborations. Effective implementation of a company's policies requires promoting commodity traceability and having a clear approach to supplier engagement, verification and disclosure of progress.

Download the Palm Oil Brief

Environmental and Social Factors that Drive Risks

Climate Change
Deforestation and Land Use Change
Soil Health and Biodiversity
Land Rights
Water Use and Pollution
Working Conditions

Climate Change

high

Palm oil production has been a major driver of deforestation and conversion of peatlands in Indonesia and Malaysia. Due to its high deforestation rate, Indonesia is now one of the world's largest emitters of GHGs (2.47 billion tons of carbon dioxide equivalents in 2014, including land-use change and forestry; totaling 5% of global greenhouse gas emissions).
Deforestation and Land Use Change

high

Palm oil production has been a major driver of deforestation in Indonesia and Malaysia. In Indonesia, from 2000 to 2010, the total harvested palm area grew dramatically, tripling to 6 million hectares. Of this, 500,000 hectares was observed to be from peat swamp deforestation. The draining and burning of these carbon-rich peat soils can emit up to 30 times more GHG emissions than simply clearing the forest. Due to its high deforestation rate, Indonesia is now one of the world's largest emitters of GHGs. Approximately two-thirds of its emissions come from land-use change and forestry.
Soil Health and Biodiversity

high

The natural forests destroyed for oil palm plantations provide many "ecosystem services", such as water, food and fuel to local indigenous communities, estimated at around 50-70 million people in Indonesia alone. Moreover, large swaths of key habitat area for highly threatened species, including orangutans, tigers, elephants and rhinos, are being destroyed at an alarming rate. For example, 43 percent of the area of Tesso Nilo National Park in Sumatra, established to provide habitat for the endangered Sumatran Tiger, has been overrun by illegal palm oil plantings. Companies that fail to understand and manage impacts related to these issues may face market, reputational and litigation risks (see more at Ceres' Agricultural Supply Chains as a Driver of Financial Risks).
Land Rights

medium

The development of new large-scale oil palm plantations is leading to social conflict when development fails to consider the rights and livelihoods of local communities. Particularly in regions where property rights are unclear or not enforced, indigenous peoples and local communities may be wrongfully displaced during the acquisition or conversion of forests.
Water Use and Pollution

low

Palm oil production has not been a major driver of water issues.
Working Conditions

high

Rapid plantation expansion is creating exploitative working conditions, including child labor, forced labor and trafficking of migrant workers - exposing companies to reputational, market and litigation risks (see more at Ceres' Agricultural Supply Chains as a Driver of Financial Risks). The U.S. Department of Labor identifies palm oil production in Indonesia as high risk for child labor and palm oil production in Malaysia as high risk for child and forced labor.

Commodity Background

Used in food, household products and for biofuel, palm oil is the world's most widely used vegetable oil.
Oil palm fruit produces seven to 10 times more vegetable oil than any other leading oil crop.
Palm oil's high yield and relatively low labor costs make it one of the lowest cost vegetable oils. It therefore accounts for about a third of all vegetable oil produced globally.
Palm oil can be found in a wide range of food products including frozen pizzas, biscuits, chocolate and margarine, as well as in non-food products including animal feed, body creams, soaps, makeup, candles and detergents. It can also be used as a biofuel, and has been so largely in Indonesia and the European Union (EU). In developing countries, palm oil is commonly used for cooking oil.
India and China together account for about 25 percent of global consumption of palm oil, Malaysia and Indoneia (the top producing countries), account for 20 percent, while the U.S. and EU markets account for only about 13 percent.

Top Production Regions

Indonesia and Malaysia are the leading palm producers with 90 percent of global production.

Production Statistics, Trends, and Drivers of Demand

55 million metric tons:
Average global palm oil production

$37.3 billion:
Global production value

75 percent:
Proportion of global production exported

Supply Chain

Palm oil supplies from different sources are mixed together at multiple stages of the production cycle, making it difficult to trace palm oil through the supply chain.

Download the Palm Oil Brief

Kellogg Company

Kellogg Company sources 99.6 percent of its palm oil from RSPO members (16 percent is Certified Segregated, 58 percent RSPO Mass Balance, 25 percent Green Palm certificates). Ninety-one percent of the company's global palm oil volume is traceable to mills, and 34 percent is traceable to the plantation (as of June 2017). In order to demonstrate transparency, Kellogg lists all its suppliers and expects suppliers to report publicly on traceability to mill and plantation and to identify all grievances, including action plans and outcomes. Kellogg includes in its public reports an overview of progress by its top five palm oil suppliers.

Mondelez

Mondelez International met its pledge to make all of its palm oil 100 percent RSPO certified in 2013. At the end of 2016, almost all of the palm oil sourced by the company was traceable back to the mill (96 percent) and 99 percent was from supplieres with policies aligned to that of Mondelez. The company has acted against suppliers that did not comply, confirming plans to exit 11 suppliers at the end of 2015. Importantly, the company is leveraging mapping technology (see the "Additional Resouces" section) to prioritize traceability and remediation in partnership with World Resources Institute's (WRI's) Global Forest Watch platform. Finally, the company is requiring palm oil suppliers to adopt forest protection and sustainability policies for their entire supply base - not just palm oil supplied to Mondelez.

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