The Daily Update - Say No to Palm Oil!

‘Say No To Palm Oil!’ A commonplace statement; a call to be kinder to our planet. According to lobbyists, climate change, the world's forests, and indigenous tribes, animals and plants will remain under threat as a result of the growing use of palm oil in a multitude of everyday foods (over 70% of total palm oil production), fuels, consumer goods and cosmetics contain palm oil. To add to environmentalists’ woes, palm oil demand is expected to remain strong having doubled in the last 12 years. Palm overtook Soybean oil, in terms of output, back in 2005 as strong pre-global financial crisis growth helped drive demand globally; the gap has continued to widen ever since. On the flip side however, palm oil production has provided jobs for millions of people, thus playing a part in poverty reduction in producer countries.

Around 86% of all palm oil originates from Indonesia and Malaysia, with current net-importer Brazil wanting to join the ‘party’. The phenomenal growth in the palm oil industry has seen Indonesia and Malaysia lose acres upon acres of forest already, which are regularly burnt down to make way for these high yielding palm trees. The situation is so bad in Indonesia that it was named the country with the fastest pace of deforestation by the Guinness Book of Record in 2008, and just last year Indonesia temporarily trumped the US to become the world's largest emitter of greenhouse gas emissions. Palm oil is by no means Indonesia's largest export either with the most recent economic figures calculating its share of the country’s total exports is around 8%, however, it does take the lion’s share of world palm oil exports, at 46%. Also, despite the El Nino effect last year the country’s crude palm exports were up a massive 60.6% yoy in April.

As with other commodities, palm oil had a rocky first half of the year, the June lows were particularly interesting considering Ramadan has historically been a huge driver of demand for palm cooking oil. Although prices have rebounded 6.50% so far this month, they remain depressed as output is expected to pick up into the end of the year on a year-on-year basis; the crop suffered a fall in harvest after El Nino struck in 2015. Although exports of palm oil have strengthened significantly over the past decade, it appears that demand could be tipping the other way as alternative oilseed production is on the increase. Soybean, cottonseed, corn and sunflower seed production for example are expected to maintain rapid growth thus weighing on palm oil demand; soybean in particular is threatening demand for palm oil. Considered a primary substitute, soybean has seen a jump in production from the likes of Brazil.

So what is the solution to curbing palm oil’s environmental footprint. Is there really a straightforward answer? Surely replacing production of the highest yielding oil, i.e. palm for an alternative, e.g. soybean, will simply result in similar environmental consequences. But what if consumers only bought sustainable products? Back in 2004 the Roundtable on Sustainable Palm Oil (RSPO) was formally established to ‘help reduce the negative impacts of palm oil cultivation on the environment and communities.’ But currently only 17% of global palm oil supply is certified as sustainable. It is not just the likes of ‘tree-huggers’, Greenpeace and the WWF taking a stand against the use of palm oil. Last week France’s new Environment Minister, Nicolas Hulot, stated the country’s intention to ban the importation of products such as palm oil and unsustainably grown soya by 2040. This follows a number of bills put forward by France back in 2012 requesting a special tax targeted at environmental damage resulting from their plantations. These bills were obviously rejected by Indonesia and Malaysia claiming discrimination and a breach of international rules. If however a portion of profits was used to focus on education, and certifying more plantations, countries such as France would not feel the burden of ‘imported deforestation’ any longer.

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