{"id":79087,"date":"2022-04-28T14:27:39","date_gmt":"2022-04-28T14:27:39","guid":{"rendered":"https:\/\/chinadialogue.net\/?p=79087"},"modified":"2022-08-22T16:25:52","modified_gmt":"2022-08-22T16:25:52","slug":"as-war-drives-up-the-price-of-palm-oil-is-sustainable-production-at-risk-2","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/food\/as-war-drives-up-the-price-of-palm-oil-is-sustainable-production-at-risk-2\/","title":{"rendered":"As war drives up the price of palm oil, is sustainable production at risk?"},"content":{"rendered":"\n

Global palm oil prices have soared in recent months, with other vegetable oils including sunflower and soy on similar trajectories, driving the UN Food and Agriculture Organization\u2019s vegetable oil price index to a record high<\/a> in February \u2013 a peak that has continued to rise.<\/p>\n\n\n\n

A perfect storm of issues had already contributed to this skyward surge. The Covid-19 pandemic has brought various difficulties in logistics, and government mandates<\/a> on using palm oil in alternative fuel blends have meant more demand. There have also been supply shortfalls, aggravated by droughts in Latin America<\/a>, and labour shortages and floods in Malaysia.<\/p>\n\n\n\n

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Further price spikes have now been set off by the shock of Russia\u2019s invasion of Ukraine, and the subsequent rollout of sanctions on Moscow and its allies. Rising petroleum prices have impacted shipping costs and boosted the viability of using palm oil as an alternative fuel, and as a replacement for vegetable oils from Russia and Ukraine. US Department of Agriculture data shows that Russia and Ukraine together account for about 2%, 8% and 57% of global soybean, rapeseed and sunflower seed production respectively, and are significant presences in global exports of soybean oil (7%), rapeseed oil (20%) and sunflower oil (77%).<\/p>\n\n\n\n

The halt to shipping at Black Sea ports and sanctions on the SWIFT payment system are major concerns, which will only intensify if the war is protracted. The surprise moves earlier last month by Indonesia, the world\u2019s number one vegetable oil producer, to restrict exports<\/a> \u2013 and a few days ago to ban them altogether<\/a> \u2013 as it struggles to counter domestic cooking oil shortages, have also contributed to making palm oil more costly.<\/p>\n\n\n\n

This blend of circumstances has triggered a remarkable rise on pre-pandemic prices. The palm oil futures price, traded on the Bursa Malaysia Derivatives<\/a>, has risen from monthly levels of around US$475 per tonne between June 2018 and September 2019, all the way up to US$1,627 on the eve of the war<\/a>. It has since spiked to a new high of about US$1,942 on 1 March, before easing to below US$1,642 in mid-March. In comparison, the previous peak was US$1,280, in 2011.<\/p>\n\n\n\n

As the market weathers soaring prices and supply pinches, how both industrial and smaller growers, and national regulators, respond will be of great importance to the continued progress of efforts to support sustainable palm oil production, and to curtail palm-linked deforestation.<\/p>\n\n\n\n

Declining deforestation in Southeast Asian plantations<\/h2>\n\n\n\n

The vast majority of palm oil is derived from the African oil palm, which has a 25-year life cycle. Malaysia and Indonesia account for about 23% and 59% of global palm oil production respectively, according to USDA. The recent trend has been rising supply constraints. Over the past five years, USDA data shows, Malaysia has produced an average of 19.3 million tonnes a year, but 2021\/22 saw a 3% drop on this average \u2013 a result of acute labour shortages and the limited land left for expanding production in the country.<\/p>\n\n\n\n

As for Indonesia, production is still on an upwards curve, despite slowing growth of land area used for cultivation, driven by policy moratoria on peatland development, deforestation and new concessions \u2013 freezes that have chafed with business aspirations. Meanwhile, the country\u2019s hectarage with mature oil palms (aged 9 to 18 years for peak crop yields) is rising, with 2021\/22 production hitting 44.5 million tonnes of palm oil, a 2.3% increase on the previous year.<\/p>\n\n\n\n

Dominated by large plantations in Indonesia and Malaysia \u2013 including a few giant plantation groups that control hundreds of thousands of hectares each \u2013 the sector has in recent decades acceded to voluntary sustainability schemes, notably the Roundtable on Sustainable on Palm Oil (RSPO), which was initiated in 2004. This certification has greatly helped to reduce both upstream greenfield expansion<\/a> by its members and limited them from acquiring plantations from non-members, who practised looser environmental standards to land development. In a landscape where three or four companies control three-quarters of global volume, efforts towards sustainability have been strengthened by moves by palm trader-processors to adopt pledges on \u201cNo deforestation, no peat, no exploitation\u201d (NDPE). These have also been accompanied by numerous traceability efforts<\/a>, including trace-to-mill or even stricter trace-to-plantation and trace-to-farm initiatives.<\/p>\n\n\n\n

These endeavours have slowed the expansion of the area of industrial plantations, as illustrated by data from TheTreeMap<\/a>, a forest-loss tracking initiative (see chart below). According to Chain Reaction Research<\/a>, a sustainability risk analysis group, in 2021 a total of 19,000 hectares of forest land was cleared for industrial oil palm plantation development in Malaysia, Indonesia and Papua New Guinea \u2013 the world\u2019s eighth largest<\/a> producer country \u2013 far lower than the 90,000 hectares and 38,000 hectares recorded in 2019 and 2020 respectively.<\/p>\n\n\n\n