The Best-Case Scenarios for Palm Oil

Two firsthand experiences with deforestation – one in Ecuador, another in Borneo – inspired Rhett Butler to launch the news site Mongabay, which was named one of the top 15 environmental websites by TIME, and remains one of the most popular sources for conservation and biodiversity news. Trained as an economist, Butler believes he comes to conservation with a broader view of what motivates people to act, and how certain conservation and land use policies are adopted whereas others aren’t. Most recently, he was an advisor to the Showtime series Years of Living Dangerously, which features a prominent episode on palm oil deforestation in Indonesia. Breakthrough caught up with Butler to discuss the economic benefits and environmental hazards of palm oil production, with an eye toward the policies and trends that give us reason to be more optimistic about deforestation.

You’ve written a lot about palm oil plantations and deforestation in Indonesia for Mongabay, which we also looked at in our piece “Can Palm Oil Deforestation Be Stopped?” How do you view the costs and benefits of palm oil for Indonesia?

The reason oil palm is spreading is that it's a highly profitable crop, and there's a lot of revenue coming in for both Indonesians and multinationals. Many middle-class families hold their two hectares of oil palm essentially as a savings account, but there's also a lot of money going to multinationals. Certainly the net present value of oil palm plantations is much higher than any other form of land use.

In terms of the costs, the social and environmental impact of palm oil in Indonesia has been substantial. Millions of hectares of forests, peatlands, and community-managed agroforests have been converted for industrial monoculture. Ecosystem services have been degraded, and in many areas, food security has been greatly compromised by converting land to a single inedible crop. (One cooks with palm oil, but it generally isn’t eaten directly as food.) Beyond that, there are issues like haze, greenhouse gas emissions, biodiversity loss, social conflict, loss of option value, and labor abuses.

How does oil palm expansion compare to logging or other drivers of deforestation?

It really depends on the quality of the forest, but generally logging has a net present value of anywhere between $500 and $4000 per hectare (depending on the species and how heavily you're logging). It underperforms relative to oil palm, but a lot of it has to do with capital costs. Oil palm is a more expensive business and requires a company that is investing long-term, whereas logging you just need some chainsaws and you go at it. So what typically happens is the forest is degraded by logging and once it's degraded to a certain point it makes sense to convert it for oil palm plantation. It takes 20 or 30 years for a heavily logged forest to have commercial timber value again, so it's much more profitable to convert for oil palm plantation. However, the logging industry in Indonesia has been in decline for years because of mismanagement and over-harvesting. Logging was kind of the first wave, and now it's more about plantation expansion. Plantations include timber, pulp and paper, and oil palm.

Doesn’t this sequence of events suggest that palm oil production is part of a larger process of forest clearing that is first driven by logging?

Yes, but I think this is more a product of circumstance rather than planning or foresight.

Is there an alternative to palm oil?

If you're looking to produce vegetable oil then palm oil is a good option, but the issue is really where that expansion is happening. Under the traditional model in Indonesia, the land that tends to be given out is forest land or peatland. There's a long history for why it happens, but it's not really an optimal use of resources, especially when you have all this land that could potentially be utilized for oil palm plantations which currently is being underutilized.

We're talking a minimum of 20 million hectares in the Brazilian Amazon that's non-forest land that could be used for oil palm expansion. It's very low-yielding cattle pasture that has a net present value with current land use of anywhere between -$50 to $100 per hectare, so when you're comparing that to an oil palm plantation that has a net present value of anywhere between $3,000 and $20,000 it's kind of a no-brainer.

If already cutover land is a viable alternative, why are people still clearing rainforests for palm?

To generalize, in Indonesia it has been easier historically to get concessions in forest areas. Degraded lands often have land claims and/or are more troublesome to get concessions for. So if you're a company and have the choice of a relatively clear title or officially sanctioned rights to a concession in a forest area vs. a concession where you have to negotiate with a community or communities, you're probably going to choose the forest. Plus you might have some salvage value from the timber, especially if you also own a logging company or sawmill. These dynamics are changing now with the moratorium and concession-granting practices (eg, corruption in the forest sector) under the microscope. Plus there's talk of incentivizing conversion in non-forest areas, though when and whether that happens is an open question.

Would you say the Indonesian government has been an active participant in conservation efforts?

There's conflict. There are some agencies within the government that are more interested in conserving forests than others. You also have the central government versus the regencies versus the provincial level, so it's a pretty complex story. Some provinces are more conservation-oriented than others. But certainly there have been failings within the government to live up to commitments they've made to protect areas.

The Indonesian government has been criticized for failing to enforce its moratorium on deforestation. What would you say is the main impediment to enforcement for the Indonesian government?

The moratorium as a vehicle for stopping deforestation has not been that effective because deforestation has not slowed down, but I haven't seen the data to correlate the two. The moratorium didn't apply to all the concessions that had been granted prior to when it went into effect, so forests within those concessions are still being cleared. And the moratorium was very limited in extent: it applied to about 14.5 million hectares of previously unprotected primary forest and peatland.

Thinking globally, do you have any examples of policies that were highly successful at reducing deforestation?

I think there are four significant, broad trends that will benefit forests. First, there is increasing transparency and accountability around forest use. For example, Brazil had a monitoring platform that was launched by the government around 2004 and that has created a way to actually see what's happening in forests and to measure change. Global Forest Watch creates a Brazil-style system on a global scale, with the ability to have bottom-up reporting as well as monitoring.

Second, I'm a fan of compensation linked to performance. Things like payments for ecosystem services are important and need to be designed properly to protect against perverse outcomes. REDD is new and hasn't really had a chance to get off the ground yet. It’s also kind of burdened by the whole UN process, but theoretically that could work out really well for many different stakeholders. Again, provided there are proper safeguards.

Third, activist campaigns are becoming more effective is because an increasingly global supply chain is controlled by a relatively small number of companies who are multi-nationals and are sensitive to pressure. They are adopting policies which are really not that expensive in the grand scheme of things, but have a big impact on the ground.

Fourth, there is growing decentralization and recognition of traditional land rights and land tenure in general. That's also really important because generally when people or communities own land, they tend to manage it better than with an open commons.

Looking ahead, what would be your best-case scenario for palm oil production in Indonesia and globally?

For Indonesia it would be important to encourage increased productivity. Boosting yields among smallholders is especially important, as is utilizing degraded, non-forest land, of which there is a lot. You have all these imperata grasslands that are all over the place in Indonesia that could be utilized instead of forest. Communities could be stakeholders in expanding production, where the communities are beneficiaries of the production process rather than the current approach, which is more like debt-bondage in many cases. The best-case scenario for palm oil would be increased production, better use of land, and greater engagement with the people who live on the land.

Photo Credit: Mongabay.com