The Price of Palm Oil: How Indonesia’s Rainforests Are Being Wiped Out for Profit
- Vesnyana Stecko
- Mar 18
- 6 min read
“What we are doing to the forests of the world is but a mirror reflection of what we are doing to ourselves and to one another.”
— Mahatma Gandhi
Palm oil has become the world’s most widely used vegetable oil, found in everything from food to cosmetics to biofuels. Although sustainable production of the oil is possible, the rising consumption and growing demand increases the risk of deforestation of tropical rainforests to make way for plantations. The destruction threatens biodiversity while also releasing significant greenhouse gas emissions that contribute to climate change.
Indonesian Rainforests — Rainforest Action Network. Photo: David Gilbert
The role of palm oil in the global market
Palm oil, being a widely attractive ingredient due to its characteristics – texture, taste, and consistency – as well as its affordability, is found in approximately half of all supermarket products. Some of the most common examples for palm oil implication include biofuels, shampoo, body lotion, and packaged foods. On a global scale, it meets a significant portion of all vegetable oil demands, at the same time requiring a relatively small percentage of land dedicated to producing vegetable oils, as reported by the International Institute for Sustainable Development.
The palm oil sector has experienced significant growth in recent years, with its market value exceeding USD 50 billion in 2021[1]. With a projected compound annual growth rate of around four percent, reports from the Food and Agriculture Organization of the United Nations further emphasize the increasing production of palm oil.
Economic impact of Indonesia’s palm oil trade
One of Indonesia's biggest exports, palm oil is in massive demand by leading purchasers China, India, and the EU. But the Indonesian government has promoted increased domestic use over the past few years, especially for biodiesel production. This had the result of leaving less palm oil available for people to use for cooking, driving prices higher in 2021 and 2022. To assist in managing the crisis, the government placed export bans and taxes to maintain supplies stable.
However, the industry has much broader impacts beyond economics. The supply chains exporting to China, India, and Indonesia are associated with far higher deforestation rates than those supplying to the EU. As a result, these three countries are responsible for most of the deforestation linked to Indonesian palm oil. Meanwhile, Western markets, including the US, EU, and UK, mainly source from companies that have pledged to avoid deforestation – but their overall share of Indonesian palm oil exports remains small.
Fig 2. PBC News. Photo: Xander Landen
Environmental costs
"Destroying rainforest for economic gain is like burning a Renaissance painting to cook a meal." [Short-term gain should not cost our planet a future.]
— E.O. Wilson, biologist and conservationist
Large areas of land are cleared of their natural cover to set up palm oil plantations, typically by cutting down dense tropical forests. The forests contain rich and diverse plant and animal life, much of which is unique to these forests. The destruction of forests therefore leads to ecosystem breakdown and irreversible habitat loss.
About 300 football fields of forest are cleared per hour for plantations, leading to endangered species being closer and closer to extinction. Palm oil accounts for 2.3% of global deforestation, according to the European Commission[2]. Indonesia, however, has one of the highest deforestation rates in the world[3]. How much more are we willing to lose?
The deforestation of natural forests not only ruins vital ecosystems but also emits vast amounts of carbon dioxide[4] into the atmosphere, which subsequently leads to climate change. Indonesia is now among the largest emitters of greenhouse gases in the world, alongside the United States and China.
A significant proportion of palm oil emissions result from fires on drained peatlands, one of the most carbon-dense ecosystems on earth. Drained peatlands are highly flammable, and therefore they are responsible for the majority of emissions. While emissions have remained relatively steady over the years, extreme weather events have triggered dangerous spikes. The challenge ahead lies in finding a balance between economic growth and environmental preservation.
Human health costs
Communities throughout Indonesia and its neighboring countries have suffered greatly for nearly forty years due to the poisonous smoke and air pollution caused by the yearly burning of peatlands and forests. Millions of people in Southeast Asia were impacted by the fires in 2015, which were one of the worst environmental catastrophes in recent memory. Up to 100,000 premature deaths are thought to have been caused by the smoke from these fires, according to researchers from Columbia and Harvard Universities[5].
Growing jobs, growing impact
Employment and poverty reduction are one of the reasons there has been such a rapid growth of the industry and therefore extensive deforestation. Indonesia and Malaysia, being the largest producers of the oil globally, directly employ almost five million workers and another six million[6] indirectly, many in rural areas with very few job opportunities. Sustainable palm oil planting also plays a key role in reducing poverty and improving rural infrastructure in producing countries, since, as a consequence, the profit funds schools, healthcare, and other community developments.
Company and government commitments and transparency
Many companies are setting more ambitious “zero-deforestation” targets and No Deforestation, Peat, and Exploitation policies and are already working with the government to prevent deforestation and ensure transparency in their supply chains. Together, these processes have brought the industry closer to accountability.
Furthermore, government intervention has supported these efforts. Indonesia has implemented national certification schemes and placed moratoriums on the expansion of palm oil plantations in forests and peatlands, restricting environmentally harmful growth. Similarly, importing nations – predominantly in the European Union – have enacted legislation prohibiting any imports related to desertification issues.
Programs, such as the Terpercaya Initiative and NI-SCOPS, promote cooperation with policymakers, corporations, civil society, and other major actors to promote sustainability in the industry. In order to ensure that the most progress is achieved, such initiatives, policies, and accountability programs should be implemented and consistently monitored to maintain a balance between economic development and environmental protection.
The promising results, in fact, suggest that conservation efforts may be starting to have an impact. After two years of increase in palm oil deforestation in Indonesia, the forest loss has declined in the course of the last two years. The rate of plantation growth slowed down compared to the previous year, as reported by Nusantara Atlas’s satellite analysis. This reduction also led to a decrease in the conversion of old-growth forests into plantations.
Sustainable alternatives and solutions
Redirecting financial resources toward forest conservation, improvement in smallholder agricultural practices, and rehabilitation of degraded land have the potential to contribute to achieving both environmental sustainability and economic stability.
The 2016 United Nations Environment Programme Report[7] suggests several measures to promote responsible palm oil production: tax breaks and government-backed loan availability should be limited to businesses and farmers who meet specific sustainability guidelines, such as the Indonesian Sustainable Palm Oil (ISPO) certification frameworks and the Roundtable on Sustainable Palm Oil (RSPO).
In addition, local authorities may receive financial rewards for taking an active role in preserving forests so that conservation is adequately financed. Tax legislation must also be restructured so that revenues from palm oil fairly contribute to the public funds. Strengthening land rights of small farmers[8] and providing them with low-interest loans is another important step. It would allow them to use environmentally friendly farming practices and improve their economic security.
Saving the world’s forests is a global challenge and responsibility. In order to make more progress in the pursuit of deforestation-free production, stakeholders in the palm oil value chain have to further intensify their cooperation. So far, it’s great to see that the desire for conservation and the willingness to decrease deforestation is shared globally amongst companies, governments, NGOs, and other stakeholders.
A potential solution? Collaboration of involved parties in making sustainable palm oil value chains a reality. As Timer Manurung from Auriga Nusantara said[9], “the slow-down in expansion offers a chance for the Indonesian government and other stakeholders to work together to improve planning and management of oil palm and other plantations. Encouraging good practices and transparency will serve future generations.”
Sources:
[1] - Voora, V., Bermúdez, S., Farrell, J. J., Larrea, C., & Luna, E. (2023). Palm oil prices and sustainability.
[2] - Deforestation & Palm oil - Sustainable palm oil choice. (2024, July 18). Sustainable Palm Oil Choice. https://www.sustainablepalmoilchoice.eu/deforestation-palm-oil/#:~:text=When%20looking%20at%20global%20deforestation,rubber%20(The%20European%20Commission).
[3] - Vizzuality. (n.d.). Global Deforestation Rates & Statistics by Country | GFW. https://www.globalforestwatch.org/dashboards/global/?category=forest-change
[4] - Coca, N. (2018, December 6). The most important country for the global climate no one is talking about. Vox. https://www.vox.com/energy-and-environment/2018/12/5/18126145/indonesia-climate-change-deforestation
[5] - Smoke from 2015 Indonesian fires may have caused 100,000 premature deaths. (2016, September 19). https://seas.harvard.edu/news/2016/09/smoke-2015-indonesian-fires-may-have-caused-100000-premature-deaths
[6] - State of Sustainability Initiatives. (2024, March 20). Palm oil coverage | State of Sustainability Initiatives. https://www.iisd.org/ssi/commodities/palm-oil-coverage/
[7] - Kissinger, G., United Nations Environment Programme, Nur Masripatin, Pungky Widiaryanto, . . . Estelle Fach. (2016). Fiscal incentives for Indonesian palm oil production: Pathways for alignment with green growth. https://www.un-redd.org/sites/default/files/2021-09/INDONESIA%20FISCAL%20POLICIES%20OIL%20PALM%20V6%20WEB.pdf
[8] - Salazar, M. A. (2016, November 23). Small-scale farming threatens rainforests in Sumatra. Mongabay Environmental News. https://news.mongabay.com/2016/11/small-scale-farming-threatens-rainforests-in-sumatra/
[9] - Nusantara Atlas | Indonesian deforestation and plantation expansion slow. (2022, March 29). Nusantara Atlas. https://nusantara-atlas.org/indonesian-deforestation-and-plantation-expansion-slow/