Widespread cultivation of oil palm trees has been both an economic boon and an environmental disaster for tropical developing-world countries. New research points to a more sustainable path forward through engagement with small-scale producers.

Nearly ubiquitous in products ranging from cookies to cosmetics, palm oil represents a bedeviling double-edged sword. Widespread cultivation of oil palm trees has been both an economic boon and an environmental disaster for tropical developing-world countries, contributing to large-scale habitat loss, among other impacts. New Stanford-led research points the way to a middle ground of sustainable development through engagement with an often overlooked segment of the supply chain (read related overview and research brief).

"The oil palm sector is working to achieve zero-deforestation supply chains in response to consumer-driven and regulatory pressures, but they won’t be successful until we find effective ways to include small-scale producers in sustainability strategies,” said Elsa Ordway, lead author of a Jan. 10 Nature Communications paper that examines the role of proliferating informal oil palm mills in African deforestation. Ordway, a postdoctoral fellow at The Harvard University Center for the Environment, did the research while a graduate student in Stanford’s School of Earth, Energy & Environmental Sciences.

Image

An oil palm plantation in Cameroon (Image credit: Elsa Ordway)

Using remote sensing tools, Ordway and her colleagues mapped deforestation due to oil palm expansion in Southwest Cameroon, a top producing region in Africa’s third largest palm oil producing country (read about related Stanford research). Contrary to a widely publicized narrative of deforestation driven by industrial-scale expansion, the researchers found most oil palm expansion and associated deforestation occurred outside large, company-owned concessions, and that expansion and forest clearing by small-scale, non-industrial producers was more likely near low-yielding informal mills, scattered throughout the region. This is strong evidence that oil palm production gains in Cameroon are coming from extensification instead of intensification.

Possible solutions for reversing the extensification trend include improving crop and processing yields by using more high-yielding seed types, replanting old plantations, and upgrading and mechanizing milling technologies, among other approaches. To prevent intensification efforts from inciting further deforestation, they will need to be accompanied by complementary natural resource policies that include sustainability incentives for smallholders.

In Indonesia, where a large percentage of the world’s oil palm-related forest clearing has occurred, a similar focus on independent, smallholder producers could yield major benefits for both poverty alleviation and environmental conservation, according to a Jan. 4 Ambio study led by Rosamond Naylor, the William Wrigley Professor in the School of Earth, Energy & Environmental Sciences and a senior fellow at the Stanford Woods Institute for the Environment and the Freeman Spogli Institute for International Studies(Naylor coauthored the Cameroon study led by Ordway).

Using field surveys and government data, Naylor and her colleagues analyzed the role of small producers in economic development and environmental damage through land clearing. Their research focused on how changes in legal instruments and government policies during the past two decades, including the abandonment of revenue-sharing agreements between district and central governments and conflicting land title authority among local, regional and central authorities, have fueled rapid oil palm growth and forest clearing in Indonesia.

They found that Indonesia’s shift toward decentralized governance since the end of the Suharto dictatorship in 1998 has simultaneously encouraged economic development through the expansion of smallholder oil palm producers (by far the fastest growing subsector of the industry since decentralization began), reduced rural poverty, and driven ecologically destructive practices such as oil palm encroachment into more than 80 percent of the country’s Tesso Nilo National Park.

A worker in East Kalimantan, Indonesia, loads palm fruit for transport to a factory that will process it into palm oil (Image credit: Joann de Zegher)

Roz Naylor, Director of the Center on Food Security and the Environment talks how technology will help meet the growing demand for food and water in the developing world and why tech companies should invest in Africa.

Casey Maue, a PhD student in the Emmett Interdisciplinary Program in Environment and Resources alogn with Woods Institute Senior Fellow, Erica Plambeck, spent time this spring examining the oil palm supply chain in Ghana. Casey is a 3rd year PhD student and is advised by FSE Director Roz Naylor and FSE Senior Fellow Marshall Burke. Casey's research focuses on the economic dimensions of agricultural development in Sub-Saharan Africa, and the economic impacts of climate change on the agricultural sector. In his dissertation chapter focused on development in the oil palm industry in Ghana, Casey is examining how the provision of informal financial services (such as access to trade credit or informal savings) by different buyers (processors) in the oil palm supply chain determines farmers' output-market decisions, and how relational contracts between farmers and processors that provide access to these informal services can be leveraged to increase supply chain productivity, and the welfare of smallholder oil palm farmers.

Casey and Erica traveled to the municipality of Juaben, located in the Ashanti region of central Ghana, and conducted focus group discussions and in-person interviews with numerous stakeholders working in oil palm. They visited with oil palm farmers and buyers of their fruit – palm oil processors. There are two kinds of palm oil processors in the Ghanaian supply chain, small-scale artisanal mills and larger industrial mills, which compete with each other for the fruit produced by smallholder oil palm farmers. Through this research, Casey and Erica sought to better understand the economic forces that affect a farmer’s decision to sell their fruit to an industrial versus an artisanal mill. Doing so will provide insights that processors can use to design more effective incentives for their suppliers that will increase the quantity and reliability of fruit delivered to them. Fostering more consistent, and trusting relationships between farmers and processors is key to increasing the productivity and profitability of enterprises all along the supply chain, to increasing food security for poor oil palm farmers, and to promoting effective private governance of oil palm’s environmental impacts. 

An interview with authors of the “The Tropical Oil Crop Revolution” predicts the future of soy and palm oil booms by examining the past and present.

Used in everything from food to fuel, soybean and palm oil have seen production rates skyrocket in the past 20 years. Controversy surrounds the planting of oil crops – cultivated primarily in Southeast Asia and South America – as they are often grown on deforested lands and rely on large farmers and agribusiness rather than smallholders. “The Tropical Oil Crop Revolution: Food, Feed, Fuel, and Forests,” a new book co-authored by Stanford University researchers, examines the economic, social and environmental impacts of the oil crop revolution, and explores how to develop a more sustainable future.

Derek Byerlee, visiting fellow at Stanford’s Center on Food Security and the Environment (FSE), FSE Fellow Walter P. Falcon, and FSE Director Rosamond L. Naylor recently discussed some of their book’s key ideas.

Q: What are the key similarities and differences between the rise of oil crops and the 1965-85 green revolution?

A: From 1990 to 2010, world production of soybean grew by 220 percent and production of palm oil by 300 percent. Like the green revolution for cereal crops, this recent revolution involves two crops – oil palm and soybeans – that dramatically expanded shares in their respective crop subsector – oil crops.

The oil crop revolution differs from its predecessor, the green revolution of rice and wheat, in its mode of expansion. The green revolution embraced tens of millions of producers across many countries, especially where irrigation was available. The oil crop revolution was highly concentrated in a few countries and almost entirely in rainfed areas. Unlike the green revolution, which was spurred on by rapid yield gains, the force behind the oil crop revolution was expansion of crop area. 

Q: What are some ways to improve oil palm sustainability?

A: A lot of faith has been put on certification and private standards and commitments. However, without effective land and forest governance, it will be very difficult for the private sector to operate. The state at both national and local levels will need greatly improved and more transparent systems starting from land and forest tenure laws, information systems, civil service capacity and judicial and redress systems. 

Q: How will the future of oil crops differ from the past?

A: By 2050, we predict demand for oil crops to drop by as much as two-thirds. Demand for biofuel feedstocks cannot maintain the rapid pace of the past decade. Vegetable oils used for food will also grow more slowly. In Asia, population growth will slow and the effects of rising incomes will diminish as consumers in middle-income countries reach high levels of vegetable oil consumption.

The biggest wild card in terms of supply is land availability. Africa has the most land available, however access to clear property rights are often difficult due to “customary rights” to the land. Soybean, a new crop in much of Africa, will increase along with oil palm. We believe the area covered by oil crops does not have to expand greatly; rather, intensification of existing crop land and a modest expansion in area can meet demand. Steady progress is possible through genetic gains in yield. Sufficient degraded land is available for area expansion, provided land governance and incentive systems are developed to steer the expansion onto degraded lands.

Q: How has development of the biodiesel industry affected tropical vegetable oils in the past 25 years, and how will it shape the sector going forward?

A: Before the turn of the 21^st century, few analysts predicted that biodiesel would play a major role in boosting global vegetable oil demand and prices. As it turns out, the expansion of biodiesel markets has been responsible for roughly half of the increase in vegetable oil consumption since 2013. Global biodiesel production more than doubled between 2007 and 2013. By some estimates, it could grow another 50 percent by 2025.

National energy policies continue to play a dominant role in the profitability of the biodiesel industry. The growing response of biofuel policies to low agricultural commodity prices is an important factor that is bound to keep biodiesel in the transportation fuel mix. This is true at least in countries that have strong interests oil crops, such as Indonesia, Malaysia, and Colombia in the case of oil palm, and the U.S., Brazil, and Argentina in the case of soybeans. Without policies mandating the use of biodiesel in fuel mixes, or incentivizing its use, the industry might fade away.

Q: What do you believe is the biggest takeaway from your research?

A: We are cautiously optimistic that the future expansion of the oil crop sector can be managed more sustainably. The predicted slowing of demand and land requirements will reduce pressure on native ecosystems. Several signs point to convergence among global consumers, private business, civil society, and local governments in finding ways to minimize the trade-offs between economic benefits and social and environmental costs.

Derek Byerlee, is an Adjunct Professor in the Global Human Development Program at Georgetown University and Editor-in-Chief of the Global Food Security journal. Walter P. Falcon is the Farnsworth Professor of International Agricultural Policy (Emeritus) at Stanford, senior fellow with the Freeman Spogli Institute for International Studies and the Stanford Woods Institute for the Environment. Rosamond L. Naylor is the William Wrigley Professor in Earth Science and Professor of Economics (by courtesy) and Gloria and Richard Kushel Director, at the Center on Food Security and the Environment Stanford.