Palm Oil Profile

Source countries and end-uses

The oil palm (Elaeis guineensis) is native to West Africa and produces an edible oil that has been cultivated for consumption for centuries. In the 19th century it became increasingly popular in Europe as a basis for soap and to lubricate machinery developed during the industrial revolution. The first plantations were established in Sumatra, Indonesia, in 1911, and during the 20th century plantations in Malaysia and Indonesia outstripped African production due to higher yields and relative political stability.

Today palm oil has a much broader range of uses and applications. Chemical processes have been developed to remove its distinctive colour and flavour, producing a tasteless, malleable product that can replace more expensive fats such as butter in industrial food production. It is commonly used as a cooking oil, and in the cosmetics industry for products such as shampoo and lipstick. It is also used as a biodiesel, initially promoted as a low-carbon substitute for fossil fuels, before evidence of emissions from land use change were taken into account.

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Today the vast majority of palm oil is produced in Indonesia and Malaysia (USDA 2016). Indonesia accounts for more than half of global production and Malaysia a further 30 percent. The remainder production is split between other countries across the tropics, including Thailand, Colombia and Nigeria. In recent years an increasing number of projects have been planned, and some realised, in greenfield sites in the Congo Basin and Latin America. Within Indonesia, the island of Papua remains a relatively underexploited but heavily targeted region for palm oil expansion.

Oil palm and rainforest fragment Borneo. Image: T.R. Shankar Raman

Relative importance as driver of deforestation

The establishment of large-scale plantations for palm oil has been one of the leading drivers of deforestation in Indonesia and Malaysia, two of the countries with the highest rates of deforestation in the world. The areas within both countries that have been particularly targeted for palm oil development – Sumatra and Kalimantan in Indonesia (FWI 2015), and Sarawak and Sabah in Malaysia (Grieg-Gran et al 2007) – have the highest rates of deforestation.

Estimates of forest loss that can be directly attributed to palm oil vary, but there is broad consensus that in both Indonesia and Malaysia it is one of the leading drivers of deforestation. One study of forest loss in Riau province, in Sumatra, between 1982 and 2007 attributed 36 percent to palm oil (the largest single cause). A 2013 study ascribed 57 percent of deforestation between 2000 and 2010 in Kalimantan to oil palm expansion. A 2014 study of all of Indonesian deforestation in the same period found that 11 percent occurred in areas licensed for palm oil. (For more detail on these studies see the Indonesia country profile).

In Malaysia, analysis by Forest Trends published in 2014 suggests that of the roughly 900,000 ha of forest lost in Sarawak between 2006 and 2010, 43 percent was converted to oil palm. Grieg-Gran et al. (2007) concluded that of about 1.1 Mha deforested in Malaysia between 1995 and 2005, 70 per cent was cleared to make way for oil palm plantations.

A significant factor in variations between analyses is the lack of transparency over concession maps. This would suggest that most studies underestimate deforestation driven by palm oil by attributing forest loss within unidentified palm oil concessions to other causes.

The increasing strictures placed on forest conversion and land availability in Indonesia and Malaysia has encouraged major palm oil growers to look toward new areas to increase their landbanks. This has led to a proliferation of proposed new projects across the equatorial belt where land is most suitable for palm oil production – in Thailand, Cambodia, Central and West Africa, and Latin America. In all of these areas, forests are being targeted for conversion.

Illegalities associated with production

There is a wealth of evidence to show that companies have taken land for large-scale monoculture oil palm plantations from indigenous communities without their consent in every country targeted by the industry. This practice is particularly well evidenced in Indonesia and Malaysia.

In Malaysian Borneo this constitutes an illegal act, due to the constitutional recognition of Native Customary Rights, that has been upheld by case law. NCR conflicts are a feature in almost every new plantation project in Malaysia, with the situation being particularly serious in the states of Kelantan and Sarawak (Lim 2013). In Indonesia the situation is more complex. While the Constitutional Court has upheld the right of indigenous communities to their land rights, the entire regulatory framework governing forest use and plantation expansion has emerged on the basis that they do not have such rights. As a result, unpicking the legality of plantations on the basis of indigenous rights is a grey area that runs into the existence of parallel legal systems (customary and state) in Indonesia.

Plantations are developed illegally in both countries in a range of other ways, however. There is evidence to suggest that breaches of regulations during plantation development are common across Indonesia and Malaysia. Legally-required Environmental Impact Assessments are a common casualty during the permitting process. In some cases they are not done at all, and in other cases EIA panels are bribed or controlled by vested interests (EIA 2014). It is possible that a majority of concessions in key production areas – Riau and Central Kalimantan in particular – are illegal due to their failure to comply with the Ministry of Forestry’s forest release process. Palm oil companies have also been implicated in the use of fire to clear forest during the establishment of plantations, a criminal offence with globally-significant environmental impacts.

Corruption plagues the forestry sector in both Indonesia and Malaysia. Three-quarters of the cases of alleged illegalities in agro-conversion in Malaysia identified by Forest Trends in 2014 include allegations of corruption. The Chief Minister of Sarawak, his family, and cronies, have benefitted from the allocation of vast areas of land for plantation development (for more detail see Malaysia country profile).

Though the evidence is less exhaustive, there are several cases indicating that the same problems relating to violations of indigenous rights, lack of regulatory compliance and corruption are being replicated in new regions targeted by the industry. Two linked palm oil companies in Peru have been ordered to stop working in their concessions due to evidence that they cleared forest illegally (EIA 2016).

Evidence of serious breaches of environmental and forestry regulations has been found in concessions being developed by oil palm companies in Liberia and Nigeria (for more details see West Africa profile), Cameroon, the Republic of Congo and the Democratic Republic of Congo (see Congo Basin profile). Most of the companies implicated are subsidiaries of major plantation companies based in Asia, with substantial holdings in Indonesia and Malaysia. Though actual developments have been relatively small to date, the total area of the concessions allocated are vast: one agreement in the Republic of Congo covers an area of 470,000ha.

Major destination countries

Palm oil is used and consumed globally, but the biggest markets are within Asia. Of the ten largest consumers, which account for more than two thirds of global trade, seven are in Asia, with India and Indonesia the largest markets (USDA 2016). The European Union represents the third largest market, but further growth is expected in Asian markets due to population growth and an expanding middle-class.

This summary was last updated in September 2016. For more recent information, please see news on palm oil here.