Pouring oil on troubled waters

Palm oil, the edible vegetable oil derived from the fruit of oil palms, has a wider usage than some might be inclined to believe. A product whose industry’s exports are worth $26.4bn worldwide according to MIT’s Observatory of Economic Complexity (OEC), palm oil is found in such everyday products as biodiesel, soap, detergent, lipstick, shampoo and product products including chocolate, ice cream and packaged bread. Indonesia is the top exporter of the product with its exports valued at $14.4bn, followed by Malaysia and the Netherlands, while India, China and Pakistan are, in order, the three countries who import it the most.

However, environmental and social concerns regarding the production of palm oil threaten to dent demand in the future. According to WWF, large amounts of tropical forests and other ecosystems have been removed for monoculture oil palm plantations, something which has destroyed critical habitat for many endangered species. Sometimes, forest-dwelling peoples have been forced to leave their homes. Other negative consequences of the establishment of huge monoculture oil palm plantations, WWF claims, include soil erosion, air pollution, soil and water pollution and climate change. Activist group Say No To Palm Oil even goes as far as to say that the palm oil industry is connected to major issues including animal cruelty and indigenous rights abuses in the countries where it is produced. Nestlé, Mars and Hershey have all pledged to stop using “conflict palm oil” from deforested Indonesian jungles, but have been accused of breaking these promises by the Rainforest Action Network, according to a Guardian article from late October.

The current picture

Could these moves significantly dent the seaborne transportation of the product? It seems not as rather than observing a fall in demand in light of environmental concerns surrounding its production, the statistics seem to indicate that it is boomtime for the commodity. According to Reuters, in late October, the annual economic report of the government of Malaysia – palm oil’s second biggest exporter – predicted production of the commodity to grow a sizable 15.5% to 20m tonnes this year, and to 20.5m tonnes in 2018 because of better yields and expansion into matured areas. The report also forecast the price of the commodity in 2018 “to rise bolstered by higher demand, particularly from China, the (European Union) and India”.

Indeed, India’s demand for palm oil shows no sign of slowing down. In October, the Solvent Extractors’ Association of India said that the country’s imports of the commodity rose for an eighth straight month in September as smaller international prices spurred traders and refiners to purchase more to meet festival demand. Compared with the same month a year before, the association said, imports increased 20.4% to 931,637 metric tonnes in September. Demand for the commodity generally spikes during the festival period in India when Hindus celebrate major festivals like Dussehra and Diwali between September and November.

The European Union (EU) has not shied away from using palm oil either. Cumulative EU imports of palm oil so far in 2017/18 were reported at 1.9m tonnes, up 8% versus the year-earlier volume of 1.75m tonnes. In September, it said that Indonesian exports of the product to the EU increased around 40% in H1 2017 from the year before.

Looking to the future

However, just because the EU is still using palm oil doesn’t mean that the organisation wants to continue to use it abundantly. With palm being criticised for its effect on forest destruction, producers are said to be looking at new markets including Africa and Myanmar and are even making uncommon barter deals. According to Reuters, the EU is the second-largest palm oil export destination after India for both Malaysia and Indonesia. But in April, the EU voted to phase out unsustainable palm oil by 2020, with the resolution endorsing a single Certified Sustainable Palm Oil (CSPO) plan for Europe-bound palm and other vegetable oil exports to make sure they are created in an environmentally-sustainable manner.

France also announced in July that it will reduce the use of the commodity in biofuels over fears of “imported deforestation”, prompting concerns from Indonesia that other EU countries could follow its lead. Additionally, Germany has said it will push to change an EU renewables directive to take account of a study showing the much greater greenhouse gas emissions per energy unit through indirect land use change of both palm oil and soyoil.

Still, for those who work with palm oil, all is not lost. The positive statistics for the product show that demand for it is still high and it will likely be a long time before palm oil is not commonly used. Even if this time comes, operators in these trades could find that they can make a compensatory switch to alternatives. Scientists are already looking for sustainable alternatives to palm oil, which could be other vegetable oils, such as rapeseed or coconut, or more hi-tech options. Those alternatives could become the key ingredient of the biodiesels, lipsticks and ice creams of tomorrow.