Consumers should help pay the bill for 'greener' palm oil

Commentary by Rhett A. Butler and Lian Pin Koh
mongabay.com
January 12, 2010



A version of this article appeared today in the Jakarta Post

Palm oil is one of the world’s most traded and versatile agricultural commodities. It can be used as edible vegetable oil, industrial lubricant, raw material in cosmetic and skincare products and feedstock for biofuel production. Growing global demand for palm oil and the ensuing cropland expansion has been blamed for a wide range of environmental ills, including tropical deforestation, peatland degradation, biodiversity loss and CO2 emissions (Koh & Wilcove 2008; Butler & Laurance 2009; Danielsen et al. 2009). In response to these concerns, a group of stakeholders—including activists, investors, producers and retailers—formed the Roundtable on Sustainable Palm Oil (RSPO; www.rspo.org) to develop a certification scheme for palm oil produced through environmentally- and socially-responsible ways. It is widely anticipated that the creation of a premium market for RSPO-certified sustainable palm oil (CSPO) would incentivize palm oil producers to improve their management practices.


Draining and clearing of peat forest in Central Kalimantan. Photo by Rhett A. Butler.
However, the RSPO faces several challenges (Laurance et al. 2009), including the high cost of undergoing certification that currently is entirely borne by producers, and a lackluster demand for CSPO. Following the first shipment of CSPO to Europe in November 2008, less than 3% of the total volume of CSPO produced (~1.05 million tons) had been sold (Butler 2009a). Even after a year, in October 2009, only ~200,000 tons of CSPO (~19%) had been purchased by manufacturers of palm oil products (Butler 2009b). The reason for the slow demand for CSPO is unclear, but is likely due to the global financial downturn causing buyers and manufacturers to be less willing to switch to premium palm oil. The economic crisis may have also affected efforts to promote sustainable consumerism in countries, such as China and India, which are the world’s largest importers of palm oil. A further factor could be a lack of consumer confidence in RSPO’s credibility, stoked by activists’ accusations that certification is the industry’s attempt at greenwashing to mislead consumers (Koh et al. 2009). On the other hand, other environmental groups warn that if the RSPO should fail in its endeavor, the palm oil industry will likely revert to business-as-usual practices that will continue to harm the environment (Butler 2009a).


The 50 Malaysian ringgit note features an oil palm.
Here, we argue that the financial burden and risk of producing sustainable palm oil should not fall solely on producers; instead these costs should be shared among key actors along the palm oil supply chain that includes both traders and buyers. We further argue that at the national level some countries may be more financially capable than others in creating a stronger demand for premium palm oil.




Deforested area and healthy forest in Borneo.
We therefore propose an “ability-to-pay” index that identifies the richest and largest palm oil importing countries as those that are most morally obligated to contribute to developing a successful CSPO market to raise the environmental performance of the palm oil industry. In its simplest formulation, this ability-to-pay index could be a multiplier function of two metrics—a country’s per capita import volume of palm oil and its per capita Gross Domestic Product (GDP). Import is a more appropriate metric to consider than consumption because countries that benefit from importing and re-exporting palm oil (i.e., traders) are also obligated to reduce the environmental impacts of their profiteering activities.

Based on 2007 values of these two metrics (FAO 2009; World Bank 2009), we calculated the ability-to-pay index for 156 countries (Table 1; Appendix S1). The top 10 countries on this list are: the Netherlands, Germany, United States, United Kingdom, Japan, Italy, Belgium, China, France and Spain. The Netherlands justifiably tops the list, being both the second largest importer (1.24 million tons) and the largest exporter (1.25 million tons) of palm oil; and ranks among the richest industrialized nations in the world (per capita GDP: US$46,750). Indeed, six of the “Group of Eight” or G8 nations are represented in this list (i.e., Germany, United States, United Kingdom, Japan, Italy and France). In contrast, although China is the world's largest importer of palm oil (5.4 million tons), by virtue of it being significantly less affluent (per capita GDP: US$2,575) than other major palm oil importers, it is ranked eighth on our list. China also happens to be the only developing country in this group.


All values are for the year 2007. Values for China include Hong Kong. The ability-to-pay index is calculated as the product of per capita palm oil import and per capita Gross Domestic Product (GDP). For some countries, export volume may be larger than the sum of production and import volume because of cumulative palm oil stocks produced or imported in previous years. Data on palm oil statistics were obtained from the Food and Agriculture Organization of the United Nations (2009), and data on GDP and population were obtained from the World Bank (2009). See Appendix S1 for full list of 156 countries.





All data from FAOstat
What are the financial implications of switching from uncertified to certified palm oil for the country and individual consumer? We based our estimates of the cost of large-scale adoption of CSPO on a palm oil price of US$781/ton (2006-08 average; USDA-FAS 2009) and an estimated 15% price differential between uncertified and certified palm oil (RSPO 2009). We found that Indonesia—the world’s largest palm oil producer—which consumes 4.9 million tons of palm oil annually (2008 values; USDA-FAS 2009), would incur an additional cost of US$571 million by switching from consuming uncertified to certified palm oil; whereas for the United States, which consumes 960,000 tons of palm oil annually (and is experiencing rising palm oil demand), the added cost would be US$112 million. For the individual consumer in Indonesia, he or she would need to spend an additional US$2.50, which represents 0.13% of his or her annual income (per capita GDP); whereas an American consumer would only need to spend an extra US$0.40, equivalent to 0.0008% of his or her yearly income. Thus, an individual in a developing country such as Indonesia not only has to shoulder the cost of producing sustainable palm oil, but he or she would also be much heavily burdened by switching to using sustainable palm oil, compared to a consumer in a richer nation such as the United States.

Given the anticipated growth in global demand for edible vegetable oils and biofuels, a certification scheme could prove to be an attractive financial incentive—a key “pressure point” of the industry (Wilcove & Koh 2009)—for farmers to improve their environmental performance. However, for any certification scheme to be credible and feasible, its financial burden would have to be appropriately shared among different stakeholders. In particular, as suggested by our analysis, the richer buyers and traders of palm oil have a moral obligation to ensure the success of certification.

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Rhett Butler is founder of mongabay.com, an environmental science news website with a focus on tropical forests. Dr. Lian Pin Koh is a research fellow at the science and technology university ETH Zurich in Switzerland.







Supporting Information

Appendix S1. Summary statistics used in the calculation of the “ability-to-pay” index for 156 countries engaged in the production, import and export of palm oil. All values are for the year 2007. Values for China include Hong Kong. The ability-to-pay index is calculated as the product of per capita palm oil import and per capita Gross Domestic Product (GDP). For some countries, export volume may be larger than the sum of production and import volume because of cumulative palm oil stocks produced or imported in previous years. Data on palm oil statistics were obtained from the Food and Agriculture Organization of the United Nations (2009), and data on GDP and population were obtained from the World Bank (2009).

Palm oil statistics (tons) GDP
Rank Country Name Production Import Export (million current US$) Population Ability-to-pay
1 Netherlands 0 1,237,817 1,251,807 765,818 16,381,137 57,868
2 Germany 0 1,076,393 185,089 3,317,365 82,268,357 43,404
3 United States 0 787,825 51,553 13,751,400 301,621,000 35,918
4 United Kingdom 0 491,944 21,374 2,772,024 61,001,341 22,355
5 Japan 0 532,209 437 4,384,255 127,770,750 18,262
6 Italy 0 507,622 59,123 2,101,637 59,374,701 17,968
7 Belgium 0 384,574 29,687 452,754 10,625,700 16,386
8 China 221,000 5,415,067 20,237 3,412,676 1,325,235,624 13,945
9 France 0 312,253 11,438 2,589,839 61,707,072 13,105
10 Spain 0 316,159 49,289 1,436,891 44,878,945 10,122
11 Denmark 0 168,846 21,122 311,580 5,461,438 9,633
12 Sweden 0 133,524 24,298 454,310 9,148,092 6,631
13 Russia 0 575,605 750 1,290,082 142,100,000 5,226
14 Australia 0 128,335 87 820,974 21,015,000 5,014
15 Saudi Arabia 0 280,426 4,990 381,683 24,157,431 4,431
16 Korea 0 187,564 39 969,795 48,456,000 3,754
17 India 0 3,514,900 805 1,176,890 1,124,786,997 3,678
18 Turkey 0 365,629 6 655,881 73,885,055 3,246
19 Malaysia 15,823,200 435,845 13,011,131 186,719 26,549,518 3,065
20 Ireland 0 51,024 1,789 259,018 4,366,193 3,027
21 Singapore 0 85,443 175,789 161,347 4,588,600 3,004
22 Mexico 57,000 302,411 636 1,022,815 105,280,515 2,938
23 Greece 0 81,381 13,691 313,354 11,193,366 2,278
24 Austria 0 48,236 613 373,192 8,315,427 2,165
25 Poland 0 164,547 167 422,090 38,120,560 1,822
26 Iran 0 448,057 929 286,058 71,021,039 1,805
27 South Africa 0 299,092 1,001 283,007 47,850,700 1,769
28 Switzerland 0 28,248 15 424,367 7,550,077 1,588
29 Pakistan 0 1,710,437 0 142,893 162,481,399 1,504
30 Ukraine 0 476,809 155,967 141,177 46,509,350 1,447
31 Norway 0 15,672 17 388,413 4,709,153 1,293
32 Canada 0 28,905 882 1,329,885 32,976,000 1,166
33 Namibia 0 305,845 2 7,015 2,080,083 1,031
34 Kuwait 0 23,156 0 112,116 2,662,966 975
35 Portugal 0 41,116 109 222,758 10,608,335 863
36 Bangladesh 0 1,728,006 744 68,415 158,571,814 746
37 New Zealand 0 21,958 8 135,667 4,228,300 705
38 Brazil 190,000 98,607 2,403 1,313,361 191,601,284 676
39 Israel 0 24,563 56 163,957 7,180,100 561
40 Sri Lanka 0 332,855 9,064 32,346 20,010,000 538
41 Finland 0 10,455 14 244,661 5,288,720 484
42 Czech Republic 0 27,195 542 174,998 10,334,160 461
43 Egypt 0 260,667 444 130,476 75,466,539 451
44 Venezuela, RB 70,000 53,385 15 228,071 27,483,000 443
45 Romania 0 51,769 1 165,976 21,546,873 399
46 Vietnam 0 457,616 6,187 68,643 85,154,900 369
47 Philippines 62,000 185,400 8,188 144,062 87,892,094 304
48 Algeria 0 73,474 0 135,285 33,852,676 294
49 Kenya 0 415,970 34,565 24,190 37,530,726 268
50 Angola 55,000 64,100 12,000 61,403 16,948,673 232
51 El Salvador 0 73,711 2,387 20,373 6,853,143 219
52 Tunisia 0 60,289 55 35,020 10,225,400 206
53 Hungary 0 14,577 0 138,429 10,055,579 201
54 Benin 40,000 291,500 236 5,428 9,025,402 175
55 Croatia 0 14,679 226 51,278 4,435,982 170
56 Yemen 0 149,743 746 22,523 22,383,108 151
57 Syria 0 69,893 0 37,745 19,890,585 133
58 Tanzania 6,200 323,226 16,341 16,181 40,432,163 129
59 Lithuania 0 11,226 525 38,332 3,375,618 127
60 Jordan 0 42,509 2,876 15,833 5,718,855 118
61 Sudan 0 92,900 0 46,228 38,555,569 111
62 Trinidad & Tobago 0 6,747 0 20,886 1,333,050 106
63 Azerbaijan 0 28,806 0 31,248 8,556,379 105
64 Bulgaria 0 19,928 2,147 39,549 7,659,764 103
65 Lebanon 0 17,080 315 24,352 4,097,076 102
66 Ghana 109,000 150,900 92,000 15,147 23,461,523 97
67 Peru 34,000 24,031 745 107,297 27,898,182 92
68 Slovak Republic 0 5,846 3 74,972 5,397,318 81
69 Djibouti 0 76,663 1,124 830 832,992 76
70 Kazakhstan 0 11,001 1 104,853 15,484,200 74
71 Serbia 0 12,961 57 40,122 7,381,579 70
72 Colombia 780,000 14,617 315,575 207,786 43,987,000 69
73 Congo 25,000 31,559 30 7,646 3,766,751 64
74 Guatemala 130,000 24,754 110,186 33,855 13,348,222 63
75 Uganda 0 143,703 19,586 11,771 30,916,072 55
76 Chile 0 5,512 4 163,913 16,594,596 54
77 Dominican Republic 32,000 13,132 0 36,686 9,725,569 50
78 Slovenia 0 2,005 36 47,182 2,018,122 47
79 Mauritius 0 8,326 0 6,786 1,260,692 45
80 Mauritania 0 52,308 0 2,644 3,120,981 44
81 Morocco 0 17,440 341 75,119 30,860,595 42
82 Bermuda 0 441 0 5,855 64,000 40
83 Haiti 0 53,757 0 6,715 9,611,554 38
84 Uruguay 0 4,884 163 23,136 3,323,906 34
85 Nicaragua 8,800 32,102 1,092 5,726 5,604,596 33
86 Senegal 6,100 34,885 1,459 11,165 12,411,094 31
87 Cameroon 172,000 27,355 68 20,686 18,532,799 31
88 Gabon 6,400 3,089 997 11,568 1,330,182 27
89 Panama 14,000 4,286 2,674 19,485 3,340,605 25
90 Cyprus 0 990 0 21,277 854,673 25
91 Mozambique 0 55,200 0 7,790 21,372,202 20
92 Mali 0 34,600 94 6,863 12,334,168 19
93 Costa Rica 185,600 3,252 144,339 26,267 4,462,193 19
94 Ethiopia 0 69,585 0 19,395 79,086,894 17
95 Jamaica 0 3,832 2 11,430 2,675,800 16
96 Malta 0 844 0 7,449 409,197 15
97 Guinea 50,000 26,700 280 4,564 9,380,197 13
98 Gambia 2,550 34,000 1 644 1,706,767 13
99 Fiji 0 3,098 0 3,431 834,278 13
100 Latvia 0 1,029 16 27,155 2,276,100 12
101 Kiribati 0 13,413 0 78 95,067 11
102 Niger 0 29,326 2,299 4,170 14,195,085 8.62
103 Argentina 0 1,267 0 262,451 39,503,466 8.42
104 Uzbekistan 0 9,800 0 22,308 26,867,800 8.14
105 Bosnia & Herzegovina 0 1,957 13 15,144 3,772,964 7.86
106 D.R. Congo 104,000 47,353 652 8,953 62,399,224 6.79
107 Belarus 0 1,400 0 44,773 9,702,000 6.46
108 Libya 0 681 0 58,333 6,156,488 6.45
109 Burkina Faso 0 13,800 484 6,767 14,777,431 6.32
110 Estonia 0 381 2 20,901 1,341,672 5.94
111 Togo 7,000 14,635 2,226 2,499 6,580,669 5.56
112 Thailand 965,000 1,407 283,065 245,351 63,832,135 5.41
113 Rwanda 0 15,691 0 3,339 9,735,541 5.38
114 Cote d'Ivoire 288,819 5,021 89,381 19,796 19,268,303 5.16
115 Madagascar 3,500 13,623 308 7,382 19,669,953 5.11
116 Mongolia 0 3,368 0 3,930 2,608,412 5.07
117 Guyana 0 3,150 0 1,080 738,548 4.61
118 Cambodia 0 7,185 2,546 8,350 14,446,056 4.15
119 Macedonia 0 1,037 10 7,674 2,037,032 3.91
120 Botswana 0 513 0 12,311 1,881,432 3.36
121 Liberia 34,800 16,581 638 735 3,713,868 3.28
122 Moldova 0 2,717 0 4,396 3,803,704 3.14
123 Honduras 175,000 1,728 178,047 12,234 7,103,786 2.98
124 Papua New Guinea 395,000 3,000 368,300 6,259 6,324,097 2.97
125 Zambia 0 2,863 0 11,363 11,919,870 2.73
126 Seychelles 0 310 0 728 85,032 2.65
127 Sierra Leone 36,000 8,964 152 1,664 5,848,320 2.55
128 Samoa 0 870 0 525 181,293 2.52
129 Albania 0 708 0 10,831 3,181,326 2.41
130 Indonesia 16,900,000 1,154 8,875,419 432,817 225,630,065 2.21
131 Malawi 0 8,632 0 3,563 13,920,062 2.21
132 Iceland 0 28 0 19,963 310,997 1.8
133 Kyrgyz Republic 0 2,374 0 3,745 5,234,800 1.7
134 Comoros 0 2,246 0 449 628,410 1.6
135 Guinea-Bissau 6,350 6,942 9 357 1,694,653 1.46
136 Georgia 0 537 0 10,175 4,398,588 1.24
137 Armenia 0 390 0 9,204 3,009,162 1.19
138 Nigeria 1,300,000 726 157 165,469 147,982,941 0.81
139 Bahamas 0 37 0 6,571 331,140 0.73
140 Bolivia 0 420 13,120 9,517,537 0.58
141 Central African Republic 1,700 1,352 0 1,712 4,343,405 0.53
142 Turkmenistan 0 100 12,933 4,963,332 0.26
143 St. Lucia 0 44 0 980 167,975 0.26
144 Ecuador 295,000 76 171,638 44,490 13,339,580 0.25
145 Montenegro 0 41 3,477 599,006 0.24
146 St. Kitts & Nevis 0 20 527 48,790 0.22
147 Bhutan 0 79 1,096 657,401 0.13
148 Cape Verde 0 48 1,434 530,269 0.13
149 St. Vincent & the Grenadines 0 26 553 120,325 0.12
150 Vanuatu 0 57 1 452 225,898 0.11
151 Luxembourg 0 1 0 49,460 479,993 0.1
152 Swaziland 0 30 0 2,894 1,147,616 0.08
153 Solomon Islands 35,800 34 19,745 388 495,362 0.03
154 Tonga 0 10 253 102,214 0.02
155 Burundi 1,800 167 98 974 8,495,915 0.02
156 Nepal 0 36 1,753 10,315 28,107,592 0.01


Literature Cited
  • Butler, R. A. 2009a. Failure to support greener palm oil may lead industry to abandon environmental measures. Mongabay.com (accessed October 2009).
  • Butler, R. A. 2009b. Sales of Certified Palm Oil Grow. Mongabay.com (accessed October 2009).
  • Butler, R. A., and W. F. Laurance. 2009. Is oil palm the next emerging threat to the Amazon? Tropical Conservation Science 2: 1-10.
  • Danielsen, F., et al. 2009. Biofuel plantations on forested lands: double jeopardy for biodiversity and climate. Conservation Biology 23: 348-358.
  • FAO 2009. FAOSTAT Online Statistical Service. Food and Agriculture Organization of the United Nations, Rome, Italy. Available from http://faostat.fao.org (accessed October 2009).
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CITATION:
Commentary by Rhett A. Butler and Lian Pin Koh
mongabay.com (January 12, 2010).

Consumers should help pay the bill for 'greener' palm oil.

http://news.mongabay.com/2010/0112-palm_oil.html