This article is a longer version of story that appeared at Yale e360: In Brazil, Palm Oil Plantations Could Help Preserve Amazon.
For years now, environmentalists have become accustomed to associating palm oil with large-scale destruction of rainforests across Malaysia and Indonesia. Campaigners have linked palm oil-containing products like Girl Scout cookies and soap products to smoldering peatlands and dead orangutans.
Now with Brazil announcing plans to dramatically scale-up palm oil production in the Amazon, could the same fate befall Earth’s largest rainforest?
According to analysis by Brazil’s agricultural research agency Embrapa, more than 2 million square kilometers of the Brazilian Amazon is suitable for oil palm cultivation — an area four times the size of France. By comparison, Indonesia and Malaysia, which account for nearly 90 percent of global palm oil production, have less than 130,000 square kilometers of oil palm. On paper, Brazil could become a palm oil giant. It has huge capacity to expand its roughly one thousand square kilometers of oil palm.
With this potential, and palm oil prices hovering around $1000 a metric ton, there is a frenzy of activity in the Brazilian palm oil sector. Archer Daniels Midland (ADM), mining giant Vale, and the state-run oil company Petrobras Biofuels have announced major Amazon palm oil deals in the past 18 months. Several other major companies are looking to expand production in the region. The government has announced a target of 5 million hectares (50,000 sq km) by 2020.
Yet there is a conspicuous lack of hand wringing by environmentalists in the Amazon. The reason: done right, oil palm could emerge as a key component in the effort to save the Amazon rainforest. Responsible production there could even force changes in other parts of the world.
Planted on the degraded pasture land that abounds in the Brazilian Amazon, oil palm could generate more jobs and tax revenue than the dominant form of land use in the region: low intensity cattle ranching. If it replaces pasture, not forest, oil palm could buffer the forest frontier against fire, maintain and restore ecological functions like evapotranspiration, and help intensify cattle production in nearby areas (palm kernel, a byproduct of palm oil production, can serve a protein-rich feed).
Oil palm expansion in Brazil could have global repercussions. Although relatively little Brazilian palm oil would reach international markets in the immediate future (most production is expected go toward domestic biodiesel), the oil that did reach market would be especially attractive to companies worried about their reputation since Brazil’s legal framework inherently makes more demands on producers than in other parts of the world. As Greenpeace campaigns have demonstrated in recent years with leather, palm oil, soy, and paper, big consumer-facing brands don’t want to be associated with deforestation. Asian palm oil producers targeting these buyers would face new competition from Brazil, which is closer to the most sensitive markets in the U.S. and Europe.
“While labor costs may be higher Brazil may be well positioned from a transportation standpoint vis-à-vis some of the Southeast Asian sources,” said David McLaughlin, vice president of agriculture for WWF. “Brazil into the U.S. would be very cost competitive.”
Palm oil versus beef and leather
Oil palm is among the most productive and profitable tropical crops. A 10-hectare plantation can yield palm oil worth upwards of $7,000/year for a planter, far in excess of ranching or farming. But its profitability has spurred unbridled expansion in Southeast Asia, wreaking havoc on the environment. More than half of oil palm expansion since 1990 has occurred at the expense of tropical forests, while production has fouled rivers, contributed to air pollution, and released billions of tons worth of carbon dioxide into the atmosphere. Producers have at times run roughshod over traditional forest users, resulting in social conflict. Accordingly, the industry is increasingly battered by criticism from human rights groups and environmentalists.
So why would palm oil in the Amazon be different?
Today there is little oil palm grown in Brazil–100,000 ha is a rounding error in Malaysia or Indonesia. That, combined with the vast extent of both forest and deforested land in Brazil, means that oil palm’s footprint in the Amazon is minuscule relative to that of Southeast Asia. Cattle ranching is the big driver of deforestation in the Brazilian Amazon.
Cattle pasture occupies more than 70% of deforested land in the Amazon and is detrimental to biodiversity, climate, and the economy–most cattle operations in pasture areas lose money and generate little direct employment, perhaps one job per thousand acres of ranch. Worse, conversion to cattle pasture obliterates forest, resulting in a near-complete loss of stored carbon and wildlife. The loss of vegetation cuts transpiration, affecting local rainfall. Where large areas of rainforest have been converted for cattle pasture, it becomes drier and more susceptible to drought and fires, which sometimes spread into adjacent forest areas. Smoke triggers health ills and interferes with transportation and rain cloud formation. Cattle themselves cause problems, compacting the soil, damaging local waterways, and worsening erosion. Meanwhile processing their hides pollutes rivers and streams with toxic chemicals. In short cattle ranching, as traditionally practiced in the Amazon, is often a menace to the environment.
Palm oil is a much different agricultural product. First and foremost, the oil palm is a tree, meaning that it absorbs carbon dioxide and releases water vapor as it grows. The result is oil palm stores six to seven times the amount of carbon as cattle pasture over its 25-year economic lifespan. It further contributes to local rainfall, at least relative to cattle pasture.
“Large-scale expansion of oil palm plantations on pasture lands in the Amazon would help mitigate regional climate change, exemplified by the severe droughts of 2010 and 2005, by re-establishing year-round evapotranspiration (water loss to the atmosphere) in an important region of the eastern Amazon, which lies upwind of the rest of the Basin and is an important source of water vapor for rainfall systems,” said Daniel Nepstad, a scientist who co-founded the Amazon Environmental Research Institute (IPAM). “Cattle pastures have very low levels of evapotranspiration in the dry season which can inhibit downwind rainfall.”
Oil palm still lags behind forest in terms of ecosystem services, but it far exceeds pasture in generating rainfall, storing carbon, and providing ground cover to reduce soil erosion.
Oil palm looks even better from an economic standpoint. Beyond the high returns from palm oil and derivative products like palm kernel — which can serve as protein-rich feed for cattle and other livestock — oil palm generates significantly more employment than ranching, mechanized soy farming, or logging. Agropalma, which is currently Brazil’s largest palm oil producer, employs one worker per 8 ha of plantation. By comparison, an industrial soy farm typically has one worker per 180 ha, while a cattle ranch would have less than a tenth as many. With higher revenue and employment, palm oil thus offers the potential to generate substantially higher tax revenue.
Recognizing the upside, the Brazilian government aims to expand oil palm aggressively over the next decade. But its 5 million hectare target may be too high—Agropalma believes it unlikely that Brazil will be able to plant more than ten percent of that by 2020.
“Realistically in 10 years we expect 500,000 ha maximum,” Marcello Brito, commercial director Agropalma, tells mongabay.com. “This estimate is based on the availability of seed and labor.”
Challenges for Amazon palm oil
Oil palm expansion in the Amazon faces several challenges. First, oil palm is not an easy crop. Unlike low-intensity cattle ranching, oil palm requires technical expertise to plant, harvest, and guard against disease (a serious concern in the Amazon, which has native palm species in the same family as commercial oil palm).
“If oil palm is going to work, there needs to be a lot of technical assistance because oil palm is a high management crop,” says Daniela Lerda, a biofuels sustainability consultant for Petrobras Biofuels.
Oil palm is also expensive to establish. Palm fruit bunches need to processed within 48 hours, meaning roads and mills need to be built. Further, substantial acreage—on the order of tens of thousands of acres—is needed to offset the capital cost of a processing facility.
A bigger challenge comes in the form of compliance with Brazilian law, which on paper is quite strong, but in practice can be ill-defined and inconsistently enforced, especially in the regions where palm oil expansion is most likely to occur. Companies looking to acquire pasture for oil palm development immediately run up against Brazil’s archaic land-titling system, which makes it difficult to determine who rightfully owns land. While the government is working to “regularize” its title system through land registries and legislative reform, the system remains rife with fraud and conflict over land is common in much of the Amazon: nearly 400 rural workers and farmers have been killed in land disputes over the past decade, according to the Pastoral Land Commission. An uncontrolled palm oil boom could exacerbate already rampant social conflict and violence.
Like other capital-intensive industries, palm oil operators are more exposed to legal sanctions and pressure from NGOs than less formal sectors like ranching and logging. But compliance is expensive. Agropalma estimates costs of palm oil production in Brazil are at least twice those of Indonesia due to labor and environmental laws. For example, Brazil’s current Forest Code—which is in the process of being reformed, and potentially weakened—requires landowners in the Amazon to keep 80 percent of their land forested. This cost is passed on to anyone who buys or leases the land. Therefore a company cannot only buy a block of pasture in the Amazon—it must also secure, or pay the cost of, a forest reserve. In practice this means for every hectare of palm oil, a company needs to have a land bank of another 2-4 ha. Further complicating the situation, a lot of Amazon land that has been converted for pasture isn’t suitable for oil palm due to seasonal flooding. Measures to overcome this—such as building mounds and drainage canals—are often cost prohibitive.
An additional obstacle is social. Oil palm generates substantially more direct jobs than ranching, logging, or industrial farming, but these jobs are low paying and therefore require laborers from poorer parts of Brazil, like the northeast. However if migrants come faster than the industry can absorb them or their populations grow too quickly, the extra people may seek employment in industries that destroy forests: ranching and logging, undermining the beneficial effects of switching to palm. Furthermore, stopping expansion of ranching may have knock-on effects for local informal job markets. Many people currently live off the illegality that accompanies cattle ranching, especially illegal logging and charcoal production.
These challenges mean oil palm in the Brazilian Amazon probably won’t take the scorched Earth approach that has — fairly or unfairly — come to represent palm oil growers in Southeast Asia and the Amazon cattle ranchers. The Brazilian government has also enacted policies to promote more sustainable palm oil production.
Safeguards
Under policies at the federal level, Brazil has established agroecological zones to encourage development across 29 million ha specifically suited for oil palm. Compliance is encouraged through a financial incentive system based around access to credit and insurance against crop losses due to drought, excess rainfall, or fire. Primary forest areas are explicitly excluded from receiving low interest credit from government banks. At the state level, the secretaries of agriculture have defined which municipalities can grow oil palm and zoned areas are covered by Brazil’s satellite-based deforestation monitoring system, which detects forest clearing on a near-real time basis.
Brazil has also sought to address some of the social concerns over palm oil. Its 2005 Biodiesel Plan established the Social Fuel Seal, which aims to promote smallholder biodiesel production. To qualify for the deal, a company must source at least half of its feedstock from “family farms,” which are less than 25-acres in extent. Doing so enables a company to qualify for low interest credit from state-run banks. But the seal is costly to attain. A company must sign contracts with individual farmers, fund training, and help landowners demarcate their properties.
Petrobras Biofuel’s Ledra believes a lot of companies won’t bother with certification. A firm in good standing can avoid these inconveniences by raising money from private sector banks, which have higher rates, but fewer restrictions. There’s also a risk that state-run banks will not follow their own rules: a 2011 investigation by the federal prosecutor in the state of Para concluded that the state-run Banco do Brasil and Banco da Amazonia regularly ignored protocols in their agricultural lending, making loans to companies that illegally cleared Amazon rainforest and used slave-like labor.
Further complications for companies arise from competing standards and regulations. Producers keen on selling in lucrative overseas markets will likely seek certification under the Roundtable on Sustainable Palm Oil (RSPO), but Brazil has yet to set a national interpretation for the initiative. Under RSPO any land deforested after to 2005 will be off-limits from certification, but Brazil’s own cut-off date is 2007. Nor does Brazil have an official definition of “degraded land.” So while regulations may prohibit conversion of forest, regrowth of natural forest on pasturelands can lead to headaches for companies that want to avoid criticism on biodiversity impacts. Involvement of smallholders can also complicate matters. Brazilian law requires projects of more than 1,000 hectares to conduct an environmental impact assessment, but it isn’t clear whether such paperwork is necessary when many smallholders establish sub-10-ha plantations that supply a single company.
For Roberto Smeraldi, director of the environmental group Amigos da Terra – Brazilian Amazonia, optimism for palm oil is tempered by these realities on the ground.
“There are reasons for concern due to the lack of governance that might make palm oil expansion a risk factor once developed in the region,” he says. “I also tend to be skeptical on any approach based on a single crop.”
Brazil’s environmental laws often go unenforced. And there is a new effort to undo existing regulations: the agricultural lobby has pushed a bill through Brazil’s lower house that will substantially reduce the legal reserve requirement under the Forest Code. While the law is widely flouted at present, environmentalists fear the changes will effectively grant amnesty to thousands of illegal deforesters.
All of this suggests palm oil alone will not be a panacea for the Amazon, but it could help generate income and livelihoods in already deforested areas while stabilizing forest cover and serving as a bulkhead against fire.
“Oil palm is better than pasture in multiple dimensions,” Tim Killeen, of Conservation International, told mongabay.com. “It will act as a fire-break, because it is valuable and people will protect it.
“At current prices, it can provide a Brazilian smallholder a ticket to the middle class. Anybody can do the math: 200 kilos of meat per hectare versus 4 tons of oil per hectare. Plantations create jobs, but a smallholder model creates a middle class.”
Global competition
Whether Brazil’s sustainable palm oil push bears fruit will be contingent on the Brazilian government’s willingness to enforce policies and industry’s desire to access premium markets. Biofuel represents the least profitable use of palm oil—the real money is in selling to consumer food and beauty product manufacturers, which are also the most sensitive to environmental concerns. That’s where Brazil’s palm oil push could really have an impact.
“We’re not going to be a competitor in markets that don’t care about sustainability,” says Agropalma’s Brito. “We believe Brazil will be a good producer, but not a big producer.”
But even if Brazil’s palm oil production misses the government’s ambitious targets, it could pressure producers in Southeast Asia and Africa, where oil palm development is fast-increasing.
“Amazon oil palm plantations could mitigate climate change at the global level by depressing the price of palm oil, competing with Southeast Asian firms and potentially suppressing expansion into peat forests,” says IPAM’s Nepstad.
It’s too soon to predict what kind of impact Brazilian palm oil will have due to the widely varying forecasts for production by the end of decade, but it the effects will likely be felt first at the most lucrative end of the palm oil market. Given Brazil’s proximity to U.S. and European markets, and the regulations it has in place, and the potential to avoid the deforestation stigma associated with plantations in Asia, Brazilian palm oil will be attractive to consumer products companies worried about the reputational risk of palm oil. If Brazil makes good on just half of its 2020 target of 5 million hectares, the amount of palm oil produced would represent 10-15 percent of global production, potentially having a commensurate impact on the price of palm oil. More importantly it would send a signal to other producers that being the lowest-cost producer isn’t necessarily the only path for agricultural development.
And provided expansion occurs on degraded, non-forest lands, oil palm could help buffer the Amazon rainforest.
“If we start a new plantation using RSPO guidelines and following Brazilian laws, we can be part of the sustainable solution to the Amazon,” says Brito. “But a business-as-usual approach could destroy the Amazon.”