Oil palm is highly suited to cultivation in the ecological and climatic conditions of the tropics and its cultivation in South America has expanded steadily over the last three decades. The area under cultivation has shown a marked increase in its rate of growth during the last decade. Palm oil has been the second-largest global driver of deforestation in the tropics, and its expansion in the Amazon has been accompanied by widespread concern that land-use practices that characterise the industry globally will be replicated there.

The concern is based on the predominant business model within the industry, which combines ownership of large-scale plantations with the operation of industrial processing mills. The modern palm oil corporation is a classic example of the benefits of vertical integration and the economies of scale. Some companies also invest in transportation systems, refineries and manufacturing enterprises that transform crude palm oil into consumer goods. The industry brings multiple social and economic benefits to its host nations by improving food security, balance of trade, tax revenues, job creation and economic growth in rural landscapes.

The industrial-scale business model depends upon the acquisition of large landholding – minimally 5,000 hectares but often as large as 50,000 hectares. These are difficult to acquire on landscapes that have already been deforested, especially in those developing countries where past migratory phenomena and weak administrative systems have made land tenure systems chaotic and insecure.

Palm oil corporations have used their political influence to gain access to public lands in the forest estate to avoid the extra cost of acquiring land on previously deforested land. Historically, this was the predominant business model for palm oil companies in the Pan Amazon, but the countries have diverged in their practices since about 2000.

Palm oil corporations act as a proximate (direct) cause of deforestation when they acquire forest land and establish new plantations; however, large vertically integrated corporations also function as an ultimate (indirect) driver of deforestation because they manage the supply chains that commercialize palm oil in consumer markets.

The obvious linkages between the cultivation of oil palm and deforestation have motivated multiple environmental organizations to forcefully criticize the industry, which has been the focus of numerous campaigns and boycotts over the last two decades.

Although large corporations dominate most oil palm landscapes, particularly in Southeast Asia, they usually coexist with smallholders and independent producers who are also seeking to benefit from a highly profitable production system. In most cases, smaller producers rely on the corporate mill to commercialize their production.

Sometimes this coexistence can evolve into a stronger partnership where the company provides technical support or commits to long-term purchase agreements. Mixed production landscapes exist in all South American countries, where the relative abundance of the different types of producers is the consequence of market forces, social phenomena and public policies that are unique to each country.

The presence of a diverse population of producer types opens the door for alternative business models that delink deforestation from the establishment of new oil palm plantations. Unlike industrial-scale operators, smallholders and independent producers are more likely to establish plantations on previously deforested landscapes. In the case of smallholders, many own properties that were homesteaded in previous decades and are now adopting oil palm cultivation because it is more lucrative than cultivating food crops.

Independents are a diverse group: some are urban businessmen investing in a production with future growth potential, while others are successful smallholders who are purchasing and consolidating properties to benefit from the economies of scale. They are more likely than smallholders to deforest land, but they are also more likely to own properties that have been previously deforested, particularly cattle ranches.

The era of industrial-scale expansion of oil palm plantations at the expense of forest habitat may have come to an end in the Pan Amazon. There are multiple reasons that this is occurring, and they differ in each country, but the motivation is the same: producers are seeking to penetrate export markets, and the global demand for deforestation-free palm oil has created an opportunity they seek to exploit. The most astute companies have recognized that the best opportunities for growth are via partnerships with smallholders and independents who own or occupy most of the previously deforested land that can be converted to oil palm plantations.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

Read the other excerpted portions of chapter 3 here:

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