Palm oil, a GDP booster

Palm oil is considered by some to be one of the most environmentally destructive crops. This is so because it also happens to be one of the most profitable ones.
And with the advent of biofuels such as ethanol and biodiesel, palm oil is in the spotlight more than ever. This for the obvious reason that of all commonly cultivated energy crops, Elaeis guineensis gives the highest possible and usable biomass yield (oil for biodiesel, cellulosic biomass for ethanol and solid residues for co-firing).
The palm presents a fascinating history of the clash between economic development and environmental conservation. And now that the crop promises to become a leading green fuel feedstock, this history is far from over. Let's have a quick look at some palm oil economics.

The single crop can literally lift a developing country out of poverty - all by itself. The most famous example of this is of course Malaysia, the world's largest palm oil producer. In the early years after independence from Britain, the country was still very much an underdeveloped, poor nation, with per capita incomes of less than US$ 400 per year (in 2005 dollar terms). In four short decades, Malaysia has become one of the strongest Asian economies, with continuous "Asian Tiger" growth, and a current per capita GDP of over US$ 11,000. GDP incomes grew 31% in the sixties, and and amazing 358% in the seventies led primarily by export-oriented industries. Palm oil contributed in a major way to this success.

The crop became the center-piece of agricultural reforms included in the so-called Second Malaysia Plan (1971-1975), which turned the country into an export driven economy. Palm oil production was increased massively as the result of the vast program (graph 2).

Amazingly, by 1984, the African oil palm had become Malaysia's second biggest export earner, after petroleum. And it continues to hold that place. Whereas in most countries, agriculture gradually takes on a less important role as an economy develops, for Malaysia this is not the case. On the contrary, the plantation crop's share of Malaysia's GDP continues to grow (graph 1). Today, it brings export earnings worth US$ 6.2 billion, only trailing crude oil exports. But compared to crude oil, palm plantations create considerably more jobs, currently employing around 14% of Malaysia's entire workforce. Around half of all palm oil is still produced by smallholders, that is by individual farming families. In short, the Malaysian economy and society as a whole benefits immensely from the African palm.

Given these numbers, it is not difficult to understand that many developing countries are looking into replicating Malaysia's success story. With Peak Oil around the corner, and continuously rising energy prices, the temptation to massively use one's land to cultivate the energy crop is strong. Obviously, environmental and social problems associated with the crop cannot be swept from the table. And understandably, Europe and the US are preparing to "label" and put tariffs on palm oil, trying to block it from entering their markets as a major energy crop. They use environmentalist and labor-related arguments to do so, but there are more basal reasons underneath (the US and EU's agro-lobbies know they cannot compete against tropical energy crops). We feel that the economic logic will prevail, and that new and rapidly expanding economies (India, China) may become the main importers - and they will not ask the sensitive questions raised by the West. After all, these new economies absolutely want to get their hands on as many energy resources as they can, because their appetite for energy is insatiable, and crucial for their own growth.
For producers, the dilemma remains, though: palm oil can boost the GDP of a country and lift millions out of poverty, but at the same time such a monoculture may cause an ecological disaster that in the long-run may be equally costly. This story is surely to be continued.

Sources:

• Food and Agriculture Organisation: FAO Key Statistics of Food and Agricultural External Trade.
• International Monetary Fund: International Financial Statistics (free subscription req'd).
• Malaysian Palm Oil Board, Economics and Industry Division.