Will forest conservation deal increase palm oil prices?

by | 24th November 2010

Bloomberg is reporting palm oil companies will be big winners should any forest conservation deal arise out of next week’s climate talks in Cancun, Mexico. The article quotes members of the palm oil industry, who argue that “any UN-led accord that restricts clearing rainforest for planting more palm trees would limit the supply of the edible oil crushed from their fruit and be a boon to prices for growers.”

“It’s a no-brainer that such exercises are bullish for prices,” Dorab Mistry, a director at oil trader Godrej International Ltd., is quoted as saying.

While it is certainly a possibility that forest conservation will trigger a rise in palm oil prices, the article completely omits mentions of two important factors that could impact global palm oil production: conversion of non-forest land for plantations and expansion in regions outside Indonesia and Malaysia, which currently account for 85% of palm oil production.

Plantations on non-forest land

Under its national forest plan and the billion dollar agreement with Norway, Indonesia is already talking about shifting new plantation development from forest lands to grasslands. Indonesia has millions of hectares of non-forest land that, provided the right incentives and reforms, could be suitable for oil palm.

Brazil: the next palm oil power?

Meanwhile Brazil is looking to scale-up palm oil production on a never-before-seen scale under its Program for Sustainable Production of Palm Oil, which will provide $60 million to promote cultivation of oil palm in abandoned and degraded agricultural areas, including long-ago deforested lands used for sugar cane and pasture. In support of the initiative, Brazil is considering oil palm as a reforestation option for ranchers and farmers to meet their legal forest reserve requirements.

While ramping up production will take several years at minimum, Brazil’s move into palm oil could prove quite a shock to Asian producers, beyond increasing the supply of the edible oil. Brazil plans to mandate standards that would make its palm oil compliant with standards set by the Roundtable on Sustainable Palm Oil (RSPO), an eco-certification initiative. Few Malaysian and Indonesian producers currently meet RSPO standards.

Further reading

Could forest conservation payments undermine organic agriculture?
(09/07/2010) Forest carbon payment programs like the proposed reducing emissions from deforestation and degradation (REDD) mechanism could put pressure on wildlife-friendly farming techniques by increasing the need to intensify agricultural production, warns a paper published this June in Conservation Biology. The paper, written by Jaboury Ghazoul and Lian Pin Koh of ETH Zurich and myself in September 2009, posits that by increasing the opportunity cost of conversion of forest land for agriculture, REDD will potentially constrain the amount of land available to meet growing demand for food. Because organic agriculture and other biodiversity-friendly farming practices generally have lower yields than industrial agriculture, REDD will therefore encourage a shift toward from more productive forms of food production.

Brazil launches major push for sustainable palm oil in the Amazon
(05/07/2010) Brazilian President Lula da Silva on Thursday laid out plans to expand palm oil production in the Amazon while minimizing risk to Earth’s largest rainforest. The plan, called the Program for Sustainable Production of Palm Oil (O Programa de Produção Sustentável de Óleo de Palma), will provide $60 million to promote cultivation of oil palm in abandoned and degraded agricultural areas, including long-ago deforested lands used for sugar cane and pasture. Brazilian officials claim up to 50 million hectares of such land exist in the country.

UK to fund efforts to shift towards greener palm oil production
(01/31/2010) Britain will contribute £50m ($80m) towards efforts to reduce greenhouse gas emissions in Indonesia, including a project that aims to encourage palm oil producers to establish plantations on degraded lands instead of in place of rainforests and carbon-dense peatlands, reports BBC News.










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