The palm oil industry has experienced rapid growth in recent decades, with 69.6 million metric tonnes produced globally in 2017/18 – up from 56.4 million just five years previously and double the amount grown in 1995. Global sales from palm oil exports amounted to US$33.3 billion in 2017, with Indonesia, followed by Malaysia, as the market leaders at $18.5 billion and $9.7 billion respectively.
It is big business, but the online argument appeared straightforward. Surely all manufacturers should follow Iceland’s lead and remove palm oil from their products? Yet slowly a new angle emerged, quieter and less sensationalist, it became clear that things were not so simple.
Let’s look first at the orangutan issue. Deforestation is very real and ongoing – over 250,000 hectares of rainforest are cleared annually in Indonesia. Every single minute, an area of tree cover equivalent to the size of 40 football fields is razed or burned. Palm oil plantations do indeed destroy precious, unique and biodiverse habitats. However, palm oil is far from the only culprit, with cattle-ranching, soybean production and timber collection also having very serious impacts on habitat loss.
In fact, cattle-ranching is the largest single cause of deforestation. In addition, it is the palm oil and wood product sectors that are currently most covered by commitments to reduce deforestation, whilst the beef and soy sectors have taken far less action. It is evident that the desire for cheap meat (most soybeans are fed to animals) is the real driver here.
It has been argued that palm oil’s role in replacing fossil fuels gives it some eco-credentials. However, in environmental terms, this does not begin to compensate for the carbon impact of deforestation. Its future as a fuel currently seems limited with the European Union calling for a ban on palm oil for use as biofuel from 2020.
From a health perspective, palm oil has been an improvement on trans-fats, made by hydrogenating vegetable fat. The World Health Organisation (WHO) aims to ban these from the global food supply by 2023, implicated as they are in cardiovascular disease and the deaths of 500,000 people per year (according to figures from the WHO). Palm oil can replace trans-fats in foods and has been welcomed as a healthier option.
There are of course alternatives to palm oil, but they are not without consequences. In comparison with other options such as soybean oil or rapeseed, it is a very efficient crop. It requires less energy, far less land, and lower levels of pesticide and fertiliser and yet generates more oil per hectare than any other oil seed. The boycotting of palm oil would undoubtedly lead to far more pressure on land in South East Asia.
Perhaps the best option is genuine sustainability in the production process. Oil certified under the Round Table on Sustainable Palm Oil (RSPO) should result in local people being treated fairly as well as areas of high conservation value protected. Sadly, even this venture is not without its complexities.
Recent research has emerged that ‘certified sustainable palm oil may kill more wildlife’. According to scientists from Purdue University in the US, plantations with eco-friendly endorsements have lost 38% of forest cover since 2007, whilst those in non-certified areas have lost 34%. Previous analysis found that certified palm oil was only slightly better in terms of preventing deforestation.
At Holden & Partners, we have analysed this complex palm oil situation carefully. We are very aware of the environmental implications of poor manufacturing practices, yet the efficiency of palm oil as a crop means that, when produced sustainably, it fulfils a crucial role in alleviating poverty and sustaining the world’s population. Our aim therefore is to contribute to improving the sustainability of the palm oil industry as well as supporting the development and production of viable alternatives.
Currently, the investment opportunities in practical substitutes are scarce, so the most appropriate way to for us to promote the sustainability of the industry is through monitoring and engagement with the fund managers we use with exposure to palm oil. We hope that this will facilitate investment in a way that rejects deforestation and the environmental damage it brings, whilst supporting the social and economic benefits that palm oil can create when produced sustainability.
Rang-tan is indeed an adorable and charismatic cartoon orangutan, with a simple message that spread like wildfire on social media, but the truth of the matter is far more complicated. As consumers, boycotting palm oil is not the answer – to counter deforestation we would be far better off examining our meat intake. As investors, it is about fostering genuine sustainability that results in real change. The pressure will certainly be on the RSPO to improve the standards for certification, and only then will Rang-tan be happy.