Part 1 Global palm oil demand fueling deforestation

Indonesia is now the leading supplier for a global market that demands more of the tree's versatile oil for cooking, cosmetics, and biofuel. But palm oil's appeal comes with significant costs. Oil palm plantations often replace tropical forests, killing endangered species, uprooting local communities, and contributing to the release of climate-warming gases. Due mostly to oil palm production, Indonesia emits more greenhouse gases than any country besides China and the United States.

Like most crop-based commodities, Indonesian palm oil benefited mightily from the 2008 food crisis, as the price of the oil rose above $1,000 a ton last spring. After dropping 56 percent in value by year's end, the price has since settled at around $555 a ton as of last month.

The price drop has put a significant dent in the palm oil industry. Yet observers are confident that international buyers, especially in China, India, and the Middle East, will continue to buy more palm oil, regardless of the commodity's environmental or social effects.

"Palm oil has become the edible oil of choice, if you will, for much of the world," said Michael Shean, a global crop analyst with the U.S. Department of Agriculture (USDA). "More land will have to come into line to meet that demand."

The worldwide recession has led many producers to cancel their seed orders and scale back expansions, according to a USDA Foreign Agriculture Service report released last month, which said that new plantations would slow - possibly into 2010. The analysis expects global demand to then return to earlier levels of 2.2 million tons per year.

"Prices will go up. This is a short-term phenomenon," said Tim Killeen, who represents the conservation organization Conservation International on the Roundtable for Sustainable Palm Oil (RSPO), a multi-stakeholder effort to form sustainable standards for palm oil production. "I know there is a lot of interest among energy companies with large European markets."

In the meantime, industry leaders are asking the Indonesian government to stimulate the palm oil market. "If Indonesia and Malaysia want to see a fair demand for palm oil and avoid all this fluctuation in prices, you have to create domestic demand," said M.R. Chandran, an RSPO advisor and industry consultant, according to AFP news agency last month.

In an effort to stimulate demand, Indonesia passed biofuel mandates last year that require the country's cars and trucks to include either ethanol or palm-oil biodiesel in their fuel mix.

From 2000-2009, Indonesia supplied more than half of the global palm oil market, eclipsing Malaysia's production in 2006 to become the world leader. Indonesia's palm oil exports increased nearly 11 million tons over the decade, or about 27 percent per year.

This expansion came at an annual expense of some 340,000 hectares of Indonesian countryside, mostly tropical lowland forests. The government plans to establish about 1.4 million hectares of new plantations by 2010, according to the Indonesian Palm Oil Commission. The industry group estimates that more than 7 million hectares of plantations have been established, leaving an additional 24.5 million hectares available for future expansion.

Such expansion, however, could wipe out the remaining natural habitat of several endangered species. The Center for Orangutan Protection warned last year that the great ape may become extinct in Central Kalimantan, a region of the rapidly developing island of Borneo, if the rate of plantation growth continues for another two or three years.

In 2005, President Susilo Bambang Yudhoyono announced plans for internationally financed oil palm developments that would cover 1.8 million hectares of Borneo, a territory that is divided administratively between Indonesia, Malaysia, and Brunei. The "Kalimantan Border Oil Palm Megaproject," which would have cut through several national parks on the Indonesia portion of the island, was scaled back in 2006.

As a sign that Indonesia expects high rates of demand to continue, the government recently resurrected the project, according to WWF-Indonesia Executive Director Mubariq Ahmad. "The promotion of oil palm-based biofuel policy is biased against the need for forests and biodiversity conservation," Ahmad said in an e-mail.

Palm-oil biodiesel was once supported as a solution to climate change - a low-carbon alternative to burning fossil fuel-based gasoline in vehicles. In recent years, however, research has revealed that oil palm development, which often involves the clearing of intact forestland, can contribute far more greenhouse gases to the atmosphere than it helps to avoid.

The reason is found within the region's expansive peatlands, large deposits of carbon-rich forest debris that is too wet to decompose. When each hectare of peatland is drained for oil palm production, an estimated 3,750-5,400 tons of carbon dioxide is released over 25 years. By comparison, the carbon dioxide released from clearing a hectare of tropical forest, without peat bogs, ranges between 500 and 900 tons.

"The worse thing you can do, in respect to greenhouse gases, is to have deforestation on peatland forests," said Tim Killeen, a Conservation International senior researcher. "It's way worse than normal forests, which is bad enough."

Despite this finding, Indonesia continues to focus on expanding the area available for oil palm plantations, critics say. Killeen suggested that such moves may be intended to win votes ahead of this July's presidential election.

In February, for instance, the government lifted a year-long moratorium on clearing peatland for oil palm plantations. Environmentalists opposed the decision, although the policy does place stringent restrictions on which bogs can be converted to agriculture. Only 2 million of the country's 25 million hectares of peatland are now eligible, officials said.

Due largely to greater international awareness, global business leaders have joined environmentalists to demand more-sustainable oil palm production. Within Indonesia, industry leaders have publicly stated plans to develop oil palm on "idle lands" rather than dense rainforest.

But WWF's Ahmad said it is too soon to be optimistic. "It is still difficult to see the sign of seriousness in political will for this to happen," he said.

Ben Block is a staff writer with the Worldwatch Institute. He can be reached at bblock@worldwatch.org.

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