GreenTransformation Of Palm OilIndustry

Yuan Yanan

Palm oil may be the most controversial but ubiquitousingredient in theworld.

Globally， billions ofpeople consume palm oil daily. Statistics by the Foodand Agriculture Organization（FAO） of the United Nationsshowed that global yield ofpalm oil in 2019 approached74.6 million tons， around 36percent of the world’s vegetable oil production. Indonesia，India， China， and the European Union are the primaryconsumers of palm oil.

“Palm oil is a widely usedingredient，” said Yu Xin，director of the sustainable foodconsumption and green supplychain program in the BeijingOffice of the World Wide Fundfor Nature （WWF）. “Almost halfof the packaged goods in thegrocery store contain it. Around70 percent of palm oil is usedfor edible purposes including incooking， food industry， instantnoodles， and baking， and around 20 percent is used to manufacturedaily-use chemicals. The rest ismainly used in biodiesel making and a tiny amount is used in the fodder industry.”

Statistics show that demandfor palm oil products has been on the rise. From 2000 to 2015， percapita consumption worldwidedoubled to 7.7 kilograms， andthe figure is expected to triple by2050.

The core problem withthe palm oil industry is anacute contradiction betweendevelopment and theenvironment. To producers， palm oil supports thousands of people’s livelihoods and represents apillar of the country’s exportsand a key source of revenue. Butextensive planting of palm treeshas resulted in deforestation and ecological degradation.

The increasing market demand makes green transformation ofthe palm oil industry a pressingissue.

Seeds of Strife

Originally native to WestAfrica， palm trees were brought to Southeast Asia in 1911 whenBelgian merchants openedthe first oil palm plantationon Sumatra of Indonesia.This ushered in an era ofmass-producing palm oilin Southeast Asia. Today，Southeast Asia has emergedas the main oil palm growingarea worldwide. Indonesia andMalaysia contribute around85 percent of the world’s totalpalm oil yield.

The palm oil industrypropelled economic developmentof palm growing countries，but also triggered seriousenvironmental problems.

Since the 1990s， somebusinesses and individuals in Indonesia have burned downforests to give way for oil palm trees. Data from the WorldBank Group showed that from 1990 to 2020， more than 26.4million hectares of primitiveforests disappeared in thecountry， down 22.3 percent.One of the main reasons wasthe expanding area for oilpalm trees. Statistics showedthat from 1990 to 2019， thearea of oil palm plantations inIndonesia expanded from 1.1million hectares to 16.38 million hectares. From 1995 to 2015，the area grew by an average of450，000 hectares every year.

“Haphazard expansion ofoil palm planting destroyedthe rainforest and resulted inthe loss of forest carbon sinkand ecological functions ofrainforest，” Yu said. “Burningbanana trees caused greenhouse gas emissions and smogpollution. Peatland degradationdestroyed forests’ carbon sinkfunction. The destruction ofthe ecosystem further reducedlocal biodiversity and threatened the survival of local species likeorangutans， Asian elephants， and rhinoceros.”

According to a 2020 reportreleased by the United NationsDevelopment Programme inChina， replacing primeval andlogging forests with oil palm treeswould reduce biodiversity by 83percent. Globally， the productionof palm oil would threaten thesurvival of around 193 species，the report said.

However， there is no realisticalternative to palm oil despitethe environmentally destructivenature of its production.

“Replacing palm oil withanother oil is not a realisticoption，” Yu said. “Palm oil has avery high yield， around 10 timeshigher than that of soybean oil，nine times higher than sunflower seed oil， and six times higherthan colza oil. To get 5 milliontons of oil， you need to plant 10million hectares of soybeans.However， in the case of oil palms， only 1 million hectares areenough.”

WWF Germany Officeestimated the costs and benefitsof replacing palm oil with othervegetable oils. It was technicallyfeasible but could not realizeexpected ecological goals because other vegetables need largerareas to grow， which， in turn，would lead to even more forestdestruction. The result would bemore greenhouse gas emissionsand loss of biodiversity.

Thus， sustainabledevelopment of the palm oilindustry has emerged as the most viable option.

Green Transformation

Implementing sustainable standards is key tosuccessful transformation of the palm oil industry.

“In simple terms， sustainable palm oil productsare produced in a way that causes no harm tothe environment and society，” said Yu. “Coreenvironmental and social standards should be met，including zero harm to primeval forests and othernatural habitats， no environmental pollution， andprotection of wildlife and farmers’ interests.” Whether a bottle of palm oil is ideal or not doesn’t necessarilydepend on the quality of the product per se.

A widely adopted practice is to grant sustainability certificates to stakeholders along the industrialchain. “In terms of production， Malaysia andIndonesia have introduced mandatory industrialstandards， which， to some extent， raised publicattention to agendas concerning plantations，” Yusaid. “We suggest the mandatory standards be evenstricter toward the goals of zero deforestation，zero peatland development， and zero community exploitation.”

Roundtable on Sustainable Palm Oil （RSPO） isa global not-for-profit organization established in2004 with the objective of promoting the growth and use of sustainable palm oil products through globalstandards and multistakeholder governance.

“Our goal is to generatea positive impact on threekey pillars for sustainabledevelopment： people， the Earthand development，” said FangLifeng， RSPO representative inChina. According to him， RSPOcertification for sustainable palm oil products sets standards andcriteria for palm oil production，small farmers， and supply chains.

For example， RSPO-certifiedproducers cannot fell trees orplant oil palm on peatland， andthey need to safeguard workers’rights and interests. Applicantsmust meet all key indicatorsto receive a certificate. RSPOmembers need to pass an annual audit and review every five years by a RSPO-recognized third party.

“To meet the standards，RSPO members will use lessland to produce more palmoil and improve livelihoodswhile safeguarding humanrights and labor rights andinterests， preserving wildlifeand biodiversity， and reducingdestruction on the forest andland，” Fang said. By the end of2020， 19 percent of global palm oil products had been certified by the RSPO. In China， merely 6 percentof palm oil consumed werecertified by the RSPO， far short ofthe 10-percent goal for 2020.

Problems persist throughoutthe industrial chain. Palmoil producers on the upperreaches of the industrial chainneed to meet standards ofbusiness transparency， naturalresources and biodiversitypreservation， and responsibleland development. They alsoneed to hire a third party auditor. The extra expenses to finishthe procedures and improveproduction make things moredifficult for small farmers. InIndonesia， the cost for smallfarmers to get certified can be ashigh as US$8 to US$12 per ton ofoil palm， making it less appealing to adopt sustainable practices.

Oil palm dealers have found itdifficult to distinguish suppliesfrom certified plantations fromthe uncertified. This makes itnecessary to extend the traceability chain to plantations. At theconsumer end， many consumersare not willing to pay a premiumranging from 3 to 30 percent of the normal price. Sustainable palmoil products， therefore， are in adisadvantaged position in market competition. As a result， aroundhalf of the sustainable palm oilproducts worldwide are sold asregular products.

“In recent years， the proportion of RSPO-certified products hasremained somewhere between17 to 20 percent worldwide，”reported Yu Xin. “There has notbeen a significant increase. Thetransformation is still at an earlystage.”

Sustainable Palm Oil in China

“China is the world’s secondlargest importer and thirdlargest consumer of palm oilproducts， so it can play a key role in the transformation toward asustainable palm oil industry，”Fang Lifeng said.

Many Chinese businesseshave realized the importance of a sustainable palm oil industry.RSPO now has more than 270members in China， and morekeep joining. Members havepledged to scale up imports ofsustainable palm oil products，but the current figure is still low.

In July 2018， the WWF，RSPO， and China Chamber ofCommerce of Foodstuffs andNative Produce jointly launched the China Sustainable Palm Oil

Alliance to encourage big firms to take action. Founding membersinclude AarhusKarlshamn （AAK） China， Cargill China， HSBC，L’Oréal China， and Mars WrigleyConfectionery， among other multinationals.

China Oil and FoodstuffsCorporation （COFCO） is China’ssecond largest importer ofpalm oil and a bellwetheramong centrally-administeredenterprises promoting the import of sustainable palm oil products. Its subsidiaries have introducedprocurement guidelines in thisregard. In 2018， around 11 percent of COFCO’s palm oil imports were sustainable products.

Fang said businesses alongthe industrial chain andconsumers alike still need toimprove their awareness aboutsustainability. He is optimisticabout the transformation of thepalm oil industry in China. Thecountry’s goals of carbon peaking by 2030 and carbon neutralityby 2060 will inject vitality intonational efforts towards greentransformation and sustainabledevelopment. Fang predicted itwould be conducive to endingdeforestation and promotingimports of sustainable palm oil.

“China’s Ministry of Ecologyand Environment is formulatinga national strategy for softcommodities to build green value chains， including for palm oil，”Fang said. As more and morebusinesses along the value chainfor palm oil join the RSPO andpurchase and consume certifiedproducts， China will play animportant role in the global efforts to foster a green transformation of the palm oil industry.

Yu Xin shares Fang’ssentiments. She believesthe sustainable palm oilindustry has a favorable policyfoundation and a promisingfuture in China during the high- quality development stage inthe 14th Five-Year Plan period（2021-2025） because China is so determined to achieve the goals of carbon peaking and carbonneutrality.