Resources & Climate

The Good, The Bad And The Ugly About Indonesia’s Palm Oil Boom

in Program

Growing production of palm oil in Indonesia is generating billions of dollars in export earnings and creating millions of jobs – but is harming the environment and threatening public health in the region.

The global thirst for palm oil has made it a key factor in Indonesia’s quest for stable economic growth. As the world’s cheapest edible oil, palm oil is used increasingly in many nations in cooking and food products. In addition, its relatively low price makes it attractive for use in biofuels, surfactants and cosmetics.

Demand for the oil – produced from the fruit of oil palms – has increased significantly in recent years in developing countries, particularly India, China, Pakistan and Bangladesh. Together, these nations accounted for 35 percent of global palm oil consumption between 2009 and 2010. The industry’s economic importance to Indonesia is clear: crude palm oil exports generated $19.7 billion in 2011 alone, accounting for nearly 10 percent of Indonesia’s total exports.

With Indonesia producing some 48 percent of the global palm oil supply between 2010 and 2011, the industry has been a boon for the nation. Palm oil production directly or indirectly employs an estimated 4 million to 6 million people in Indonesia and also supports about 36 million people in rural areas of the nation.

Defying Indonesian National Law, illegal fires – typically emanating from Sumatra and Kalimantan – are set to clear large tracts of land for palm oil production. These fires generate a recurrent haze that plagues Singapore and cities in Brunei, Malaysia and Thailand, heightening the likelihood of respiratory illness and economic strain.

An Asian Development Bank report estimated that haze from Indonesian forest fires in 1997-98 alone – made worse by an El Niño-induced drought in the region – cost Indonesia, Singapore, Malaysia and southern Thailand some $9.3 billion in estimated health costs, decreased tourism, transport, agricultural and other losses.

The proliferation of palm oil plantations in Indonesia has also come under increased scrutiny as scientific evidence and public awareness has increased about the industry’s contribution to global carbon emissions through deforestation and peat land clearances, as well as regional air pollution from illegal burns.

There is also concern about soil erosion, habitat fragmentation, biodiversity loss, water pollution, and pesticide and fertilizer contamination resulting from palm oil production.

Rapid conversion of forested land also contributes to a worsening human security threat. With global palm oil demand expected to double by 2020, the World Bank forecasts an additional 6.3 million hectares of land will be needed to supply this demand, with most development expected in Indonesia. This trend, in turn, will likely worsen the industry’s local environmental and human security concerns.

Since the 1990s, Indonesia has undergone a significant transformation in terms of land usage as the palm oil industry has expanded. The Indonesian Agricultural Ministry indicates that between 1990 and 2010, the area devoted to palm oil production increased some 600 percent. Today palm oil plantations cover between 8.2 million and 9.4 million hectares of land in Indonesia.

The U.S. Department of Agriculture says that the Indonesian government has already permitted and made land concessions on an additional 6.5 million to 7 million hectares. Further, the Indonesian Ministry of Forestry estimates that 24.5 million hectares remain suitable for palm oil production.

Looking forward, various estimates suggest that about 600,000 hectares of land are cleared each year for palm plantations throughout Indonesia, with little end in sight. Left unchecked, the expansion of the palm oil industry could result in the haphazard conversion of nearly 20 percent of Indonesia’s land to palm plantations by 2020.

A recent analysis by Nature Climate Change found that between 1997 and 2006, Indonesian deforestation and degradation fires contributed to significant concentrations of particulate matter and ozone emissions across member states of the Association of Southeast Asian Nations. The study found that persistence of these particulates – specifically PM2.5 that can easily pass through the nose and throat, and affect both the heart and lungs – increased regional adult cardiovascular mortality by about 2 percent.

Though fire clearances remain an effective and economical approach, the harmful effects of haze significantly impact Indonesia. For example, the disastrous forest fires of 1997-98 impacted about 20 million Indonesians, who developed respiratory problems. This figure included an estimated 19,800 to 48,100 premature mortalities during the intense burns.

The continued expansion of Indonesia’s palm oil industry has significant implications for global climate change, as well as regional economic, environmental, human and health security. The country now finds itself at a crossroads where it must balance its unsustainable economic growth against long-term environmental and social considerations.

To date, palm oil has proven to be a positive macroeconomic force within Indonesia and the world. However, continued exploitation and degradation of the land cannot persist indefinitely, and with signs of stress now appearing not only in this vast state but in its neighbors as well, policymakers would be wise to pay heed.

Brendan McGovern was an intern with the Environmental Security program.


Photo by Wakx via flickr

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