The
demand for Palm Oil, valued at around $50 billion per year, is soaring; but
Africans are fast learning that it is a controversial investment.
In their article
“Africa – RSPO Facts and Figures” the Sustainable Palm Oil Platform, a think
tank, draw on a broad spectrum of verifiable evidence to support several of
their claims: The oil palm plant originated in West Africa and grows
extensively in this region, but largely as village low-yield multi-crop stands;
yield is much lower in Africa than in Southeast Asia for various reasons,
including climate and infrastructural limitations and a predominantly
smallholder approach to production; smallholders account for 70 to 90 percent
(depending on the country) of African oil palm grower; Africa is a net importer
of palm oil(Sustainable Oil Palm Platform, n.d.). In other words, investors
should be looking at Africa (particularly West Africa) as a new frontier region
for large-scale palm oil production.
While oil palm is
native to West Africa, most of today’s production is small scale and, except
during the colonial era (1900s), export barely exists. This, however, is about
to change. Due to restrictions on logging and the acquisition of land in
Malaysia and Indonesia – the two countries that have accounted for the vast
majority of the world’s export of palm oil – investors are now moving into
Africa, where concessions for new plantations are more freely available. There
is documentary evidence that the politicians in West Africa has, in the past
decade, leased out as much as 1.8 hectares of land for palm oil plantations. Given the high demand for palm oil, it will
not be a surprise that companies like Wilmar, Olam, Sime Darby, Golden Veroleum
and Equatorial Palm Oil are demanding for more land. As a matter of fact,
another 1.4m hectares of West African land is currently being sought by investors overall
to be used for palm oil production(Economist, 2014)
Demand
fever rising!
Worldwide, the demand
for palm oil, whose annual global production is valued around $50 billion is
rising(see table 1): In the first half of year 2014, palm oil imports by the
European Union rose to record 3.37
million metric tons, while China’s import of palm oil during the same period totaled
3.38 million tons(McFerron, 2014; Economist, 2014). Given this current
scenario, the demand and consumption of palm oil is expected to triple by the
year 2050. The main reason for this soaring demand is evident: Palm oil is a
very useful product. The oil, which is taken from the oil palm’s red fruit, is used
in roughly half of all packaged supermarket products: margarine, shampoo, and
ice cream, chocolate candy bars, cosmetics, and so on. In addition to that,
palm oil is increasingly used as a biodiesel, particularly in Asia (Tan, 2014).
Given that palm oil is highly lucrative (due largely to the fact that the plant
yields more oil per hectare than any major oil seed crop) and that once planted
the tropical tree can produce fruit for more than 30 years, providing jobs for
poor rural communities, the benefit of oil palm are difficult to ignore in
countries where they are grown.
Table 1 – Top 12 Palm Oil Producing Countries, 1970-2010
|
Country
|
Palm Oil Production
|
(Million Tonnes)
|
|
|
1970
|
2010
|
|
Indonesia
|
0.1
|
20.0
|
|
Malaysia
|
0.1
|
35.3
|
|
Colombia
|
0.1
|
19.0
|
|
Costa Rica
|
0.1
|
40.1
|
|
Ecuador
|
0.1
|
19.0
|
|
Honduras
|
0.2
|
37.0
|
|
Thailand
|
0.1
|
36.1
|
|
Nigeria
|
0.2
|
36.0
|
|
Brazil
|
0.1
|
37.0
|
|
China
Cote d’Ivoire
Papua New Guinea
|
0.1
0.1
0.1
|
39.0
37.0
40.0
|
Source: Net Balance Foundation, 2013
In as much as Africa is
coveted by oil palm growers, Africans are fast learning that growing oil palm
at a commercial level can be a controversial business. Take Malaysia and
Indonesian experience as a good example: The two countries have been castigated
for the environmental damage caused by palm oil. The critics of these countries
blames their oil palm industry for
deforestation which, they argues, has
increased carbon emissions and destroyed the habitats of rare breed animals,
especially the orangutans. The bottom line here is that if Africa welcomes
commercial-level oil palm production into their domains they will definitely
face similar problems. Already there are ongoing complaints in various
published reports that more that 50 percent of oil palm concessions in Africa
infringe on the living places of great apes.
Africa’s case is unique
due to their peculiar land ownership systems and land rights. On many
occasions, signing a new concession can trigger complaints by civil society organizations
that the land has been grabbed from the owners, who may be individuals or
communities. The reason for this is clear: Weak land titles and hazy lines
between customary and state ownership of land is a common feature in most
African countries, with the result that such concessions may boot the local
peasants off their land. And since a significant percentage of these peasants
are farmers and hunters, they can become impoverished if they lose their lands
in that fashion. The awareness of these facts by the peasants is one of the
factors that hampered the palm oil industry in most African countries,
particularly in Liberia where, though concessions were granted as early as
2006, still has very limited planted area and hence produces very limited quantities
of palm oil.
But is it really a
proven fact that the would-be investors in African palm oil have shoddy track
record? Wilmar, a Singaporean group which owns plantations in Nigeria and
Ghana, was ranked the least environmentally sound company in the 2012 Newsweek’s
green ranking of the world’s 500 biggest publicly-traded companies(as cited in
Economist, 2014). This does explain why potential investors are leery about
putting their money in palm oil firms in West Africa. It should be pointed out
here that West Africa is not the only region where potential investors are
nervous: Deeming deforestation as a threat to the future growth of their
investments, Norwegian Government Pension Fund Global (GPFG) – the world’s
largest sovereign fund backed by Norway’s oil and gas industry – pulled out of
23 Southeast Asian palm oil firms who they claimed were sourcing palm oil unsustainably
(Scott-Thomas, 2013).
Finding
new friends
The bottom line here is
that, for palm oil firms to survive in West Africa, they must be more sensitive
to the villagers’ worries and should clear forests only if it has already been
degraded. A lot of them appeared to have understood the “hand-writing on the
wall”. For example, Olam has returned much of the land allocated to it by the
government of Gabon on the ground that they were not suitable for agriculture.
It also went further than that: It will not develop any plantations in areas
that are already permanently inhabited by Gabonese nationals. In addition, it
plans to develop less than half of the terrain it retained from Gabon’s
government land grant so that it can set aside the remainder for community use
or conservation purposes (Economist, 2014).
Other firms should
learn from this approach to their advantage. It is true: West Africa wants the
palm oil firms to help grow their economies and create jobs for their people.
However, they will cooperate more when these firms do it sustainably.
References
Economist (2014): Palm Oil in West Africa. Retrieved September 9, 2014 from http://www.economist.com/news/middle-east-and-africa/21612241-companies-wanting-make-palm-oil-face-angry-environmentalists-grow-cherish
McFerron W. (2014): Palm Oil Prices Seen Near Bottom
by Oil World on Demand. Bloomberg.
Retrieved September 9, 2014 from http://www.bloomberg.com/news/2014-09-02/palm-oil-prices-seen-near-bottom-by-oil-world-on-demand.html
Net Balance Foundation (2013): Palm Oil in Australia – Facts, Issues and Challenges. Retrieved
September 9, 2014 from http://www.rspo.org/file/PalmOilinAustralia.pdf
Sott-Thomas C. (2013): Norwegian Fund Pulls Out of “Unsustainable” Palm Oil Companies. Food
Navigator. Retrieved September 15, 2014 from http://www.foodnavigator.com/Market-Trends/Norwegian-fund-pulls-out-of-unsustainable-palm-oil-companies
Sustainable Oil Palm Platform (n.d.): Africa – RSPO Facts and Figures.
Retrieved August 27, 2014 from http://www.sustainablepalmoil.org/palm-oil-by-region/africa/
Tan H. (2014): Asian Biofuel Motorists Drives
Palm-Oil Prices Higher. Wall Street
Journal. Retrieved September 9, 2014 from http://online.wsj.com/articles/asian-biofuel-motorists-drive-palm-oil-prices-higher-1401354565
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