Palm oil, widely used in many processed foods and cosmetics, is a preferred product due to its low cost. Despite frequent discussions about its environmental impacts and potential health risks, it continues to be included in many products. The production of this oil mainly takes place in Southeast Asian countries, which play a significant role in the economies of these countries. One of these countries, Indonesia, holds a leading position in the palm oil industry.
Indonesia is the world’s largest exporter of palm oil. In 2023, it produced 47 million tons of palm oil, accounting for 54% of global exports. The rising international demand for palm oil has accelerated the growth of this industry. This growth has also become one of the main factors driving deforestation in Indonesia. In the last 20 years, approximately 3 million hectares of forest have been lost due to palm oil production.[1]
Indonesia has achieved some positive results in its efforts to prevent deforestation, and the deforestation rate has decreased in recent years. However, the 2.4 million hectares of forest allocated for palm oil production remain both an opportunity for conservation and a threat to the environment due to expansion.[2]
The increase in palm oil production brings environmental risks to Indonesia and other exporting countries. The failure to restore forest areas converted into palm oil plantations exacerbates already worsening environmental and climate issues. The widespread use of palm oil in the cosmetics and food industries indicates that demand for palm oil will continue to rise in the future. However, various sustainability issues persist.
As of 2022, Indonesia’s largest palm oil export markets were China (14%), India (12%), and the European Union (EU) (10%). Additionally, there has been a noticeable increase in domestic demand for palm oil. The local usage rate, which was 32% in 2018, rose to 44% in 2022. Half of the local consumption was used in the biofuel and oleochemical sectors, while the rest was used in food products.[3]
To prevent deforestation and ensure the sustainability of palm oil production, both the improvement of production methods and the reduction of dependence on palm oil are necessary. The rise in local demand can balance the decline in foreign markets and help maintain production levels. Supporting alternative products, such as offering tax incentives for these products, could reduce local demand for palm oil.
Indonesia, China, and India are important markets for palm oil exports, and they also use supply chains that contribute to high deforestation rates. This situation reveals that the imports of these three countries account for 75% of Indonesia’s total deforestation impact. On the other hand, markets like the US, EU, and the UK, which procure from companies with zero deforestation commitments, only accounted for 9% of Indonesia’s total production in 2022.[4]
Increasing the market share of companies with zero deforestation commitments could be an important step in reducing deforestation rates. However, the higher costs of such companies lead larger markets to turn to different suppliers. This could lead to larger environmental issues in the future.
Palm oil production is associated with significant greenhouse gas emissions. Between 2015 and 2022, an average of 220 million tons of carbon dioxide was emitted annually, making it the fifth-largest emission source in Indonesia. Although only 14% of palm oil plantations are located in carbon-rich peatlands, soil degradation and fires in these areas account for 92% of emissions.[5]
Indonesia’s steps to reduce greenhouse gas emissions could serve as an example for other Asian countries. Such policies not only provide environmental benefits but can also offer long-term economic advantages. Additionally, the growing demand for sustainable products in international markets may support Indonesia’s efforts in this direction.
Palm oil plantations do not support biodiversity in native forests, and while some species survive in these areas, invasive species are becoming dominant. Tropical forest species of plants and animals are harmed during the expansion of palm plantations. Clearing land by burning forests, clearing land for timber production, and continuous human intervention are key factors threatening biodiversity.[6]
The long-term impacts of palm oil on the environment and biodiversity should not be overlooked. In addition to Indonesia, countries like Malaysia and Thailand also consider palm oil an important export product. However, without the adoption of sustainable policies, many plant and animal species in these countries may face the risk of extinction.
The EU aims to take new steps by introducing the Deforestation Regulation (EUDR) in consideration of palm oil’s environmental impacts. The regulation prohibits the import of products obtained through the destruction of forests into the EU. As part of this, the regulation aims to eliminate deforestation from supply chains of products such as beef, soy, and palm oil, which are responsible for 16% of tropical deforestation linked to international trade.[7]
To comply with the regulation, buyers must ensure traceability of palm oil products down to the farms where the fruit is grown and provide accurate geographical coordinates. However, producer countries like Indonesia and Malaysia argue that small farmers will struggle to meet these standards, which could lead to their exclusion from global supply chains.[8]
In the long term, the EU regulation has the potential to force palm oil producers like Indonesia to adopt zero-deforestation policies. It could also contribute to replacing palm oil with alternative products. However, much of the palm oil production in these countries is carried out by small producers. The inability to meet EU standards due to costs and other factors could lead to monopolization of palm oil production by firms capable of meeting these standards, which would harm small producers and national economies in the long term.
[1] Benedict, J., & Heilmayr, R. (2024). Indonesian palm oil exports and deforestation. Trase. https://doi.org/10.48650/0ZP9-GH11, (Access Date: 12.12.2024).
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ecological impacts of palm oil expansion in Indonesia – International Council on Clean Transportation. (2021, November 24). International Council on Clean Transportation. https://theicct.org/publication/ecological-impacts-of-palm-oil-expansion-in-indonesia/, (Access Date: 12.12.2024).
[7] Indriyatno, H. (2023, September 1). Palm oil giants Indonesia, Malaysia start talks with EU over deforestation rule. Mongabay Environmental News. https://news.mongabay.com/2023/09/palm-oil-giants-indonesia-malaysia-start-talks-with-eu-over-deforestation-rule/, (Access Date: 12.12.2024).
[8] Ibid.
