ABSTRACT
The labels of various foodstuffs, cosmetics, soaps, detergents and fuel often state that the product contains ‘vegetable oil’. The source of vegetable oil may be from any one or more of 15 or so different plants. Most probably, however, the vegetable in question will be the palm, the resource used in the manufacture of palm oil. The production of 42 million tons (Mt) of palm oil in 2010 means that palm oil now surpasses soybeans (35 Mt) as the most heavily traded agricultural product: indeed, it is the number one commodity in the category of vegetable oil. Due to its high yields – about nine times that of soybeans – palm oil is highly price competitive. Asia accounts for more than 60% of domestic consumption of palm oil, fol-
lowed by the European Union (EU) with 10%. In Asia, palm oil is largely used in the production of foodstuffs, personal care items and detergents. In Europe, the statistics demonstrate quite different uses: the EU became the second largest
importer of palm oil in 2004, just behind China, almost exclusively on the basis of its use as a biofuel. The reasons for its adoption in this sphere are closely associated with a widespread view of biofuels as ‘carbon-neutral’. A growing world population, which will double demand for food by 2050, and increasing economic affluence in developing countries, has intensified the demand for vegetable oils. The estimate for 2050 is that the world crop will be about 240 Mt, roughly twice the current production. Between 1995 and 2008, for instance, growth in demand and the competitive prices of palm oil resulted in the area under cultivation increasing by 43%, while production increased about 2.5 times. Palm oil production was established in Malaysia to supply European markets in
the late nineteenth and early twentieth centuries, being developed on the basis of a plantation economy under the control of global interests established in the core of the world economy, such as Lever Bros. Nevertheless, its major expansion started only in the 1960s as a response to the post-Colonial Malaysian Government’s diversification policies. These were designed to reduce the dependence of the national economy on natural rubber, another plantation crop, which faced competition from synthetic rubber and a declining price. In the 1970s, palm oil plantations started to expand into more remote areas such as the Borneo states of Sabah and Sarawak. The production of palm oil is a labour intensive agricultural activity that was
envisaged by government as a means for reducing rural poverty, something encouraged by the creation of the Federal Land Development Agency (FELDA) in 1956. The development process consisted of clearing forests, planting palm trees, settling unemployed people, including ex-soldiers and Bumiputra (ethnic Malays) from elsewhere, as well as installing processing mills and marketing the oil. Although FELDA stopped the intake of new settlers in 1990, in 2002 its settlements accounted for 17% of the planted area and 20.6% of palm oil production in Malaysia. Agriculture, forestry and fishing have traditionally been the main economic
sectors of Malaysia contributing nearly 30% of the economy in 1970, although this had declined to 8.5% by 2007, when these sectors still employed 13% of the population. Overall, despite its strong contribution to the country’s development in the past, the Malaysian palm oil industry is at the crossroads. As a mature industry, unless it can achieve further growth and remain competitive, its contribution to the national economy will stagnate and eventually decline. Expansion is, however, limited by the increasing scarcity of two essential inputs – land and labour. Land expansion is restricted by the opposition of environmental activists to the clearing of native forests, while affluence is limiting the availability of people willing to work and live near palm oil farms. In Indonesia the situation is similar. Palm oil is considered as a strategic com-
modity for the country not only because it is the main cooking oil for the population but also that oil was a key product that rescued Indonesia during the Southeast Asian Economic Crisis in 1998, when palm oil’s price shot up to US$ 600/barrel. Palm oil plantations in Indonesia grew from 5.06 Mha in 2002 to 6.33 Mha in 2006. Riau, a 9 Mha province, has the highest concentration of peat land in the world and a quarter of Indonesia’s oil palm plantations. Substantial growth has been achieved but with high environmental impact. According to the
