Palm Oil and Its Problems
CASE 7.5 Palm Oil and Its Problems
palm oil is one of those ubiquitous but overlooked products that have a hundred different uses. It comes
from the oil palm tree ( Elaeis guineensis), which originated in West Africa, but which by the mid- 1800s
was discovered to grow well in Malaysia and other countries in Southeast Asia. Back then the oil was
used for soap and to lubricate engines. By the mid- twentieth century, plantations dotted not only
Malaysia but also Indonesia, which together now account for nine- tenths of the world’s supply of palm
oil. Today, the oil finds its way into many processed foods and into consumer products like lipstick,
shampoo, and shaving cream. Many Asian households cook with it, and recently it has come to be used
as a biofuel. 110 Demand has pushed prices high and increased the number of palm- oil plantations. That
in turn has contributed to needed economic growth in the countries that produce it, which is good news
for them. But environmental groups are alarmed by the spread of palm- oil production, viewing it as
damaging to wildlife and hazardous to the planet. In past decades, the area under cultivation for palm
oil has mushroomed fifteenfold, eliminating peat land and forests in wide swathes of Malaysia and
Indonesia. In fact, deforestation in Indonesia is so rapid that a recent U. N. report says that all of the
country’s forests could be gone by 2022. Destroying forests and peat land to slake the world’s thirst for
palm oil releases enormous quantities of carbon dioxide, thus contrib-uting to climate change. In
Sumatra and Borneo, palm- oil expansion also threatens the habitat of elephants, tigers, rhinos, and
orangutans. Awareness of the problem led to the establishment of the Roundtable on Sustainable Palm
Oil ( RSPO), a consortium of growers, processors, food companies, and nongovernmental organizations
that was set up in 2004 to prod the industry into producing “ sustainable” palm oil, that is, oil that
could be certified as having been produced “ without undue harm to the environment or society,” in
particular, without having involved the destruction of areas with “ high conservation val-ues.” These
areas include not just primary- growth forests, but also secondary and degraded forests that are “
important for environmental conservation and community well- being.” But the Roundtable proceeded
slowly. The producers dragged their feet, and there wasn’t much demand for certified oil. Frustrated at
the slow progress, some environmentalists decided to take direct action. Greenpeace targeted Unilever,
although the company uses only 4 percent of the world’s palm oil, because some of its well- known
brands ( like Dove soap) include palm oil. In 2008, protestors stormed the com-pany’s London
headquarters and demonstrated outside sev-eral of its facilities around the world with banners
displaying slogans like “ Unilever: Don’t Destroy the Forests.” Greenpeace also went after Nestlé,
posting a video on YouTube that fea-tured the bloody finger of an orangutan inside one of the
company’s Kit Kat candy bars. Unilever quickly committed itself to using only palm oil certified as
sustainable, and twenty other big companies, Procter & Gamble among them, rapidly followed suit. But
Greenpeace wanted the company to go further and make sure that its suppliers weren’t breaking the
law. Unilever agreed, but doing so turned out to be problematic. “ We found that, in one way or another,
all of our suppliers have techni-cally infringed either RSPO standards or Indonesian law,” says Gavin
Neath, a senior vice- president. “ It isn’t as easy as saying just pick the best. We are not in a position to
do that. The industry almost certainly has to go through fundamental change.” Because it doesn’t buy
all that much palm oil, Nestlé hadn’t anticipated being caught up in the controversy. A member of RSPO,
it had been purchasing some sustainable oil but hadn’t planned to utilize only sustainable oil until 2015.
After first trying to stop the Greenpeace video, the company buckled because of the public response. It
suspended all purchases from Sinar Mas, an Indonesian conglomerate known to be involved in the illegal
clearing of forests and peat land. And it went further, hiring an independent auditor to review its supply
chain and enable it to avoid “ high- risk plan-tations or farms linked to deforestation.” Besides bad
publicity and badgering from environmental-ists, one factor in the change of policy at Unilever and
Nestlé may have been the attitudes of their employees, many of whom are concerned about
environmental issues. As the Economist magazine explains, “ For years companies have been saying that
a commitment to corporate social responsi-bility can improve the quality of staff that they can recruit.
It follows that these recruits then care about the behavior of the company that employs them.” Despite
these victories for environmentalists, much of the palm- oil industry has paid little attention, in part,
because environmentalists have focused on a few well- known Western companies while ignoring Asian
companies altogether. Verifying sustainability is not as easy as it sounds either, because oil from
different small plantations gets mixed together ( and sustainable oil and unsustainable oil are indis-
tinguishable). An executive at one small cosmetics company, which has switched to coconut oil, says
that there is “ no such thing as sustainable palm oil: it doesn’t exist.” But for the world as a whole to get
by with less palm oil is going to be expensive, and rival products also have some environmental
drawbacks. On the other hand, deforestation is high on the agenda of the World Bank and United
Nations, and various governments and nongovernmental organizations are getting involved. For
example, a billion- dollar grant from Norway has induced Indonesia to declare a moratorium on clearing
forests and to set up its own certification body. Some opti-mists argue that increased productivity can
enable the palm-oil industry in Indonesia to continue to expand without destroying more forests, but
that remains to be seen. In the meantime, the world’s thirst for palm oil remains unslaked.
1. The word “ sustainable” is tossed around a lot. What does it mean to you?
2. Is it fair for environmentalists to single out companies like Unilever and Nestlé that are more socially
responsible than most and which are relatively small consumers of palm oil, or is this justified simply as a
matter of strategy?
3. How far must corporations go to ensure that the various ingredients used in their products are
produced in an environmentally satisfactory way? What if there aren’t any truly sustainable options?
4. Can monitoring and self- regulation by industry groups like the Roundtable effectively address
environmental issues, or will outside pressure always be needed? Was Greenpeace right to act as it did,
or should it have tried to work with the companies in question?
5. Preventing deforestation is important, but once previously forested land has been cleared, whether
six months ago or sixty years ago, is there anything wrong about using it to produce palm oil now?
6. Used as a biofuel, palm oil reduces our dependence on petroleum. How do we balance that against
7. Developing countries like Indonesia are responding to increased demand for palm oil by Western
consumers. Is it fair to the producer nations to restrict the expansion of this industry?
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