What’s behind the Palm Oil Boom?

Is it feeding people or cars?

Photo of broken chocolate bar with caramel

Source:© 2012 Istockphoto.com

Scan the ingredients of your favorite candy bar and you’ll likely see an oil listed that, until recently, was rarely used beyond West African and Southeast Asian kitchens. A new IFPRI discussion paper, Revisiting the Palm Oil Boom in Southeast Asia, helps explain why palm oil has recently caught up with soybean oil to become one of the world’s most popular—and controversial—cooking fats.

Belgians introduced Indonesian and Malaysian farmers to palm oil production in the 19th century. Since then, plantations in the two countries have dominated the palm oil market, and in the past 30 years palm oil production has grown ninefold.

“It’s quite clear why farmers are eager to grow oil palms: they are relatively cheap and easy to grow in tropical climates,” said Guillaume Gruère, a senior research fellow at IFPRI who conducted the study with Daniel J. Sanders and Joseph V. Balagtas of Purdue University. “What isn’t clear, however, is why there has been so much demand lately for this oil as opposed to soybean oil, which is also easy and cheap to produce.”

Photo of Workers loading a truck with palm oil fruit

Workers load a truck with palm oil fruit. Source: James Morgan/PANOS

Some environmentalists associate the rise in palm oil plantations with the destruction of tropical rainforests in Indonesia. They tie the increased worldwide demand for biofuels—fuels made from organic materials—to the palm oil boom.

In their exploratory study, however, Sanders, Balagtas, and Gruère found that palm oil prices appear to be more closely influenced by soybean oil prices than fuel prices. Their results suggest that food—not biofuels—is most likely the source of palm oil demand.

In fact, Gruère points to recent US and European policies regulating both trans fats and genetically modified (GM) food as two possible factors behind the palm oil boom. The new policies may have induced such multinational food producers as Nestlé and Unilever to move away from soybean oil in favor of palm oil because it doesn’t produce trans fats and it isn’t made from GM crops.

“Insight from our study,” Gruère said, “which we hope to expand in the future, could help policymakers better understand market linkages and potential unintended policy consequences as they develop new food regulations.”

  • Bocock1949

    Is there a negative side to planting palm trees in so far as ruining the land?