Supply Chain
2 Birds, 1 Stone:
How Palm Oil Can Improve Livelihoods and Reduce Global Pressure on Forests

With a number of NGO campaigns demanding that companies pledge to use zero-deforestation palm oil — and industry groups such as the Consumer Goods Forum pledging zero-net deforestation by 2020 for soy, palm oil, livestock and timber — companies are scrambling to find sustainable supplies of palm oil.

It is no easy task to guarantee the palm oil used in a given product is sustainable. Once palm fruits are cut from the tree, the oil and its hundreds of derivatives go through the custody of many companies, from mill to processor to traders to ingredient manufacturers. To make things more complicated, the oil is mixed at multiple stages of the process. Traceability, when at all possible, is costly.

There is no silver bullet. On one hand, companies must ensure that the palm oil they purchase does not come from deforested lands or from plantations where forced labour is used – that is where the bulk of NGOs and companies are focusing their efforts. On the other hand, they should also think proactively about how we can sustainably produce more palm oil to meet future demand - predicted to be an additional 10 million tonnes by 2020 compared to 2013 levels.

There are two ways to meet future demand: horizontally or vertically. If we meet that demand horizontally — through expanding on new land — this would lead to at least an additional 1.25 million hectares converted to palm oil. If we meet it vertically — through increased productivity — the biggest opportunity lies with smallholders, who often do not have access to adequate inputs or need to replant their aging plantations.

Currently 1.5 million smallholders cultivate 3 million hectares of palm oil in Indonesia. Average yields of smallholders are 3 tonnes per hectare, compared to the national average of 4 tonnes per hectare, and an average of 8 tonnes per hectare on estate plantations.

But it does not have to be this way. Solidaridad focuses its palm oil work on realizing opportunities for smallholder growers of palm oil, from Indonesia and Honduras to Brazil, Malaysia and Ghana. In Ghana, groups of smallholders have surpassed the yields of the best-in-class plantations by adopting best-management practices.

Of course, increases in productivity could theoretically lead to more deforestation as it increases profitability and availability of capital. That risk needs to be mitigated by governments and through partnerships of companies and civil society. But withholding from increases in productivity is condemning smallholders to lower incomes and to expanding on land that has high natural capital or socioeconomic values. This trade-off needs to be acknowledged.

Beyond increasing smallholder and plantation productivity, Solidaridad also works on making it easier for companies to source the sustainable stuff. Building supply in given areas can significantly reduce transaction costs. In Honduras, the largest palm oil producer in Central America, we are working with WWF, Henkel and ProForest to bring 85 percent of the country’s palm oil production towards sustainability by bringing the sector into compliance with the Roundtable on Sustainable Palm Oil (RSPO) standard.

In the process, smallholder palm oil production has lifted thousands of Hondurans out of poverty — their housing has risen to middle class, their children are receiving educations, and they are acquiring healthcare. The increase in income has steadily raised the standard of living and allowed palm oil workers to give back to their communities, investing in and helping to build new schools, medical clinics and daycare centers.

As we address deforestation in supply chains, we need to make sure to grab the opportunity to strike two birds with one stone and help smallholders increase productivity — in order to avoid further irresponsible expansion.