Land Use • A Matter of Trust: How Palm Oil Supply Chain Actors Respond to the Evolving Sustainability Standards

Palm oil is a cheap ingredient used in many processed products, contributing to deforestation in South East Asia. NGOs have lobbied for strict environmental standards on its production, leading to an effective regulatory framework and a reduction in deforestation.

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Climate Chance Observatory

Palm oil, as a cheap and versatile ingredient used in many processed goods, has been and continues to be a major driver of deforestation in Southeast Asia. To regulate its production, local and global NGOs pushed for the implementation of rigorous environmental standards. Although the palm oil industry did not welcome these new standards with great enthusiasm, and accused Northern countries of waging a trade war, this dichotomy evolved into the establishment of a strong normative framework, resulting in a slowdown in the tree cover loss.

  • Palm oil, obtained from the oil palm trees (Elaeis guineensis), is a widely consumed important commodity. Palm oil is considered as an instrument for rural development. However, as the demand for palm oil grows, the area used for oil palm plantation is also expanding rapidly. NGOs such as Greenpeace blame the expansion of oil palm plantations as the main driver of deforestation and thus, of climate change. In addition, other organisations such as Sawit Watch and Transformasi untuk Keadilan (TuK Indonesia) also blame palm oil industry for social problems such as human rights violations, land conflicts, and repression of local communities.
  • The declining contribution of the palm oil industry towards deforestation is also showing that while still far from ideal, the industry is changing.
  • A group of stakeholders with diverse backgrounds agreed to establish the RSPO in 2004, with the aim to involve all key players in the palm oil supply. However, since its creation, it has faced problems of governance and mistrust between stakeholders. The producers complain that the RSPO is shifting from its earlier commitment as a multi-stakeholder platform and quickly becoming a one-sided mechanism which shifts the burdens only to the producers without understanding the complexity on the ground. In 2015, the RSPO launched the « RSPO-NEXT » initiative with stricter criteria, but this was withdrawn in 2020 following the latest review of the RSPO’s P&C.
  • In general, the introduction of the RSPO did not disturb the growth of the palm oil industry in Indonesia and Malaysia. The hope to obtain competitive edge to enter environmentally conscious markets soon yielded to doubts as a gap between supplies and sales appeared. Producers in Indonesia and Malaysia responded with “hedging strategies”.
  • The producer countries’ responses towards sustainability standards such as the RSPO is overshadowed, and further complicated, by suspicion towards an alleged “trade war” waged by powerful and rich developed countries. There is a popular perception shared by government officials and business alike that such sustainability standards were imposed towards palm oil to curtail its competitiveness.
  • Despite the tensions within itself, the RSPO has been a significant force in shaping the industry’s practices.

Deforestation is still happening at a large scale in Indonesia and Malaysia and the impact on the climate is still enormous. Nevertheless, the dialectic of environmental NGOs and major palm oil producers, as well as the synergy resulting from diplomacy between producing and importing countries, has led to the establishment of a powerful normative framework for more climate and environmentally friendly palm oil production. This is fully reflected in the new producer-driven ISPO and MSPO standards based on the RSPO standards, as well as the establishment of the moratorium on forest conservation by the Indonesian government. Although it is difficult to calculate their exact contribution to reducing deforestation and thus mitigating climate change, it is safe to say that sustainability standards did matter in reducing the pace of deforestation in major palm oil producing countries.