Palm Oil, from Controversial to Sustainable Commodity

Palm oil is contained in half of the supermarket products, as well as being widely used as cooking oil among fast-growing populations in Asia Pacific, and increasingly used as biodiesel feedstock. Its global production has almost doubled over 2000-2017, now leading the production of vegetable oils, with Indonesia and Malaysia accounting for almost 90.0% of palm oil production growth.

Key drivers for palm oil demand

Palm oil is a permanent crop, harvested all year round. Despite its controversy due to the environmental and social impacts linked to its production, its versatility, affordability and its much higher yield compared to its major competitors (soya, rapeseed and sunflower) producing more oil from less land, have positioned the oil as a key commodity for both food security and clean energy production.

Opportunities in the palm oil industry

  • Food security: Palm oil is the most affordable and efficient vegetable oil, requiring less land per output of oil and offering opportunities to feed the exponentially growing population.
  • Sustainable expansion: With more stringent environmental policies, sustainable practices will become increasingly important in future agricultural development and long-term palm oil expansion. There are opportunities to reconcile oil palm expansion and forest conservation with targeted expansion into degraded and existing agricultural land. Latin America, where part of the recent palm oil tree expansion is occurring, has the chance to make a significant contribution to sustainability and forest conservation.
  • Waste management & renewable energy: The palm oil industry has the potential to reduce its greenhouse emissions and generate electricity from the methane containing waste produced in palm oil mills.
  • Lack of alternatives: The lack of economically competitive substitutes that could be used at the same scale without becoming problematic will continue to drive up global demand.
  • New technologies: The combination of new digital technologies such as blockchain with Internet of Things (IoT) sensors, artificial intelligence and machine learning, has the potential to solve the supply chain’s transparency problem.

Challenges facing the palm oil industry

  • Bad reputation: Ethical labels are becoming a critical marketing tool to the credibility of companies making sustainability commitments. With rising concerns about climate change, biodiversity and forest conservation possibly impacting future palm oil demand, potential bans on the use of the commodity in certain applications could come into place. An example is the recent EU ban on palm oil-based biofuels. This could further increase the arable land required to meet growing global demand, putting even more pressure on natural areas around the world.
  • Full transparency & traceability: Although companies are increasingly committed to sustainable sourcing, most struggle to achieve supply chain transparency beyond the mill to the plantations. Collaboration among all stakeholders is required to overcome this barrier. The use of disrupting digital technologies such as blockchain, Internet of Things and DNA molecular tagging has the potential to shake up the palm oil industry, overcoming the current challenges in achieving supply chain transparency and traceability.

For further insight, please contact Maria Coronado, Senior Consultant – Natural Resources at Euromonitor International, at maria.coronadorobles@euromonitor.com

The new strategy briefing titled Palm Oil: From Controversial to Sustainable Commodity provides a comprehensive analysis of the changing landscape of the palm oil industry, analyzing its trends, drivers, barriers and challenges, using cross-industry data from seven different systems in Passport.