Indonesia’s rainforests are among the world’s most extensive and biologically diverse environments. They are also among the most threatened. An increasing population and growing economy have led to rapid development. Logging, mining, colonization, and subsistence activities have all contributed to deforestation.

But the recent and booming expansion of palm oil plantations could cause the most harm to the rainforests, and is generating considerable concern and debate among industry leaders, environmental campaigners and scholars.

Joanne Gaskell in Sumatra, Indonesia.

Joanne Gaskell has dedicated her graduate studies to better understanding the tradeoffs and demand side of this dilemma. The doctoral candidate and researcher for the Center on Food Security and the Environment recently defended her thesis before an audience of advisers, friends, and fellow students from Stanford’s Emmett Interdisciplinary Program in Environment and Resources (E-IPER).

“You need to understand the economics and politics of palm oil demand if you want to understand the regional dynamics of oil production and associated environmental impacts,” Gaskell said. “From a conservation perspective, this is as important as understanding supply since demand patterns affect the incentives facing producers.”

In the past 25 years, palm oil has become the world’s leading source of vegetable oil. Indonesia is currently the world’s top palm oil producer. Since the 1980s total land area planted to palm oil has increased by over 2,100 percent growing to 4.6 million hectares – the equivalent of six Yosemite National Parks. Plantation growth has predominately occurred on deforested native rainforest with major implications for global carbon emissions and biodiversity.

And Gaskell projects the demand for palm oil for food will double by 2035, requiring more than 8 million new hectares for production. Plantation expansion has already begun in Kalimantan and Papua, and Indonesian companies are now looking beyond Indonesia for new investment opportunities. Just as palm oil production spread from Malaysia to Indonesia to escape rising land and labor costs, palm oil production is now spreading to parts of Africa, where the crop is native, and Latin America.

Demand for palm oil is quickly rising in Asian markets – notably India and China – where it is used for cooking and industrial processes. Indonesia has the highest level of per capita palm oil consumption, resulting not just from population and income growth, but also from government policies that promoted the use of palm oil instead of coconut cooking oil.

“Taste preferences and investment more than international prices have driven palm oil demand in Indonesia,” Gaskell said.

Biodiesel production and speculation have also contributed to the rapid expansion of palm oil plantations, but to a lesser extent. Gaskell said the success of palm-based biodiesel hinges on remaining cheaper than petroleum diesel and whether governments subsidize the industry, as the United States has done with corn and soybean farmers.

Interest in palm oil as a cleaner burning fuel is already waning in Europe and the United States. The short-term carbon costs of deforesting and preparing land, fertilizing and managing the crops, then processing and transporting them outweigh the benefits. This is particularly true when palm oil plantations are grown on peat soils that release potent methane gas when drained for growing palm oil.

Palm oil seedlings ready for planting. Photo credit: Wakx/flikr

Growing plantations on ‘degraded land’, land that had been previously converted for other purposes, such as logging, is a much more favorable option over forest expansion. In theory, there is an abundance of degraded areas that can be profitably converted into palm oil plantations. But there are hurdles: The areas are not necessarily contiguous, making it difficult to organize a plantation, and ownership rights in these areas are often contested.

Palm oil’s considerable productivity and profitability offers wealth and development where help is most needed. Half of Indonesia’s population lives on less than $2 a day. But along with the negative ecological impacts, palm oil production increases competition for land and could exacerbate inequalities between the rich and the poor.

Gaskell believes sustainable expansion strategies are possible, and says smaller mills and different processing technologies are needed so production is affordable in scaled-down, more distributed systems.

Palm oil plantation in Cigudeg, Indonesia. Photo credit:  Achmad Rabin Taim/flickr

Her work is feeding an international conversation about palm oil production. The Roundtable on Sustainable Palm Oil (RSPO), an international organization of producers, distributors, conservationists and other stakeholders, has promoted better ways of managing palm oil production and encouraging transparency and dialogue among corporate players, governments, and NGOs.

“We need to protect the most ecologically valuable landscapes from agricultural production and we need to make sure that, in areas where palm oil agriculture occurs, there are ecological management strategies in place such as riparian buffers, wildlife corridors, and treatment systems for mill effluent,” she said. “From a food security perspective, small palm oil producers, who might be giving up rice production or the production of other food staples, need strategies to minimize the economic risk associated with fluctuating global palm oil prices.” 

Commentary on Hans Binswanger-Mkhize's symposium on "India 1960-2010: Structural change, the rural non-farm sector and the prospects for agriculture". The symposium is part of a 2-year, 12-lecture series on Global Food Policy and Food Security.

Commentary on Hans Binswanger-Mkhize's symposium on "India 1960-2010: Structural change, the rural non-farm sector and the prospects for agriculture". The symposium is part of a 2-year, 12-lecture series on Global Food Policy and Food Security.

Ross Feehan has written a very interdisciplinary thesis, spanning the fields of aquaculture production, climate, risk analysis, and ethics. As an Earth Systems major with a strong concentration in religious studies, Ross worked hard to bridge his interests in a piece of work that is relevant to smallholder producers and policymakers in China and in other producing countries. Ross’ thesis is well-written, well-documented, and firmly grounded in several core disciplines of Earth Systems.

Ross analyzed the role of index insurance for extreme weather impacts on aquaculture production in great detail. He used the science to develop a statistical method for evaluating risk and insurance market behavior. He also devoted much effort to designing an ethical approach that incorporated values that he could understand and assess in the context of insurance schemes. His attempt to integrate two major fields of interest from his undergraduate and co-term training at Stanford is laudable. Feehan was advised by FSE director Rosamond L. Naylor.

Thesis abstract

China’s aquaculture industry, which is the largest in the world, is predominantly uninsured. Aquaculture insurance in China remains to be nascent despite previous and ongoing efforts to insure farmers against diseases, natural hazards, and other threats. This study assesses the opportunity for insurance development in China and suggests an aquaculture insurance solution for Hainan Province using quantitative and qualitative analyses. An index insurance program in Hainan Province could utilize typhoon and rainfall measures as proxies for the damages that aquaculture farmers experience. This program could insure farmers across Hainan, though calculations of risk reveal that some of Hainan’s administrative regions are more perilous than others. Risk in Hainan will increase as climate change intensifies. Now, and in the future, aquaculture insurance should assume a greater role in Hainan’s management of natural hazard risk only if insurance and its provisioning abide by both practical and ethical criteria that, inter alia, uphold the value of all creation.

Despite accelerating economic growth in India over the last thirty years, India’s structural transformation remains stunted, said economist Hans Binswanger-Mkhize at a May 10 FSE symposium on global food policy and food security. Unlike China, urban migration and labor absorption have been slower than expected, especially in the typically labor-intensive manufacturing sector. Formal sector jobs are few and declining as a share of employment, and agricultural employment (and growth) remains low.

The rural non-farm sector has been left to pick up the slack, and has emerged as the largest source of new jobs in the Indian economy. This will likely remain so over the next few decades given that two-thirds of India’s growing population is projected to live in rural areas. Add to the equation the need to increase crop yields by 50 percent under changing climate conditions and it becomes apparent that improving rural incomes and supporting agricultural growth is essential to decreasing poverty and unemployment in India now and in the future.

“The importance of India's rural non-farm sector shows us that structural transformation does not follow a recipe,” said commentator Marianne Banziger, a senior scientist at the International Maize and Wheat Improvement Center (CIMMYT) in Mexico.

While non-farm jobs offer significantly higher wages than farm labor, most jobs are informal and/or insecure (i.e., no health benefits, unemployment insurance or pensions). These jobs go mostly to men 18-26 years old who have some education, while the illiterate and women struggle to transition into this sector. Retail trade and transport, construction, and services (internet and phone booths, maintenance and repair of motor vehicles, and hotels and restaurants) are growing especially fast, partly due to urban-rural spillovers, but manufacturing is still only 20 percent of non-farm jobs.

“For rural households, non-farm employment is not distress employment, but a profitable diversification strategy,” said Binswanger-Mkhize. “At the same time, it has selectively absorbed young males into wage employment, decreased the number of farmers, and increasingly concentrated women in agriculture, contributing to a progressive feminization of agriculture.” 

As a result, farms on average have declined in both land and household size, and have moved toward the production of higher-valued goods and a modern model of part-time farming. This transformation concerned Banziger.

“Will the urban and land-less poor be held hostage by part-time farmers?” she asked.

Banziger projects in the next 20 years food and energy price inflation will likely exceed the income growth of the urban poor. Food price increases will push net consumers, who spend a third of their income on food staples, back into poverty.

“For food prices to remain constant, farmers yield gains will have to increase by 50 percent on essentially the same land area, with less water, nutrients, energy, labor and as climate changes,” said Banziger. "The more we delay investments, the steeper the challenge.”

Fortunately, small farmers are now better equipped to respond to these challenges, but are still limited by scale. Precision irrigation and fertilization technology coupled with remote sensing and cell phone technology enable better yield predictions that affect nutrient application. Better farm-level nutrient management increases farmer income and nutrient use efficiency.

For an optimistic Indian future to be realized government policy must support ways in which households increase their incomes, said Binswanger-Mkhize. A positive outcome for rural areas depends on continued urban spillovers, and on better agriculture and rural development policies, institutions, and programs.

Productivity growth needs to be sustained at very high levels. This requires more responsive, accountable, and better-financed research systems, more diversification of agriculture, and larger, better financed, and more accountable agricultural extension system. India currently employs one-seventh the number of extension workers as China.

"Rapid policy and institutional change will be required to overcome poor performance of many government programs," said Binswanger-Mkhize. "Current subsidies to fertilizer, electricity, water, and support to crop prices are already large, but are an inefficient means to transfer income to farmers."

Direct payments may be a more efficient way of supporting income growth. This is beginning to happen with fertilizers, but should be extended to electricity and food subsidies, said Binswanger-Mkhize.

“Maybe the people who have been disadvantaged in the past are the core for future change. With appropriate support, smallholder farmers can become the engines for agricultural productivity growth and transform India's growing economy,” concluded Banziger. 

In the first decade of the 21^st century, global production of ethanol and biodiesel increased nearly tenfold. If that trend continues, says Rosamond L. Naylor, director of Stanford University’s Center on Food Security and the Environment, national biofuels policies will have an increasingly powerful impact on food prices, food security, energy security, and rural incomes in the developing world.

During a two-hour symposium held on the Stanford campus last Wednesday, Naylor addressed the role of biofuels in global food price volatility and the implications of biofuels development in rural Africa and Asia. Although she acknowledged that global income and population growth have contributed to increased demand for biofuels, she also emphasized “the unbelievable dominance of policy” in driving current trends.

“The main part of this that I think is so significant is the use of mandates,” Naylor said. “Policies such as the United States’ Renewable Fuels Standard (RFS), which sets a national target of using 15 billion gallons of corn-based ethanol per year by 2015, have reshaped price and supply dynamics in both food and fuel markets. “

“When you think about the fact that the US provides half of the world’s corn…the fact that we’re using so much in our gas tanks, biofuels really is changing the nature of global markets,” Naylor said. Policies that fix demand for corn from the ethanol market, she explained, have a destabilizing effect on corn prices, especially in the face of supply shortages.

“When you have mandates you have a quantity that you’re absolutely insisting you use, regardless of the price,” she said. “That inelastic demand leads to more volatile prices with supply shocks.”

Because of the substitutability of basic food commodities, Naylor said, price volatility in the corn market has far-reaching consequences. “Prices of corn ripple through all of the world food economy markets…it affects the demand and supply of wheat and rice and soy, and other things,” she explained. And for poor households in the developing world, she said, “it has big income effects…when you’re spending 70 to 80 percent of your budget on food, you’re going to be hurt the most.”

However, Naylor also noted that biofuel mandates in the developed world could provide valuable market opportunities for developing-country farmers.

In rural Africa and Asia, she said, farmers “see the US having a big mandate, EU having a big mandate, and they think, can they supply into that mandated need?”

For now, it seems, the answer is “maybe.” In Africa, for example, efforts are underway to increase the use of jatropha – an inedible, drought-resistant shrub – as a biofuel feedstock. But Naylor said that low yields and high labor costs are likely to severely limit the economic returns from jatropha-based biofuels.

And in marginal growing conditions, the use of more conventional feedstocks is often restricted by resource availability. In India, for example, where almost all sugarcane is grown under irrigated conditions, expansion of sugarcane area to supply the ethanol market could lead to water shortages. Even if these countries can make large-scale biofuel production economically viable, the benefits to poor farmers could vary widely depending on the structure of the market.

“The implications of biofuel development are going to be quite different,” Naylor said, “depending on the organization of the value chain.”

Dr. Siwa Msangi, a Senior Research Fellow with the International Food Policy Research Institute, agreed. In comments following Naylor’s presentation, Msangi said biofuel development contributes most effectively to rural income growth “when you can have vertical integration…people all along the value chain have to be making money.”

Msangi also noted that commodity price increases, including those driven by ethanol mandates, could benefit small farmers if they are controlled and predictable. “Sharp, fast, sudden price rises – those are the ones that are bad for consumers,” he explained. But prices rises “can be positive…especially if those price rises can be gradual and sustained over time, because that gives people the opportunity to mobilize resources to make use of higher returns.” For example, small farmers at the local or national level can increase their production of crops in high demand for biofuel production.

The emerging connections between agriculture and energy markets are complex, Msangi said, but can be advantageous if handled carefully. “If there are good opportunities for agribusiness, I think there’s a case for taking them,” he said, “but also for being aware of the context and all the issues.”

This was the eighth talk in FSE’s Global Food Policy and Food Security Symposium Series.