Global Market Report: Palm oil prices and sustainability

This report unpacks recent market trends in the palm oil sector and examines the role that sustainability standards can play in ensuring that palm oil producers receive fair incomes and are incentivized to adopt more sustainable practices.

By Vivek Voora, Steffany Bermúdez, Johanna Joy Farrell, Cristina Larrea, Erika Luna on June 28, 2023
  • In Indonesia and Malaysia, the palm oil sector employs almost 5 million people directly and 6 million people indirectly. It is responsible for nearly 3 million downstream jobs in importing countries.

  • Growing at a compound annual growth rate of 76% between 2008 and 2019—and accelerating to 129% from 2014 to 2019—VSS-compliant oil palm fruit now represents 17% of total global production.

  • More than 60% of palm oil produced in 2020 was exported, providing an important source of foreign exchange revenue for exporting countries. Palm oil meets 40% of the global demand for vegetable oil.

Present in the shampoo we use and the packaged food we buy, palm oil is the most widely produced edible oil. But palm oil development in Indonesia and Malaysia—the top two producing countries—has led to significant forest loss over the last 30 years. The deforestation and land-use changes that often occur during palm oil cultivation are some of the leading causes of climate change—yet the sector is increasingly vulnerable to its impacts.

However, the production of palm oil is also very efficient: oil palms produce significantly more oil per hectare of land than any other vegetable oil crop, with yields over 10 times higher than soybean and sunflower. The sector also represents a source of livelihood for over 7 million smallholder farmers worldwide. Palm oil therefore plays an instrumental role in maintaining global food security and alleviating poverty.

Voluntary sustainability standards (VSSs) such as the Roundtable on Sustainable Palm Oil (RSPO), Rainforest Alliance, Organic, and the International Sustainability and Carbon Certification first emerged in the sector 30 years ago. Today, roughly 17% of palm oil produced complies with one of these VSSs. Many include requirements for building climate resilience and reducing deforestation in the sector. They also encourage oil palm farmers to implement better practices that can help to increase their yields and crop incomes—for example, by maintaining soil health and reducing production costs by using fertilizer more effectively.

However, very few oil palm farmers who comply with VSSs receive minimum prices or premiums for their produce. This is exacerbated by the fact that demand for VSS-compliant palm oil remains low, with a large proportion of RSPO-certified crude palm oil being sold as conventional.

With rising production costs, limited negotiation power, and a lack of access to finance and quality inputs to contend with, many oil palm farmers in developing regions are left struggling to earn a living. This report provides a series of recommendations for governments, private sector actors, and standard-setting bodies to ensure that palm oil producers receive better incomes and are incentivized to adopt more sustainable practices.