Skip to main content
Four Ways to Get the Most out of Palm Oil in Latin America and the Caribbean

Four Ways to Get the Most out of Palm Oil in Latin America and the Caribbean

What do soap, Ben and Jerry’s, and KitKat bars have in common? They all contain palm oil, an oil produced by the oil palm tree. Indonesia and Malaysia produce the vast majority of the world’s supply and have experienced significant environmental consequences as a result. Now the crop’s profitability is attracting interest in other tropical climates, including Latin America and the Caribbean.
AUGUST 04 2015

Four Ways to Get the Most out of Palm Oil in Latin America and the Caribbean

palm workerColombia’s plans for palm oil production require three million hectares of plantations. Other big growth countries include Ecuador, Peru, Brazil, Honduras, Guatemala and Costa Rica. Palm oil plantations can drive deforestation – just in May the Monitoring of the Andean Amazon project found that a company had cleared 9,400 hectares of Amazonian rainforest to make way for oil palm.

Are there ways to bolster the environmental and social sustainability of the industry?

Here are four proposals:

First, the benefits from palm oil growth would be more equitably distributed if small farmers owned and managed more plantations. Small farmer control avoids clearings of thousands of hectares at once, and small farmers tend to plant in mosaic patterns, preserving some of the original environment and increasing agrobiodiversity.

Ownership varies greatly by country. According to Mr. Juan Luis Dammert, PhD Candidate at Clark University, “In Peru there are two groups with very large plantations that account for more than a third of all cultivated areas. The rest is based on associations of smallholders. In the case of Ecuador and Colombia you see a greater number of mid-size companies.”

The problem here is that starting a plantation is extremely expensive, requiring thousands of dollars of investment without significant returns during the first few years. Without access to credit, palm oil is untenable for farmers that need regular income. Working with Banco de Guayaquil in Ecuador, IDB is working to provide credit to small palm oil producers.

A second solution lies in better ecological planning. Mostly because of cattle grazing, Latin America has millions of hectares of deforested and degraded land. The ecological value of this land is low, so planting palm oil or other crops in degraded land doesn’t have the same negative consequences for biodiversity and ecosystem services.

It seems like an obvious strategy, but unfortunately one that hasn’t worked very well with oil palm or other crops. Land is degraded for a reason: it’s being used by people. Dr. Patrice Levang of CIFOR says, “Large areas that have been cleared like that have been appropriated by thousands of people. If you try to take them [for oil palm development], all these people will ask for compensation.” In most cases, it’s simply cheaper to clear forest. Until policy better protects forests and incentivizes production on non-forested land, oil palm and other crops will threaten forests.

Thirdly, palm oil has a certification scheme to guarantee that certified palm oil has met certain sustainability criteria. The Roundtable on Sustainable Palm Oil (RSPO) guarantees that certified palm oil has not come from recently deforested land, does not involve child labor, and other standards. 3.4 million hectares of oil palm plantations are RSPO certified worldwide, accounting for 20% of palm oil production. RSPO is growing rapidly in Latin America, with the certified volume of palm oil expected to grow by 226% from 2014 to 2015.

Like other solutions, RSPO is not without its own problems. My recent post explored the issues.

Lastly, there is personal responsibility. All of us as consumers recognize the impact that food production has on the natural environment. We can demand RSPO certified palm oil. High demand will create a large price premium. In 2013, nearly half of RSPO certified palm oil was sold as conventional palm oil without a price premium.

Some environmental advocacy groups have recently called for palm oil bans. While palm oil’s sins make it easy to sympathize with this sentiment, eliminating palm oil would not solve any problems. Global consumers demand ubiquitous, cheap oil, and if oil palm trees weren’t displacing forests, then soy, rape seed, or another oil crop would.

That said, palm oil is increasingly threatening Latin America’s natural resources and without a transformation of our food production, governance systems and consumer culture, more destruction is certain. Better agricultural and environmental planning from government ministries and increased leadership by the private sector can help strengthen the sustainability of the palm oil industry.

A different version of this article was first published by 


Financial Institutions

Related Posts

  • Banner

    Let's Use Financial Engineering for Good, with a New Structured Product

    At a time of difficulty, due to COVID-19 and climate change, innovative financial products are needed: for example, one that offers great liquidity and flexibility so that banks in Latin America and the Caribbean can reach social impact and climate commitments.

    Read more
  • Banner

    Caribbean Financial Institutions Are Looking to Open their Digital Umbrellas

    A shift towards greater digitization was overdue for Caribbean banks, and has been accelerated by the current pandemic. Now, they are rolling out their digital channels, seeking to implement ways in which to help bank customers and employees protect themselves while providing the same and enhanced services.

    Read more
  • Banner

    Two Successful Models for Promoting Banking Digitalization: The Cases of Colombia and Peru

    The success of online platforms in the Colombian banking system offers a clear example of how private enterprises can optimize services, expand their customer base, and enhance social inclusion. In Peru, the process has been slow but comprehensive, aiming for a transition to "open banking."

    Read more