Brazil is poised to become the global leader in sustainable palm oil production

Nov 13, 2010 12:00 AM

By Nathaniel Payne

Across the globe, leading producers of Palm oil - particularly those situated in Indonesian and Malaysian - continue to face growing challenges. Producers in these nations frequently struggle to meet global demand targets, while also suffering from land shortages and logistical inefficiency. Moreover, many producers in these, as well as similar nations, continue to face environmental-sustainability challenges; issues, that are systematically reducing the attractiveness of their product in various consumer categories.
One growing segment that continues to challenge traditional palm oil producers is the environmentally conscious food segment. As concerns over the impact of environmentally unsustainable palm oil production increase, many traditional producers are seeing demand for certified 'green' - or environmentally sustainable - crude palm oil (CPO) rise significantly.
Moreover, despite the fact that sustainable palm oil demand currently accounts for only 3% of the global market, it is expected that demand for this type of product will continue to increase significantly (double digit market share gains) over 2011.

As a palm oil producing nation, Brazil (and many of its organization's operating within the agricultural sector), appear well positioned to take advantage of increased consumer demand for environmentally sustainable palm oil. In fact, Brazil already has strict laws, regulations, and enforcement plans which govern palm plantation expansion and operation.
In addition to the presence of strict legislation, Brazil also has two things that most of the world's dominant palm producing nations lack - capital and vision. Just recently, the Brazilian government publicly presented a plan which identifies the sustainable palm oil industry as a significant growth area. To support the plan, the government committed $ 60 mm toward the development of the industry. This investment will support the government's "Programme for Sustainable Production of Palm Oil (O Programa de Produção Sustentável de "leo de Palma)", with the exclusive goal of supporting only sustainable manufacturers.
Additionally, the plan aims to boost oil palm cultivation in degraded land, including previously cultivated farmland used for other crops. According to the Brazilian agricultural research agency Embrapa, the estimated amount of land suitable for such cultivation is close to 30 mm hectares (ha), more than twice the 13 mm hectares of total global area harvested for oil palm cultivation currently available. Considering the fact that Brazil only has about 700,000 hectares of cultivated land currently devoted to palm oil production, significant upside from a supply perspective appears to exist.

In addition to the presence of available land, Brazil's stringent rules surrounding palm oil cultivation should accelerate the pace at which Brazilian-produced palm oil will be certified as 'sustainable' by the international body Roundtable on Sustainable Palm Oil (RSPO).
For example, according to Agropalma, one of Brazil's top oil crop companies, palm oil plantations certified as sustainable must to be surrounded by forests which follow a 1:4 ratio. Within Brazil, most current and proposed palm oil nurseries exist in landscapes that meet or exceed these standards (a barrier to entry that few of the other major producers can satisfy).
Moreover, from a trade perspective, Brazil's proximity to major markets, including the US and Europe should also provide a significant advantage, with lower freight costs offsetting the relatively higher cost of labour required to produce sustainable Brazilian palm oil (particularly when such costs are compared with unsustainable ventures in South East Asia and Africa).
Moreover, since most environmentally-conscious customers reside in the US as well as the EU, it is highly plausible that Brazil's proximity to these markets will enable them to effectively penetrate these markets, stealing share from Malaysian and Indonesian based manufacturers, while also insulating themselves as the main global producer of environmentally sustainable palm oil.

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