Palm oil: the economic case for conservation

Supporting wildlife and protecting the environment can make economic sense for palm oil producers.

The cost of habitat loss

The conversion of forest and elimination of wildlife habitat to make space for oil palm plantations has a number of direct environmental and economic costs.

Environmental costs include biodiversity loss, loss of ecosystem functions, and degradation of downstream environments. Such losses are quite high, but hard to quantify.

Plantation managers are also increasing their own costs by not taking such factors into account. There are a number of examples, including:

  • How much does it cost to build and maintain long stretches of five-wire electric fences, or to dig and maintain long stretches of trenches up to 2 meters deep to keep elephants out of oil palm plantations?
  • How much does it cost (in lost production time and money) to replant areas after elephants have come in and eaten the trees because there is no other food in the area?
  • How much does it cost to replant areas along streams where the oil palm trees were killed because of flooding caused by stripping the native vegetation that once protected watersheds and stream banks?
  • Given the current low prices for palm oil, is it cost-effective to tend, harvest, and care for plantings on steep slopes where production is poor, erosion is severe, fertiliser requirements are high, and roads are constantly washed out?

Adding up the losses

In some areas, these costs are incurred on a regular basis. They have literally become a cost of doing business. Most producers do not separate out the costs of farming different parts of their plantations. They aggregate their data. As a consequence, they do not know when it is cheaper to leave native vegetation in riparian areas than to plant them over and over.

They do not know at what degree of slope it stops making sense to farm, because the overall expenses are included in gross figures but are nonetheless dragging down the profitability of the entire operation.


Source: Adapted from "World Agriculture & Environment" Clay (2004)

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