Palm Oil Growth in Peru Slows as Land Suitability and Sustainability Take Top Priority

Palm is a tree crop suited to cultivation in climatic conditions similar to those of the tropical rainforest. From 1999 to 2009, global production more than doubled. Thirty years ago, palm oil accounted for less than 2 percent but now accounts for 37 percent of vegetable oil consumption worldwide, and palm has displaced soy as the world’s most important vegetable oil. Palm oil is used as a biofuel, for cooking, and in a wide range of other items, including food products, cosmetics, soaps and detergents.
Malaysia and Indonesia produce 85 percent of the world’s palm oil. Expansion in these two countries is expected to diminish by 2022, however, as land suitable for additional palm oil production dwindles. As an alternative, developers are looking to other regions for expansion, including Latin America. Estimates suggest that Peru has the second-largest area potentially suitable for increased oil palm production within this region.
Area Expansion
In 2003, the Peruvian government announced that the production of biofuels, including palm oil, would be a priority. Before 2006, palm expansion in Peru was slow and occurred mainly on already-cleared land (mostly pastures and secondary-growth forests, as opposed to old-growth forests.) Between 2006 and 2010, however, area doubled, and about 70 percent of all new palm plantations during this time were established by old growth clearing. This expansion into forested areas represented only about 1.3 percent of the total deforestation in Peru during the decade.
Area continued to increase from 2010 through 2012 as the palm industry grew. Expansion has slowed since 2012 due to new land use requirements and the need to secure approval at both the provincial and national levels. About 80 percent of the resulting forest loss occurred within five regions: San Martin, Loreto, Ucayali, Huánuco, and Madre de Dios. Peruvian palm area increased from 11,000 hectares in 2006 to 38,000 hectares in 2012 due to the expansion of commercial, high-yield oil palm plantations, but expansion has slowed in recent years due to a variety of factors, primarily depressed global vegetable oil prices. Peru’s estimated area for 2016/17 remains 38,000 hectares, located mainly within the provinces of San Martín, Ucayali, Loreto, and Huánuco. San Martín and Ucayali, both located in the Amazon region, currently account for 98 percent of Peru’s oil palm area. Production could expand within each of these provinces as well as into the Cusco and Amazonas regions. Over the past five years, Peru palm oil production has ranged from 42,000 to 57,000 metric tons, with output for 2016/17 estimated at 38,000 metric tons, less than 1 percent of the estimated global output of 65.5 million metric tons.

Although some success at increasing yield has occurred with new hybrid variety selection, gains in total palm oil production have been achieved through increased area rather than higher yield. Increasing the share of higher-yielding agricultural lands could reduce the area required to increase production. Also, large commercial enterprises usually achieve higher yields than those on smaller palm operations. The potential for land saving was demonstrated in the Ucayali region of Peru, but further study revealed some off-setting problems. Large plantations could indeed produce more palm oil on less land but additional land was required for the infrastructure associated with large-scale operations, including oil processing facilities, roads, and industrial and residential buildings.

With the leading palm oil producers in Malaysia and Indonesia having very little remaining land for further expansion, the Amazon basin is considered the new frontier for global palm-area expansion. Both Peru and Brazil have considered the use of degraded lands for expanding palm area. Brazil has instituted the Program for the Sustainable Production of Oil Palm to prevent expansion into forested areas and instead promote the reforestation of degraded land. Unfortunately, already-cleared and non-forested lands present their own problems. Some of these lands are already inhabited, with contested or multiple-person land tenure.
The use of degraded lands has helped, but expansion into the rainforest continues. Land potentially available for zero-deforestation development in Peru is estimated at over one million hectares, but much of the land must first be evaluated and classified for suitability. Unfortunately, about 20 million hectares have not yet been classified to define the best land use, and without land capacity studies it is not known how much of the unclassified land would be suitable for palm production. Land-use classification is a difficult and complicated process in Peru, involving both federal and local governments. Environmental impact assessments must be consistent, but decisions on land use are currently fragmented across national and regional authorities, giving rise to contradictory rulings.
With growing land scarcity, countries must consider the use of all land, including forests. The ease of expanding agriculture into forest land, combined with the rising global demand for palm oil has led government decision makers to allow some use of forest land. Political support and economic incentives for palm oil production, both for food and fuel, create an increasing threat to forest conservation. Peru must balance the economic benefits of expanded palm oil production against land-use and deforestation concerns.
Labor costs continue to rise, forcing companies to look to production regions that can provide cheaper labor and better land. The Peruvian Amazon appears to be an ideal investment to groups who have been involved in palm oil production in Indonesia and Malaysia, and several companies have already begun acquiring potential palm oil land in Peru for possible expansion.

Deforestation Policy and Monitoring
In December 1998, Peru established a law promoting the sustainable use of the Amazon which began to slow the pace of land conversion beginning around 2010. The goal was to ensure the sustainability of land resources in the Amazon basin, promote conservation and biological diversity, and keep large areas in their natural condition. International monitoring of deforestation is underway in Peru, specifically in support of reducing emissions from deforestation and forest degradation through a national program (REDD+). Sponsored by the United Nations Framework Convention on Climate Change since 2005, methodological monitoring of forest carbon stocks, sustainable management of forests, and enhancement of forest carbon stocks has been introduced. Peru has been involved with REDD+ projects since 2009. Through the Ministry of Environment, Peru has developed a National Forest Monitoring System (NFMS) to monitor deforestation and report on REDD+ activities.

Summary
Rainforests were the primary source for new agricultural land throughout the tropics during the 1980s and 1990s, with 80 percent coming from both intact and already-disturbed forests. By 2050, the demand for new land is expected to increase by about 50 percent, with tropical countries, like Peru, likely to satisfy much of this demand. Several slow but targeted steps – including more centralized regulation, the updating of land-use maps, and the consolidation of small and medium-sized independent holdings to form larger enterprises –could enable Peru to increase palm oil production in a sustainable and environmentally responsible way, within the guidelines of the country’s zero-deforestation policy.
The high productivity of palm oil relative to other crops provides a promising economic incentive for Amazonian countries. The economic benefits, including employment, road development, and increased tax revenue from the palm oil industry, are often cited by local and national authorities as justification for expanding the palm oil sector. Plantations create jobs and generate economic growth in poor, rural regions. Torn between forest preservation and the economic bonuses of palm oil expansion, local and national governments will have to make tough land-use choices. Decisions need to take into account sustainability, environmental concerns, and economic and business considerations, among other factors. Expansion into already-deforested land is the preferred option, because it preserves forested regions and maintains biodiversity in remaining rain forest areas. With proper monitoring, including the use of satellite imagery to ensure compliance with effective land-use policies, palm cultivation in Peru could be both economically beneficial and environmentally sustainable.

Current USDA area and production estimates for grains and other agricultural commodities are available on IPAD's Agricultural Production page or at PSD Online.

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