Mapping China’s Palm Oil Supply Chain to Improve Sustainability

The Challenge

• One of the main drivers of global deforestation is agricultural expansion to produce key commodities such as palm oil.  China is a key market for palm oil, and most of China’s palm oil imports come from Indonesia and Malaysia, posing significant deforestation risk.
• The palm oil supply chain is complex, and some previous initiatives to reduce environmental impacts of unsustainable palm oil production have shifted deforestation elsewhere or precipitated unintended consequences.

The Partners

• Norway’s International Climate and Forest Initiative (NICFI) supported research into the palm oil supply chain, and the scope was based on consultations with Tropical Forest Alliance (TFA) China, World Resources Institute (WRI) China, the Food and Land Use Coalition (FOLU) China, and other supply chain experts.
• Nearly 40 experts participated in a virtual convening from non-governmental organizations, research institutions, foundations, and the public sector joining from China, Indonesia, Singapore, Germany, Norway, Switzerland, the United Kingdom, and the United States.

The Outcome

• Meridian Institute developed a systems map of current dynamics and key potential leverage points regarding sustainable palm oil production in the context of the Chinese market and hosted a virtual convening to build shared understanding of this complex system and explore opportunities to make the supply chain more sustainable.
• Building shared understanding between myriad stakeholders can contribute to collective global consensus and action to make soft commodity global value chains more sustainable.

View the full map here to get a closer look at the interconnections.

Project Overview

At the end of 2022, Meridian, supported by Norway’s International Climate and Forests Initiative (NICFI), developed a systems map of current dynamics and key potential leverage points regarding sustainable palm oil production for the Chinese market. This work came before the European Union (EU) Deforestation Regulation was formally adopted.

The map drew on over 40 studies, articles, and reports produced by governments, intergovernmental organizations, industry associations, and civil society groups, as well as several expert consultations. Katrina Gehman, who led the development of the map, presented the systems map at a virtual convening of key stakeholders and facilitated a discussion about opportunities moving forward in this space.

About the Map

The palm oil systems map traces complex relationships between key drivers to consider the global impact of potential interventions. The complex systems map is composed of seven smaller interconnected maps. The primary sections of the map focus on supply of and demand for palm oil in China, within the context of high demand for conventional palm oil and low demand for sustainable palm oil.

Additional map sections focus on domestic palm oil production, the biofuel market in China, sustainability certifications, global dynamics between producer countries and the EU, and regenerative agriculture in palm oil production.

Increasing the sustainability of the palm oil supply chain requires the collective effort and creative thinking of those at all points along the supply chain.  The map offers a menu of potential opportunities to make the palm oil supply chain more sustainable. The feasibility and prioritization of these proposed initiatives depends on the engagement and buy-in of the stakeholders who would implement them.

Numerous stakeholders are  involved throughout the palm oil supply chain, from national governments in producer and consumer countries to multinational organizations, financial institutions, civil society groups, and every stage of production spanning smallholders and industrial companies, processors, manufacturers, suppliers, and consumers.

Questions: How to Use the Map

The information in the map and the identification of potential opportunities for increased sustainability can assist stakeholders in setting priorities and focusing and coordinating efforts.  We encourage you to keep the following questions in mind while reviewing the systems map:

• What are your points of entry into this system? What financial means, connections, and other types of power do you have?
• Where can you leverage relationships throughout the system, and where do you have geographic and regional influence?
  • Are you connected to consumer markets (including the EU or China) or producer nations (Indonesia, Malaysia, or elsewhere)?
  • Do you have links with government entities, civil society organizations, financial institutions, or sustainability certification schemes?
  • Do you have ties with the palm oil production industry itself, via smallholders or industrial plantations, processing plants, manufacturers, retailers of various industries (including instant noodles, beauty products, household goods), or consumers of these products in global markets?

Key Recommendations:

The recommendations below are from the full report.

Consumer Awareness

• Raise awareness for consumers in China about unsustainably produced palm oil to increase market demand for sustainable palm oil to help China achieve its climate commitments for ecological civilization. Focus on the instant noodle industry and other consumer goods that use palm oil derivatives. Promote certified sustainable palm oil, not “palm oil-free” products.

Financial Policy

• Build on China’s global leadership for strong domestic forest management policies to pave the way for green financial regulations. Revise China’s commercial law to require financial companies to include deforestation in due diligence for companies in which they invest.

Domestic Production

• Consider cultivating domestic palm oil production on marginal lands in China to meet some of China’s rising demand while reducing deforestation pressure in Southeast Asia. Export Chinese oil palm varieties that are healthy, high-yield, and less processing-intensive.

Biofuel

• Employ biofuel from used cooking oil to serve as a transition fuel to carbon-neutral transportation through domestic production/consumption in China and Indonesia.

Production Cycle

• Recycle biomass and incorporate regenerative agriculture practices during key windows of time in the palm oil production cycle, such as planting, harvesting, and uprooting. Prioritize the well-being of smallholders by addressing grievances and reducing barriers to sustainability certifications using sector-wide jurisdictional approaches. Improve the traceability of palm oil supply chains through digital crowdsourcing.

Partnerships

• Form strategic partnerships between China, Indonesia, and Malaysia with shared goals around improving smallholder livelihoods, producing and using biofuel from used cooking oil, and promoting deforestation-free finance. Acknowledge producer country efforts and accomplishments through positive and politically sensitive messaging about palm oil.

Of the six key recommendations distilled from the systems map (pertaining to consumer awareness, financial policy, domestic production, biofuel, production cycles, and partnerships), participants in the convening prioritized financial policy, partnerships, and consumer awareness as the most compelling opportunities in terms of impact and feasibility.