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The global oil palm industry, providing either the world’s most indispensable cooking oil or the last nail in the coffin of the world’s rain forests, is the focus of an intense struggle for funding within the World Bank.

The bank and its investment arm, the International Finance Corporation, are gingerly entering the controversy over deforestation and sustainable development for palm oil.

The IFC is working on a plan to determine the bank’s direction on lending to the sector.

The bank has temporarily suspended its new investments in the sector until it finalizes its approach.

A 48-page document seeks to provide the rationale for its operations in fighting poverty without compromising economic, environmental or social sustainability.

The final draft was presented to a management session in Frankfurt on Sept. 1.

Sources say there is considerable controversy within the bank between advocates of development and environmental critics. Whatever the World Bank and the IFC does is bound to have a big effect on the industry.

The World Bank and the International Monetary Fund together probably have more sway in the Third World than any other institutions.

The path of development suggested by the framework on palm oil can be expected to have a considerable impact, for good or ill, on what is called the earth’s green lung — the vast and endangered tropical rainforests of Africa and Southeast Asia.

The IFC is the largest multilateral source of loan and equity financing for private development in the developing world, helping industry to gain financing in international markets and providing technical advice and assistance for development, both to private interests and governments.

Despite what looks like a feverish bid to steer a middle course between environmentalists and palm oil producers, the IFC’s draft appears to have enraged the oil palm industry.

World Growth, a nonprofit NGO that supports vastly increased oil palm planting, called the report flawed and said it “undermines the response to the global food crisis.”

Oil palms are cultivated commercially on 12 million hectares globally, about 85 percent of which is in Malaysia and Indonesia.

For consumers in China, Pakistan and India, among others, palm oil is by far the biggest and cheapest source of edible oil.

Nearly three million people are employed growing oil palms in Indonesia and about six million directly worldwide, with smallholders managing about half of Southeast Asia’s plantations and 80 percent in Africa.

But despite World Growth’s emphasis on the plight of small operators, plantation owners such as Sinar Mas in Indonesia and Sime Darby and others in Malaysia are vast conglomerates that can swing the way governments do business.

In the face of the passage of environmental laws and pronouncements from the capitals of Indonesia, Malaysia and other countries that have oil palm plantations, environmentalists charge, the big plantations continue to destroy rainforest with impunity.

Critics have accused the bank of paying little attention to local needs and of funding needless environmental destruction, particularly through the construction of big dams.

Although the bank temporarily drew back from funding big dams in the 1990s, it has resumed, with bank officials saying they now are paying attention to the social and environmental damage. Critics disagree.

“Since its founding, the bank has supported more than 550 dams around the globe, with over $90 billion (in 2007 dollars) in loans and guarantees,” the Berkeley, California, International Rivers Network charged in a 2007 report.

“World Bank-backed dams include some of the world’s worst development disasters, and their legacy lives on.”

In the framework document, the IFC tries to show it is aware of the criticism, saying “land acquisition for large-scale oil palm development can generate negative impacts on communities including small farmers and indigenous groups, particularly when land titles are unclear or unrecognized,” and that “about 70 percent of Indonesia’s palm oil plantations are on land that was at one time forested; more than 56 percent of the expansion between 1990 and 2005 occurred at the expense of natural forest cover.”

The IFC, the document says, “will invest only where its interventions will meet IFC’s Performance Standards and will have clear and measurable development impacts that contribute to economic growth and poverty reduction.”

World Growth, however, does not agree with the IFC’s new approach, arguing that Greenpeace has faked its findings of environmental depredation.

It says cutting oil palm production will hurt smallholders and contribute to global starvation by ruining their livelihoods and making palm oil more expensive for the hundreds of millions of people who depend on it for their source of edible oil.

“The World Bank Group is bowing to the advocacy of environmental NGOs which do not factor development objectives into their environmental strategies,” World Growth chairman Alan Oxley said in a letter.

“The bank has proposed a new policy approach for palm oil which will substantially alter the [bank] group’s current approach and runs counter to formal bank policy. It will reduce bank support for private investment in palm which has been more successful than almost any other commodity crop in reducing poverty.”


John Berthelsen is editor of Asia Sentinel.