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The battle for vegetable oils

Table 6.6 Global vegetable oil production and exports

The international situation with respect to vegetable oils is highly complex and its future hard to predict. According to FAO, total production of vegetable oils virtually doubled between 1972 and 1990,5'with 95% coming from just nine crops, with soybean, palm, sun-flower and rape-seed accounting for slightly less than three-quarters of the total. With oil-palm being cultivated exclusively in the South, and soybean, rape-seed and sun-flower in both industrialized and developing countries, vegetable oil is a truly global commodity with both the North and the South competing for the same market. Although only one-third of the total production is exported (the rest consumed domestically), vegetable oils form an important source of income for developing countries, totalling some $3.7 billion in 1986.

Global vegetable oil production - Palmoil and soybean big growers

As with most other agricultural commodities, the export incomes are highly concentrated within specific countries. Most of the money made on exporting palm-oil goes to Malaysia, while virtually all the soybean oil income of the Third World goes to Brazil and Argentina. Three-quarters of the world coconut oil exports are from the Philippines. (58) Oil from these three crops provides a full three-quarters of all Third World export revenues from vegetable oils, with the unquestionable trade champion being the oil-palm. This is not to say that exports of vegetable oil are irrelevant for other developing countries, or that other vegetable oil crops are not important. In several cases they form a very important source of income, especially for African countries.

The share of different oil crops in world production changed dramatically during the 1970s and 1980s. The big growers were oil-palm and soybean with rape-seed as a good third. Together they moved from 39% to to 55% of the global market share between 1972 and 1990.59 A look into the future confirms this tendency to concentration in the vegetable-oil race. Biofutur projects that just after 2000, palm-oil production will have jumped to a staggering 23 million tons a year, almost three times its 1987 output, and soybean will reach the same level. Rape-seed will jump to some eight million tons, while the output of the other oil crops will increase only slightly or remain static (60) (see Graph 6.5).

Oil-palm, soybean and rape-seed also happen to be the major targets for biotech research. What the three crops have in common is that they fit perfectly into large-scale, high-tech agriculture. Palm-oil comes mainly from large plantations in South-East Asia. More than half the world's soybean production comes from farmers in the United States, and the same share of global rape-seed production comes from European and Canadian fields. Biotechnology will help modify these crops and their oils to further enhance their productivity in large-scale production. It will also allow for the substitution of tropical oils by their Northern counterparts.

Biotechnology work on oil-palm has been described in depth by RAFI (61) and Sasson. (62) Most of the research focuses on commercial tissue culture. According to Unilever, the main actor in this field, this could result in yield increases of 30% and more. Since 1970, the French Institute for Oils and Fats (IRHO) together with their colleagues from the Institute of Scientific Research for Development Co-operation (ORSTOM), have been developing techniques for cloning oil-palm. By 1984, the two research organizations had planted 50,000 oil-palm clones in the Ivory Coast. Contracts were also signed with plantation companies in Malaysia and Indonesia to provide respectively 3.5 million and 2.6 million cloned plantlets annually. (63) Separately, Unilever has developed techniques to clone oil-palms and created a production capacity of over half a million clones annually in its laboratories in the UK and Malaysia. The company has also started planting in Colombia and Brazil, and predicts that by 1995 it will earn about $25 million from selling oil-palm clones. (64) But technical problems occurred. The Unilever clones planted in Malaysia in 1983, produced flowers that functionally were neither male nor female, and the fruits were aborted. (65)

Despite Unilever's initial problems, efforts to clone oil-palm continue and are expected dramatically to influence world vegetable-oil production. Different trees on the same plantations can have substantial yield variations. With cloning, the highest yielding trees can be selected from an otherwise heterogeneous population and copied: the outstanding becomes the norm. Should scientists manage to perfect the technique, the current yield of two to five tonnes per hectare could more than double to 10 to 12, according to some estimates. (66) Enthusiastic about the bright future of this crop, planters in Malaysia are now switching from rubber to oil-palm. In a spectacular bid to grab an increasing share of the world market, neighbouring Indonesia is embarking on a massive planting programme and projects to increase its acreage under palm-oil to two million hectares in 1995.67 Countries in Latin America have increased their production by 150% since 1980 (68) and plan to go further still.

With all this expanded production, a collapse in prices was inevitable. When it came, in the second quarter of 1986, it was spectacular - prices crashed to less than a third of the previous year. Prices recovered somewhat in 1987, but have remained extremely poor by historical standards. The promise of future yield increases from biotechnology might turn into a disaster, especially for the small farmers in the business. Only the large plantations will be able to bear the additional costs of the cloned palms which require considerably greater management and up to six times more pesticides. (69) But the biotechnological aided oil-palm boom will also have a profound impact on producers of other vegetable oils, such as coconut and ground-nut.

For illustration, let us examine a country such as the Philippines. It is estimated that about 25% of the total population of this country is wholly or mainly dependent on the coconut palm (cultivation, processing industry, transport, marketing). While oil-palm is a typical large estate crop, coconut is grown mainly by the ',700,000 small Filipino coconut farmers. They are not able to replant more productive varieties when prices are low. In the past, the exports of coconut products brought in between 15% and 20% of the country's total export earnings. Because of declining productivity and decreasing prices, the export earnings dropped from $1 billion in 1979 to $555 million in 1984, and in 1985 this figure had dropped further to $353 million. The position of the millions of Filipinos depending on this sector is in danger and the lack of alternative employment is leading to enormous increases in poverty. (70) Yet the real 'palm-oil boom', resulting in ever-sinking prices and an increasing market share for palm-oil, has still to come.

Even for a major palm-oil producing country like Malaysia the impact has negative aspects. Malaysia depends to a large extent on two agricultural commodities: oil-palm and rubber. Growing oil-palm has become more attractive than growing rubber because of the increased yields, resulting in a massive switch from rubber to oil-palm. Rubber plantations, however, are more labour intensive than oil-palm. Accordingly, the switch will reduce the demand for labour, threatening the employment of hundreds of thousands of plantation workers on the rubber estates. At the moment this loss seems to be compensated by a spectacular expansion of cocoa plantations. (71) But cocoa, as explained earlier in this chapter, is also threatened by substitution.

While it is true that unrefined palm-oil is often an important source of food in areas where the tree is cultivated, it remains to be seen whether biotechnology will help to improve the nutritional value of this traditional food source. The potential is there, but Unilever's efforts seem to point to another more lucrative direction: 'An important long-term goal is to modify the fatty acid composition of oil-bearing seeds to make them ideally suited to manufacturing purposes.' Not nutritional value but 'obviating the need for costly chemical or enzyme processing' is Unilever's main in using biotechnology to change the components in oil-palm seeds. (72)

But then, biotechnology is not only swinging the vegetable oil balance from Third World small-scale producers to plantation companies in the South, it also will help the North to become self-sufficient in its vegetable oil requirements. A case in point is current biotechnology research on rapeseed. Although China and India are major cultivators of this crop, most of the world's rape-seed is produced in the North, especially Western Europe and Canada. The EEC, highly dependent on vegetable oil imports, heavily subsidizes domestic cultivation of rape-seed. The problem with this crop is the composition of its oil, a factor which many companies and institutions are now working on. The biotechnology company Calgene intends to get rape-seed to yield 'high-priced specialty oils that are currently derived principally from coconut and palm kernel.' (73) Unilever is also using biotechnology to modify the oil content of rape-seed, (74) as are several other foodprocessors. Research in Canada points in the same direction. Traditional plant breeding has already helped to improve the position of rape-seed as an edible oil producer by reducing toxic oil components of the crop. Biotechnology will further improve the process and put the crop in a better position vis-a-vis competing ones from the South.

Scientists are already working towards producing edible oil by way of microbes, on a commercial scale: the so-called Single Cell Oils (SCO). Based on the genetic modification of yeasts, bacteria, fungi or algae, which feed on a whole range of different substrates, the SCO technology is currently still too expensive to compete with vegetable oils such as oil-palm and soybean. But this might change in the future. Scientists from Henkel Company propose two strategies: engineer microbes in such a way that they either live on cheaper substrates, or modify them so that they produce the more rare and expensive oils. (75) In both cases, the Third World loses out.