The World Bank Group

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Palm Oil and Poverty

In March 2011, the World Bank Group (WBG)’s President Robert Zoellick is expected to decide whether to lift a global moratorium on WBG palm oil investment. The moratorium was instituted as a result of the findings of a 2009 internal audit (PDF, 4.5 Mb). The audit was triggered by civil society concerns regarding an International Finance Corporation (IFC) investment in a major palm oil company in Indonesia.

His decision will be based on a review of a revised version of this draft of “The World Bank Group Framework and IFC Strategy for Engagement in the Palm Oil Sector.” The strategy document is IFC’s response to this letter and is the result of an extensive public consultation process.

The WBG’s engagement in the palm oil sector has potential to contribute to poverty reduction and social and environmental sustainability if country- and project-specific IFC and World Bank strategies are designed and effectively implemented to achieve this mission.

If the WBG removes the moratorium on palm oil investment, it is critical that issues such as the treatment of free prior and informed consent are addressed on an institutional level, and that country- and project-specific strategies be guided by clear measurable objectives, informed by relevant research, implemented with appropriate staff incentives, and measured according to its long term success in achieving poverty reduction.

Agreement on Palm Oil Potential

Despite the focus of the media on the palm oil “controversy” and “debate”, which often pits proponents of “development” against those concerned with deforestation and human rights, many voices in the private, public, and civil sectors have recognized the potential of the palm oil sector to contribute to poverty reduction. Many groups have expressed agreement with key points detailed in the WBG strategy document such as:

• Palm oil is the world’s most traded and most affordable cooking oil as well as a versatile product with many uses.
• Oil palm, the crop that is used to produce palm oil, has a higher yield of vegetable oil per hectare than any other major oil crop.
• Palm oil production has contributed to economic benefits such as government revenues, profits for companies, employment, and raised incomes for smallholders. In Indonesia—the world’s largest producer—the industry generated US$12.4 billion in foreign exchange from palm oil exports in 2009, and supports millions of jobs and opportunities for rural farmers.
• Many of the negative consequences that have been associated with the sector can be avoided when rights of local people are recognized, land use planning considers long term social and environmental impacts, and companies follow improved practices such as those required for certification by the Roundtable on Sustainable Palm Oil.

In the recent public consultations, many stakeholders agreed that some form of IFC and World Bank engagement could contribute to poverty reduction. Many participants expressed continuing willingness to engage with the IFC and World Bank, noted ongoing improvements in the process, and welcomed revisions to the second draft such as increased focus on poverty and smallholders and emphasis on coordination between the World Bank and IFC.

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