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Research Report

The state of oil palm development in the Brazilian Amazon: Trends, value chain dynamics, and business models

Frederico Brandão
George Schoneveld
Copyright Date: Jan. 1, 2015
Pages: 54
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Table of Contents

  1. (pp. 1-1)

    Owing to its price competitiveness, palm oil is the most globally traded vegetable oil in the world. It is a highly fungible product used to produce biodiesel, food products, industrial chemicals, cosmetics and pharmaceuticals. Because of oil palm’s productivity relative to substitute oilseed products, comparatively high supply stability and strong long-term market prospects, many governments, especially in Latin America and Africa, have begun to actively promote oil palm cultivation in their countries. In Brazil, for example, where the commercial oil palm sector has been incipient for decades, the government has begun to put in place mechanisms and incentives to promote...

  2. (pp. 2-5)

    Oil palm has emerged in recent years as a promising cash crop in the Brazilian Amazon. Although palm oil has been used in the Bahian tradition for centuries, having been brought to Brazil from Africa by slaves in the 16th century, it was not until 1974 when Dendê do Pará (Denpasa) was established close to Pará’s state capital city Belém that oil palm began to be produced commercially. This was followed by a number of domestic investments in the 1980s and 1990s, primarily through fiscal incentives offered by the Superintendence of Development in the Amazon (SUDAM) to promote commercial investment...

  3. (pp. 6-6)

    Research activities were undertaken between December 2013 and March 2015. These activities included (1) analysis of the institutional, policy and regulatory framework and (2) sector analysis. The impact assessment that falls under the sector analysis is ongoing, with this paper presenting preliminary findings and its more qualitative results.

    The institutional, policy and regulatory framework that influences investor practices plays an important role in sector development and in shaping social, economic and environmental outcomes. In order to capture this, 47 semi-structured interviews were held with community leaders, civil society representatives and government officials at federal, state and municipality level (see Table...

  4. (pp. 7-12)

    This section summarizes key regulations, policies and institutional frameworks that are relevant to the oil palm sector, namely those related to land tenure, biofuels, family farming, environmental management and foreign direct investment (FDI).

    Land tenure in Brazil, and the Amazon in particular, is considered to be an important barrier for the implementation of public policies. This has largely arisen from a long history of uncontrolled land occupation in the Amazon’s frontier areas. Although such occupations date back to the colonial era, they have taken on unprecedented proportions since the 1960s. This was largely attributable to the rapid expansion of the...

  5. (pp. 13-23)

    Pará has become the largest oil palm producing state in Brazil, with our estimates suggesting that at least 206,923 ha of oil palm was under cultivation in 2014 (Table 1).⁷ Remote sensing analysis conducted in the context of this project identified at least 255,529.5 ha of land being cultivated with oil palm in Pará in 2014. These figures are significantly higher than official statistics, with the State Secretary of Agriculture (SAGRI 2013) estimating that only 140,000 ha was under production in 2012 and IBGE (2013) estimating 54,475 ha for the same year. This highlights the limited accuracy of official data...

  6. (pp. 24-31)

    Companies access land for direct cultivation through a variety of mechanisms. Some own land through freehold titles, while others lease land directly from individuals or companies, either through fixed land rents or through partnership arrangements. Partnerships are a practice adopted by foreign companies due to legal restrictions in owning and leasing land. The differences between partnership and leasing are small and have to do mainly with management and income distribution. In partnerships, profits or losses are shared based on respective contributions, while in leasehold structures the landowner is paid a predetermined amount, periodically or at one time, independent of crop...

  7. (pp. 32-35)

    While marked increases in the household income for Agropalma outgrowers generated high expectations among more recent participants of the long-term economic prospects of oil palm, the recent rapid expansion of smallholder oil palm through other companies should be approached with caution. For example, the credit component in the new schemes is considerably larger than in the Agropalma Smallholder Program. This will require the average participant to make repayments until year 18, as opposed to year 9 in the Agropalma case. Since the Agropalma Smallholder Program was meant to serve as an example of inclusive oil palm development, participants also benefited...

  8. (pp. 36-37)

    Our analysis of the evolution of the oil palm sector in Pará has yielded a number of important insights, relevant also to other sectors and countries, about some of the enabling conditions for fostering green and inclusive investments in agricultural frontiers:

    There is a need for a phased implementation of smallholder inclusion initiatives to allow for ample flexibility to make ad hoc changes to specific practices and/or to business model design before institutionalizing specific models and upscaling these within and/or replicating these across different socioecological systems. For example, SPOPP and new oil palm investors greatly benefited from the experiences of...

  9. (pp. 38-38)

    This paper has shown that public incentives, combined with a supportive policy and regulatory framework, can enable the sustainable commercial expansion of palm oil within socially and environmentally sensitive biomes. In the Brazilian oil palm sector, the federal government has been able to leverage private sector resources, technical expertise and market networks in support of both rural development and environmental management objectives. Clear sectoral expansion guidelines and ongoing initiatives to demarcate individual rural properties, combined with improved enforcement capacities through the adoption of technologies to monitor deforestation at the plot level, have ensured that expansions over the 2010s in the...