Course:ECON371/UBCO2011WT1/GROUP1/Article 8: Palm Oil in Africa

Summary

The article is about how palm oil production is moving back to Africa after booming in Asian Countries. The article focuses on one of the biggest Palm oil projects in Africa the cultivation of 60,000 hectares of land in Cameroon. This is being done by Herakles Farms. The 99-year lease granted by the government is near a national park and will lead to the destruction of rainforests and disrupt the lives of the local communities. The choice of site is questionable as there are already huge amounts of degraded land they could use. The company plans to go ahead claiming there will be minimal environmental harm and huge economic benefit. This is needed because Forty percent of Cameroonians live on the equivalent of less than a dollar a day. Herakles has set up a non-profit to show how dedicated they are although some conservationists see the charity as a vehicle used to downplay concerns about the project. While the project is unlikely to be stopped, the government is looking how much land will be used. The environmental groups say that the plantation will worsen problems caused by the bushmeat trade. They go on to say poor workers on the plantation will likely illegally hunt for food in the nearby national parks. All of these factors could cause environmental problems for this species-rich area.

Analysis

It is very difficult to say whether or not this situation is efficient, because of the number of unknowns. The company seems to have good intentions, and report that they will bring desperately needed jobs to the area, take environmental concerns into account and strengthen the local economy. However, many of these claims are being disputed. One of the main concerns is with the finances of the company itself. The company still needs to raise $300 million or more in order to implement all of their plans. There is the possibility that the company could begin work in the area, cut down the forest, and then run out of money to do anything else.

We can look at many different groups of people who will be affected by this project, and see if this project would benefit them. Focusing on the local Cameroonian people, the benefits or costs of this project are mainly unclear. The company claims that they will employ many local people, and bring more than half of the families in the area into the middle class. A good thing about producing palm oil is that if the company is profitable, there will be work in the region for a long time, as there will always be trees to be tending and harvesting. The benefits of additional jobs would be greatest if they were given to people who previously couldn't find a job. However, similar plantations in Asia have lead to poor working conditions and "conflicts with local people." One environmental group suggested that the influx of workers into the area could lead to increased bushmeat hunting, which would be harmful to the local wildlife populations. Another issue relates to the local people's property rights. Like our previous article, the local people in this area claim that the land is actually theirs, and are opposed to the land being leased to multinational corporations or assigned to protected areas. Who the property rights belong to shouldn't change whether or not the plantation is socially efficient, but it will have to be addressed because it relates to fairness. If it is socially efficient to have the plantation, and the government leases the land, the local people should be compensated for their loss of land.

For the Cameroonian people in general, the benefits or costs of this project are also unclear. If the company succeeds in its goals, it seems like Cameroon as a country would benefit. If the company ends up abandoning its environmental and poverty-alleviation goals, Cameroon as a country might still benefit through increased revenues from leasing the land. However, the benefits of leasing the land might not be as large as if the land was used for another purpose, such as eco-tourism. Also, the costs of the loss of animal habitat might be large, especially if the company doesn't live up to its claims of sustainable development. There will certainly be some costs regarding animal migrations, because the article states that the plantation will create a barrier for many migrating and roaming animals, including forest elephants. It is difficult to say if the benefits of using the land for palm oil production would be greater than these costs.

From the viewpoint of society in general, the benefits and costs are a little easier to determine. From what the environmental organizations say, there seems to be a cost regarding the choice of location for this plantation. The area is abundant in wildlife, and like our previous article, important for migration patterns. It might be more efficient to move the plantation somewhere that has already been deforested, because the opportunity cost of that land would be lower. There is also the question of whether the plantation would benefit the local people. If it could bring people out of poverty, this would be beneficial to society in general, but there is no guarantee that this will happen. If the firm was to go bankrupt, the local people might be worse off than before. It also seems like the environment will be negatively affected by this plantation. The wide-scale deforestation would be one negative affect, and the palm oil trees planted in their place store much less carbon than the trees which where there before. There would also be the loss of existence value to people who place benefit on knowing that there are animals running unimpeded in Cameroon. However, the gain to society from the extra economic activity might outweigh the costs.

With so many unknowns, it is difficult to say whether the situation will be efficient. One would have to look at the risk associated with the company achieving less of its goals, or going bankrupt all together, and see if the benefits from operating the plantation outweigh the costs. There are some options to make the proposed situation less risky, however. One would be to incorporate the company's lofty goals into their contract so that they have to follow through. Another option would be to set up some kind of committee, with environmental, government and company representatives to discuss what actions will be best for both the surrounding environment and the economy. Like our previous article, Cameroon could also charge more for each hectare of land, and use the proceeds to compensate the local people and hire more park rangers to discourage bush-meat hunting.

If the company is successful in bringing economic growth to the area, the benefits of having the plantation would likely be greater than the costs. However, the benefits might be even higher if the plantation was moved to an area with a lower opportunity cost.

Prof's Comments

Nicely done.

10/10