Critical Perspectives on Crude Palm Oil’s Role in Developing Economies: Development Engine, Environmental Externalities, and Asymmetric Sustainability Governance

Abstract

This article offers a critical review of the dual role of Crude Palm Oil (CPO) in developing economies, focusing on Indonesia and Malaysia as leading producers. It synthesizes peer reviewed studies published between 2000 and 2025 on export growth, rural development, environmental change, and sustainability governance. In Indonesia, for instance, palm oil contributed about 3.5 percent of GDP in 2024, generated substantial foreign exchange, and supported an estimated 16.5 million livelihoods, with smallholders managing roughly 40–42 percent of the plantation area. At the same time, expansion has been accused of being associated with deforestation, peatland conversion, biodiversity loss, greenhouse gas emissions, and land conflicts involving indigenous communities. The review advances three main arguments. First, economic benefits and environmental harms are often examined separately, obscuring how export oriented, commodity dependent growth is structurally linked to ecological degradation and vulnerability to price and policy shocks. Second, sustainability governance through instruments such as RSPO, ISPO, and MSPO is marked by power asymmetries: Northern buyers and standard setters exert disproportionate influence. At the same time, smallholders face high compliance costs and uncertain benefits. Third, palm oil governance is shaped by North–South contestations, with conservation oriented importers and development oriented producer states promoting competing sustainability narratives. The article argues for integrated, landscape scale and multi level governance that couples smallholder inclusion with robust environmental safeguards, aligns domestic and international standards, and addresses structural imbalances in value and power along the palm oil supply chain.