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In search of cheap food

Prices for cereal, cookies and hundreds of other items in your grocery store depend increasingly on an oil harvested half a world away.

Last update: November 30, 2008 - 9:30 PM

ORO PROVINCE, PAPUA NEW GUINEA

Ezekiel Asimba's 25-acre farm lies deep within a tropical rainforest, within view of an active volcano, but the palm oil that he and other growers produce will leave this remote island on cargo ships owned by Minnetonka-based Cargill Inc., destined for grocery store shelves around the world.

The quest for cheap food has helped transform palm oil from an inexpensive cooking oil used mostly in developing nations to an all-but-invisible staple of the western diet. But with an ever larger portion of our food now coming from the farthest corners of the globe, the price we pay at the grocery store is more and more tied to events beyond our control.

That was made especially clear in 2008, when sharp increases in the price of palm oil and dietary staples such as wheat, rice, corn and soybeans seemed to herald a new era of higher food prices. In U.S. supermarkets, it meant the biggest rise in grocery bills in nearly two decades. Elsewhere, food riots broke out and the Haitian government fell as suddenly higher prices unleashed a desperate scramble for food.

Some blamed the global crisis on demand from China and other fast-growing nations. Others faulted government-imposed biofuel mandates, which encouraged farmers to take some crops out of the food chain. And still others directed their ire at hedge funds and financial speculators, who had turned food into an investment, or at food companies such as Archer Daniels Midland, Bunge and Cargill, which booked record profits as others starved.

All those forces came into play in the price of palm oil this year. And while prices for it and other commodities have retreated from summer highs, most experts worry that higher food costs and shortages may become more frequent in the coming decades. A U.N. estimate warns that the world must grow 50 percent more food by 2030 just to keep up with global population.

Palm oil is the most widely used vegetable oil in the world. It's found in Nabisco's Oreos, General Mills' breakfast bars and Brach's Maple Nut Goodies made by Round Lake-based Farley's & Sathers. U.S. consumption of palm oil has tripled from 324,000 tons in 2005 to 1 million tons today. By one estimate, one in 10 products in a U.S. grocery store contain palm oil.

"It's pretty ubiquitous," said Duke Seibold, technology director for General Mills. "It can be used in ramen noodles, croissants; it has a very wide application."

Besides food, it's a source of biodiesel, industrial cleaners, soaps, toothpaste and cosmetics.

Its use in processed food doesn't require hydrogenation, a process that produces trans fat, an unsaturated fat linked to heart disease.

But it's chief virtue is that it is cheap. The oil palm trees that produce the plum-sized drupes are a wonder of biology. They produce more vegetable oil per acre than any other crop, by far. Coconuts produce about half as much oil per acre, and canola and soybeans a mere tenth of that amount.

That high yield is a primary reason why palm oil usually costs a quarter to a third less than soybean oil.

This year, the world's farmers are on track to produce more than 43 million metric tons of palm oil, with more than 80 percent coming from a thin crescent of islands between the Indian and Pacific oceans.

Cargill has grown oil palms -- the trees that produce the fruit from which palm oil comes -- for more than a decade in Indonesia, where since 1995 it has had a single plantation on the island of Sumatra. Then in 2005, Cargill bought the British government's palm oil operation, which included three massive plantations and a processing plant in Papua New Guinea.

From the air, Cargill's plantations form a checkerboard on the jungle terrain of Papua New Guinea, an island northeast of Australia, bigger than California. Dark green squares mark off the acres of palm trees.

Cargill workers in blue coveralls stomp through the plantation, their boots falling with soft thuds on the jungle floor. Palm trees tower over them, the fronds a canopy that block out the August sky. The men kneel down and pluck the deep-red palm fruit that has fallen to the ground, sweeping them into piles and tossing the piles into a large container.

With palm oil prices down almost two-thirds since March, some producers in Malaysia and Indonesia are trimming production, chopping down mature trees to plant new ones now as they gear up for future growth. But in Papua New Guinea, Cargill continues to expand.

Near Popendetta, a steel skeleton of posts and trusses -- the walls have yet to arrive from the Malaysian manufacturer -- stakes out a football-field-sized mill, one of two new ones Cargill is building. The company has also added two storage tanks at its seaside loading facility, where it already had three.

From here, as well as two other plantations in Papua New Guinea and two in Indonesia, Cargill ships the oil to its refineries in the United States, Malaysia, India, Germany, Belgium, Russia and the Netherlands, then markets the oils to all but three countries in the world.

Cargill now works with 17,000 local farmers such as Asimba, and employs 10,000 permanent workers and 5,000 seasonal workers on its plantations. The plantation workers alone make up half of Cargill's Asia-Pacific employees.

The sprawling operation Cargill runs in Oro Province has at its core a simple idea, said Ratnam Somoo, the plantation's Malaysian manager.

"I'm just a farmer," he said, while giving a tour, "in a corporate way."

Growing an industry

Despite Papua New Guinea's recent push into the global agricultural trade, much of the country remains little changed from the tribal rules that have dictated norms for centuries. Strictly observed tribal borders meant little intermingling between islanders; over time that led to about 800 distinct languages among its 5.8 million people who mostly live a subsistence lifestyle much like their ancestors. It's home to the world's largest butterfly and third-largest rainforest and 12 species of Birds of Paradise.

The promise of oil palms here was heralded by the World Bank when it financed the development of the first plantations in Papua New Guinea in the late 1960s. It marked the beginning of a global effort to open trade and bring market efficiencies to the growing and processing of food.

Instead of trying to grow multiple crops to ensure that they could feed their own people, the World Bank, International Monetary Fund and agribusiness giants encouraged them to concentrate on cash crops that would help raise the standard of living for all.

Oil palm was considered more profitable and easier to grow than other local crops such as coffee, cocoa, vanilla or rubber. The plantations would bring jobs, a cash economy, access to world trade and an industry to a country that had known little but subsistence farming.

Asimba, the farmer, stumbled into oil palms after retirement from his banking job in the city. He planted coffee on his family land at first, but the business failed when he couldn't find an exporter. Oil palms were a more consistent market, and since he started growing them in 2000, he's expanded to 25 acres.

Today, palm oil accounts for one quarter of Papa New Guinea's gross domestic product and 38 percent of its agricultural output, according to the World Bank. Since 2004, the country's GDP has grown 62 percent, to an estimated $6.4 billion in 2008, according to the International Monetary Fund.

Now, oil palms form neat lines along most of the few roads of Oro Province.

This province's 5,700 oil palm farmers sell fruits only to Cargill, the only company operating in the province. Such geographic divisions among palm oil companies -- a handful of others have operations here -- are typical of the industry, giving farmers no choice in selecting a buyer.

Papua New Guineans have long been suspicious of outside companies that might exploit their resource-rich island. Cargill has sought to placate those concerns by building schools, medical clinics and housing for its workers.

About 250 miles southeast of Oro Province, near Cargill's main plantation in Milne Bay, a low slung brick building is home to the office of Siyos Wenama, a field manager for the Oil Palm Industry Corporation, a government entity that helps local oil palm farmers in Papua New Guinea. Wenama said about 600 farmers in the area sell oil palm fruits to Cargill.

Cargill pays those farmers 57 percent of palm oil's selling price, which soared to $1,200 a ton in February. Despite prices falling back to $400, the number of farmers signing up to sell their crop to Cargill had increased to 773 by the end of the summer. To encourage even more planting, Cargill was giving away free seedlings. Wenama expected to have 800 farmers signed up by the end of the year.

The goal is to get to "more than 1,000, maybe 2,000," he said. "As large as we can go."

The rapid expansion of the industry has alarmed environmental groups and some island residents. The World Wildlife Fund, Rainforest Action Network and Greenpeace have mounted campaigns to slow or stop the growth. They decry the slash and burn expansion of a crop that has replaced tribal homelands, animal habitat and tropical rainforest across Malaysia and Indonesia.

At stake, they say, are the last remaining populations of wild orangutans, as well as rainforest and peatlands that store massive quantities of heat-trapping carbon gasses. Indonesia now ranks as the world's third-largest producer of carbon, behind the United States and China, because of farmers' practices of burning down rainforest to plant oil palm.

Even growers themselves have taken a stand, creating in 2004 a Roundtable on Sustainable Oil Palm Development, which this month delivered to Europe its first batch of "sustainable" oil, a tag the industry awards to oils produced without the abuses of rainforest land and endangered animals that have enraged palm oil critics. Food giant Unilever said last year that by 2015 it wants all palm oil that it purchases to be certified sustainable.

Asimba knows environmental groups have reservations about more oil palm, but he sees little else that can benefit local people. Palm oil is the reason he's been able to send his eight children to school.

The groups "can stop the project, but at the same time, they need to see the other side of it, because people need to improve their living conditions," he said.

Up the road from Asimba, Lynette Hambuga dedicates some of her 10 acres to oil palm, which she also sells to Cargill. Unlike Asimba though, she is more conflicted about her country's growing industry.

Sitting in the shadows of her home, which rests between a mountain and a coastline teeming with brilliant coral reefs, the graying grandmother says she fears global pressure to grow more oil palm for food and fuel will destroy the land for Cargill's benefit. "They're our resources. Not theirs."

Last fall, she traveled to Cargill's Minnetonka headquarters to express concerns about water contaminated from fertilizer runoff in a trip organized by Rainforest Action Network.

"Are you fit to drink the polluted water?" she says she asked Cargill officials at the meeting in Minnetonka. "Everybody shook their head."

The meeting was unusual for Cargill, which doesn't often meet with "what would be considered an activist campaign group," said Mark Murphy, a company spokesman. Nevertheless, the meeting lasted for more than an hour as Hambuga and two other farmers from Paraguay and Brazil, where Cargill has operations, listed their concerns. Murphy said the company remains in contact with the rainforest group.

Growing more

But with world populations surging and increasingly adapting a western diet, the breakneck growth of palm oil production seems unlikely to slow. New plantations are planned in Brazil. South Korea, meanwhile, announced recently that it purchased rights to half of the available farm land of Madagascar, much of it rainforest, for corn and oil palm plantations.

"We've got an expanding world population, we have limited natural resources and increasing competition for those natural resources," said Mary Thompson, a spokeswoman at the Farm Foundation, an agricultural think tank based in Oak Brook, Ill. "People have to understand agriculture doesn't operate in a vacuum. It's a combination of markets and resources and consumer demands. When you push one way you impact another."

Cargill, too, citing strong demand from its growth markets in China and India, as well as its food company customers who want trans-fat free oils, continues to expand. At this plantation alone, funded by the World Bank, it soon will add another 7,400 acres by working with another 1,200 small farmers. That gives it 7,000 smallholders here. Plus, it will rent 4,900 more acres from nearby farmers.

Asimba continues to do his part. Much of the money he's earned on palm oil, he's plowed back into the business. He has paid back his initial loan and is buying more land.

After palm oil prices tripled, he sent his sons with their machetes to his farm's edge, where they began clearing the jungle to grow more.

Matt McKinney • 612-673-7329

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