Oil Palm Expansion and the Economics of Forest Fragmentation

Abstract

This paper studies the impact of economic incentives for an expansion of intensive agriculture on forest fragmentation using the example of oil palm plantations in Southeast Asia. We employ remotely sensed forest loss information for the years 2001 to 2019 to calculate yearly forest fragmentation metrics on a grid cell level. These outcomes are linked to global fluctuations in the prices of agricultural commodities using a measure of price exposure based on crop-specific local agricultural suitability. The empirical results show that price incentives for an expansion of oil palm cause forest loss patterns that reduce fragmentation locally by resulting in a higher aggregation of the remaining forest and simpler forest shapes. Suggestive evidence links this outcome to the expansion of industrial plantations rather than smallholder farming. The deforestation impacts of other crops are mixed, which can likely be attributed to the varying degrees of smallholder involvement in their cultivation and to potentially different price mechanisms. These findings from Southeast Asia suggest that intensive agriculture combined with land-sparing strategies could reduce forest fragmentation and counter a trend of increasing degradation of tropical forest landscapes and associated losses of environmental services.

Keywords: deforestation, agricultural commodities, oil palm, forest conservation, forest fragmentation, South East Asia

JEL Classification: O13, Q15, Q56, Q57