Rising palm oil prices, policy ambitions may increase haze risk in Asean: think tank
Following a 'green' rating indicating low risk of such an event in 2024, SIIA raised its rating this year to 'amber', indicating a medium risk. Such a haze event – which could affect Singapore, Malaysia and Indonesia – was last observed in 2019, with less intense episodes in 2023 and July this year.
'Early in the year, many weather assessments projected a relatively benign haze season,' said chairman of SIIA, Associate Professor Simon Tay. 'However, as the situation evolved, it has become clear that regional fire and haze risks are rising – not just from weather, but from global economic and policy changes.
Peatland fires in Sumatra spewed haze into Indonesian and Malaysian skies last week, with two regions in West Sumatra declaring a state of emergency as hot spots spiked.
The institute's haze outlook drew attention to a growing demand-supply imbalance in the agricultural commodities sector – particularly palm oil in Asean.
While declines in global palm plantation expansion and related deforestation have offered environmental reprieve, the report said, analysts have expressed concern over its economic consequences.
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Palm oil is typically the cheapest among vegetable oils, but its price in Indonesia and Malaysia rose to more than that of soybean oil from Latin America for nine straight months in the previous year, noted the report.
'Agricultural commodity prices have been elevated since the Covid-19 pandemic and remain at high levels, particularly for palm oil where supply is not keeping pace with international demand,' said Khor Yu-Leng, associate director for sustainability at SIIA.
Rising agricultural commodity prices have historically been followed by spikes in deforestation, as planters seek to expand plantation areas to meet rising global demand, Khor told reporters on Monday (Jul 28) at a briefing for the launch of the report.
While she said that current high prices have yet to trigger a major rise in deforestation in the region, there had been a slight uptick in deforestations between 2023 and 2024, particularly in Sumatra.
Additionally, major political ambitions in Indonesia may further elevate demand for domestic production, increasing the need for plantation expansion – possibly through illegal deforestation.
Indonesian President Prabowo Subianto has sought to emphasise the country's palm oil sector as a major part of its economic strategy in a drive towards self-sufficiency, SIIA wrote.
This has involved intensifying downstreaming efforts in the agricultural commodities sector, seeking to strengthen processing and refining of palm oil into food and chemical products.
The Indonesian leader has also stepped up efforts to encourage the use of biofuels, mandating an increase in the blend of vegetable oil to diesel from 35 per cent to 40 per cent in early 2025, with further plans to increase the mix to 50 per cent.
These moves, the institute wrote, are expected to significantly increase pressure on domestic palm oil demand, with Indonesia's agricultural sector balancing the weight of export revenue, food security and the country's energy needs on its shoulders.
Additionally, the report noted that further uncertainty could hit the industry in the coming months, with a move by the European Union to restrict imports of products linked to deforestation scheduled to take effect in Dec 2025.
'Indonesia has called for further delay to the regulation to 2028, as some smallholder farmers are not fully prepared for the compliance requirements,' said Associate Professor Tay. 'But the implications on trade and markets remains unclear.'
Still, Khor emphasised that the region's overall deforestation remained far below 2015 levels – in part due to the efforts of Prabowo's predecessor Joko Widodo. The former president's administration oversaw 1.6 million hectares of peatland restorations and harsher crackdowns on companies liable for fires.
'For now, the weather is relatively benign and fires can be kept under control unless the situation changes,' the report said, noting that the intense periods of drought that have drawn previous haze incidents remain unlikely in 2025, as meteorological data suggests.
'The longer-term risk is whether rising global demand and new policy directions will drive expansion in ways that undermine environmental safeguards,' said Khor. 'Even if the weather conditions are not extreme, these could push actors to expand land use in ways that heighten fire and haze risks,' she added.
This should ideally be done through sustainable expansion on non-forest areas, conversion of other croplands, yield increases and replanting of ageing areas, the institute wrote.
'Much will depend on Indonesia's governance of its plantation and commodities industry,' said Associate Professor Tay.
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