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Tropical forests are biodiversity-rich but are dwindling at a rapid rate, not only in Southeast Asia but elsewhere also. The result is a loss of natural ecosystems, a reduction in carbon sequestration, and increasing global extinction of wild species, including iconic species. While several developments contribute to the destruction of tropical forests, the main threat comes from their clearing for the purpose of agricultural production, for example in the Amazon Basin for the expansion of the beef industry and soya bean cultivation. In Borneo and Sumatra, the principal threat to tropical forests comes from the expansion of oil palm (Elaeis guineensis) cultivation. This is expected to result in significant biodiversity loss and is a danger to the continuing existence of the iconic orangutan (Pongo pygmaeus). The preferred route for oil palm expansion is by the conversion of lowland tropical forests to plantations. Lowland tropical forests are the prime habitat of the orangutan and this species is especially at risk as a result of oil palm expansion. Two supply-side policies have been suggested in the literature as ways to reduce this expansion and reduce pressure on species such as the orangutan. It has been recommended that Imperata cylindrica grasslands be used to help accommodate future oil palm expansion in Borneo and Sumatra and that emphasis be placed on raising the yield of oil palms. It is hypothesised that this will reduce the demand for clearing tropical forest for the purpose of oil palm expansion. Both of these hypotheses are critically evaluated by means of economic analysis. It is concluded that neither of these policies are likely to be very effective in reducing the clearing of tropical forests in Borneo and Sumatra in order to grow oil palm.
