Pressure from businesses and environmental groups has slowed the destruction of rainforests to produce palm oil in Indonesia, Southeast Asia’s largest country. 

Rising demand for the commodity has tested those efforts, but so far further deforestation has been kept in check. 

Palm oil prices have tripled over the past two years to record levels and are likely to remain high. Along with other more costly commodities, palm oil is feeding global inflation. 

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“It looks like the link between prices and expansion has broken,” said David Gaveau, a scientist who heads TheTreeMap, a forest monitoring organization based in France. 

The group has tracked the historic expansion of palm oil plantations using satellite data. As prices rose in 2020 and 2021, Mr. Gaveau expected to see a surge in deforestation as growers tried to cash in. But in defiance of historic trends, growth continued to slow, he said. “For now it is holding,” he said. “It seems like the price pressure isn’t yet impacting deforestation rates so yes, this is really good news.”

One result of the yearslong slowdown is there isn’t a plentiful supply of the world’s most popular vegetable oil to offset a shortage in cooking oil due because of the war in Ukraine. Big buyers like Unilever PLC and Colgate-Palmolive Co. are saddled with high prices. 

Palm-oil operations in Indonesia are working under tighter regulation—and the scrutiny of environmental groups.

Photo: WILLY KURNIAWAN/REUTERS

In palm oil’s case, the supply restrictions have a big upside: preserving Southeast Asia’s orangutan-filled rainforests. For three decades, swaths of the forests were burned down to feed growing demand for palm oil—which is used to add foam to shampoo, smooth the texture of ice cream and keep candy bars from melting. The crop was so popular that by 2019 nearly 10% of Indonesia’s sprawling landmass was covered by it, according to government statistics. For at least a decade, that fast growth kept prices in check.

The heaviest deforestation has occurred when prices were high. In 2012, when prices hit around $1,000 a metric ton, slightly more than 2,000 square miles of Indonesian land—roughly seven times the size of New York City—were converted to industrial palm oil plantations, according to a paper published by Mr. Gaveau and colleagues in the journal PLOS ONE in March. By 2018 prices, had declined to around $600, and annual plantation growth was down to around two New York Cities. 

But when prices rebounded to $1,100 in 2021, plantation expansion had declined—to the rough equivalent of just one New York City. By April, they averaged $1,700 and faced further pressure in recent weeks when Indonesia announced a ban on the export of some types of refined palm oil in an effort to lower the price of cooking oil at home.

The slowdown in Indonesia, which produces around 60% of the world’s palm oil, also has been seen in Malaysia and other palm-oil producing countries. Palm-oil production in these countries grew by 18% from 2015 to 2018, but by 4% from 2018 to 2021, according to the Council of Palm Oil Producing Countries. 

Trucks loaded with palm oil fresh fruit bunches line up outside a palm oil factory in Indonesia.

Photo: WILLY KURNIAWAN/REUTERS

The shift stems from tighter government regulations, high-quality satellite imaging and the work of environmental groups, which pressured businesses to stop buying palm oil grown on recently deforested land. The groups could watch the satellite images and tell businesses which companies to kick out of their supply chains. Losing access to buyers reduced incentives for growers to burn down jungle, in a boon for the forest, according to environmental campaigners.

The situation presents challenges for consumer-goods companies that until recently could count on ever-larger quantities of palm oil to keep prices in check. Unilever, which buys palm oil for its skin-cleansing products, said reduced expansion could lock in higher palm oil prices in the years ahead, pushing up its business costs.

“There really hasn’t been an increase in the global crop acreage in palm oil,”

Graeme Pitkethly, the company’s chief financial officer, said in July. In an email, a company spokeswoman said Unilever is exploring alternatives to palm oil “as good sourcing practice to ensure a resilient and agile supply chain” though it says it will always be a significant palm buyer.

A search meanwhile is on for alternatives. Calyxt Inc. , a biotechnology company listed on the Nasdaq, is working with an Asia-based customer to develop a gene-edited soy crop that produces fatty acids with the properties of palm oil. “You can grow it in a much more sustainable way than some of the palm products that have been traditionally used in the past,” said Travis Frey, the company’s chief technology officer.

Indonesian police try to extinguish a 2019 forest fire, some of which have been illegally ignited to clear forests.

Photo: Afrianto Silalahi/Zuma Press

Pressure increased on palm oil producers in 2013, when fires set to clear rainforests blanketed Southeast Asia in a thick haze. Big palm-oil traders said they would stop buying from suppliers who wrecked the rainforest, amid broader concern about deforestation’s contributions to climate change. By 2020, 83% of Indonesian and Malaysian palm oil refining capacity wouldn’t buy palm oil linked to deforestation, according to Chain Reaction Research, a Washington, D.C.-based sustainability risk analyst group.

Among the largest entities targeted was GAMA, an Indonesian palm oil plantation group with expansive ambitions. Evidence that it was clearing rainforest prompted traders to cut ties. 

“It was a bit like Russia right now—suspended trade with everybody from the supply chain,” said Eric Wakker, a Dutch environmental consultant who conducts work for the company, now known as KPN Plantations.

The company now controls 500,000 acres—far less than the 900,000 acres it says affiliated member companies were trying to acquire in 2016, before the trade suspensions. KPN says it won’t develop any new land. Traders are buying from it again.

There are silver linings to palm oil’s high cost, though the benefits may be temporary. One is higher-quality chocolate. In an April earnings call, Barry Callebaut AG, a Swiss chocolate maker, said higher vegetable oil prices meant customers who usually bought compounds—typically made from cocoa powder and vegetable fats like palm oil—were instead looking to purchase chocolate, which is made from more-expensive cocoa butter.

“The prices are now so close that we see customers being interested to say, “ ‘Hey, now it doesn’t make such a difference anymore, could we buy chocolate as well,’ ” said Peter Boone, the company’s chief executive officer, on the April earnings call. 

Write to Jon Emont at jonathan.emont@wsj.com