Oilseeds, oils and oilmeals

Oilcrops

Introduction

The oilcrops complex is projected to remain the fastest growing of the major agricultural sectors in the decade to 2010. An important feature is the robust supply growth in low-cost developing countries, notably in South America where exchange rate adjustments have increased their competitiveness. Policy changes have had mixed effects; reform of support across commodities in the last decade has favoured oilseed production in the United States but limited production growth in the EU. The high growth witnessed in palm production may slow, as a rejuvenation cycle in the Malaysian and Indonesian palm oil sectors may limit the rate of expansion during the period. Growth in demand for both oils and meals should remain firm given projected income growth and the relatively high sensitivity of both oil consumption and meal (via meat) consumption to income changes.

Several factors will condition development of the sector. Food safety and environmental concerns will increasingly affect the production and trade of oilseeds and products. Associated regulations will make markets more complex, leading to increased labelling requirements and possibly to identity preservation marketing systems. Such developments will inevitably affect trade. In addition, the oilcrop sector may increasingly serve a growing demand for bio-fuels, particularly as a result of policy enhancements in some countries, particularly the industrialized countries of the Organization for Economic Cooperation and Development (OECD).

Oils and fats

Production

Globally, growth in annual production of oils and fats is projected at 2.6 percent over the decade to 2010, down from 4.5 percent in the previous decade. Of the oils, palm oil is anticipated to again increase its share of the production to 22 percent, growing over 4.3 percent annually over the period; however this growth is down markedly from the 6.6 growth of the previous decade. Soy oil will maintain or marginally increase its production share, at around 23 percent of total oil production. Other oils, with the possible exception of animal fats, are expected to decline in production share.

Regionally, production growth of oils and fats will reflect trends that are similar to those for other commodities, where production growth in developing countries, at 3.3 percent annually, exceeds that in the developed countries, and where the marked turnaround in the transition countries is a significant development. Production growth in developing countries is most striking in Brazil and Argentina, where production is projected to increase by 3.9 percent and 3.5 percent respectively, due almost entirely to growth in soy oil production. In Indonesia and Malaysia, palm oil production is projected to grow 6.5 percent and 3.7 percent. This growth is down markedly from the previous decade as replacement of older trees by newer ones will reduce growth in harvesting in the early part of the projection period. For all fats and oils, world production will remain concentrated in a few countries. About 80 percent of world production is accounted for by 11 countries, of which 4 are developed and 7 are developing countries. This percentage is expected to increase further during the projection period.

An important issue for the oilseed oil markets over the medium term is the production and marketing of GM crops, particularly in countries producing either soybean oil or rapeseed (canola) oil. The main thrust of GM crops has been to raise yields, and to reduce costs of production, and hence encourage higher supplies. However, countries have been making choices for GM or non-GM crops according to domestic and export market characteristics. In some countries, adoption has been swift, while in others, restrictive regulatory measures have created the situation where markets are increasingly segmented. Throughout the projection period, this issue will be a critical one, with considerable uncertainties as to the size of any market premiums for non-GM oil. Even within certain countries, it is expected that mandatory identity preservation systems will increasingly be applied in order to respond to differing consumer requirements.

Demand

Most of the global growth in consumption of oils and fats of 2.5 percent annually is anticipated to occur in developing countries, reflecting higher population and income growth, and a lower base level of consumption. The growth in these countries is projected to average 2.8 percent (compared to 1.8 percent in developed countries), and their share of the market should increase marginally from 60 percent to 62 percent by 2010. In per capita terms, growth is anticipated to be highest in transition countries, where the turnaround in income will encourage higher consumption. Disparity among countries in the consumption levels of oils and fats will remain, with developing countries consuming on an average per capita basis less than one-third of that of developed countries.

Rising consumer concerns about food safety and environmental issues in many countries have been affecting domestic and international markets. This trend is expected to continue on a number of fronts. The most critical consumer concern is for genetically modified organisms (GMO) products. Segmentation of markets, which has been evolving rapidly in recent years, can be expected to continue not only among countries, but perhaps also within countries. In other areas, increasing regulation and quality standards, including Sanitary and Phytosanitary (SPS) measures, will affect trade in markets; examples include aflatoxin levels in groundnuts, and industry codes of practice for safe storage and transportation of oils and fats used for food.

The non-food use of oils and fats is projected to grow, especially given a favourable policy climate in certain, particularly developed countries. In the United States, the EU and elsewhere, countries are supporting increased use of bio-fuel, given their relatively favourable environmental impact, and to some extent, its role in replacing imports of crude oil. The oleochemical industry, which currently uses about 15 percent of oils and fats production, is also projected to continue to grow more rapidly than the demand for food uses, with some developing countries playing a more prominent role.

Trade

Global export of oils and fats is projected to grow by about 15 million tonnes by 2010 compared to base period levels. With a highly concentrated profile of production by country, growth in production by a few countries is projected to represent the largest increase in exports, while increasing consumption of oils and fats by all countries implies an increasing diffusion of imports. In the base period, about 85 percent of exports were supplied by nine countries (four developed and five developing). This percentage is expected to grow during the projection period, with an increasing share of Brazil and Argentina (soy oil), and Malaysia and Indonesia (palm oil). The export share of the US, presently the second largest exporter, is expected to fall from 18 percent currently to 12 percent by 2010. These data underscore an important aspect of oils and fats markets, namely that changes in trade are occurring mostly among the developing countries. Their export share may increase from 60 percent to 70 percent, and their import share from 61 percent to 65 percent. Western Europe and Africa are expected to increase their dependency on imported oils and fats.

Prices

The long-term trend decline in real soybean oil prices^[8] in international markets has been in the order of 2.4 percent per year. Such a decline has resulted from large productivity gains in the production of the various oilseeds, and especially in the supply of palm oil. Real prices of oils and fats are expected to move back to trend levels after reaching recent historic lows early in the projection period (2000 - 2001). The return to trend levels reflects continued strength in underlying demand for oils and fats, given prospects for income and demographic growth over the period, and the sensitivity of consumption to these changes, particularly in developing countries.

Table 2.13. Oils and fats: production and consumption projections