23/12/05 (World Commodity Profiles)

End-uses: vegetable oils

Human consumption as foodstuffs accounts for the bulk of vegetable oil usage, mainly in the form of cooking oils, margarines and shortenings in the baking industry. There is a high degree of substitutability between oils, but in some applications, for example in baking fats and margarines, functional characteristics limit substitution. In some countries there are preferences for specific oils on grounds of taste and, to a lesser extent, perceived health characteristics.

Non-food uses are also important

Vegetable oils and their oleochemical derivatives also find application in many non-food products (detergents, cosmetics, printing inks, etc), in which they compete with petrochemical- and animal fat-based raw materials. High petroleum prices have encouraged the use of vegetable oils as a renewable energy source, or biofuel. All vegetable oils can, in principle, be used in this way and the resulting fuels can be used in many applications, including transport and power generation.

Most oilseed meals are for animal feed

For most oilseeds, meals are a co-product of vegetable oil production (soybeans are an exception, meal being the more valuable end-product). Oilseed meals are used mainly as protein supplements in animal feeds, and soybean meal accounts for around 75% of total consumption. Oilseed meals are also used as fertilisers and soil conditioners in some countries.

Most oilseeds are crushed to separate the oil and meal components, but some are also consumed whole in animal feeds and as food. Significant quantities of sunflowerseed, soybean and rapeseed are consumed in this way.

Regional consumption trends

Consumption of the main four vegetable oils grew strongly in 2004/05, at over 7% -- an increase not seen since 1999/2000. The increase is attributable mainly to lower prices of vegetable oils along with a buoyant world economy. Major oil consumers are China, the EU25, the US and India. Consumption growth was strongest in China and the EU25, more modest in the US and India.

Strong consumption growth rates have been achieved

Palm and rapeseed oils both recorded double-digit growth in consumption in 2004/05, at 11% and 10% respectively. The growth of rapeseed oil consumption, and the effect upon prices, was higher than expected. By contrast, sunflowerseed oil consumption, which had been growing by 12% per year in the preceding two seasons, actually fell in 2004/05 owing to very high prices.

Demand growth in the EU is due to biofuels

In the EU25, the growth in oilseeds consumption is mainly attributable to increased output of biofuels. Biodiesel production capacity has increased by around 35% since 2002, reaching almost 2.2m tonnes/year. Germany, France and Italy account for most of the increased capacity. For technical reasons, rapeseed oil has been the main beneficiary of the growth in usage, although soybean and palm oil have been cheaper. It is estimated that around one-third of EU production of rapeseed oil was used in biofuels. Margarine producers, major users of rapeseed oil, are becoming concerned at the increase rate at which rapeseed oil is being used for non-food purposes. Biofuel consumption is expected to continue to increase in Europe, especially in Germany, where the government provides strong support for the sector. German processors have been contracting directly with French and Polish rapeseed suppliers.

Palm oil demand has been stronger than sunflowerseed oil

Palm oil consumption, principally in foodstuffs, has also grown strongly in the EU25. Malaysian companies operating in the EU enjoy an exemption from Malaysian export taxes on the oil, believed to be worth around US$60/tonne, making it highly competitive. There are significant new investments in palm oil refining capacity in the EU, which will further increase its use. Some palm oil is now being used for biofuels in the Netherlands, where there has been a substantial increase in use in power generation.

Growth in European sunflowerseed oil consumption has been limited by high prices and increased demand for olive oil by health-conscious consumers. Demand for soybean oil has been constrained by the labelling of food products containing GM ingredients. A similar restriction does not apply to soybean meal used for animal feeds and consumption increased during 2004/05, reversing the decline seen since 2002/03.

Oilmeal consumption in the EU25 has been more or less stable at around 34m tonnes since 2001/02, despite the increased quantities of rapeseed meal available from EU crushers. The main issue is the extent to which soybean meal will be imported from Brazil and Argentina rather than crushed in the EU from US soybeans. There has been some increase in the import of soybean meal, although by only a small amount.

Consumption of vegetable oils is rising strongly in China

Consumption in China of oils in 2004 was checked by high prices, but recovered strongly in 2005, especially of palm oil. Demand for processed foods -- especially instant noodles, which use large amounts of palm oil in their preparation -- is growing fast. Consumption of rapeseed oil also rose, reflecting higher domestic output and the fact that, in China, rapeseed oil is only marginally more expensive than soybean oil. Total consumption of vegetable oil, even with the recent increase, is relatively low: per head, consumption is around 35-40% of the level in Taiwan.

Demand for soybean meal in China has recovered from the low level to which it fell in 2003/04 after the outbreak of avian influenza (bird flu). Since then, there has been some recovery in pig and poultry numbers, but a stronger increase in the dairy cow population and in fish farming has boosted soybean meal consumption.

In India, vegetable oil consumption grew by around 4% in 2004/05 in response to lower prices, increased imports and a recovery in the rural economy. Imported oils (mainly palm and soybean) account for the bulk of consumption, but domestic rapeseed and groundnut oils are important.

The US market is dominated by soybeanÝoil

Soybean oil dominates the US market, where consumption of vegetable oils generally has seen steady growth. In 2003/04 there was a reduction in soybean oil consumption, thanks to reduced availability, and increased consumption of other oils, and total oil consumption grew by 3% in 2004/05. The US has been slow to embrace biodiesel. A law containing a biodiesel tax incentive was signed in 2004 but budget allocations to this programme have been declining. This incentive was set to expire in 2006 but has recently been extended to 2008.

Healthy growth in Brazil, Malaysia, Indonesia and Pakistan

Other important consuming regions include Brazil, Malaysia, Indonesia and Pakistan. In Brazil, Indonesia and Pakistan consumption of vegetable oils has been increasing by 3-4% per year in the past few seasons. In Pakistan, preference for liquid oils is reported to be growing at the expense of saturated fats. In Malaysia, consumption of vegetable oils -- especially palm oil, used as an oleochemical feedstock -- rose by more than 10% in 2004/05.