The Importance of the Global Oils and Fats Supply and the Role that Palm Oil Plays in Meeting the Demand for Oils and Fats Worldwide

Transcription

1 Economic Review and Perspective The Importance of the Global Oils and Fats Supply and the Role that Palm Oil Plays in Meeting the Demand for Oils and Fats Worldwide James Fry, DPhil, Claire Fitton, BSc LMC International, Oxford, ENGLAND, UK Key words: palm oil, oils and fats demand This article highlights the importance of the role that palm oil plays in meeting the demand for oils and fats worldwide for food. On top of this food demand, the demand for vegetable oils for biofuels, which now absorb over 10% of world oil and fat supplies, has rapidly increased. Key teaching points: N Global output of vegetable oils has been expanding quickly in recent years, driven by demand from the food sector and, increasingly also, by fuel and other nonfood uses, such as oleochemicals. N Palm oil has consistently achieved the fastest production growth among the major vegetable oils, and further rapid expansion is expected in years to come. N The world has created a large and growing demand for biofuels, and craves a product with lots of oil and minimum amounts of meal. Oil palm with its relatively high oil content is the ideal product to fill that gap. N Population growth and increased income, especially in developing countries, will result in higher demand for oils and fats to match better nutrition and access to food supplies. N Sustainability is a concern of increasing importance in agriculture. N Health concerns and labeling requirements regarding the trans-fatty acid (TFA) content of foods will have an increasingly significant impact on consumer decisions. GLOBAL OILS AND FATS PRODUCTION AND DEMAND Global output of vegetable oils has been expanding quickly in recent years, driven by demand from the food sector and, increasingly also, by fuel and other nonfood uses, such as oleochemicals. VEGETABLE OIL PRODUCTION GROWTH Fig. 1 illustrates the growth in world vegetable oil production that has occurred since the mid-1980s. Listed in the textbox are average annual growth rates over this period. In , soybean oil was well ahead of the other oils as the largest source of vegetable oil supplies. Now it lies almost 20% behind palm oil in volumes. Palm oil was only slightly ahead of sunflower and rapeseed oil in global output in , but now it is clearly the most important single source of oil. Rapeseed and sunflower oil production rates have broadly followed the growth in output of their seeds, with rapeseed now representing close to double the output of sunflower. The ranking of the two lauric oils coconut and palm kernel has been reversed since Palm kernel oil output is now almost 50% higher than that of coconut oil. Palm oil output averaged 8.3% growth, as against 8.0% for palm kernel oil; 6.2% for Address correspondence to: James Fry, DPhil, LMC International, George Street, Oxford, England OX1 2AF, UNITED KINGDOM. info@lmc.co.uk Abbreviations: BSE 5 mad cow disease, GHG 5 greenhouse gas, GMO 5 genetically modified organism, NGO 5 nongovernmental organization, RSPO 5 Roundtable on Sustainable Palm Oil, TFA 5 trans-fatty acid. Dr. Fry sometimes speaks at MPOC and MPOB seminars; LMC includes oil palm plantation companies among its clients, as well as producer groups, end-users and government agencies. Journal of the American College of Nutrition, Vol. 29, No. 3, 245S 252S (2010) Published by the American College of Nutrition 245S

2 Fig. 1. Growth in world vegetable oil production, rapeseed oil; 5.1% for soybean oil; 3.0% for sunflower oil; and 0.9% for coconut oil. Palm oil has consistently achieved the fastest production growth among the major vegetable oils. Output of all of the major oils has grown, but it is certain that the palm oil supply will continue to grow rapidly because it is a tree crop, which takes 3 to 4 years to yield any fruit and 8 years to reach maturity and typically has a life span of 25 years. Oil palm plantings have been exceptionally high in recent years, in response to high world vegetable oil prices. This will lead to a further rapid expansion in palm oil production in years to come. The rapid growth in vegetable oil production has been due in part to stagnation in the growth of fish oils and animal fats. Fifty years ago, fish oils and animals fats, when combined, were the largest single source of the oils and fats supply worldwide. Margarine was traditionally made with fish oil, but fish oil has become scarce and very expensive, as industrial fishing for processing into fishmeal and fish oil has outstripped the availability of sustainable fish populations. In the animal fat sector, a dark cloud was cast over the use of these products in food applications during the BSE ( mad cow disease ) outbreak, and their removal from many food uses has led to opportunity for vegetable oil, and for palm oil in particular, as a naturally hard fat for baking and frying, without requiring hydrogenation. FOOD DEMAND FOR VEGETABLE OILS Fig. 2 demonstrates that the demand for food uses continues to underpin vegetable oil off-take, even in the era of biofuels. Nonfood uses include oleochemicals and animal feed, as major outlets, as well as biofuels, which are now the leading nonfood uses. AREA GROWTH IN OILSEEDS AND GRAINS Fig. 3 provides a striking indication of the exceptional growth in demand for vegetable oils and the impact on agriculture. It illustrates very strikingly the contrast between oilseeds and grains worldwide, in terms of changes over time in their global area requirements. Whereas the total area under grains actually fell for most of the period since the early 1980s, and only expanded when biofuel demand (for ethanol) added an extra component to the requirements, the total area under oilseed crops (including oil palm) rose steadily, more than quadrupling in the 4 decades from the mid-1960s and adding more than 100 million hectares to the total. The reason for the contrast is based on differences in demand growth for the 2 sets of crops. For grains, the increase 246S VOL. 29, NO. 3

3 Fig. 2. World vegetable oil demand for food and nonfood uses, Fig. 3. Growth in world oilseed and grain areas, 1965/ /08. JOURNAL OF THE AMERICAN COLLEGE OF NUTRITION 247S

4 Fig. 4. Growth in world meal and oils and fats demand, in average yields was sufficient to meet the expanding demand for food and feed applications. For oilseeds, demand growth was so high that no amount of ingenious biotechnology and plant breeding could pull yields up sufficiently to avoid the need to increase the areas planted to these crops. The rapidity of growth in oil and meal demand is illustrated by Fig. 4. The growth in world meal demand has moved ahead rapidly, following a fairly steady long-term trend. The growth in vegetable oil demand, however, has received a sudden boost, thanks to biofuels. The diagram also reveals another important point; until the advent of biofuels, which, unlike normal population and income growth, generate a demand only for oils (without a parallel increase in meal demand as input in feed for meat production), oil and meal demand grew in step. Since the arrival of biodiesel in the early 1990s, oil demand growth has outstripped that for meal, benefiting oil palm as the premier oilbearing crop. Oil palm has an 89%:11% split between its oil content and its (palm kernel) meal content; soybeans, in contrast, are roughly 19% oil and 81% meal in their composition. The world has created a large and growing demand for biofuels and craves a product with lots of oil and minimum amounts of meal. Oil palm is the ideal product to fill that gap. Vegetable oil consumption is determined primarily by national income per capita, multiplied by the population size. Thus, rapidly growing economies and populations feed directly into swiftly expanding vegetable oil demand. Indeed, as Figs. 3 and 4 demonstrate, vegetable oil is notable for its high income elasticity of demand compared with other agricultural commodities, such as grains, and it is interesting to observe that the demand for protein meal for animal farming is also much more income-elastic than the demand for basic feed grains, for example. Nonetheless, as economies eventually reach a certain level of income, demand tends to grow more slowly; there is only so much oil that people wish to eat, directly and indirectly, no matter how wealthy they are. Fig. 5 illustrates the growth in world oilseeds and grains areas that would be expected to unfold over the next decade, if areas simply follow their historical trends. In practice, unless governments enthusiasm for biofuels wanes, the actual growth in the area under oil-bearing crops will be faster than that seen on average over the past 45 years, and it is quite possible that the total area under oil-bearing crops could reach 200 million hectares by the start of the 2020s decade. POPULATION AND INCOME GROWTH Population growth and increased income, especially in developing countries, will result in higher demand for oils and fats to match better nutrition and access to food supplies. SUSTAINABLE CULTIVATION OF OIL- BEARING CROPS Sustainability is a concern of increasing importance in agriculture. Sustainability criteria take many forms. The first 248S VOL. 29, NO. 3

5 Fig. 5. Growth in world oilseed and grain areas, 1965/ /20. initiative to establish such criteria was the creation of the Roundtable on Sustainable Palm Oil (RSPO). This brought together producers, end-users, and nongovernmental organizations (NGOs) to develop principles and criteria for the certification of sustainable palm oil producers. The initiative was purely voluntary and was intended to reassure food and chemical companies that the producers of certified palm oil had met stringent standards in the production of their palm oil. Since the formation of the RSPO, the concept of sustainability has become more complex, as national governments have adopted minimum thresholds of sustainability in terms of measures such as greenhouse gas (GHG) reductions, indirect land use change, and prior land use, and have applied these thresholds to the use of vegetable oils as biofuels that benefit from government support. The 2 most important markets in terms of the application of sustainability criteria in biofuel markets are the European Union and the United States. As global populations grow and the development of virgin agricultural land becomes an ever more sensitive issue, pressures to increase food production via improvements in technical competitiveness are increasingly acute. Fig. 6 reveals the progress that has been made since 1990 in agricultural productivity of soybean, rapeseed, sunflowerseed, and coconut and palm oils, by plotting the global average volume of vegetable oil produced per hectare. It is clear from the diagram that palm oil has a great advantage over the other vegetable oils, as it has a higher oil yield per unit area. Palm is the least disruptive crop in terms of its land requirement. The world is looking to add 3 million tonnes per year of biofuels. To produce this additional 3 million tonnes of biodiesel would require more than 3 million tonnes of vegetable oil. If oil yields per unit area remained at current levels, we estimate that it would require an additional 7.5 million hectares of coconut plantations, 5.8 million hectares planted to soybeans, 5.2 planted to sunflower, 3.3 to rapeseed, or only 0.7 million hectares of oil palm plantations to meet this target. In terms of the demand for new land to be planted to oilbearing crops, oil palm is clearly the least disruptive when it comes to satisfying this additional vegetable oil demand. This may offer opportunities for some African countries, for example, in their pursuit for economic growth and reduced dependence on imported oils and fats. African palm oil yields are low on a global level; yields on good estates in Malaysia reach upward of 5 tonnes per hectare, while in Africa, the average yield is only 2 tonnes per hectare, held by a large proportion of peasant farmers in their traditional farming systems. This indicates that African yields could be pulled up considerably. In the long run, oil palm will move back to Africa, drawn by the suitable climate and low labor costs (which is very important indeed in economic terms, because palm production is very labor intensive). Fig. 7 shows the distribution of oil demand by type of oil in West Africa. It is apparent that palm oil is the most important crop consumed in West Africa, with palm oil and palm kernel oil together accounting for over 80% of all vegetable oil consumed in the region. JOURNAL OF THE AMERICAN COLLEGE OF NUTRITION 249S

6 Fig. 6. Average global yield of oil per hectare (oil palm yields alone are measured on the right-hand axis). The relationship between production and consumption of vegetable oils in Africa is illustrated in Fig. 8. With the 2 major oils (palm and soy), demand exceeds supply significantly. The supply and demand of groundnut oil and cottonseed oil in Africa is balanced. Although Africa was the home of palm, the country has a large oil supply deficit and a rapidly growing population, which it needs to feed. Palm is the traditional oil of choice locally and demands less land than new crops like soybean. GENETICALLY MODIFIED ORGANISM (GMO) OILSEED CROPS Fig. 7. Vegetable oil demand, by type of oil in West Africa, Health concerns and labeling requirements regarding the trans-fatty acid (TFA) content of foods will have an increasingly significant impact on the commercial decisions of food processors in major markets of the world. These decisions will have a considerable bearing on the economics of the global vegetable oil market, as oilseed processors and food manufacturers make choices about how to reduce TFA levels. Oilseeds have been selected over many decades to contain desirable fatty acids to suit their different uses. A significant amount of research is being directed toward developing healthier oilseeds, both to increase the health benefits to consumers and to add value to the oilseeds. Fig. 9 compares the quantities of saturates, monounsaturates, and polyunsaturates in palm oil, soybean oil, rapeseed oil, and sunflowerseed oil. Palm oil is high in saturates compared with the other oils. Palm oil is also relatively stable, so it is very well placed for uses such as frying. The 250S VOL. 29, NO. 3

7 Fig. 8. Vegetable oil production and consumption in Africa, Fig. 9. Fatty acid composition of major vegetable oils. JOURNAL OF THE AMERICAN COLLEGE OF NUTRITION 251S

8 other oils (soybean, rapeseed, and sunflowerseed oils) are less stable and deteriorate if untreated. To offset this, hydrogenation is used to harden the fats, but it also creates trans-fatty acids. TFAs are now viewed as a serious health issue, and many countries, including the United States, are taking action to reduce TFA consumption. Therefore palm oil has come back into favor. Soybean, rapeseed, and sunflowerseed oils are being developed with a healthier TFA profile and are being made more stable, often through genetic engineering. However, this has led to concerns among some consumers, particularly in Europe, where a strong antipathy to GMOs is seen. REFERENCES Food and Agriculture Organization of the United Nations (FAO): FAOSTAT Online Database. Accessed at: U.S. Department of Agriculture (USDA): Foreign Agricultural Service s Production, Supply and Distribution (PSD) Online Database. Accessed at: The World Bank: The World Bank Data Catalog. Accessed at: data.worldbank.org/data-catalog LMC Oilseeds and Oilseed Products: Outlook for Profitability to LMC Database, Received May 6, S VOL. 29, NO. 3