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Consumption World Vegetable Consumption Expands and Diversifies

Nancy Morgan (202) 219-0821

purred by income and popu­ Since the 1950's, has policies during the 1980's to pro­ Slation growth in developing been the leading vegetable oil in mote domestic production of oil­ countries-as well as rapidly production and in use worldwide. and foster self-sufficiency in expanding food processing indus­ However, world supplies of other vegetable . tries in Asia and other developing vegetable oils, notably palm and The European (EC) areas-the global growth in con­ , have been growing, and Indian policies stimulated the sumption of vegetable oils is out­ gradually reducing the relative im­ production of oilseeds, particularly pacing that of most other agri­ portance of soybean oil. This rapeseed, through a system of gov­ cultural products. Consumption of growth can be attributed to the ernment supports which guarantee vegetable oils worldwide grew at more competitive prices of other producers minimum prices for pro­ an average annual rate of 4.2 per­ oils, but also to many countries' duction. Rapeseed production in cent over the past decade. Consumption of vegetable oils also was buoyed by relatively low prices during the late 1980's. Prices have been held in check by high U.S. soybean oil stocks and abun­ dant world supplies of other oils, particularly palm and rapeseed oil.

Recent Policies Expand Production Vegetable oils are derived from oil-bearing crops, such as soy­ beans, rapeseed, , and . Oilseeds also yield protein meals, which are used with in feeds because of their relatively high protein content. Both oil content and protein levels of meal differ, depending on the specific oilseed.

The author is an agricultural economist with the Economics Division, Economic Re­ World growth In consumption of vegetable oils-at an average annual rate of 4.2 search , USDA. percent over the past decade-ls outpacing that of most other agricultural products.

Food Review 26 Food Consumption the EC grew 12 percent annually in and peanuts is also growing. Al­ the 1980's, and growth in India ex­ though canola generates much in­ EC-U.S. Oilseed ceeded 8 percent. This compares to terest, it constitutes but a small the 3-percent annual growth rate fraction of U.S. oilseed production, Agreement To for overall world oilseed produc­ amounting to less than 1 percent of Reduce EC Oilseed tion. Similarly, differential export total oilseed area in 1992 (155,000 Growing Area taxes and export subsidies in acres). and have fostered expan­ On November 20, 1992, the sion in those countries' exports of World Trade in and the Euro­ oilseed meals and oils. pean Community (EC) Vegetable Oils Shifts The recent resolution of a trade averted a potential trade war dispute between the United States With government policies stimu­ when they agreed to resolve and the EC over EC oilseed subsi­ lating large production of oilseeds an oilseed dispute over the dies, however, could lower EC oil­ and influencing trade patterns, the EC's subsidies on oilseeds. production in the near future composition of world vegetable oil The key feature of the (see box for provisions of the agree­ markets is changing. While soy­ agreement limits the EC'S oil­ ment). bean oil continues to dominate seeds growing area, starting world consumption of vegetable in year 1994/95, by oils, competing oils dominate the United States Dominates mandating a reduction in sup­ growth in vegetable oil trade (fig. port payments to oilseed pro­ World Oilseed Market 1). ducers if acreage planted The U.S. soybean Competitors include exceeds a maximum separate drives both the U.S. and the world and oil from the "soft" oilseeds (so base area. This is reinforced oilseeds markets. Accounting for called because they yield more oil}, by an agreement to reduce approximately one-quarter of such as rapeseed and sunflow­ planted area by the general ar­ world oilseed production, U.S. soy­ erseed. Oil from these soft seeds, able crops setaside percent­ bean output leads prices and pro­ particularly edible rapeseed, are age, or at least by a minimum duction prospects in other export­ getting more interest in developed of 10 percent in the following oriented oilseed producing coun­ countries due to their perceived year. tries. The United States is a major health benefits. player in world export markets for soybeans and meal, accounting for 66 percent of world trade in soy­ beans and 20 percent of soybean meal. Figure l Growth in World Trade in Soybean Oil Is Outpaced by Other Oils But the U.S. share of world mar­ kets for soybeans and products­ Percent meal and oil-has eroded signifi­ 100 ...... ------,---,.---,--,---..----..----...--.-----.-...---~ Consumption Trade cantly since the 1970's. While the 1------1 volume of U.S. soybean and soy­ bean meal exports remained rela­ tively high over the 1980's, in­ creased competition-particularly from Brazil and Argentina-re­ duced the market share of both U.S. soybean and meal exports by around 16 percent. Similarly, U.S. exports of vegetable oils, mainly soybean oil, have declined substan­ tially since the early 1980's, drop­ 0 ...... ______...... ___...... _ __...... _ __..._ __ ...... _..._ ___._ ...... ____._ .... ping from 15 percent of the world 1975 1985 1993* 1975 1985 1993* market in 1978 to an estimated 6 Marketing years percent in marketing year 1993 /94. 0Soybean Rapeseed • While soybeans make up most D Sunflowerseed 0Peanut 0Palm Oathers of U.S. oilseed production, produc­ · Forecast. tion of cottonseed, sunflowerseed,

May -1~ust 1993 Food Consumption

Canola oil, derived from edible U.S. Changes Fueled by and reduce the palatability and nu­ rapeseed, has the lowest saturated­ tritional value of meal as a live­ content among all major vegeta­ Health Concerns stock feed. "Canadian oil-low acid" ble oils. Edible rapeseed contains U.S. imports increased rapeseed is commonly known as approximately 40 percent oil, com­ ten-fold between 1985 and 1992, canola, and the term in many cases pared with soybeans' 18 percent. from 40,000 metric tons to an esti­ is used interchangeably with "ed­ Sunflowerseed, another soft oil­ mated 400,000 metric tons. Canada, ible rapeseed." In most parts of the seed, has a higher oil content of 44 one of the largest producers of can­ world, high-erudc-acid rapeseed percent. Sunflowerseed oil also is ola, accounted for an average of 85 varieties continue to be produced low in saturated . Conse­ percent of U.S. canola oil imports. for human consumption. However, quently, both canola and sunflow­ Canola is the name given to the low-erudc-acid varieties are be­ erseed oils tend to command a seed, oil, and meal derived from coming increasingly popular and price premium over other oils, es­ the rapeseed that has been have come to dominate production pecially in the United States where bred to reduce erucic acid and glu­ in Europe and Canada. they occupy niche markets due to cosinolates-elements that present In January 1985, the U.S. Food their perceived health benefits. potential health risks to humans and Drug Administration granted "GRAS" (generally recognized as safe) status for low-erud c-acid rapeseed oil. Prior to that time, there was no domestic U.S. rape­ Americans Consuming More Conole seed production, and food compa­ nies could not use canola oil in and Oils their products. Heightened concerns about the Oils and fats have tradition­ on Nutrition and Health urging quantity and composition of die­ ally been a major component of Americans to lower their intake tary fat intake have stimulated in­ our daily food intake, with die­ of fat-especially ­ terest in vegetables oils that are tary fat constituting an average and . Attention was low in saturated fat. While all vege­ 37 percent of Americans' total focused on the composition of table oils are cholesterol free, many calories. fats, such as polyunsaturated, vegetable oils have relatively low monounsaturated, and satu­ Fats and oils are usually di­ levels of saturated fats, compared rated. vided into animal and vegetable with palm oil which contains 51 fats. Consumption of animal These concerns created a fer­ percent (fig. 2). fats-such as , , and environment for the indus­ edible -has remained sta­ try to aggressively market ble. Vegetable oils, low in satu­ vegetable oils, such as canola Palm Oil Trade Up, rated fats, are capturing a rising and , to meet some of Despite Health Concerns percentage of our total fats and the nutritional concerns. Canola, Health concerns about the high oils intake. Health officials en­ , sunflower, com, ol­ level of saturated fat have caused courage Americans to eat less ive, and soybean oil all contain the United States to reduce imports saturated animal fats and choles­ far less than palm oil's over 51- of palm oil. Allegations that tropi­ terol. Vegetable oils accounted percent saturated fat content. cal oils (such as palm) are detrimen­ for 86 percent of the 14 million Consumption of canola oil in tal to health resulted in numerous pounds of fats and oils con­ the United States grew more U.S. food companies replacing sumed by Americans in market­ than 200 percent between 1987 tropical oils in their products. U.S. ing year 1991/92. Soybean oil, and 1991, while that of olive oil imports of palm oil dropped from com oil, and ac­ grew by more than 300 percent a high of 277,000 tons in 1985 to an counted for 82.5 percent of total between 1980 and 1991. Despite estimated 105,000 tons in 1992/93. domestic vegetable oil supplies. tremendous growth, however, The EC continues to be the major Since the early 1960's, nutri­ these oils still account for less importer of palm oil. tionists have raised concerns than 6 percent of U.S. vegetable However, developing countries about the quantity and composi­ oil consumption. are hampered by foreign exchange tion of Americans' dietary fat in­ - For more information, con­ constraints and thus continue to take. These were reinforced by tact George Douvelis, (202) 219- buy palm oil, which is less expen­ the 1988 Surgeon General's Report 0840. sive. Consequently, palm oil's mar­ ket share has expanded from 26

Food Review 28 Food Consumption

Figure 2 challenge competitors who subsi­ Rapeseed Oil-Known as Conole-Has the Lowest Saturated Fats dize their exports. These programs of All Vegetable Oils include the Export Enhancement Rapeseed oil Cottonseed oil Program (EEP), which provides bo­ I 21 , 19 , nuses to U.S. exporters to help Safflower oil Lard them sell U.S. vegetable oil at com­ petitive prices on the world mar­ u m 78 I 41 47 •ti Pcilmoil ket. Similarly, the Cottonseed and Sunflowerseed Oil Assistance Pro­ m llBIII 69 I s1 39 ii•• tallow grams (COAP and ) stimu­ late exports of U.S. cottonseed and m 11111Ba 62 I 52 44 El Olive oil sunflowerseed oil in designated countries. U.S. vegetable oil ex­ I 14 I 77 I 66 30 El Soybean oil ports are also promoted through guarantee, food aid, and IWI 111116a 62 - I 86 f 12 12 oil market development programs (in­ cluding the Foreign Market Devel­ I 1a I 48 92 !61 2 opment Program and the Market Percent' of total fatty acids Promotion Program). Saturated I Monounsaturated Supported by these programs,

Source: USDA 's Human Nutrition Information Service, Agricultural Handbook No. 8-4. U.S. vegetable oil exports are on the rise again. Government-as­ sisted accounted for a high of 87 percent of total vegetable oil ex­ percent of total world vegetable oil because of its lower price and ports in marketing year 1987 /88. unique technical characteristics. exports in 1975 to over 40 percent Large outlays for these marketing in 1992/93 (fig. 1). Palm oil can withstand high heat programs, combined with rela­ without smoking and resists oxida­ With much of the growth in tively high prices for competing vegetable oil consumption occur­ tion (which contributes to a longer oils, buoyed exports of U.S. vegeta­ ring in developing countries (fig. shelf-life with no change in color or ble oils in 1991/92 and 1992/93. 3), palm oil will likely continue to odor). expand its market share in the Malaysia and Indonesia pro­ 1990's. duce about 85 percent of world However, palm oil is derived supplies of palm oil and account for the bulk of the global exports. from oil palm trees, whose slow Figure 3 maturation constrains rapid expan­ Both are aggressively marketing palm oil through long-term credit Asia Dominates Growth sion in production-unlike other in Vegetable Oil Consumption oilseeds, which are planted and deals and joint ventures with cus­ harvested annually. Palm trees ma­ tomers, such as palm oil refineries ture and bear fruit in about 5 years. overseas to encourage purchases of World crude palm oil. Over the next 30-35 years, the trees Newly i------. yield palm oil from the flesh of the industrialized palm fruit (the seed from the same The United States countries t:======::------' fruit prcxluces another type of oil­ Developing Promotes Vegetable countries palm kernel). Oil Exports United Palm oil is used in a variety of States prepared , such as vegetable Expanding oilseed production , -oil blends, fro­ in South America, the EC, , Pakistan zen desserts, , and cof­ India, Malaysia, and Indonesia in­ creased competition for U.S oil­ fee whiteners. It also has nonedible China applications, mainly soap and oleo­ seeds and oilseed products in the 1980'5. As a result, U.S. vegetable chemicals (chemical compounds 0 6 12 oil exports began to fall, prompting used for industrial purposes). Annual average growth rate1 While palm oil contains a much the U.S. Government to launch a higher level of saturated fat than variety of programs in the mid- Note: Newly industrialized countries are Taiwan, 1980' s to promote U.S. exports and South Korea, Hong Kong, and Singapore. do other oils, it is often preferred 11975 to 1993.

May -1,ust 1993 Food Consumption

Food Processing Figure 4 Per Capita Consumption of Vegetable Oils Indicates Room for Growth in China Industries Expand Global Demand Pounds per capita 70 The United States and the EC - Marketing years continue to be the largest consum­ 0 1974-761 ers of vegetable oils, accounting for - D 1979-81 1 approximately one-third of world - 0 1985 consumption. However, growth in - 0 1992 demand is strongest in the newly 35 -- industrialized countries in East - - Asia and in developing countries, - - such as China, India, and Pakistan - (fig. 3). Developing countries are - - - consuming more vegetable oils be­ cause of rapid growth in popula­ 0 ,.._....,.___...___..__...... ___..__..___..._ ...... _.___..._ ...... __..___...... ___..___..__..,.__ r II inn nn1 tion and income. As incomes World United States Japan China India increase, preferences shift toward more processed foods and more 'Average. food prepared away from home. Vegetable oils are an important ingredient in processed foods and ble oil imports-led by palm oil for inputs) should trigger increas­ food prepared in estab­ from Malaysia-have soared from ing demand for vegetable oils. lishments. Growth of food process­ 114,000 tons in 1980 to a forecast Interest abounds in investing in ing industries in developing 1.4 million tons in 1993/94. food processing industries in the countries is anticipated to strength­ Chinese consumption of vegeta­ newly industrializing countries of en demand for vegetable oils. ble oils, estimated in 1992/93 at Asia and elsewhere. Such invest­ While lower priced palm oil will 11.2 pounds per capita, has ex­ ment provides opportunities for supply much of the higher demand panded dramatically since the mid- greater vegetable oil trade, as food in the short term, escalating health 1970's due to growth in population processing industries expand and concerns about saturated fats may and per capita income. However, require more vegetable oil inputs. constrain long-term demand and China's per capita consumption is strengthen demand for other types, still substantially below the world References such as soybean, canola, and sun­ level of 23.9 pounds per year, and flowerseed oils. far below the U.S. level of 65.8 McCormick, I., and R. Hoskins. Future increases in demand for pounds (fig. 4). Given China's low "Canola: Prospects for an Emerg­ vegetable oils may depend heavily per capita consumption of vegeta­ ing Market," Oil Crops Situation and on what happens in China- the ble oil compared with that in devel­ Outlook Report, OCS-31. USDA, Eco­ world's second largest vegetable oped countries, there is consider­ nomic Research Service, Oct. 1991. oil importer. Until 1985, China was able potential for increased con­ McCormick, I., and B. Hyberg. self-sufficient in vegetable oil pro­ sumption of oils. 'What's in the Future for Canola?" duction. Since 1986, however, con­ China's Government is promot­ Agricultural Outlook, AO-188. sumption has substantially ing food processing industries USDA, Economic Research Service, outpaced production, and vegeta- (which produce, for example, in­ Aug.1992. • stant noodles, crackers, cookies, and traditional Chinese pastries) in rural inland areas close to major crop growing areas in an effort to increase rural industrial develop­ ment. The growing food process­ ing sector, stimulated by market reforms and increased liberaliza­ tion of imports (which lower prices

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