1 Background and key issues in the oilseeds sector.
2 Latest developments in the oilseeds sector and implications for ACP co...
2.1 The international oilseeds market.
2.2 European market trends.
2.3 Situation of ACP countries on the European market.
2.4 Biofuels and the regional market: issues facing ACP countries.
2.4.1 Biofuels in ACP countries.
2.4.2 Promoting regional oil procurement.
About this update
CTA’s Executive brief: Oilseeds, trade issues for ACP countries was published in December 2008 and in CTA’s Agritrade: ACP–EU Trade Issues (2009 Compendium). This update consists of:
1. Background and key issues: briefly summarising the original executive brief, and where necessary, updating developments related to key issues;
2. Latest developments and implications for the ACP: reviewing developments that have taken place since the publication of the original executive brief; examining the implications of recent developments for the ACP countries concerned.
The original executive brief (2008) is available on request from: email@example.com
1 Background and key issues in the oilseeds sector
Oleaginous crops are plants whose fruits or seeds contain a high proportion of oil. The seeds containing oil (such as soybean, rape and sunflower) are also rich in protein. Accordingly, they are widely used as animal feed (especially in Europe with, in particular, since the 1960s, the introduction of oilcake made from oilseeds). On the other hand, oil palm is cultivated above all for the edible oils which are extracted from the pulp of its fruit (palm oil) and its kernel (palm kernel oil). One hectare of oil palm produces between 2 and 7 tonnes of oil a year, compared with 1 tonne for rape or sunflowers grown in a temperate climate. This makes it one of the cheapest oils to produce. 80% of world production is generated by industrial plantations (2,500 to 10,000 ha per unit). The larger part of this oil production (palm and palm kernel oils) is used for human consumption (margarines, basic vegetable fats and food oils), but it is also increasingly used for energy purposes (biodiesel). Its low production costs give it an advantage over other oils (rapeseed and soybean) which can be transformed into biofuels.
Over the last 50 years, the EU has been a major importer of oilseed products. Until the 1990s, this dependency was satisfied almost exclusively by imports from the USA. However, with the emergence of Brazil and Argentina as major soybean producers, European countries now tend to diversify their sourcing in order to ensure their independence in animal proteins. It is worth noting that oilseeds and oils enter the Community market freely, irrespective of their origin. The ACP countries do not benefit from any trade preferences.
The EU27 countries produce approximately a quarter of their consumption of protein-rich products, composed mainly of oilseeds. This percentage has declined in recent years: it has fallen from 33% in 1999/2000 to 26% in 2004/2005, following the ban on the use of flours of animal origin in animal feed, decided in 2000.
The European crushing industry therefore transforms oilseeds into oil, intended for human or industrial use, and into oilcake for animal feed. Up to 2005, the oils produced by crushing (above all soybean, but also rape and sunflower) were exported because there were no outlets on the Community market. The ACP countries figured prominently among these export destinations and the oils imported were often substituted for oils produced locally at a higher cost.
Following the 2003 CAP reform the production of oilseeds in the EU has been supported via the single-payment system which consists of financial aids which are to a large extent decoupled from production levels. Although several studies predicted a decline in European production under the new system, production levels have been more influenced by recent price rises.
In the ACP countries, the main oil producers are in west Africa (Nigeria and Côte d’Ivoire for palm oil and Senegal for groundnut oil) and Papua New Guinea. But these producers have to compete on the European market, which was traditionally their main outlet, and on their own markets, with low-cost palm-oil imports from south-east Asia. Papua New Guinea is the only ACP country which has succeeded in maintaining its place among the main suppliers of palm oil to the EU. Although west African countries were leaders on the palm-oil market in the 1950s and 1960s they are now almost totally absent from the market.
Oleaginous plants and cereals were the crops that were the most affected by the price rises in 2007 and 2008. The price of palm oil grew rapidly from the beginning of the first quarter of 2006 and increased on an almost continuous basis up to March 2008 (on a basis of 100 in 2006, its price was then 275). The weakness of stocks was highlighted as being responsible for the overall increase in prices, but as regards oleaginous plants, the impact of the increased demand for biofuels in line with the oil price increases was also an important factor.
2 Latest developments in the oilseeds sector and implications for the ACP
2.1 The international oilseeds market
During the 2008/2009 season, the four main soybean-producing countries were the USA (80 million tonnes), Brazil (57 million tonnes), Argentina (32 million tonnes), then China (15.5 million tonnes). Together these four countries represent almost 90% of world production. European production is negligible with less than 1% of the world total.
After the decline in American soybean production in 2007 (as a result of competition from maize for the use of land), production trended upwards again during the 2008/2009 season, driven in particular by the record prices on world markets at the beginning of the season.
The main producers of sunflower seeds are Russia (7.3 million tonnes), followed by the EU (6.9 million tonnes), Ukraine (6.3 million tonnes) and Argentina (2.9 million tonnes). Except for Russia, production levels in these countries had stagnated, if not declined since the beginning of the decade. However, the 2008/2009 season has seen a sharp trend with an increase of more than 40% in world production of sunflower seeds, boosted by record price levels at the beginning of 2008 (up to US$900 a tonne compared with a price of US$300 a tonne in 2006).
The main rapeseed producers are the EU (19 million tonnes) which accounts for 34% of world production, Canada (11.2 million tonnes), China (12.4 million tonnes) and India (5.6 million tonnes) (source: FAOSTAT).
Indonesia (85 million tonnes) and Malaysia (83 million tonnes) represent approximately 80% of world production of palm fruit. Since 2007, Indonesia has become the world’s leading producer, ahead of Malaysia which had held that position for several years. These two countries are followed a very long way behind by Nigeria (8.3 million tonnes), Thailand (7.8 million tonnes), Colombia (3.2 million tonnes), Ghana (2 million tonnes), Papua New Guinea (1.4 million tonnes) and the Ivory Coast (1.2 million tonnes). This fruit is then used to produce palm oil which is the most consumed oil in the world. Unlike soyoil, palm oil is directly made in the countries where the fruit is harvested.
Table 1: Main oilseed-producing countries, 2008-2009 in millions of tonnes
|Soybean||Sunflower seeds||Rapeseed||Palm fruit|
Source: USDA, FAOSTAT
The main oilseed consumer countries are, at the current time, the EU, the USA, China and Brazil (see Table 2 for soybean which reflects these trends).
The USA and Brazil obtain their supplies on their own markets, whereas the EU and China consume far more than they produce.
World consumption of the main oilseeds (soybean, rapeseed and sunflower seeds) for human and animal food is expected to increase in the coming years mainly as a result of the increased demand for meat and, therefore, the increase in fodder needs in Northern and Southern exporting countries. It also reflects the increased demand in developing countries for edible oils as well as for oils transformed into biofuels.
Table 2: World soybean consumption in 2009
|Millions of tonnes (Mt)||Soybeans||Soybean cake||Soyoil|
Source: USDA (2010)
The bulk of soybean consumption takes place after conversion into oilcake and oil. The consumption of seeds is therefore not necessarily linked to an end use of the product on the territory in question since oilcake and oil can be exported.
During the last two seasons, world production of oils and fats has not matched the level of demand, leading to a fall in reserves (See FAO, Food Outlook, December 2009). During the 2009/2010 season, production is expected to be slightly higher than demand, which should allow stocks to recover slightly.
With more than 40% of production sold on world markets, oilseeds and oils are among the most frequently traded products, far ahead of cereals (see table below).
Table 3: Quantities of seeds, oilcake and oils of the main oleaginous crops traded in the world in 2009 (million tonnes)
|Soya||76 (36%)||51 (33%)||9 (25%)|
|Rape||12 (20%)||3.5 (40%)||2.3 (9%)|
|Sunflower||2 (0.5%)||4 (32%)||4 (36%)|
|Groundnut||2 (0.5%)||-||0.16 (3%)|
|Palm||-||4 (62%)||34 (80%)|
The percentages in brackets indicate the share of production which is traded on international markets.
Trade in seeds and oilcake is dominated by soya
Soya is by far the main oleaginous crop traded on the world market with 127 million tonnes of soybeans and soybean cake. Trade in rape, the second most heavily traded oleaginous plant, is one-eighth of the trade in soya.
Three soybean-exporting countries together account for 90% of world soybean exports. In 2009, the USA was again the leading exporter of soybeans with 35 million tonnes, ahead of Brazil (30 million tonnes) and Argentina (5.5 million tonnes) whose exports have fallen by 60% in comparison with the previous season because of a drought. Trade in soybean cake was also dominated by these three countries in 2007, with Argentina in first place (24 million tonnes) ahead of Brazil (13 million tonnes) and the USA (7 million tonnes).
China imported more than half of the soybean seeds traded in the world in 2009 with 41 million tonnes (a 40% increase in imports over 2 years), and the EU imported 13 million tonnes. As regards oilcake, the EU is the only major trading partner with 21 million tonnes imported in 2009.
Palm oil dominates trade in oils
As regards oils, palm oil is the most traded oil on the world market, with 34 million tonnes in 2009. The other oils are traded in far lower volumes (see table). The main importers of oil are India and China, where demand is growing, in particular for food purposes.
World trade in palm oil has grown rapidly over the last ten years and the quantities of palm oil traded have tripled, from 11 million tonnes in 1998 to 34 million tonnes in 2009. At the same time, oil production has increased, from 20 million tonnes in 1998 to 42 million tonnes in 2009. The continuing domination of Indonesia and Malaysia as the main producers and exporters is noteworthy; they have accounted for 90% of production over the last 10 years. Nevertheless, some analysts expect this domination to decline due to a lack of new land available to increase production. For investors, countries in Equatorial Africa could rapidly offer new growth possibilities for oil palm cultivation. (Labey, A., ‘Socio-économie des oléagineux en Afrique’, OCL, Vol. 16 No. 4, July-December 2009. http://www.john-libbey-eurotext.fr/fr/revues/agro_biotech/ocl/e-docs/00/04/52/3D/article.phtml)
The place of palm oil in world trade in oils can be explained by the fact that it is cheaper than the other oils (see table 4 and the graph below).
Table 4: Average annual price of the main oils
|Average annual prices in $/tonne|
|Fats and oils||2003||2004||2005||2006||2007||2008||2009|
The changes in palm-oil prices since 2007 clearly illustrate the surge in demand for commodities, then the sudden downturn in markets in the second half of 2008. Despite the world economic crisis, demand remained high during 2009 which helped the market to recover.
2.2 European market trends
The Community system allows all raw and unprocessed oilseeds to enter the EU duty-free irrespective of their origin. Therefore ACP countries do not benefit from any trade preferences for these products.
The EU is a net importer of all oilseed products (raw and processed). This dependency on imports has increased during the 2000s due to various biofuel-support measures. Rapeseed oil, which was previously exported (in particular to the ACP countries), has found a profitable outlet within the EU and the EU has even become an importer to meet biofuel demand.
Table 5: Production, consumption and trade balance of oleaginous crops in the EU, 2009 (million tonnes)
* Soybean cake is produced from imported soybeans.
Sources: COMEXT, USDA
A new trend has emerged in recent years in Latin American countries producing soybeans. They are increasingly producing and exporting not only oils but also meat, mainly poultry at present, taking advantage of the availability and low cost of soybeans as a food for animals. These exports of oil and meat cuts and processed meat are, for the countries concerned, a more important source of added value than with oilseed and oilcake exports. There is therefore a risk that the production of meat and oils will be gradually relocated to the most competitive countries in Latin America, which will satisfy the increasing demand for these products from other developing countries. The consequences are already being felt in stock-farming regions with the recent closure of poultry-slaughtering plants in Brittany because their production costs could not compete with those of Brazil.
2.3 Situation of ACP countries on the European market
While the EU’s imports of oil products doubled between 2000 and 2009, increasing from 4.5 to 9 million tonnes, those from ACP countries remained stable at around 500 000 T.
In 2009, the EU imported 4.9 million tonnes of palm oil, up by 10% on the previous year. Although 80% of these imports come from Indonesia and Malaysia, Papua New Guinea manages to satisfy almost 10% of this demand. Imports from the ACP countries have increased continuously in recent years. It is to be emphasised that Papua New Guinea thus exports almost all its palm-oil production to Europe. It is therefore the leading ACP supplier of oil products to the EU. Between 2000 and 2008, its share increased from 48% to 80% of total supplies. With less than 20 000 tonnes of (groundnut) oil exported in 2008, Senegal comes behind Côte d’Ivoire which exported more than 30,000 tonnes of palm oil to the EU in 2008. Several Pacific islands, in particular the Solomon Islands supply coconut oil, palm oil and palm kernel.
On the other hand, imports of groundnut oil, which was for a long time one of the main agricultural products exported by Senegal (and Gambia), are losing ground, falling from 150,000 tonnes in 2000 to less than 20,000 tonnes in 2008. However, Senegal continues to have a dominant place in this trade and accounts for almost 60% of the EU’s imports (COMEXT data). In general, groundnut oil plays a very marginal role on international markets, mainly because of its high price in comparison with other oils (see Table 4).
2.4 Biofuels and the regional market: issues facing ACP countries
2.4.1 Biofuels in ACP countries
Biofuels are generally derived via two routes, from the oil-based sector (palm, rapeseed, jatropha, and castor oil) and from the alcohol-based sector (from sugar, wheat, corn, beet and sugar cane) which produces bioethanol. Only the first sector concerns us here.
The production of biodiesel is chiefly concentrated in Europe (Germany, France and Italy). World production capacity of biodiesel was estimated in 2008 at 16 billion litres, including 8.7 billion in Europe, which is small compared with the 65 billion litres of bioethanol produced in the world that year, the bulk of which was produced in the USA and Brazil (Biofuels Platform, 2009).
It is more difficult to assess the production of vegetable oil used directly as fuel, as its production and use are above all based on small-scale production units.
In order to combat the greenhouse effect, the EU has decided to increase quantities of biofuels consumed in Europe. The European Directive 2003/30/EC provides that the proportion of biofuels in European fuel consumption should rise from 2% in 2005 to 10% in 2020. This will lead to increased demand for oilseeds, even if other technologies are available and can be used to produce oil, such as the pyrolysis of biomass. As the EU’s production capacity is limited, it will have to turn increasingly to oil imports.
Because of protests against this target and the uncontrolled impact of imports, the European Parliament has decided to reduce the minimum incorporation threshold to 6% instead of 10% in 2020.
It is therefore tricky to predict how international demand for crops transformed into biofuels will evolve. Several aspects which are difficult to predict enter into the equation: the prices of oil and agricultural raw materials (which condition the relative cost of biofuels in comparison to oil-based fuels) and political support for the sector (which can substantially reduce the production costs of biofuels via tax breaks).
Nevertheless, investors continue to believe in the profitability of biofuels as can be seen from the massive purchases of land to be used for that purpose. (Grain, Main basse sur les terres agricoles en pleine crise alimentaire et financière, October 2008).
As regards palm oil, the dynamism of international markets over the past twenty years has mainly benefited producer countries in South-East Asia. Faced with the gradual stagnation of the expansion of plantations in that region, humid tropical Africa could become a new El Dorado for palm-oil production. Major initiatives have already been launched by the sector’s giants with for example the partnership between two powerful Singapore-based industrial groups (Olam and Wilmar) and a Côte d’Ivoire holding company, Sifca, which has African interests in the rubber and palm-olive sectors. This joint-venture intends to invest massively in the production and transformation of palm oil in the Ivory Coast and neighbouring countries. In Liberia, the Indonesian palm oil giant Golden Agri-Resources is planning to invest US$ 1.6 billion in oil palm plantations and refineries. There are numerous reports in the press on negotiations between major Asian and European industrial groups and the governments of various African countries (such as Liberia, the Congo, Cameroon and the DRC) concerning massive investment in oil production.
Investors are also interested in jatropha, a plant which is resistant to semi-arid conditions and whose oil is intended exclusively for non-food use. Competition between jatropha plantations and food production for access to the best agricultural land calls into question the relevance of developing the cultivation of jatropha in areas affected by chronic food insecurity (like the Sahel).
Despite well-known environmental and social risks relating to such plantations, the economic interests seem to be gaining the upper hand. In addition, a transition to industrial plantations would profoundly change the African palm-oil landscape, previously dominated by small plantations inserted in the fabric of family-run mixed farms.
2.4.2 Promoting regional oil procurement
The Common External Tariff (CET) of the various regions which are negotiating EPAs with the EU should therefore be sufficiently high to protect the oil production of ACP countries against cheap products from other developing countries. In west Africa, where the CET of the ECOWAS is currently being finalised, it has been decided to create a fifth band so as to increase the maximum CET level to 35% at the level of the UEMOA (Alpha A. et al.). In the UEMOA countries imported oils are generally taxed at 10% or 20% depending on whether they are crude or refined oils. In the ECOWAS zone, a country such as Nigeria, a major producer of palm oil, prohibits palm-oil imports. Products subject to this fifth band should be those considered as needing to be protected in order, in particular, to stimulate local production. Imported vegetable oils could fall within this category so as to promote the development of local oils to satisfy consumption needs at national and regional levels.
Discussions on the protection of local oils in the framework of customs-union processes and EPAs are linked to discussions at WTO level on special products. It is once again a question of protecting products deemed to be strategic, for reasons of food security, combating poverty and rural development. Local oils in the ACP countries generally satisfy these criteria and should quite logically be designated as special products by each of the ACP member countries of the WTO.
In the absence of support measures for existing oilseed sectors which are based mainly on family-run farms, there is also a risk that the development of the production of oils in Africa for local consumption will be based on the development of large plantations supported by foreign investors.