Oilmeals

Production

Annual growth in oilmeal production is projected to average 2.3 percent annually over the decade to 2010, down from 4.0 percent in the previous decade. Soymeal dominates the meal market, and its share of production is projected to rise from 64 percent in the base period, to 66 percent by 2010; the shares of all other meals, except for rapemeal and fishmeal are projected to decline.

Regionally, oilmeal production in low-cost developing countries is projected to account for most of the increase, growing annually on average by 3.2 percent over the decade to 2010. Of the total oilmeal production increase of 23 million tonnes, 17 million tonnes will come from developing countries. Such growth is led by Brazil and Argentina, whose production may increase annually by 3.9 percent and 4.5 percent, respectively. Their total increase is projected to be 11.6 million tonnes or almost half of the increase in world production during the period. By contrast, oilmeal production in developed countries is projected to advance only 1.3 percent annually, significantly down from an annual growth rate of over 4 percent in the previous decade. This slow growth in the developed countries is due particularly to the EU (0.4 percent annual growth) policy changes inherent in the policy reform of Agenda 2000.

The production of oilmeals shows a yet more concentrated production profile than oils and fats, largely due to the dominance of the United States, Brazil and Argentina in soybeans. Nine countries (three developed and six developing) supply over 86 percent of world production. This concentration is set to remain fairly constant during the projection period, as increases in production shares of some countries are offset by a decline in others. For example, the production share of the United States is projected to fall from 34 percent to 30 percent.

Demand

The demand picture for oilmeals is critically driven by their use as feed to livestock production (meats and dairy). As more fully discussed in Section 2.2, the medium-term prospects for livestock production are also among the most robust of the agricultural commodity sectors, with growth in global meat production and dairy production growing at a rate of 2.2 percent annually. Notably, the increase in livestock production is much stronger in developing countries, and particularly where incomes are growing more quickly. Critical factors in this case are the composition of livestock production, and changes in feed efficiency that are expected to occur over the period. Hence, the projection for global oilmeal consumption to rise 2.4 percent annually over the decade to 2010 comprises a projected annual increase in developing countries of 3.0 percent, and in developed countries of 1.6 percent. While the growth rates in developing countries are from a very low base level, the quantum increase is still significant. For example, Southeast Asia will account for 7 million tonnes of the total projected increase of some 22.5 million tonnes from the base period to 2010.

A major factor affecting the demand for oilmeals in recent years has been regulations banning the use of feeds derived from animals, specifically meat and bonemeal (MBM) feed. In the EU, following the BSE crisis, all feeding of MBM feed was banned, resulting in a sizeable increase in demand for oilmeals. Such regulations have also been established in most other jurisdictions. This effect on demand is expected to be sustained over the projection period. However, a further effect may be anticipated if certain jurisdictions extend the ban to all animal-sourced feeds, such as in North America where only ruminant-to- ruminant meat-and-bone meal (MBM) feeds have been banned to date.

Trade

Global exports in oilmeals are projected to grow by 12.4 million tonnes or by one-third over the projection period. This growth is almost fully accounted for by developing countries, with 10.5 million tonnes. Brazil and Argentina are set to contribute the largest share, with a 9.4 million tonne increase. Growth in exports by the developed countries is projected to be low, at only 1.5 million tonnes. This is mostly due to the United States, which is anticipated to remain, on average, the largest exporter, marginally ahead of both Brazil and Argentina. These three producers are expected to account for 78 percent of global exports by 2010, compared to 74 percent in the base period.

Out of the total increase in global imports, and following the demand picture outlined, Southeast Asia is projected to increase imports by 4.4 million tonnes and the Near East by almost 1 million tonnes. The EU will remain the world’s largest importer of oilmeals, where imports are projected to increase by 3.2 million tonnes. However, the EU’s share of imports may decline from 41 percent to 38 percent by the end of the projection period.

Prices

The long-term trend decline in real soybean meal prices^[9] in international markets has been 1.9 percent per year. Such a decline results from increased productivity growth in the oilseeds complex. The decline in real oilmeal prices is less than that for oils and fats. This is generally explained by large increases of palm oil supplies putting downward pressure on the prices of oils relative to meals. Over the projection period, real meal prices are expected to remain stable after increasing modestly from lower levels early in the projection period, but remaining somewhat under their long-term trend level. A modestly strong growth in livestock production should help to underpin prices.

Issues and uncertainties

The importance of the oilcrops sector to the world agricultural and food economy is likely to continue to grow in the current decade. Increasing country concentration of production and exports is an important issue for both the oils and fats and the oilmeals sector. On the consumption side, growth in oils and fats, and growth in oilmeals through meat consumption will add considerably to the supply of energy and protein in consumer diets, with the potential to help address food security concerns.

Three key critical factors out of several affecting the actual evolution of the sector are worthy of further elaboration: macroeconomic uncertainty, the evolution of market acceptance and technologies surrounding GMOs, and policy changes in important markets.

In recent years, macro-economic developments in the form of the depreciation of real exchange rates, particularly in Brazil and Argentina during their currency crises of recent years, have formed the basis of increased competitiveness and growth in production and trade. Much the same argument holds for the depreciation of real exchange rates in Malaysia and Indonesia during the financial crisis of the late 1990s that has affected their competitiveness in supplying palm oil. As these are key supplying regions, their output is expected to increase considerably over the medium term. Further macroeconomic instability could alter their supply potential. If the expansion in production in either of these regions is not realized, markets and trade will be considerably affected.

With respect to GMO products, the potential for increased market segmentation is high, with the result being dual markets for both oilseed oils and oilseed meals. On the demand side, as many countries adopt regulations limiting production and imports of GMO products, markets may be disrupted, particularly for those exporting GMO products. Considerable impact on prices could be experienced. To the extent that supplying countries can provide identity preservation of GMO-free production, such disruptions will be minimized. However, provision of such schemes is costly and dependent on stable price premiums. Available estimates of the price premiums for GMO-free products have neither shown consistency nor stability.

Policy change in international agriculture is ongoing. Domestic and trade policy measures in the oilcrop sector are thought to have relatively smaller impact on markets and trade than for other sectors, but they may nevertheless be significant. The most important policies are those of the United States and the EU, where recent policy changes have been undertaken. A study of the impact of the 2002 US Farm Act indicates that compared to previous legislation, only a very marginal decline in soybean production can be anticipated, with little impact on domestic and world prices.^[10] In the EU, analysis of proposals under the Mid-Term Review of the Common Agricultural Policy indicate potential declines in oilseed area of between 3 and 9 percent, as a result of changes in set-asides, direct payments and intervention prices for the different crops.^[11] Such a decline in production in the EU would lead to changes in trade and increased international prices for both oilmeals and oils. Actual policy decisions taken in July 2003, however, might indicate a somewhat lower impact. The enlargement of the EU to 25 members is expected to lead to a modest expansion in oilseed area, production and utilization. Therefore, in sum, it is anticipated that while these policy changes may be important, their effects on world markets are likely to be relatively minor.

New policy interventions, particularly in the area of bio-fuel production and use, may increasingly affect markets. Recent United States and EU policy changes, for example, have included provisions for the expansion of bio-fuel production. Other countries have also implemented such programmes. One study has outlined potential significant impacts of such policies in OECD countries, whereby increasing the bio-fuel content of transportation fuel could significantly increase crop prices and alter trade patterns.^[12] The estimates underscore the important issue of the growing non-food uses of oilcrops, which will increasingly affect market outcomes.

Table 2.15. Oilmeals: production and consumption projections