Palm oil in China: Consumption growth expected in food sector as government moves to phase out GM soybean oil

By Pearly Neo

- Last updated on GMT

Palm oil demand and consumption in the Chinese food sector is expected to see significant growth next year. ©Getty Images
Palm oil demand and consumption in the Chinese food sector is expected to see significant growth next year. ©Getty Images

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Palm oil demand and consumption in the Chinese food sector is expected to see significant growth next year as the government clamps down on the use of genetically modified (GM) products which are especially common in the soybean area.

Data from the Malaysian Palm Oil Council (MPOC) has revealed that China imported an additional 438,747 MT of palm oil from Malaysia to reach 1.85mn MT in total between January to August 2020, representing a rise of 31.1%.

According to experts, one of the main drivers here is an estimated rise in demand for palm oil within China’s food sector.

‘China’s consumption of palm oil is expected to rise by around 3.5% next year, and within this the food sector is going to be a major contributor,”​ Beijing Heyirong Group and commodities trade expert Zhou Shiyong told the audience at an MPOC webinar on the palm oil market in China.

“One of the reasons for this is that the Chinese government is looking to move away from GMO oil products as a strategy, and so the food industry is likely to replay soybean oil with palm oil when manufacturing food products more and more moving forward.”

One of the likely reasons for this shift away from GM soybean oil is consumer-driven – research from the Beijing Institute of Technology found that on average 59% of the Chinese population (consumers, media, farmers, government officials) opposes GM foods. Within this 61% of Chinese consumers oppose GM oil when they are aware it is genetically modified (indicated on label).

China imports over 70 million tons of soybeans, of which over 90% are GMO. The researchers also found that on average 64% of the population and 65% of consumers are actually not aware that foods bought or consumed could contain GM ingredients.

In addition to this, Zhou also highlighted that consumers have been buying more palm oil as they stay at home due to COVID-19 and cook at home more​, and as the local foodservice industry recovers, palm oil is also especially attractive as an oil option due to its lower cost.

“Consumers in China have been increasing their purchase and consumption of cooking oil especially during the COVID-19 pandemic where many stay home and there has been an increase in home cooking. There was a bit of a drop from January to March, but this recovered and grew from April to September so we expect to see growth looking forward to 2021,”​ he said.

“We also believe that foodservice will see good recovery in the next few months, and as this happens and they need more oil, the price of palm oil makes it hard to replace with any other types of vegetable oil​.

“In addition, the hotpot industry which is largest in Szechuan and West China is also already moving to use palm oil products and dishes to replace animal-based oils due to perceived health benefits, and lard production dropped by several hundred tons in the Chinese market [due to African Swine Fever], so there has been less supply from this end and an opportunity for palm oil to move in too.”

Supply having trouble keeping up

Despite this, trouble may actually be lying in wait on the supply end, according to MPOC Shanghai representative Desmond Ng.

“Palm oil output is estimated to drop 1.8% in 2020, where Indonesian production should see a 2.7% drop year-on-year and Malaysia a 1.6% drop,”​ he said.

“COVID-19 had minimal impact on production, but the real challenge has been a drop in harvest area growth especially with Malaysia placing more emphasis on conservation issues, as well as dryness, ageing trees, labour and other issues.”

He predicted stagnant or negligible growth for palm oil production from 2021 and onwards due to these issues, unless research and development can be done to overcome these challenges.

“In Malaysia, there isn’t much more area to expand planting so the only way forward will be to increase yield per unit. Indonesia is also restricting available land, so in the future, we may see the same situation there too,”​ said Ng.

“We also need to replant ageing palm trees in both countries – 30% of trees in Malaysia are old or ageing, as is 24% in Indonesia, and together this represents some 5.2 million aged or ageing trees, so replantation is necessary to increase production.

“There are issues here though – replanting in 1.8% of area per year for Malaysia would cut output by 1.1 million MT, and replanting in 1.0% area for Indonesia would cut output by 2.0 to 2.5 million MT, so that is a serious loss of output in the mid to short term.

“It’s why I do expect the palm oil output to be significantly impacted from 2021, unless we find a way to resolve these challenges.”

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