Study On Vegetable Oil Industry Development In China

Vegetable oil is one of the most important daily necessities for Chinese, whose changes in quantity and quality can, to some extent, reflect the level of social and economic development. China used to be a traditional producer of vegetable oils. Domestic demand and supply had been balanced for a long period of time after the establishment of New China. But since mid-1990s, especially in the 21st century, with the rapid development of China's economy and rising incomes and consumption, people have increased their needs for high-quality food products, including edible oils, which therefore have stimulated the development of vegetable oil industry. However, in the meanwhile, supply of domestic edible oils is unable to meet growing consumption, which has also spurred imports. Since the late 90s of last century, China has become a net importer of oils and fats (including oils crushed from imported oilseeds).The rapid growth of imports has played an important role in covering domestic deficit, particularly given serious shortage of arable land and water resources which have limited China's own agriculture production. Imports of farm products, in other words, mean we have brought in land and water resources. However, what we can't ignore is the impact of imports on China's own production and its relevant industry. First, imports have affected China's own production of oilseeds. With import volumes bigger and bigger every year since 2000, China's own acreage under three major oilseeds have started to decrease. During 2001 to 2005, the acreage maintained at about 31 million hectares, but from 2006 to 2007, the acreage had decreased sharply due to lower returns. Secondly, foreign companies have expanded their processing capacities rapidly and have monopolized the market. Attracted by huge demand in China, international grain giants, such as the Singapore-based Wilmar International (Yihai Kerry), U.S-based Bunge and Cargill and French firm, Louis Dreyfus, have set up their plants in China. These companies, by taking advantage of their global distribution and diversified business, have set up industry chains from production, purchases to logistics not only in major exporting countries, but also chains of processing, logistics and marketing in China. Data from the National Grain and Oils Information Center showed, by end-2009, foreign-funded plants owned 37.7% of China's soy processing capacity, with actual operating capacity close to 50%, which enjoy a dominant position in the industry. Thirdly, China is more and more relying on imports. With domestic oilseeds output declining, imports of edible oils and oilseeds have increased rapidly. China's edible oils imports rose to 9.65 million tons in 2010, up 368.4 percent from 2.06 million tons in 2000, with an average growth of 16.7 percent a year over the past decade. During the same period, soybean imports rose to 54 million tons from 13 million tons, a rise of 315.4 percent or an annual average growth of 15.3 percent. China's reliance over imports has increased to 66 percent in 2010 from 38% in 2000. Studies by some institutions and experts showed that China's own supply of edible oils currently could not safely meet its demand. Based on current status of domestic processing industry and its geographic locations of some major players, coupled with China's future consumption patterns, the paper offers solutions to China's vegetable oil market development, which will be elaborated in five parts.Partâ… This part briefs domestic and international oils and oilseeds markets. China is a major producer and consumer of edible oils and oilseeds. Over past decades, domestic oilseeds crushing industry has made significant progress, which has increased edible oil supplies, with more varieties of products offered to the market. Domestic oil reserves have also seen constant increase. But during this process of de velopment, a series of problems also occur, some outstanding issues regard to long-term shortages of oil supply due to rigid domestic consumption growth; efficient capacity out of excessive overall crushing capacity and higher market share by foreign companies as compared with relative low market share of China's own companies. All these issues will be discussed in this section. Meanwhile, a comprehensive analysis is provided on current status of domestic oil processing industry and trends of development.China, over a longer period of time, has to rely over imports. A good understanding of supply and demand situation globally is also necessary. This section will discuss issues in relation to current global production, consumption and trade of major oil products, including soy oil, palm oil and rapeseed oil. Palm oil has replaced soy oil and becomes the world's most important edible oil in terms of consumption and traded product.Partâ…¡This part focuses on some key crushers. Over past years, a majority of market share goes to foreign-funded crushers. This session will look into geographic locations of some of these major players. A proposal is made on the potential development of domestic-funded firms and restructuring of these plants so to make their brands known to the market. Expansion of more sources of raw materials and strategy to invest abroad will also be discussed in the session.Partâ…¢The session covers locations of some key players as well as consumptions and existing problems and potential development regarding to productions of soy oil, rapeseed oil, palm oil and other edible oils. Soyoil, rapeseed oil and palm oil would be the main sources of cooking oil for domestic market for some time in future while edible oils extracted from rice bran, corn and other raw materials shall be fully utilized to increase domestic production to reduce import needs.Partâ…£Model analysis has been applied in the study of total-factor productivity (TFP) in China's soybean and rapeseed production. China's farm-aided policies, which fail to follow the pace of demand growth, offer no significant inputs in total-factor productivity of soybean and rapeseed production over last 30 years. Given China's escalating resources constrain, no major inputs are foreseen in total-factor production. Imports would become a"must"choice for China in covering its deficit. Partâ…¤The last part is on policy recommendations. Based on the studies, policies are recommended regarding to how to develop China's own oil crops, how to raise self-sufficiency, how to control market via import and export mechanism as well as supply security. Policy support shall be offered to Chinese companies investing overseas to make full use of resources overseas; Suggestions as how to improve state reserve system and government regulatory capabilities and how to guide foreign investment in the industry and how the industry would develop at a healthy environment are also proposed.