US transfats demise

Palm oil sits about mid-point in fatty acid composition; it is semi-solid or half solid and half liquid. 1 in 6 food products it but Dr Kalyana Sundram of the Malaysia Palm Oil Council (PIPOC presentation, 22 Nov 2013) notes a surfeit of emotion in calling palm oil bad for health. Food labelling requirements are on the rise while campaigners “re-invent” the association of palm oil with health issues (several large medical studies find no / no significant association; other studies find palm olein reduces cholesterol as effectively as olive and canola / rapeseed oils). This is sometimes done in combination with sustainability issues; to significant effect in the Francophone world.

Hydrogenation takes a liquid oil, including soybean, to make it solid, creating transfats in the process. Post-World War Two, Unilever incorporated it into margarine. In the 1980s, food industries reformulated to avoid palm oil and the USA and Europe were awash with transfats. Mensink & Katan (New England Journal of Medicine, 1990) showed that margarines were not healthy as transfats increase the risk of heart disease. Harvard Medical School work also challenged hydrogenated oils in the 1990s and the US Food and Drug Administration (FDA) concurred. Manufacturers reformulated to reduce transfats. The FDA sought evidence for the promotion of palm oil on no-transfats grounds. Sundram’s 2001 study showed that it is safer to eat saturated fats than transfats. US palm oil use boomed, exceeding 1.2 million tonnes. The only reliable commodity substitute was (still is) palm oil.

In November 2013, challenged by a legal suit the US FDA removed its “generally regarded as safe” / GRAS status for transfats. In a single serving food manufacturers were allowed 0.49 grams of transfats (serving sizes were cut to comply). Transfats is now regarded as an additive and not a food ingredient. This is expected to boost palm oil demand in the US market by another 150,000 tonnes in 2014. When will others move on transfats?
Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue.

India increases import duty on refined palm oil from 7.5% to 10%

India finally increases its import duty after months of lobbying by India refiners. Tax differential between crude and refined increases from 5% to 7.5%.

News and view from AmResearch 10 Jan 2014: Bloomberg reported that India has increased the import duty on refined palm oil from 7.5% to 10%. We are not surprised by this development as palm refiners in India have been lobbying for a higher import duty since mid-2013. At that time, the refiners had proposed an import duty of 12.5% on refined palm oil. The Indian Government has given in to the proposal of a higher import duty but at a rate of 10%. Due to the low tax differential between crude and refined palm oil, buyers in India had preferred to import refined palm oil directly instead of buying them from the refiners. It was reported that palm refiners in India were operating at low utilisation rates of only 30%. Companies operating palm refineries in India include Wilmar Adani and Ruchi Soya Industries. We believe that the increase in import duty would not significantly affect the demand for palm oil. India would still be buying palm oil from Indonesia or Malaysia except that there could be some switching from refined palm oil to palm oil in crude form. Currently, the import duty on crude palm oil is 2.5%. The tax differential between crude and refined palm oil would increase to 7.5 percentage points due to the higher import duty on refined palm oil versus 5 percentage points previously. 

"Ice cream" treats & Magnum

Ice cream is a big business for Unilever. “With almost USD13 billion in sales across brands such as (Magnum), Cornetto, Breyers, Klondike, and Ben & Jerry’s, ice cream is Unilever’s single biggest category, accounting for about 15% of total revenue, according to researcher Euromonitor. London and Rotterdam-based Unilever is also the world’s biggest maker of ice cream, with about 20% of the USD85 billion market, ahead of Vevey, Switzerland-based Nestle... Magnum’s sales, which have doubled since 2006, top EUR 1 billion (USD1.24 billion) worldwide this year, making ice cream a standout in Unilever’s sluggish food unit. Sold in 50 countries, Magnum is Europe’s top ice cream brand” (Bloomberg.com, 5 Aug 2012).
 
The key markets differ. Parthenon research says that “The USD12 billion US ice cream market is unique because more than half of total sales come from packaged tubs sold in supermarkets and eaten at home… In Europe, more consumption takes place outside the home in single-serve, more-profitable portions… (not surprisingly) major players.. “are increasingly shifting their focus to so-called frozen novelties -- single-serve treats on sticks or in cones… (which) command 21.2% of the US market” How is Magnum positioned in Asian emerging markets? “Magnum costs about three times as much as locally produced ice cream bars, lending it cachet among the emerging middle class, a group projected to increase from 500 million people to more than 3 billion across Asia by 2030” (Bloomberg.com, 5 Aug 2012).


 
In India, the biggest dairy producer is losing ground in the booming frozen treats market. Gujarat Co-Operative Milk Marketing Federation Ltd advertises that real ice cream contains milk, in a campaign seeking to highlight the lack of the ingredient in most of its global rival’s Indian products: cream, or any other dairy fat… “One reason producers have developed recipes without cream is that milk fat is about five times as expensive as fats derived from palm oil and coconut oil… Another advantage is that dairy-based frozen desserts tend to melt faster than those made from plant oils, according to Doug Goff, food scientist at the University of Guelph. That’s important in a country as hot as India…. (its) consumers have decided they’re happy with frozen desserts using cheaper fats such as palm oil. In the five years to 2012, Gujarat Co-operative’s share of the market for frozen treats fell to 31% from 35% while Unilever’s rose to 21% from 17%, according to researcher Euromonitor…. Indians eat an average of 200 milliliters of ice cream each year, versus 14 liters in the US and 2.2 liters in China” (bloomberg.com, 26 Sep 2013). In 2010, world consumption was 2.4 liters/head (data includes both dairy- and non-dairy-fat based products).
 
Khor Reports Blog only supplementary info: Doug Goff, reports “on the use of non-dairy fats in frozen desserts. A blend of 75% of either fractionated palm kernel oil or coconut oil and 25% of an unsaturated oil, like high oleic sunflower oil, was shown to produce optimal levels of fat destabilization, meltdown and flavour, although coconut oil may take longer to crystallize during aging. Blends of 50% milkfat, 37.5% fractionated palm kernel or coconut oil, and 12.5% high oleic sunflower oil were also shown to be very acceptable” (uoguelph.ca, accessed 1 Dec 2013)

Look out for Khor Reports' Oil Palm Newsletter #6 Jan/Feb 2014!

Unilever - Wilmar push for supply chain change


Wilmar the largest trader of palm oil in the world has come out to change its supply chain promise, signing a deal to secure its position supplying to Unilever. The Anglo-Dutch consumer goods behemoth, ranked #2 in the world after Nestle, has in recent years taken a lead in promoting the principle of sustainability in its materials sourcing. Unilever has helped lead the RSPO from its inception nearly 10 years ago. Its CEO recently received a special award: the 2013 World Wildlife Fund Duke of Edinburgh Conservation Medal for Unilever’s efforts to reduce environmental damage. Dutchman, "Polman is the first CEO of a major multinational company to receive the Duke of Edinburgh conservation award since it began in 1970," Bloomberg reported. 

Wilmar has long faced grumblings from the NGO sector for not practicing sustainable sourcing for its third-party purchases, which are overwhelmingly bigger than its own internal production area. With it's new promise, the giant trader now faces the challenge of rationalizing its supply-chain. The question is this: how will Wilmar achieve this without downsizing its business? In principle, traceability with high level promises is not easy to achieve for large traders with complex supply chains. Industry talk in recent weeks has been about the top 15-20 producers being asked to sign on to a new RSPO+++ manifesto, most probably using the TFT/Greenpeace principles; this being the new leader in palm oil sustainability ahead of the RSPO. If the key palm oil producers accede, one can assume that Wilmar will be "home and dry" without having to make much of a change in its business size and its costing. Wilmar's promises can be fulfilled by tough and possibly cost-raising action on the part of its suppliers. Thus, we should await future announcements from the palm oil industry players. In what manner will they all come out in support of Unilever-Wilmar's promises? 

For producers moving fast into such a high grade sustainability push, could this bring on the faster convergence of unit costing fro large-scale corporate SE Asia palm oil vs Brazil soybean oil? For the rest of the palm oil industry (those ranking below the top #15-20), the supply-chain change they face may be significant. Industry policy makers should be concerned at how a traceable, no-peat, no deforestation palm oil supply chain will look like.

Khor Report thinks that this could mean that each palm oil mill in the region will need to be supply-chain risk categorized for the new Unilever-Wilmar protocol. This could segment SE Asia into different market production zones with resulting discount/premium regions. Could there be negative implications for the independent sector (i.e. non-integrated and non-large producer)? How will the new protocol be operationalized? Will a November 1995 baseline apply and will high carbon stock measurement be made to effect a palm oil mill sustainability risk categorization exercise? In this regard, the Golden Agri/Sinar Mas pilot done by TFT/Greenpeace will be instructive. What requirements will new regions such as Africa face?

The questions are only starting. We will need to better understand the Unilever-Wilmar protocol by way of what the large producers come up with in this potentially market shifting move in the palm oil supply-chain. Other commodities too are facing new pressures from an ascendant and increasingly well-funded green movement that is also playing a bigger consulting role (in a highly important and potentially self-funding and self-perpetuating shift). In relative terms, the corporate sector has been scrabbling for footing while the independent and smallholder sectors are adrift. What is notable in the palm oil industry is the new apparent side-lining of the WWF, often reckoned as a realistic NGO, while the TFT/Greenpeace duo may emerge as key supply-chain policy maker.

News source: http://www.bloomberg.com/news/2013-12-05/palm-oil-leader-wilmar-bans-deforestation-in-sustainability-push.html ; “We can produce palm oil in a way that protects forests, clean air and local communities, all while contributing to development and prosperity in palm oil growing regions,” Chief Executive Officer Kuok Khoon Hong said in the statement. “There is a strong and rapidly growing demand for traceable, deforestation-free palm oil, and we intend to meet it as a core element of our growth strategy.” 5 December 2013.