11

ECONOMICS & WORLD TRADE

Oilseed p ocessing: past, present, and future

Wen our ancestors were stillmigrant hunters, theyobtained food by subduing

creatures having far more physicalstrength than themselves. The fat ofthese creatures. which was eaten inci-dentally along with their Flesh, sus-tained life though in a haphazard man-ner. When the advent of agriculturechanged nomadic hunters into fanners.the planting and harvesting of crops,along with the domestication of ani-mals, soon produced the skills to obtainfats and oils as separate entities throughthe controlled use of fire to render fatfrom meal. the pressing of oil fromgrain or fruit by the application of pres-sure or squeezing, and the concentra-tion of fat" from milk by decanting orstirring. The most obvious examples arelard. olive oil. and butter. These naturalfat and oil products served the humanrace well for many thousands of years,changing eating habits from the oppor-tune of "What did we kill or findtodayT' to planned cooking.

The invention of bread wasundoubtedly the most significantdietary change coming about from therise of agriculture. It combined groundharvested grain {Flour) with renderedfat (shortening). Historians tell usbread was invented in Egypt. but itsoon spread to the other end of theMediterranean, and the Romans car-ried it to Northern Europe.

Things then moved slowly for avery long time until the greatlyexpanded urban population growingout of the Industrial Revolution creat-ed a need for new techniques thatwould improve the existing natural fatand oil products and also pave theway for large-scale production ofhigh-quality alternatives. The Frenchsearch for a butter substitute duringthe Franco-Prussian War is an exam-pte of such forces at work.

The availability of a large quantityof cottonseed oil in the United Stateswas a driving force in creating the edi-ble oil industry the world knowstoday. As always seems to be the casein human history. scientific and tech-nical advances appear at just the timethey are needed 10 exploit an awaiting

This anicie is based on the pre~"~n:t:a~ti~o:njb~y:-;:::::::::::::::;1Roben C. Hasten, president of Hastech Corporation.

/0485 Mandersoll Plaw. Omaha. N£ 68/34.during Ihe AOCS seminar "Tell-Year Forecast:

Oilseed Utilization and Processing ." held onSosurdoy, May 9, in Chicago, Illinois.

He is a past president of IIII'American Oil Chemins'Society and became a consultant ofter retiring asmanager of markel and product technology for a

major hydrogenation CllttlIYSI~,:,,:a:n:"fi:a:c:t.:"':'~=======:.J

opportunity. In this casco there were anumber of such timely breakthroughs.

As was mentioned, the squeezingof oil from seed and fruit had beenpracticed in a rudimentary manner forhundreds of years. However. it wasV.D. Anderson's 1900 invention of themechanical screw press. sold by hisfinn under the brand name "Expeller:'that made it possible to process signif-icant quantities of oilseeds into oil ofpredictable quality. while also produc-ing a meal which. in the case of cot-tonseed, was an excellent animal feed.

At first. the free fatty acids andother impurities in expelled crude oilwere "refined" by mixing with liquidalkali in tanks where the oil could bedecanted from an aqueous layer con-taining most of the free fatty acids andother impurities. Luter, the centrifugalseparator, which had been invented byGustav de Laval in Sweden during the1880s for the sepurauon of creamfrom whole milk. became widely usedas a continuous, efficient way torefine vegetable oils. (An interestingvignette about Dr. de Laval was theinscription on his tombstone. whichread, "a man of high speeds.")

Hydrogenation. a new techniquethat would truly revolutionize edibleoil processing. made its appearanceabout this time. Sabatier discoveredvapor phase hydrogenation. using nick-el as a catalyst, in Paris in 1897. Onlysix years later. William Normann. aGerman working in England, obtaineda British patent on the process. and in1906 commercial hydrogenation ofwhale oil took place in England. Proc-ter & Gamble acquired U.S. rights tothe Nonnann patent in 1909 and beganmarketing Crisco, a cottonseed oil

shortening containing hydrogenatedFat. in 1911. Note that the time intervalfrom bench discovery through processpatent to commercial use was only 14years and involved three entirely dis-connected groups in separate countries.It is doubtful industry could move asspeedily today. Of course, in 1900there were no government require-ments for feeding tests to obtain GRAScertification nor was it necessary toproduce environmental impact state-ments.

Procter & Gamble's exclusive rightsto the hydrogenation process, as spelledout in the Nonnann patent, were invali-dated by U.S. courts very soon there-after and the way was cleared for thisnew process to be used in the manufac-ture and marketing of similar shorten-ings by other firms. Inasmuch as cottonwas a product of the southern UnitedStates, companies From that part of thecountry led the way. Chief among themwas the Southern Cotton Oil Co. It wasthere that a young chemist namedDavid Wesson introduced the Europeanpractices of indirect heating and opera-tion under vacuum at elevated tempera-ture so as to facilitate deodorization ofthe product.

The principles of steam/vacuumdeodorization, developed and com-mercialized in the 1930s. have notchanged. However, the design and usemode have changed considerably. Thebatch process has yielded to continu-ous processes for some applications.Although continuous deodorizerswork satisfactorily engineering-wise.the time loss and contaminationinvolved in switching from one prod-uct to another make it difficult tooperate them efficiently and with

tNFORM.\til. 9. no. 12 (December 1998)

1141

When varieties low in glucosino-lates-an anti nutritional component inanimal feed-were developed. thenew rapeseed was named canola.

The development of canola wasextremely important for the recognitionof what could be accomplished usinggenetic technology. It opened the doornot only to utilization of genetic modi-fications for additional rapeseed vari-eties but also to the use of plantgenetics in the modification of otheroilseeds. Having the ability to develop"designer" oils and fats no longer isjust a technical feasibility question. It isnow a matter of economics. The farmermust be convinced the alternate geneticvariety is economically attractive togrow. The oilseed processor must beconvinced there is enough seed avail-able to make crushing profitable. Thesame hurdle confronts oilseeds modi-fied using biotechnology.

The commercial introduction ofgenetically modified oilseeds, the use

the time of World War II, U.S. soy-bean acreage figuratively exploded. In1975, soybean acreage surpassed comacreage. The principal reason for soy-bean's rapid success was due to itsbeing a row crop, which could beplanted, cultivated. and harvested likecorn, thus providing Midwest U.S.fanners an alternate cash crop. Anoth-er significant reason was the almostinsatiable demand for its co-product.soybean meal, as an animal feed.

A similar agricultural phenomenonoccurred in the prairie provinces ofCanada where rapeseed would providea similar alternate cash crop to wheatfarmers. However, rapeseed's agricul-tural success could not have happenedwithout another of those timely scien-tific breakthroughs. Rapeseed oil con-tained about 40% erucic acid, whichhad been reponed to be injurious tohuman health. Canadian geneticistscircumvented the problem by develop-ing LEAR-low eruclc ilcid rapeseed.

good finished quality effectiveness.The invention of the multi tray semi-continuous deodorizer by Alton Bai-ley in the late 1940s, during the rela-tively short time he was employed bythe Votator Division of the GirdlerCompany. was immediately successfuland remains me standard today. Inaddition to being an excellent deodor-izer per se, its multiuuy approach pro-vides a convenient and efficient way10 change stocks. This ability provedto be of tremendous importancebecause the direction the industry wastaking would place a premium onmarketing a large variety of differentproducts, each tailored to suit a specif-ic application. For commercial use.the day of the all-purpose shorteningwas disappearing rapidly.

From the early 1900s until the mid-1940s, cottonseed oil and meat fatswere almost the exclusive feedstocksfor the U.S. edible oil industry. How-ever, from very modest plantings at

15D9001~«............... ""..OUAUTY. SElMa AND_ P</lFOflMANCE.-~L..J

'IDSThe Innov_tort; In MIItllrial HandW"5I , Sampling Equipment

13330 -I" Sf • Omaha, Nebraska U.S.A 68137402-330-1500 • 1-800-228-1483· FAX:402-330-3350_'-'WWWIl'l1...,a __ .com E....... :bo.AmatI.~ ......com

en ...,.,.

For \NIotmOIIon circle' 116 on Iotm on last page

INFORM.. Vol. 9. no. 12 (December 1996)

1142

ECONOMICS & WORLD TRADE

SAMPLE STORAGESETS

• Collect • Catalog • Retrieve

• Durable, partitioned boxes

• Variety of sizes & closures

• Maximum storage· Minimum space

Write Dr call for Data Sheets.

of imported oils (tropical fats), and aprejudice against anything termed not"natural" (/ralls-isomers) have eachmet with resistance by an assortmentof persons and organizations havingsomewhat different agendas. Whatthey all have in common is a relianceon ernorlcnal arguments rather thanscientific knowledge. Having a ratio-nal discussion about biotechnology ornutrition with such persons can becompared to the discussion Christo-pher Columbus might have had whenseeking backing from members of theFlat Earth Society. Their unfortunatealtitude is an aberrational offshoot of agenuine concern going back almost 40years to the beginning of the nutrition-al revolution.

Although the incidence of heartdisease had been increasing for sometime, about 1960 U.S. residentsbecame convinced it was an epidemic.Men were being felled by heartattacks. not only with increasing Ire-

quency but also at younger andyounger ages. The health professionsresponded to the public outcry by pro-claiming cholesterol to be the villain,dietary saturated fat to be cholesterol'sprecursor, and hydrogenation to be itscause. The edible oil industryresponded to the situation by switch-ing to a base stock method of formu-lating margarine and shortenings. Thisapproach reduced saturates and trans-isomers considerably.

Was the atherosclerosis threatthwarted? It was. Since 1960 the inci-dence of heart disease-related deathsin the United States has dropped 50%,a quite stupendous achievement.However, it is not known what per-centage of that decrease is attributableto dietary change. including margarineand shortening reformulation, andhow much 10 increased exercise andless smoking. Although no one knowsfor sure, everyone believes an empha-sis should continue on all three fronts.

• Graduated Beakerspolypropyleneplain paper• Lids for Beakers• Wood Stirring Rods• Graduated Tubes

•R. P. Cargille Laboratorle., Inc.Cedar Grove, NJ 07009 973-239-6633 Fax: 973-239-6096

for Inlormallon circle' 115 on Ionn on last pogII

Recently, due 10 the publication ofindicative, but far from definitive,research, the attack on trails isomershas again escalated.

While participating in a hydrogena-tion symposium in London duringFebruary 1998. I was struck by the dif-ferences in thrust between Europe andNorth America to cope with this situa-tion. The trend in Europe is not toawait more conclusive scientificresearch, but to immediately reducethe amount of Irons isomers con-sumed. through formulation and pro-cessing changes. Principally, Europeanfirms substitute interesterified tropicaloils for partially hydrogenated seedoils. This approach presently does notappear to be practical in North Ameri-ca for two reasons. One is the U.S.prejudice against consumption of themore saturated tropical fats. The sec-ond is the North American availabilityof domestic low-cost soybean andcanola oils. Another important factorin Europe is the prominence in themarket. particularly the margarinemarket, of one company. This resultsin nutritional perceptions of the publicbeing influenced by advertising of asingle company to a degree not possi-ble in North America where the mar-ket is extremely fragmented.

At this time, the ultimate directionthe U.S. market will take is veryunclear. Changes by the U.S. Foodand Drug Administration in packagelabeling regulations may playa signif-icant part. Meanwhile, edible oil pro-cessors are continuing down the samepath they have trod for many years.Proof of this is in the large amount ofhydrogenation capacity being installedin plants currently under construction.

Looking to the future. I see someedible oil industry developments asvery likely and others as only prob-lematical.

Genetically, btctecbnlcauymodified oilsAlthough oils designed for specificapplications will continue to be devel-oped, their commercialization will beslow in most cases because of the dif-ficulty in reaching an economic levelof planting and processing.

The current market resistance, pri-marily in Europe. to oils from seed

1143

that have been modified to reduce the Table 1quantity of herbicides and insecticides U.S. and Canadian edible oil hydrogenators and plants In 1958required will be overcome eventually.Meanwhile, and unfortunately, some SOUTHERNCOTTONOIL ARMOURcompanies are attempting to obtain Savannah. Georgia Chicago. Illinoisshort-term commercial advantages by Memphis, Tennessee Chattanooga, Tennesseeexploiting consumers' lack of under- Fullerton. California Fort Worth, Texasstanding of biotechnology and nutri- Chicago. Illinoislion. Houston. Texas SWIFT

Chicago. Illinois

Crushing and refining PROCTER& GAMBLE Fort Worth. TexasCincinnati, Ohio Vernon.California

The use of hexane will continue to be Chicago. Illinois Toromo. Ornancquestioned environmentally. Although Port Ivory. New Jerseyits impurity tolerance levels probably Long Beach. California WILSONwill become more stringent. no eco- Hamilton. Ontario Cheuerooga. Tennesseenomical substitutes are on the hori- Macon. Georgia Oklahoma City, Oklahomazon-certainly not supercritical Dallas. Texas Chicago. Illinoisextraction.

The continuing trend to higher- DURKEE CUDAHYquality feedstocks eventually will Berkeley. California Omaha, Nebraska

result in the large-scale physical refin- Louisville, Kentucky Memphis. TennesseeChicago, Illinois

ing of soybean oil in the United CANADAPACKERSStates. ANDERSONCLAYTON Toronto, Ontario

The use of silicas and other similar Sherman, Texas Montreal, Quebecproducts in oil purification will con- Jacksonville, Illinois Winnipeg. Manitobatinue to increase.

HUMKO COLFAXDeodorization Champaign, Illinois Pawtucket, Rhode IslandUtilization of thin-film deodorizers. Memphis, Tennesseebased on the packed-column principle. BESTH)()DS

will become more common. However, CAPITALCrrv Bayonne. New Jersey

the need to avoid cross-contamination Columbus, Ohio Sun Prancisco. CaliforniaChicago, Illinois

of feedstocks will remain a dominat- SAFEWAYing factor in deodorizer choice. Denison, Texas VOPCO

The switch to high-pressure steam Los Angeles. California Los Angeles. Californiafor deodorizer heating will continue.While the environmental and safety LEVERreasons often cited for the shift are not Edgewater. New Jerseyconvincing to many. a combination ofpolitics and economics undoubtedly 16 CQmPaIIies opc:nIling 42 refineries.

will carry the day. The liming forNote: BoIdfl'« ;ndkale!l company nal1lCllMill in use in 1998 lind plllni slres Mill in opc:nIlion;n 1998 (althoughaomc had been sold 10 othc:r finns). Ofllie 16companin """ .. I;ng plBJIu in 1958. Ihrcc remain in 1998.

mandatory change is the only open O(lhe 42 relinc:~ in """"Ii"" in 1958. 14 remain in use in 1998

question.The substitution of nitrogen for

stripping steam may become commonin those areas where utility costs make While the use of supercrincnl con- ~turation by refractive index,it feasible. ditions for hydrogenation is attractive which correlates 10 iodine value. I he

from an engineering perspective. an other is a shift ~oJiimiXin&te~sHydrogenation ability to control the reaction for par- which solubilize I e same amount ofThe use of precious metals instead of rial hardening will need to be found hydrogen throughout the reaction. Thenickel. as catalysts. will gain accep- before it can gain commercial accep- technologies of both are currentlytance slowly. principally based on pre- tance. available off-the-shelf.cious metals' unique selectivity char- The efficiency and productacteristics. It will go hand-in-hand unifonnity of batch partial hydrogena- The face of the U.s.with a switch from the batch to a con- tion will be improved significantly and Canadian industrytinuous mode. A variety of physical during the next few years by the In 1958 there were 16 companiesforms may be employed. including widespread adoption of two changes doing hydrogenation in 42 edible oilexuudates. spheres. membranes. and in convener operation/design. One is refineries in the United States andmonoliths. the...on-l-ine...m....easuremenlof the level Canada (Table I): although the indus-

INFORM. Vol. 9. no. 12 (December 1998)

1144

PROCTER & GAMBLECincinnati. Ohio

COLFAXPawtucket, Rhode Island

ECONOMICS 8c WORLD TRADE

Table 2U.S. and Canadian edible oil hydrogenators and plants In 1998(operating, under construction, and announced)

VEr-rTURAOpelousas. Louisiana

BUNGEKankakee. IllinoisChattanooga. TennesseeFort Worth. TexasDecatur. AlabamaCouncil Bluffs. Iowa

CANAMERAMon[~al. Qut"becToronto, OntarioNipawin. SaskatchewanWainwright. Alberta

AGPSt. Joseph. MissouriShennan. TexasHastings. Nebraska

OWENSBOROOwensboro. Kentucky

CENTRAL SOYADecatur, Indiana

PERDUESalisbury. Maryland

TOIa!: 48 planlJ. 23 COInponies.

try was dominated by companiesengaged in the marketing or vegetableoil products. meat packers also had a

Table 3U.S. and Canadian edible oil refineries

Operating in 1958 42Shut down since 1958 28Net survivors 14Added or committed since 1958 35Total operational or committed in 1998 49

Net change 1958 to 1998 +7

BESTFOODSChicago.I11inois

FUJlSavannah. Georgia

AC HUMKOChampaign. IllinoisJacksonville. IllinoisColumbus. OhioOklahoma City. Oklahoma

CARGILLGainesville. GeorgiaWichita. KansasSioux City. IowaSydney. Ohio

CONAGRAWest Franklin. IndianaMemphis. Tennessee

CANBRALethbridge. Alberta

RICELANOStuttgart. Arkansas

C&TCharlotte. North Carolina

considerable presence. By 1998 onlythree of those 16 companies were stillin the business. and they were operat-ing three refineries. instead of the 11refineries they had run in 1958.

Meanwhile. 20 other companieshave entered the business (Table 2).Most are oilseed crushers and theynow dominate the industry. Some, asshown. have multiple plants and oth-ers have as few as one. All arc verylarge and very efficient. Typically.they operate 24 hours a day, 7 days aweek, and 50 weeks a year. Currently.

AARHUSPort Newark. New Jersey

GOLDEN BRANDSLouisville. Kentucky

ADMDecatur, IllinoisDes Moines. IowaMacon. GeorgiaChattanooga. TennesseeLincoln. NebraskaMankato. MinnesotaQuincy.l1IinoisKansas City. MissouriWindsor. Ontario

HARVEST STATESMankato. MinnesotaFairmom, Minnesota

LoDERS CROKLAANJoliet. Illinois

CALIFORNtA OtLSRichmond. California

the industry is having its biggestexpansion in history. Seven newplants have either been completed inthe past year. are under construction.or have been announced.

Interestingly, both the net numberof companies and the net number ofrefineries have increased during the40 years (Table 3). There has, ofcourse, been a gigantic increase incapacity of individual facilities.

I believe thai we are truly a twenti-eth century industry well prepared tohead into the new millenium.

Buyers Guide

Contact seen Narug. Advl!rtising

ManagH • Phone: t-211-359-2344 •

Fax: t·211-35t-809t

VIRNW.aoc:s.org

INFORM. VOl. 9. no. 12 (December 1998)

1145

European perspective on processingThis article was prepared forINFORM by James Fry and RachelStringfellow of LMe lntemationalLtd .. 14-/6 George 51., Oxford OXI2AF, United Kingdom. LMe tntema-tiona! Ltd. is an independent firm spe-cializing ill analysis of commoditymarkets.

This analysis of the oils and fats indus-try in the European Union (EU) beginsby describing the basic structure of theedible oils market in the region. Anoverview of edible oil production andtrade in the EU is set against regionalconsumption patterns. The marketstructure is then related to the develop-ment of the crushing and refiningindustry in recent years. Other issues ofcurrent importance to the sector in theEU are explored in the second part ofthe article, including the proposedreforms to the EU's Common Agricul-tural Policy and the controversy overgenetically modified oilseeds.

EU edible oil productionEdible oil production in the EU for 199310 1997 is presented in Figure I. Animaland fish oils (which include butter, lard,tallow, and marine oils) still account foran important share of total production.although this share is declining. In 1993it was 32% and in 1997 it had fallen to27%. By contrast the shares for rapeseedand sunflower seed oil increased slightlyover the same period, while olive oil andsoybean oil shares remained constant.The implied shift from animal to seedoils is consistent with a longer-termtrend observed in many markets world-wide, which has favored vegetable oilsover animal products.

In the EU during the 1990s, the con-troversies over BSE (bovine spongifonnencephalopathy) and hydrogenated fishoil have further added to this trend.

Seed oils (soybean, sunflower seed,and rapeseed oils) together account forabout 55% of total production. Howev-er, although almost the entire output ofrapeseed oil is produced from seed pro-duced within the EU, the region isdependent on imports of sunflower seedfor about a third of the annual sunflow-er crush. Funhennore, almost the entire

16r--------------------------,141-----------12

~ 10.~~ 8

6

4

2

o

• Other_ Animal/fish

D OliveCRape

• Sun• Soy1993 ''''' 199' 1996 1997

Figure 1. Edlbte 011production In the European Union (1993-1997)

18r--------------------------,161-----~~--o==o--r=,__i--r114

4

o Other

I-_r-"'---' - Lauric• Palm.Olh·eEI Rapeo Sun

• Soy• Animal/fish

2

o 1993 ''''' 199' 1996 1997

Figure 2. Edible 011eeneumptlen in the European Union (1993-1997)

soybean crush in the EU depends onimported beans, which are of U.S. andSouth American origin. As a result, theEU is currently only about 55% self-sufficient in oilseed supply.

Oilseed imports are duty-free.Oilseed meal imports are similarlyexempt from duty, as the EU is adeficit producer of oil meals. Marketprices therefore reflect the costs ofimporting meals, i.e., they are atimport parity. The situation for seedoils is different: a tariff does apply toimports. currently equal to 8.2%,although it is required to decline to6.4% under the terms of the UruguayRound international trade agreement.In theory, this should provide protec-tion to the industry in the EU, forcingdomestic prices above world market

levels. However, because the industryproduces seed oil surplus to require-ments in the EU, the region is a netexporter of seed oils. The domesticprice is therefore determined by theprice in world markets and can beconsidered an export parity price. Inthese circumstances, the EU's oilimport tariff has no impact on theprice paid in the domestic market,although it does provide a barrier tothe free entry of imported oils.

EU vegetable oil consumptionby type of oilFigure 2 presents edible oil consump-tion in the EU from 1993 to 1997 bytype of oil. In the aggregate, demandhas increased steadily over this period.from 14.1 million tons in 1993. to

INFORM. VOl. 9. no. 12(Decernber 1998)

1146

ECONOMICS & WORLD TRADE

100

80

• so~• C OtherE• • Laurice~ 40 • Palm

• Olive

20 • Rapeo Sun

• Soy• AnimaUfish.0 1993 1994 1995 1996 1997

Figure 3. Contribution of various oils to total all consumption In the European Union(1993-1997)

almost 15.3 million tons in 1997. Thisrepresents an annual average rate ofgrowth of 2.1%. If only vegetable oilsare considered, the growth rate ishigher at 3.6%. This confirms thetrend, observed in the previous sec-tion, toward a shift from animal tovegetable oils.

What is striking about consumptionpatterns in the EU, in contrast to othermajor markets, for example in theUnited States or in Brazil, is the num-ber of vegetable oils that contribute animportant share of the total. Althoughrapeseed oil has the largest share, it isclosely followed by sunflower. soy,palm, and olive oils. This can be seenmore easily in Figure 3, which pre-sents consumption data for the differ-ent oils in percentage terms. Over theperiod shown, soy oil's share of thetotal market declined slightly, to theadvantage of rapeseed oil. The shareof the market accounted for by sun-flower, olive, and palm oil is fairlystable.

Aggregated figures conceal sub-stantial regional differences in con-sumption patterns. In southern Europe(Greece, italy, Spain, Portugal), theimportance of olive oil is far moremarked than elsewhere in Europe,accounting for 36% of total vegetableoil consumption. In northern Europe.olive oil has only a I% share. Sun-flower is also consumed more in thesouthern part of Europe where, afterolive oil, it is the preferred oil forhousehold use. The importance of

these oils in southern Europe in partreflects the distribution of their pro-duction in Europe, but it can also belinked to the higher consumption ofliquid oils in these countries relativeto solid fats. This accounts to somedegree for southern Europe's lowerpalm oil consumption, in comparisonwith other regions of Europe, as oneof the major uses of palm oil is in theproduction of margarine.

In northern Europe, consumption ismuch more varied. The market is sup-plied in part with oils produced fromlocal oilseeds, principally rapeseed,although there is significant produc-tion of sunflower in France. Thenorthern European ports are entrypoints for a large share of the EU'ssoybean imports and for tropical oilimports, encouraging the concentra-tion of crushing and refining indus-tries in this region as well. Consumersand food manufacturers in northernEurope therefore have access to amuch wider range of oils, which isreflected in consumption patterns.Soy, sun, rape, and palm oils togetheraccount for almost 80% of total veg-etable oil consumption in the coun-tries of northern Europe.

The importance to the EU ofimported tropical oils is clear fromFigure 3. As noted above, the EU ismore than self-sufficient in the pro-duction of seed oils and is an impor-tant exporter of both rapeseed andsoy oils. Imported tropical oils fallinto two groups: lauric oils (coconut

oil and palm kernel oil), which areused principally in the oleochemicalindustry, and palm oil, which hasgained an important share of themarket for margarines, spreads, andbakery fats, and for industrial fryingoils. The Philippines and Indonesiaare the principal origins for coconutoil, and Indonesia and Malaysia forpalm kernel oil. Indonesia andMalaysia accounted for 80% of theregion's imports of palm oil in 1997,with the balance supplied byAfrican, Caribbean and Pacific(ACP) countries. principally PapuaNew Guinea. The ACP countries areexempt from tariffs on imports ofoil.

As well as supporting ACPexporters, the EU tariff structurefavors imports of crude palm oil overrefined, in order to protect the localrefining industry in the EU. This hastended to promote Indonesia overMalaysia as an origin, because of theMalaysian government's policy ofsupport for its own refining industry,through the operation of a differentialexport tariff regime. As a result,Indonesia has supplied the EU withalmost half of its total palm oilimports during the 1990s. The contin-uing political and economic problemsin Indonesia are therefore of verydirect concern to the European refin-ing industry. This has been reflectedin the high price premium which palmoil has enjoyed in Europe for much of1998.

The EU processing industryAs this analysis of supply and demandhas indicated, the oils complex in theEU has come to depend upon externalsources of supply for a substantialshare of its output. This has beenreflected in the development of thecrushing industry: historically, crush-ers were located within the majoroilseed producing areas of Europe, inorder to benefit from the freightadvantages associated with the localavailability of raw materials. Howevertoday, inland crushers are becomingless important as an increasing shareof the industry is located at majorports.

The growth of the soybean crush-ing industry in Europe in the 19605,

INFORM. Vol. 9. no. 12 (December 19Q8)

1147

which relied entirely on importedbeans. played a major role in shiftingthe location of large parts of theindustry. Port-side location. and theconsequent improved and cheaperaccess to raw materials. also encour-aged investment in larger plants. Thescale economies that followed drovedown crushing costs, presenting amajor challenge for the smaller. inlandcrushers processing locally producedsoftseeds.

Although in some parts ofEurope-particularly in Spain andItaly-some smaller crushers havebeen able to stay in business. in north-ern Europe. crushing activity is nowconcentrated at a few plants in orclose to major ports. The minimumsize of these plants is 200.000 metricIons per annum. and some are muchlarger: the EU's biggest plant is theADM soybean facility at Europoort inRonerdam. with annual crushingcapacity of 2.4 million Ions. Therestructuring of the industry has beenaccompanied by a concentration ofownership. and today just three com-panies-ADM. Cargill. and Eridania-Beghin Say-account for about 75%of total crushing capacity in the EU.

The pursuit of scale economies.and the growing tendency for crushersand refiners to integrate their opera-tions. has also led to a rearrangementof refinery ownership. The same com-panies which dominate the crushingsector now dominate the Europeanrefining industry. They are closingdown smaller refineries and concen-trating production in fewer locationswhere capacity is increasing. A typicallarge-sized refining plant now has anannual processing capacity of 350,000tons.

The switch toward physical refin-ing in Europe has also favored theexpansion of capacity. as physicalrefining benefits more than chemicalrefining from the resulting economiesof scale. Physical refining is increas-ingly preferred in Europe. as it is moresuited to the processing of palm oil.which, as we have seen. accounts for alarge share of consumption in the EU.II has the further advantage of produc-ing much less chemical effluent, thedisposal of which is increasingly regu-lated-and expensive-in the EU.

SOLUTIONS FOR HEATING INEDIBLE OIL PROCESSING

Key European processing issuesThree issues are most likely to affectthe development of the oils industry inthe EU in the years ahead.

First is the proposed reforms to theCommon Agricultural Policy (CAP).Agenda 2000, as it is known in theEU, has generated considerable con-

I

.,

GEKA"-Energy Systems GmbHOieselstraBe 80-76227 KarlsruheGermanyPhone: 49-72t /94374-0Fax: 49-7211494331

uoversy because of its possible impacton the production of oilseeds in theEU. As we have already noted. theregion is only 55% self-sufficient inoil seeds. Under the reforms, manyobservers believe that production willfall by as much as 30%, further under-mining the industry's ability to meet

Non-toxic andefficient process heatsystem.

The executivemanufacturer ofboiter forhermetically closedsteam systems up to95 bar (t 350 psI),3025 kW(12 x 10' BTU/H)for Edibles OilsIndustry processheating.

Advantages withGEKA: more than40 years experience,approved systems,worldwide in theEdible Oil Industry.

For InformotIon circle' t t 3 011Jorm 011 last page

" StemsEneCmbH

1148

ECONOMICS & WORLD TRADE •efit of cereals. However, the chain ofcause and effect is not quite so simple:relative profitability depends on mar-ket prices and in recent years, theprices of softseeds have been strongrelative to cereals. If this trend contin-ues, it might offset to some degree thedecline in area payments for oilseeds.The impact of Agenda 2000 is alsolikely to vary significantly by countryand by region, and some recent stud-ies indicate that its impact on France,which is the EU's major oilseed pro-ducer, is likely to be much less pro-nounced than in some of the smallerScandinavian countries.

Second is the next round of tradenegotiations, under the World TradeOrganization (WTO). scheduled tobegin during 1999. Agenda 2000 willbe of great concern to the domesticoilseeds industry as it faces the next

round of trade negotiations. If, as aresult of a decline in regional produc-tion, the EU no longer produces a sur-plus of seed oil, its trade position willshift from that of a net exporter to anet importer. Under these conditions,any protection offered by the importtariff will become extremely impor-tant in safeguarding the industry'smarket share in Europe.

Thus, it is likely that the Euro-pean industry will be very unwillingto cede any reduction in the protec-tion it receives itself, particularlywhen major competitors, likeArgentina, continue to benefit fromexport tax regimes which aid oilseedcrushers.

Third is genetically modified(OM) oilseeds. The European Com-mission has been the major battle-ground in the debate within the EU

its own raw material requirements andincreasing its vulnerability to foreigncompetition.

The extent to which the proposedAgenda 2000 reforms affect oilseedproduction in the EU remains an openquestion. Central to the reforms is theequalization of area support payments10 oilseed and cereal farmers. Thiswould have the effect of reducing thearea payment, which is currently madeto oilseed producers. while raising thatmade 10 cereals producers, althoughthis increase is in pan to offset a pro-posed reduction in the European Com-mission's intervention price for cere-als.

Many observers have inferred thatthe changes will lead to a decline inthe profitability of oilseeds vis-a-viscereals, and that this in tum will causeoilseeds production to fall, to the ben-

GOOD NEWS !!! OUR !$.@.f&.@ 'ROCESSDEGUMS AND DEWAXES

SUNFLOWER OIL AND CORN OILWITH A SINGLE SE'ARATION !

E.D. T.A. MOLECULERELAXING AFTER WORK ... RUE DE FLEURJOUX 8

6220 FlEURUSBELGIUM

Phone +32 71 813 787Telefax +32 71 817024

For inlolmaliol. cirde '112 on fomI on lost page

INFORM. \obi. 9. no. 12 (December 1998)

,1149

over the introduction of GM cilseedsand maize. The introduction of GMvarieties on the market in the UnitedStates triggered little reaction, but insome European countries there hasbeen significant consumer opposition.This has affected both the Import ofU.S. soybeans and maize into Europeand the approval of GM seed varietiesfor production within the EU.

Opposition to GM varieties hasfocused on four major issues: thethreat to the environment; the fear of"modified" food; anger at the behav-ior of the multinationals; and the ethi-cal issues raised by transgenic tech-niques. Each of these issues indepen-dently can generate significant publicsupport and lobbying power inEurope. From a public relations per-spective. it was unfortunate that someof the first GM products entering theEuropean market were able to bringall these forces together into a broadalliance.

Had the first wave of productsincluded products with obvious con-sumer benefits-for example, oilswith a lower saturated fat content,such as Du Pont's high-oleic soy-bean-GM might have been associat-ed at an early stage with a morebenign outcome. Furthermore, suchproducts would have been easy toidentify, rather than lost in the bulkmarketing systems that operate forcommodities like soy and maize(corn). instead, opponents of the new

varieties have been able to play onconsumer fears and ignorance aboutthe new technology. The chairman ofthe British retail group Iceland, whichannounced in May that it had removedingredients derived from GM productsfrom all the company's own brandproducts, described them as "Franken-stein's Food." Though his companyhas taken the most extreme position inthe United Kingdom. several othermajor retailers have taken steps toreduce significantly the number oftheir own brand products containingOM ingredients.

The EU processing industry iscaught in a very difficult position. Therapid adoption of GM soybeans byfanners in the United States has meantthat. for the past two seasons. Euro-pean crushers have been supplyingsoy products derived from OM soy-beans. However, in an industry struc-tured in such a way as to minimizecosts, processors have consistentlymaintained that it would have beenimpossible to introduce all the expens-es associated with trying to establish asystem of identity preservation fornon-OM soybeans, in order to provideconsumers with a choice.

Refiners have faced a slightly lessdifficult position as no OM rapeseedor sunflower oil is produced in theEU; so refiners have been able toavoid processing OM oils by substi-tuting soy oil with alternatives. How-ever, if OM rapeseed and sunflower

seed do become available in the EU, itwill be almost impossible for refinersto avoid supplying products derivedfrom OM sources to their clients inthe food industry.

Europe's very distinctive responseto the OM issue can be \inked in someway to the structure of the industry inEurope itself. In the same way thatlimited self-sufficiency has created anindustry which depends substantiallyon imported supplies of oilseeds andoils. it has exposed the region to OM-derived products through trade, wellahead of any decision taken within theEU about the desirability of producingOM oilseeds domestically. Yet, at thesame time. paradoxically, the relative-ly small share of soybean oil in totalEU consumption, and the lack of con-sensus within the EC about whether toallow production of OM varietieswithin the EU. has provided the refin-ing sector and food manufacturerswith the means to limit consumerexposure to OM oilseeds. If OM vari-eties are approved and grown exten-sively in the EU, the situation willchange once more and the food indus-try. retailers, and consumers may befaced with no choice but to accept thenew technology.

These three issues-Agenda 2000,world trade talks, and resolution ofOMO usage-will play key roles indetermining the future of the oilseedand edible oil processing industries inEurope. •

Membership CertificatesThe decision to join the American Oil Chemists' Society may have been one of

the most important career choices you've made. Now you can display yourpersonal certificate of membership in the leading international society in the

fields of fats, oils, and related materials.

Please send order with $25.00 payment to AOCS, Ann: MembershipDepartment, P.o. Box 3489, Champaign, Il61826-3489 USA

oreal! (217) 359-2344. Include name, address, ~ &and AOCS member number when placing your order. ,.~

INFORM VOl. 9, no. 12 (December 1998)