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The COVID-19 pandemic has had a negative impact on world trade and while the effects have been felt in China, the country has emerged from the crisis stronger than most other nations. Against this backdrop, what is the outlook for the country’s edible oil sector? Gill Langham

China is poised to be the one major economy to register positive growth in 2020 following a turbulent period globally due to the ongoing COVID-19 pandemic.

The country will overtake the USA as the world’s biggest economy before the end of the decade after outperforming its rival during the global crisis, according to a report by the Centre for Economics and Business Research (CEBR).

In its annual World Economic League Table published on 26 December 2020, the UK-based consultancy group said China had bounced back quickly from the effects of COVID-19 and would grow by 2% in 2020.

This was a view shared by Alan Jope, CEO of consumer goods giant Unilever, who was quoted by The Guardian as saying at a Reuters conference on 13 January that the pandemic would continue to disrupt European and American economies during the first half of 2021.However, he said east Asian economies such as China and Singapore – which had effectively suppressed viral outbreaks – were almost back to normal.

Looking ahead, the CEBR said it expected China to average economic growth of 5.7% a year from 2021 to 2025 before slowing to 4.5% a year from 2026 to 2030.

Other factors

The US-China trade war also hit global economic growth and led to a reduction in China’s purchases of US soyabeans.

Tensions between the two countries were heightened by China’s implementation of the new national security law (NSL) in Hong Kong.

China’s handling of the initial outbreak of the pandemic in Wuhan was also questioned by the former Trump administration and alleged human rights abuses in western Xinjiang province provoked international criticism.

Post-pandemic recovery

Although most commentators believed that US policy towards China would be less confrontational under the new Democratic president Joe Biden, relations were not expected to revert to their preTrump status.

Covid impact

China’s post-pandemic recovery and palm oil demand were the themes of a webinar organised by the Malaysian Palm Oil Council (MPOC) on 10 November 2020.

During the webinar, Zhou Shiyong, from Beijing Heyirong Investment Group, spoke about the outlook for the oils and fats industry in China.

“Due to the COVID-19 pandemic, there are still a lot of uncertainties in our market and this will definitely have a huge impact on the sector.”

Despite the uncertainties in the industry, Zhou said there had been little impact on total consumption. However, from September 2020 there had been a change in consumption structure.

“During the pandemic, most people stayed at home so that’s why there has been an increase in the small packaged oils sector,” he said. “We have more consumption in food and less consumption in industrial processes.”

The catering industry had started to recover in the latter half of 2020, explained Zhou.

According to local media, the catering business had recovered well, especially in Shanghai, Beijing and Guangzhou.

However, in small cities the recovery had not been as rapid.

Looking ahead, Zhou said he was “quite optimistic” about the oils and fats industry in China in the first quarter of 2021.

Consumption patterns

The rapid development of China’s economy and its effect on living standards had been a catalyst in the growing consumption of edible vegetable oils, according to an MPOC report on 12 January 2021.

According to the China Bureau of Statistics, the per capita edible vegetable oil consumption had increased from 7.7kg in 1996 to 9.8kg in 2019.

Soyabean oil was the most consumed edible oil followed by palm oil, rapeseed oil and peanut oil. These four major oils accounted for around 90% of the total consumption in China.

While the household consumer sector preferred rapeseed oil and soyabean oil, the commercial and food industry sector

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Post-pandemic recovery

used more palm oil. China is one of the biggest markets for palm oil in the world, with the product being widely used in the country’s food industry.

In 2019, around 43% of the total palm oil imported by China was used in the food manufacturing process, 22% in oleochemical production and close to 13% in other sectors such as biodiesel and animal feed.

Apart from the impact of COVID-19 on overall demand for oils and fats in the country, two other issues affected palm oil trade in China in 2020: a surge in soyabean imports as the hog industry recovered from the African Swine Fever (ASF) outbreak and diplomatic tension between China and Canada leading to a reduction in rapeseed imports.

The recovery from ASF encouraged more soyabean crushing and the resultant increase in locally-produced soyabean oil reduced the spread between soyabean and palm oil, making the latter less competitive.

Conversely, the reduction in rapeseed crushing and production had a favourable impact on palm oil imports.

The fact that palm oil is hard to replace with an alternative also meant that sales held up.

In the first three months of 2020, China’s palm oil imports rose from 371M tonnes in January to 526M tonnes in March, according to MPOC figures. Following the imposition of COVID lockdowns, starting with Wuhan on 23 January 2020, palm oil imports did not fall.

However, palm oil importers were cautious due to concerns over importing more than the market needed.

After the Chinese government gradually lifted the country’s movement control order on 8 April, palm oil imports started to rise from 328.4M tonnes in April to 587.6M tonnes in June.

There was a fluctuation in monthly palm oil import volume in the July to September period although overall import volumes in all three quarters of 2020 remained high.

However, despite strong demand for palm oil last year, exports to China in 2021 would be challenged due to lower prices of other oils versus palm oil, according to MPOC CEO Datuk Dr Kalyana Sundram speaking at the Malaysian Palm Oil Trade Fair and Seminar 2021 (POTS Digital 2021) on 5 January.

China has emerged in a stronger position from the COVID-19 pandemic crisis than most other nations and is poised to be the one major economy to register positive growth in 2020

Future outlook

China’s vegetable oil outlook and palm oil situation was covered in the MPOC report on 12 January.

According to United States Department of Agriculture (USDA) data, total vegetable oil production for 2020/21 is forecast at 26.1M tonnes compared with 25.3M tonnes in 2019/20.

The increase in hog production following recovery from ASF was the major driver for the increase.

However, overall vegetable oil consumption was estimated to increase less than 1% compared to 2019 due to the COVID-19 outbreak, which took a toll on demand in the hotel, restaurants and catering (HORECA) sector in the first half of 2020, when consumers avoided eating out and stayed at home.

Palm oil was expected to drop from 7.6M tonnes in 2019 to 6.4M tonnes in 2020.

Meanwhile, China’s food processing industry, which primarily uses palm oil, was displaying a positive growth trend, according to the MPOC report.

A steady recovery of instant noodle production which uses palm oil as one of its main ingredients had shown an 11.5% year-on-year increase in sales in 2020, according to research by Nielsen.

Palm oil is also widely blended with other oils in retail markets and restaurants due to its price advantage.

Overall, MPOC said a drop in vegetable oil imports to China was inevitable due to the huge impact of the pandemic in the HORECA sector but the growth of other segments that used palm oil would cushion the impact of the drop in palm oil imports.

Soyabean consumption growth

An agricultural outlook report for 2020-2029 released by the Ministry of Agriculture and Rural Affairs said that China’s soyabean imports in 2020 were expected to reach 92.48M tonnes.

Soyabean consumption in China was expected to grow steadily in the next decade and would continue to rely mainly on imports.

The recovery of the livestock industry was a positive factor for the sector, according to Dr Wang Jun, founder of CIFCO Futures Research Institute, speaking at the MPOC webinar on 10 November 2020, and would drive an increase in demand for animal feed.

As soyabeans were the main source of pig feed, Dr Wang said he was optimistic that demand would increase in 2021.

A report by the International Grains Council (IGC) published on 11 January 2021 highlighted the outlook for the soyabean sector for the five years to 2025/26 and included information on the effects of the COVID-19 pandemic.

Despite the negative impact of the pandemic on world economic activity, the IGC report said soyabean consumption was forecast to rise to a new peak in 2020/21 due to a growth in uptake of soya meal in China, tied to a recovery in pig herds and rising poultry output.

A transition to large-scale industrialised pig farming had also boosted the use of high protein-based feeds, as opposed to traditional, smaller outfits which typically utilised food waste.

However, with the IGC assuming pig stocks would be fully restored to pre-ASF levels in the early part of the forecast period, this growth might moderate moving forward.

By 2025/26, the IGC expected China’s share of global import demand to remain steady at around 60%. ●