Malaysian Palm Cooking Oil Consortium: The Possible Way Out for Malaysia to Penetrate China’s Cooking Oil Market

Introduction

Palm oil has been used mainly in food applications in the Chinese market, be it for food processing, bakeries or as cooking oil. The total consumption of palm oil among these industries accounts for approximately 70% of the total palm oil consumption in China.  Nevertheless, most of the chefs, homemaker and bakers are not very familiar with the functional attributes of palm oil or palm fats or the health and nutritional benefits of palm oil.  The only thing that most of them are aware of or familiar with is whether it is edible oil for deep frying purpose, for general cooking purpose, or shortening etc. without knowing whether it contains or is produced with palm oil.  This is partly due to lack  of pure palm or blended palm cooking oil in the Chinese market, the only market segment that palm oil is almost absent in China.   

The unavailability of palm based cooking oil in most parts of China is mainly due to 2 reasons. Firstly, the Chinese are not familiar with palm oil as it is not produced / available locally. This discourages the cooking oil manufacturers from launching palm based cooking oil as it involves putting additional marketing effort on not only creating awareness on the brand, but also creating awareness and acceptance among the Chinese on this non-native grown vegetable oil.  This means higher risk as compared to launching a brand that is carrying soybean oil, rapeseed oil and many other types of vegetable oils which is available in China. Secondly, palm oil or palm olein solidifies in cold weather, and being a temperate country, most parts of China will see palm cooking oil (despite using super olein with slip melting point (SMP) of 18°C) solidifying in winter and most parts of autumn and spring seasons in the northern regions.  Hence, if palm cooking oil is launched, it may have to be confined to southern region to allow it to be sold throughout the year, otherwise the cost efficiency of marketing this cooking oil is low if only able to sell during limited period of year.

Cooking Oil Sector – Prospects Remains

Nevertheless, this 10 million MT or close to 30% of total edible oil market in China should not be ignored by the Malaysian palm oil industry players on the following 2 reasons, especially since China has granted the market access of red palm oil since 1st Mar 2021.

Firstly, robust economic development in China has witnessed the living standard of the Chinese consumers improving. Coupled with success in poverty alleviation in China by end of 2020, the number of Chinese who puts higher attention in health issue has been increasing, particularly after the covid-19 outbreak.  Hence, there is a promising potential for the red palm oil to penetrate into China’s cooking oil sector as a premium cooking oil.

Secondly, although the anti-palm oil campaigns mushrooming in Europe region has no direct impact on the palm oil market in China, it would be advisable to take pre-emptive measures by creating awareness among the Chinese consumers of the health, nutrition and functional attributes of palm oil as much as possible.  This is to avoid any Chinese consumers from picking up these campaigns messages (in Europe) and start circulating in the social media platforms.  In the worst case scenario, this may result in causing some of the food processors to switch to other vegetable oil or find ways to cut down the reliance on palm oil to avoid being targeted by the Chinese consumer which may affect the sales of their products. Hence, launching palm cooking oil especially the red palm cooking oil would be an ideal approach to position palm oil as premium cooking oil and create a good image among the Chinese consumer.

Malaysian Palm Cooking Oil Consortium

As highlighted earlier, the cooking oil manufacturers, be it the Chinese or Malaysian would be hesitating to launch any palm cooking oil due to its solidification issue in winter.  However, as compared to a single player, a consortium could be formed among a few major cooking oil manufacturers (including red palm oil) to launch the red palm oil and palm olein based cooking oil in China.  This could utilise the strength among the members in the consortium to improve the competitiveness instead of one company which may experience a lot of limitations, i.e. funding, access to current distribution channels etc.

Instead of the entire China market, the consortium could focus on cooking oil market in the southern region of China including Guangdong, Guangxi, Hainan and Fujian Province, where there is longer period in a year that palm olein could avoid from solidification problem, allowing it to be marketed throughout the year. Even during the colder period, lower SMP olein could be used for short period to make sure that the brand and its palm based cooking oil remains liquid and available in the market.

Besides that, the red palm cooking oil should be introduced to the consumer before launching any pure palm olein cooking oil. This allows the consortium to position red palm cooking oil as premium healthy product in penetrating consumer market. Emphasis on the richness of carotenoids, tocotrienols and other phytonutrients will be able to attract the eyeballs of many Chinese consumers, as the red colour could easily differentiate it among many other premium cooking oils such as rice bran oil, grapeseed oil, flaxseed oil, pumpkinseed oil and etc. promoted aggressively in Chinese market.  Only after the successful launching of red palm cooking oil and gaining acceptance in the market that the consortium could introduce palm olein cooking oil.

In order to encourage the consortium in launching the red palm cooking oil and later palm olein cooking oil in China, MPOC or Malaysian government could subsidize the consortium through supports in the marketing campaign in China. This could be first through utilising the presence of MPOC Shanghai Rep Office, as well as the MPO WeChat Official Account, which is the powerful social media tools in carrying out market activities.  

Conclusion

Based on an estimation by an industry analyst in China, consumer packed cooking oil will still grow in China between 2019 and 2025 but at a slower pace as compared to mid-packed (Table 1). Nevertheless, the growth in value would be more significant due to the shift of consumer preference from conventional cooking oil to higher functional cooking oil. This is where the potential lies ahead for our cooking oil consortium in launching the red palm cooking oil in China.

Table 1: Applications of Edible Oil in China

  Period Mid-packed Consumer Loose Form Consumer Packed Total
Sales
(mil MT)
2011 7.32 11.36 6.57 25.25
2019 12.99 10.53 11.59 35.11
2025F 16.53 8.26 12.77 37.57
Share (%) 2011 29% 45% 26% 100%
2019 37% 30% 33% 100%
2025F 44% 22% 34% 100%
Growth 2011-2019 77% -7% 76% 39%
2019-2025F 27% -22% 10% 7%

Note: Both Mid-packed and consumer loose form encompass oils used in food processing industry

According to the IPO Prospectus of Wilmar China, the gross margin of cooking oil for the company is at 20%, while those mid-packed only fetching 6% gross margin. This indicates that if the premium cooking oil like red palm cooking oil is introduced, the profit margin should be higher and will allow the Malaysian palm oil industry to venture into the Chinese cooking oil market despite the slower growth rate in volume anticipated.  Hence, the ideas of setting up a consortium to penetrate the Chinese cooking oil market should be explored.

Prepared By:  Desmond Ng

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