Summary - The Bovine Spongiform Enephalopathy (BSE) controversy has injected a note of uncertainty into the overall trade situation. Responsible for the catastrophic drop in U.K. production, the long-term impact on trade remains uncertain. The primary concern centers around the EU's regulatory response to BSE and its effect EU on imports. The EU is a market of critical importance to the United States.
World production of tallow and grease is projected to fall slightly in 1996. Increased production in Canada, China and Australia during 1996 will not be sufficient to offset a slight drop in production in the United States and a sharp (35%) drop in production in the United Kingdom (U.K.). Trade is forecast to continue at a brisk pace, though the United States is not projected to dominate export as strongly as in 1995. Increased production by most major exporting countries, including the United States, is forecast to drive world production up in 1997, and lead to further increases in trade.
Domestic production of tallow and grease declined in 1995, due largely to a 14 percent drop in production of edible tallow, which more than offset a slight gain in production of inedible tallow. For 1996 the situation appears to be reversed: through August, production of edible tallow has improved over the same period last year, while production of inedible tallow and grease has fallen somewhat. These declines can be attributed to a drop in the projected slaughter weights for cattle, which will more than offset growing slaughter rates, and to a drop in hog slaughter. As a result, the projection for 1996 production has been revised to reflect a slight decline. Production is forecast to increase by slightly less than 2.5 percent in 1997, reflecting a forecast increase in slaughter and average slaughter weight for both cattle and hogs.
Graph: U.S. Export Markets for Tallow and Grease
Exports fell in the first half of 1996, due in large part to high prices and increased sales by competitors such as Australia and Canada. Sales to China have been particularly weak after last year's extraordinary growth, dropping from 72,553 MT through July of 1995, down to 1,656 MT through July of 1996. This is primarily the result of increased competition from other exporting countries, most notably Australia, which has once again become the dominant exporter to this market. Other markets experiencing significant declines in the first half of 1996 include Korea, Japan, the Netherlands, Egypt and Algeria. Considerable growth was seen in sales to Mexico, Turkey, Colombia and Guatemala, though this growth was insufficient to offset declining sales to other markets. U.S. imports of tallow and grease are projected to drop sharply during 1996, despite increased domestic consumption. This in part reflects growing demand overseas for Canadian tallow, which constitutes the bulk of U.S. tallow imports.
Graph: Export Prices for U.S. Tallow and Grease
Increased cattle slaughter is projected to result in a jump of nearly 13 percent in tallow and grease production during 1996, with a further 10 percent increase forecast for 1997. Most of the increase is expected to be absorbed by increased domestic use. As a result, imports of tallow from the United States are forecast to drop from the extremely high levels of 1995 (47,000 MT), decreasing through both 1996 (45,000 MT) and 1997 (40,000 MT). Even with these declines however, Canadian tallow imports are expected to remain well above the 1993 level of 29,000 MT.
The marked increase in Canadian tallow imports is a direct result of the jump in exports of tallow. Though export estimates for 1995 and 1996 have been revised downward, they remain quite high and show a pattern of steady growth forecast to continue through 1997. The primary contributor to this growth has been China, which is now projected to be Canada's third largest market for tallow and grease in 1996. Unlike other major markets, such as the Netherlands and Japan, which appear to have peaked in 1995, Chinese demand is forecast to continue growing throughout this year, making China and Korea the fastest growing markets for Canadian tallow this year. This is particularly notable in that, prior to 1994, China imported no Canadian tallow at all.
Graph: Canadian Tallow and Grease Exports, 1992 - 1996
Though domestic production estimates have been revised upward for 1996, imports are forecast to continue rising. The increase is attributed to high prices for domestic and imported oilseeds and feedgrains, which has led feed manufacturers and integrated swine and poultry producers to increase their use of domestic tallow in feed rations. This has, in turn, led other users of tallow to import larger quantities as domestic tallow becomes scarce and prices for imported tallow remain lower than those for palm oil. Growth is forecast to continue at the current rate through 1997.
El Salvador - Rudimentary production methods and low quality of domestic tallow continue to work with low prices for imported tallow and vegetable oils to render domestic tallow uncompetitive. As a result, domestic production has continued to decline. Final import numbers for 1995 were considerably below projected levels, leading to a downward revision of 1996 imports as well. Low prices for imported palm olein in 1995 resulted in some substitution for imported tallow. Imports are forecast to improve during both 1996 and 1997 as tallow prices become more competitive. The declining role of the PL 480 Title I program is also expected to have some effect on imports.
Nicaragua - As with other El Salvador and Guatemala, Nicaragua's domestic production of tallow falls far short of meeting domestic needs. In previous years the United States has supplied some 85 percent of Nicaragua's total consumption of tallow and grease, largely through donations under the PL 480 title III program. With no donations planned for 1996, Nicaragua's import demand will be met through commercial purchases.
Dominican Republic - U.S. exports of tallow and grease to the Dominican Republic are forecast to show slow but steady growth through 1996 and 1997, after reaching near-record levels in 1995. However, the short-term strength of this market masks some of the long-term difficulties that it faces. The bulk of the Republic's imports are used in the manufacture of soap, and face competition from vegetable-based substitutes such as palm oil, both domestic and imported. (The strong markets of 1995 have been attributed to a favorable price for tallow as compared to palm-oil products.) At the same time, tallow-based soaps face increased competition from detergents, which have captured much of the growth in this market. Though more expensive, detergents are more efficient cleaners, and are considered by manufacturers to be easier to handle. As a result, the market for tallow-based soaps is primarily at the lower-income level, while detergents are oriented to a higher-income market.
Though still small compared to the market for tallow, the markets for yellow grease and lard as feed additives are growing. These market show greater long-term potential, as feed production in the Dominican Republic has shown a high degree of stability.
Production of tallow and grease is projected to remain stable throughout 1996, rising somewhat during 1997 as slaughter rates increase. Imports have been revised, and are now projected to jump by over 66 percent during 1996. Proposed legislation would have limited tallow imports as a means of encouraging use of domestic palm oil, but the legislation was not enacted in October as expected, and its fate is now uncertain. The failure of this legislation to pass, combined with a slight price advantage over palm oil has caused a surge in imports, most of which are expected to originate in the United States. Imports are forecast to return to previous levels in 1997, continuing the long-term declining trend that began in 1993. This long-term fall in imports is an important development as, prior to 1993, Colombia was the world's fourth largest market for tallow. Reduced demand reflects the increased utilization of domestic palm oil in the manufacture of soap. Soap production accounts for some 80 percent of Colombia's demand for tallow and grease. Overall demand for tallow is forecast to continue declining by roughly 2 percent per year over the next 5 years. GSM 102 loan guarantees play an important role in U.S. sales to this country. The Colombian government provides a 5 percent export subsidy for tallow, though the country does not export tallow.
Increased slaughter and continued strong demand from the soap industry are projected to drive domestic production up by 4 percent in 1996, with a similar increase forecast for 1997. Increased domestic production helps to account for the dramatic drop in total imports during 1995. The United States became the primary supplier of tallow to Brazil in 1995, displacing Uruguay. Though initially expected to continue into 1996, Brazilian sources now indicate that the trend is expected to reverse itself this year, with Uruguay returning to its dominant status in this market.
Domestic production of tallow and grease is expected to increase in 1996 then fall back in 1997 to levels slightly below those in 1995, following the trend in cattle slaughter. Tallow yields have been relatively low in recent years due to the tendency to slaughter cattle at a younger age. Despite this, overall output is expected to increase toward the end of the century as the Argentine cattle industry gears up to expand exports.
Domestic consumption, after growing slightly in 1996, is forecast to decline in 1997. This is the result of two separate, complementary trends. The first is a shift by the food industry toward the use of vegetable oils in place of animal fats. This is, in turn, the byproduct of increased investment by foreign companies, which have introduced international formulas into manufacturing, which rely much more heavily on vegetable-based oils. This trend is expected to continue as changing methods filter down to smaller manufacturers. The second trend is the soap manufacturing industry's growing tendency to substitute detergents for tallow.
Exports are projected to grow slightly during 1996 as increased exportable supplies become available, then hold steady during 1997 as declining domestic consumption is offset by the forecast decline in production for that year. Exports are directed primarily at niche markets such as Morocco, Nigeria and South Africa.
Netherlands - Continued trouble in the cattle sector has led to a drop in domestic production, as lower live cattle imports have led to decreased slaughter. This trend is forecast to continue into 1997. Roughly 82 percent of the Netherlands' demand for tallow and grease in 1995 came from the livestock sector, of which roughly one quarter is used in calf-milk replacer, while the rest is used in feed by the swine and poultry industries.
Though overall demand for feed has declined, high prices for feed grains and vegetable oils
resulted in increased use of animal fats in feed rations. Most of this increase was supplied from
sources within the EU. Demand for fats used in calf-milk replacer however, declined as the
destruction of 65,000 calves imported from the UK in 1995 has brought about a drop in veal
production. The longer term effect of the BSE scare however, appears to favor increased overall
demand for tallow and grease, as consumers shift from beef to pork and poultry. (Swine and
poultry production uses more tallow in mixed feed.) Also working to strengthen long-term
demand are the increasingly stringent waste-disposal regulation being placed on the swine
industry. Though swine numbers are actually expected to decline, new regulations encourage
increased use of concentrated mixed feed to aid in manure disposal. This will require an increase
in the use of fats in feed rations.
Graph: Netherlands Tallow and Grease Utilization by Sector
Most of these changes favor imports of tallow and grease from EU sources, however. Imports from outside the EU are expected to face strong competition from vegetable oils during 1996. Imports from the United States could be further jeopardized by changes in EU regulations. In response to the BSE scare the EU has proposed a regulation that will require increased heat treatment of material classified as 'high risk'. Implementation of this change has been postponed until April 1, 1997 as negotiations over the inclusion of alternate heating methods continue.
Belgium - Continued stable to high slaughter rates for cattle and swine led to increased
production during 1995, which is forecast to continue through both 1996 and 1997. Long-term
growth in consumption is expected to continue as the fatty acids industry continues to expand.
Where the dominance of feed use has allowed the Netherlands to rely more heavily on imports
from within the EU, the dominance of industrial use in Belgium has led this country to import
primarily from North American sources, particularly Canada. Because it is produced in larger
volumes, the quality of North American tallow tends to be more consistent and stable over time.
After jumping considerably during 1995, tallow imports are expected to fall somewhat during
1996 and 1997 Denmark - Relatively low slaughter rates in 1995 caused a substantial dip in the
production of tallow and grease, with a partial recovery forecast for 1996
continuing into 1997 as production of pork increases. Strong markets for tallow and grease in
1995 brought about a shift in trading patterns as exports to other EU markets increased,
supported by increasing imports from outside the EU. This pattern is forecast to continue
through 1996 and into 1997.
Graph: Belgian Imports by Origin, 1995
France - Production is forecast to remain steady throughout 1996 and 1997, reflecting stable slaughter levels in the meat sector. Domestic consumption is expected to fall slightly during 1996 however, as some production is diverted to supply export markets in Turkey, Morocco and Mauritius. Imports are projected to be supplied increasingly from within the EU. France's primary export markets are Spain, Belgium and Italy, while its primary suppliers for imports are Germany, Belgium/Luxembourg and the United Kingdom.
Germany - Though production of pork is projected to decline slightly in 1996: expectations of an EU buy-out program for cattle have led to a forecast for increased beef production, which has in turn led to an increase in the 1996 forecast for tallow and grease production. Production is forecast to fall back to 1995 levels again in 1997. Continued growth in domestic demand is expected to absorb the production increase in 1996 and lead to a slight decline in exports and increase in imports during 1997. Germany's primary trade partner, both for imports and exports, remains the Netherlands, which accounts for over half of Germany's export markets (by volume) and well over one third of its imports.
Ireland - Though revised downward for 1995, Irish production of tallow and grease is projected to rebound in 1996 and increase further during 1997. This despite poor markets for tallow. The BSE scare and subsequent ban on feeding ruminant-derived offal to cattle had a limited effect on the use of tallow in feed, though it is still favored over vegetable oils due to its competitive price. In April, domestic renderers threatened to shut down operations due to extremely poor markets for meat and bone meal. The government intervened to resolve the crisis, as a shutdown would have led to closure of slaughter plants as well, as these must dispose of all offal within 24 hours. Most domestic consumption of tallow goes into the manufacture of swine and poultry feed, and has therefore been unaffected by the ban.
United Kingdom - Current BSE disposal programs for cattle require carcasses to be
destroyed. As a result, production of tallow and grease are expected to fall by a whopping 35
percent in 1996, recovering by a mere 4 percent in 1997. Domestic consumption has also fallen,
taking a 25 percent hit as feed and human use have fallen sharply in part due to the BSE scare.
Consumption is expected to recover only slightly in 1997. Exports are forecast down
dramatically, reflecting the EU's ban on tallow exports and, since the ban was lifted, continuing
consumer opposition within the EU to imports of UK tallow. The precipitous decline in forecast
exports will more than offset the fall in production, bringing about a decline in imports during
1996, with a partial recovery forecast for 1997.
Graph: BSE Concerns Take a Bite Out of U.K. Production and Consumption
Spain - Increased cattle and swine slaughter, combined with improvements in rendering continue to result in incremental production growth for tallow and grease. High prices for grains and vegetable oils in 1995 resulted in unusually high imports of tallow and grease from outside the EU. Spanish sources indicate that the BSE scare has had a dampening effect on consumption. This, combined with relatively low prices for domestic grains are forecast to drive overall consumption down in 1996, with a limited recovery forecast for 1997. As a result, imports of tallow from outside the EU are projected to fall by over 60 percent. Increased imports from EU sources, combined with the aforementioned decline in consumption are forecast to offset the decline in extra-EU imports.
Italy - Declining cattle slaughter as a result of the BSE scare is projected to cause a drop of over 13 percent in 1996 production of tallow and grease. Though domestic consumption is also forecast to drop, this decline will not be sufficient to offset lower production levels, thereby necessitating increased imports. This is expected to result in a substantial increase in imports from within the EU.
Portugal - Production increased during 1995 as a result of increased cattle slaughter, but is expected to dip slightly during 1996 before starting back up again in 1997. Overall consumption has followed a declining trend for some time now, but the drop projected for consumption in 1996 is especially sharp. This reflects the coincidence of several different forces, all of which are helping to keep consumption down. The first, and most important is effect of the BSE scare, which has had an especially strong impact on tallow consumption in Portugal.
Concern about the use of tallow in mixed feed has become so strong that some manufacturers are now marketing and advertising 'tallow-free' feed. As a result, tallow has virtually been eliminated from feed production. Another factor contributing to the decline include the long-term decline in soap manufacturing, which has been undermined by increased use of detergents. Finally, lower prices for soybeans have encouraged increased use of soybean products in mixed feed and in margarine. The decline in demand is anticipated to result in drastic reductions in Portugal's already low imports, dropping by 50 percent during 1996, then down to zero in 1997. Some recovery in demand is possible by the end of 1997, provided that fears about BSE are allayed.
Imports of tallow and grease set a blistering pace during 1995, jumping by 52 percent. Originally forecast to level off, imports have continued to expand during the first seven months of 1996, running 40 percent higher than the same period in 1995. As a result, the 1996 import projection has been revised upward to reflect a total increase of 35 percent for the year.
Demand for imported tallow is led by the soap industry, which has expanded its markets
throughout the Middle East, North Africa and much of the former Soviet Union. Roughly 60
percent of Turkey's soap is manufactured using tallow, the remainder utilizing more traditional
methods that rely on soapstock and inedible olive oil products. In addition to soap, tallow and
grease are increasingly being used in the manufacture of livestock feed.
Graph: Turkish Imports Keep On Rolling
Domestic production is small relative to imports, and is largely reserved to lower grades of soap, since the quality and reliability of supplies are not on par with imports. The largest exporter to this market by far has been the United States, followed by France, which also benefitted from the import boom during 1995. Turkish sources expect imports from France to decline slightly, partly offset by imports from Germany, as French tallow is increasingly diverted to other markets within the EU.
With virtually no domestic production to speak of, Egypt is entirely dependent on imports for its supply of tallow. This market can, however be quite volatile. Increasing use of detergents, combined with elimination of the consumer subsidy on soap has made this a declining market for tallow overall. Despite these long-term problems, 1995 was a very strong year for imports, which are projected to remain at this level through 1996 and into 1997. Easy substitution of vegetable oils in many uses however, makes forecasting for this market difficult.
Readjustments within the livestock sector have been especially difficult for Russia's rendering industry. Rapid declines in slaughter level alone would be sufficient to cause a rapid drop in production. This is further aggravated by high labor and processing costs for renderers, which have made the industry unprofitable. Added to this is the shift of slaughter from larger, older facilities that are frequently equipped with rendering operations, to smaller facilities. As a result, substantial quantities of material that once would have been rendered, are currently being discarded. Though demand has fallen along with production, its decline has not kept pace. As a result, imports have jumped dramatically, making Russia a strong short-term market prospect. In the long-term however, it is best to keep in mind that any recovery in the livestock sector is certain to spur growth in tallow and grease production within a short period of time.
Overall production is forecast to remain constant through 1996, with a slight decline in 1997, reflecting low slaughter levels. Exports of tallow and grease jumped during 1995, climbing from slightly under 600 MT in 1994 to over 7,400 MT. The bulk of this increase went to Russia and Byelorussia, though the Netherlands, Germany, the Baltic Republics and the Ukraine also increased their purchases of Polish tallow and grease. This surge in exports is forecast to moderate somewhat in 1996, and decline still further in 1997.
Graph: Polish Exports Find New Markets
Chinese production is projected to continue its slow growth in 1996 then leveling off during 1997 to reflect a similar trend in livestock slaughter. Over the long term, production is expected to continue growing along with the livestock sector as a whole, and as fat collection and rendering processes become more efficient. China's demand for animal fats has continued to outstrip growth in production, necessitating imports. Chinese sources have attributed much of this demand growth to increased use of tallow in animal feed.
Imports continued to climb during the first quarter of 1996, though not at the astounding rates seen in 1995, when imports doubled. At the same time, the sources of imported tallow have shifted. The primary beneficiary of the boom in 1995 was the United States, which went from being an insignificant player in this market to become the single largest exporter. New Zealand has also benefitted, more than doubling their exports. Australia, traditionally the dominant supplier, was unable to take advantage of the growth, and posted only a marginal increase over 1994.
Chinese customs data for the first quarter of 1996 indicate that the situation has reversed itself. Imports of tallow and grease from the United States have fallen far short of 1995 levels, though rumors continue to indicate that China will return to the U.S. market for tallow late in 1996. New Zealand's exports have also suffered, with first quarter exports to China falling well over 30 percent. The big winner appears to be Australia, along with a number of other countries, most notably Canada. The sudden shift in trade patterns may be attributable to increased prices for U.S. tallow relative to other sources, and to increased supplies available from China's traditional supplier of choice, Australia. (Australian sources indicate that the Chinese prefer the quality of Australian tallow.) With production forecast to increase in Canada, the United States and Australia over the next year, competition for this market in 1997 will be fierce.
Graph: Chinese Import Markets In Flux
Production of tallow and grease is forecast to continue the uninterrupted decline that began in 1993 through 1997 and beyond, mirroring the overall decline in hog and cattle slaughter.
Imports of tallow and grease briefly reversed their long-term decline during 1995 as short supplies of vegetable based fats and fatty acids resulted in substitution. The United States and Canada were the primary beneficiaries. This trend has not continued into 1996 however, as improved prospects for palm oil have brought a return of the long-term decline in imports. Fears related to BSE also appear to have dampened demand for tallow-based consumer goods such as soap and cosmetics. A partial recovery is forecast for 1997 as these concerns die down, but is subject to tallow's price relationship to vegetable oils.
Production estimates for tallow and grease during 1995 were revised downward to reflect low slaughter levels, but are expected to remain constant through 1996 and 1997 as increased cattle slaughter is balanced by declining hog slaughter. Domestic product suffers from volatility in both supply and quality, and is used primarily in feed.
Overall consumption of tallow and grease is dominated by the feed sector, whose consumption expanded rapidly during the late 1980's and early 1990's, while use in soap has declined over the past 5 years. Edible tallow is used primarily in noodles. Negative publicity over the use of low quality (i.e., inedible) tallow in these products dampened noodle consumption during the early 1990's. Efforts to restore confidence are only now beginning to have an affect, as shown by recent increases in consumption.
Graph: Korean Utilization of Tallow and Grease
Korean imports are highly sensitive to the price relationship with palm oil, which is widely used as a substitute in this market. A favorable relationship in 1995 resulted in a dramatic surge in imports, expected to level off somewhat during 1997 as improved prospects for palm oil come into play. U.S. trade data indicate that exports of all tallow and grease have fallen during the first half of 1996. Korean trade data for the first quarter indicate that the slack is being taken up by imports from Australia and Canada. As with China, increased competition from other tallow producers as well as from palm oil will make this a highly competitive market in 1997.
With virtually no domestic production, Taiwan is entirely dependent on imports for tallow and grease. Like other Asian markets, Taiwan is highly sensitive to the price relationship between tallow and palm oil. Limited supplies of palm oil during 1995 resulted in a boom market, particularly for the United States and Canada, who were in a better position to supply additional quantities to this market than their primary competitors, Australia and New Zealand.
In 1996, Taiwanese sources report that tallow prices continue to compare favorably with those for palm oil. New Zealand tallow is said to be particularly competitive, and New Zealand's market share is expected to grow substantially during 1996. Australian first grade tallow is also selling at prices well below those for U.S. top white tallow. As a result, U.S. market share is forecast to drop sharply during 1996. Taiwan's imports of tallow and grease are forecast to fall off somewhat during 1997, as the competitiveness of palm oil is expected to improve.
Graph: Tallow Vs. Palm Oil--Taiwanese Imports, 1991 - 1995
Estimates of 1995 tallow production were revised downward, while the projection for 1996 was raised significantly, both reflecting revisions in cattle slaughter. As a result, 1996 production will show a significant increase over 1995, with a similar increase forecast for 1997. Domestic consumption is expected to decrease slightly during 1996 and remain low during 1997.
Mirroring the trend in production, tallow and grease exports were revised downward for 1995 and the 1996 export projection was increased, with an additional increase forecast for 1997. Australia's top overseas markets in 1995 were South Africa and China, both of which nearly doubled their imports over 1994 levels, and dropping Taiwan from first place into third, as their imports of Australian tallow dropped.
Despite the increase in exports to China during 1995, Australia fell from number one to number three as a supplier to this market, with the United States and New Zealand edging them out of their traditional dominant position. Based on data from Chinese government sources, it appears that, unlike the United States, Australia's market in China has continued strong through early 1996. Bangladesh has also continued to grow as a market for Australian tallow.
Graph: Australian Tallow Prices
Tallow and grease production is forecast to climb slightly during 1996 then fall off again in 1997, mirroring the forecast slaughter rates for cattle. The export forecasts for 1996 and 1997 on the other hand, has been revised down to the same level as 1995. This reflects poorer-than-expected exports for the first half of 1996, attributed to the high New Zealand dollar, and a significant drop in sales to China, New Zealand's largest market. Final data for 1995 placed China as the largest export destination for New Zealand tallow and grease, a position it has held since 1992. Though Taiwan continued as New Zealand's second largest market, exports to this market remained depressed, and were nearly overtaken by exports to Bangladesh, which continues to provide a strong market for New Zealand tallow.
Graph: Export Markets for New Zealand Tallow
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Last modified:Friday, 22-Nov-1996