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Tallow and Grease
The Bovine Spongiform Encephalopathy (BSE) crisis in the EU continues to dampen U.S. exports to this region. Exports to Asia have grown as the price of palm stearin rises above the price of tallow.
Overview
In 1998, tallow and grease production in selected countries is estimated to grow for the first time since 1995. The United States, which represents nearly 50 percent of the market, boosted production by roughly 10 percent and is largely responsible for the increase in world production. Second ranked China also contributed by increasing production 5 percent. These gains were slightly offset by losses in the Netherlands. Dutch grease production spiked in 1997 as a result of the control measures put in place to eradicate hog cholera. For 1998, the Netherlands is returning to pre-1997 production levels. Argentina recorded its seventh year of losses while Australia and Russia also decreased production.
There are two major events affecting global tallow and grease trade. As the European Union struggles to reach internal consensus on how to avoid health risks that may be associated with Transmissible Spongiform Encephalopathies (TSEs), its tallow trade continues in an unstable environment. In 1996, consumption in the EU dropped by nearly 10 percent, most acutely in Spain and the United Kingdom, following the Bovine Spongiform Encephalopathy (BSE) crisis. Imports suffered the same fate and have not recovered.
On July 30, 1997, the European Commission attempted to regulate the industry by proposing a Specified Risk Material (SRM) ban prohibiting the use of the skull, eyes, tonsils, and spinal cord of cattle, sheep, and goats aged over one year and the spleens of sheep and goats in any products sold in the European market. Although no TSE related health risk has been established involving tallow, the proposed ban would include tallow and its derivatives. The EU continues to debate several amendments to the SRM ban, and implementation has been delayed until January 1, 1999.
Palm stearin prices have also affected tallow trade. During a majority of 1996 and 1997, palm stearin prices were lower than tallow prices causing many net importers of fats and oils to substitute vegetable oil products, particularly palm stearin, for animal fats. This changed in 1998 when the supply of palm stearin started to feel the affects of El Niņo weather which produced lower yields per hectare. Fires in Indonesia, the world's second largest producer of palm stearin behind Malaysia, also decreased supplies. As a result of higher demand and lower supplies, palm stearin prices began to rise above tallow prices. Lower stock quantities of palm stearin will likely continue influencing its price in 1999. Since production of tallow is forecast to continue at a moderate pace in 1999, it is expected that the price of tallow will remain below that of palm stearin.
U.S. Tallow Exports Set to Increase
In 1997, domestic production of tallow and grease was down for the third year in a row. Decreases occurred in both edible and inedible tallow, although inedible tallow remains the dominant factor and accounted for 80 percent of total production. This downward trend appears to be changing in 1998. A comparison of production from January to August of 1998 to the same period last year shows that both edible and inedible tallow increased 8 percent. These increases in tallow and grease are attributed to record slaughter weights for cattle and an increase in the number of hogs slaughtered.
In 1997, U.S. exports of inedible tallow were negatively affected by the BSE crisis in the EU as well as the substitution of palm stearin for tallow. U.S. exports to the EU dropped over 30 percent as importers reduced purchases in reaction to the proposed SRM ban. The largest losses occurred in Spain where exports were cut in half, and Italy where exports went from 39,219 tons in 1996 to 7,913 tons in 1997. In the Asian market, China reacted to lower palm stearin prices by not importing any U.S. inedible tallow in 1997. This was a major loss since the U.S. exported 79,688 tons in 1995. Also, Korean importers reacted to a larger supply of domestic production by purchasing 4,862 tons of tallow in 1997 compared to 26,271 tons in 1996. As a result of these factors, U.S. exports dropped over 15 percent in 1997.
Exports of inedible tallow were rejuvenated in the first eight months of 1998, increasing 40 percent over the same period last year. Although exports to Spain have recuperated, overall exports to the EU continue to lose ground. However, these losses were more than accounted for by Mexico's eighth consecutive year of expansion, making it the largest overall market for U.S. tallow. Exports to Argentina during the first eight months of 1998 totaled 31,799 tons compared to 1,200 tons during the same months of 1997, helping exports to Central and South America jump an estimated 40 percent. Similarly, exports to Asia are estimated to increase 30 percent. Exports to Korea have contributed to expansion by increasing from 4,596 tons in the first eight months of 1997 to 11,509 tons during the same period in 1998, providing one of the few bright spots for U.S. exports to Korea.
Exports of edible tallow shared the same good fortune as inedible tallow by rising nearly 50 percent in the first eight months of 1998. The largest gains occurred in Mexico, where exports increased over 30 percent from the same period last year. Exports to El Salvador jumped from 501 tons in the first eight months of 1997 to 9,079 tons during the same period in 1998. Also, Brazil imported U.S. edible tallow for the first time since 1994.
For more information, contact Tony Halstead, (202) 720-1350.
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