Operations Review
Oilseeds & Grains
(Manufacturing & Consumer Products)
The Oilseeds and Grains segment consists of the processing, merchandising, branding and distribution of a wide range of agricultural products including non-palm and lauric edible oils, oilseeds, flour and rice as well as downstream products such as wheat and rice noodles in consumer pack, medium pack and in bulk.
Manufacturing
We are a leading player in oilseed crushing with extensive presence in various parts of the world such as China, India, Vietnam, Malaysia, Russia, Ukraine, South Africa and Zimbabwe. We crush a wide range of oilseeds including soybean, rapeseed, groundnut, sunflower seed, sesame seed and cotton seed into protein meals and edible oils. The protein meals produced are mainly sold to the animal feed industry while the oils are largely sold to the Group’s Consumer Products and Oleochemicals businesses.
We have also expanded our business to include flour and rice milling as well as the production of rice bran oil. We are one of the largest wheat and rice millers in China and own flour mills through joint ventures in Malaysia, Indonesia, Vietnam, Thailand and Papua New Guinea.
Consumer Products
We are the largest producer of consumer pack edible oils in the world (including consumer pack tropical oils), with operations across the globe including China, Indonesia, India, Vietnam, Bangladesh, Sri Lanka and several African countries. We also produce and market rice, flour, and noodles under a diverse brand portfolio. Over the years, we have established a comprehensive sales and distribution network reaching out to traditional retail outlets, supermarkets, convenience stores and hypermarts. Our consumer brands are renowned for their quality, having won numerous product awards in their respective markets. In China, we have a substantial market share of around 45% for edible oils, helmed by our flagship Arawana brand of products.
Leveraging the extensive distribution and brand awareness from the consumer edible oils and food staples, we have also diversified into the consumer pack flour and rice businesses in China, rice in Bangladesh, India and Ghana as well as flour in Vietnam and Indonesia.
Industry Trend in 2017
China remained the top importer of soybeans, making up approximately 64% of the world’s demand in 2017. Demand for soybeans in China grew a significant 15% from 83.2 million MT in 2016 to 95.3 million MT in 2017.
Total volume of soybeans crushed in China increased from about 79.0 million MT in 2016 to about 87.0 million MT in 2017. Consequently, both soybean meal and soybean oil saw higher consumption in 2017. Soybean meal consumption in China increased around 11% to 68.0 million MT while soybean oil consumption in China increased 10% to around 15.9 million MT in 2017. The sustained growth in soymeal demand has been driven by the trend towards a more protein-based diet. In China where pork is the protein of choice, this has also resulted in the modernisation of pig farming operations with more efficient and larger scale facilities, which in turn has led to some consolidation in the feed milling industry.
On the supply side, continuous good weather in major soybean growing areas such as the United States, Brazil and Argentina led to a year of abundant supply. International soybean prices were relatively stable in 2017. The year started with soybean prices at around US$10.00 per bushel, hitting a peak of about US$10.80 per bushel in mid-January and subsequently retreating to a low of around US$9.00 per bushel in June as expectations for US production were raised. However, prices quickly recovered to about US$10.40 per bushel in early July on the back of increasing Chinese imports. However, a record crop in Brazil saw soybean prices retrace its gains to around US$9.20 per bushel by mid-August and where it remained range bound for the rest of the year.
In the Consumer Products business, we continued to benefit from healthy demand for branded consumer pack food staples across the countries in which we operate.
Our Performance
In 2017, the Oilseeds and Grains segment achieved a pre-tax profit of US$735.0 million, almost triple the US$251.1 million recorded in 2016. The strong performance was driven by higher crush volume and good crush margins.
Sales volume for Oilseeds & Grains grew 13% from 29.5 million MT to 33.3 million MT. Revenue increased 11% from US$17.81 billion to US$19.81 billion.
As at 31 December 2017, the Group has crushing plants and flour and rice mills in the following countries:
| Crushing | Flour Milling | Rice Milling | |||
|---|---|---|---|---|---|
| Subsidiaries | |||||
| China | 53 | 18 | 18 | ||
| Malaysia | 1 | 0 | 0 | ||
| Vietnam | 3 | 0 | 0 | ||
| Africa | 1 | 0 | 0 | ||
| Indonesia | 0 | 2 | 0 | ||
| Total no. of plants | 58 | 20 | 18 | ||
| Total capacity (million MT p.a) | 25 | 6 | 4 | ||
| Associates | |||||
| China | 17 | 1 | 2 | ||
| India | 17 | 1 | 0 | ||
| Russia | 2 | 0 | 0 | ||
| Ukraine | 1 | 0 | 0 | ||
| Malaysia | 0 | 9 | 0 | ||
| Indonesia | 0 | 2 | 0 | ||
| Others | 5 | 8 | 1 | ||
| Total no. of plants | 42 | 21 | 3 | ||
| Total capacity (million MT p.a) | 13 | 3 | < 1 | ||
Outlook and Strategy
We expect to see continued growth for protein meals in China. Soybean imports into China are forecast to grow 4% to around 97 million MT for the marketing period from October 2017 to September 2018. With the lifting of restrictions on oilseeds and grains processing capacities in early 2017, we have been selectively expanding our facilities to enable us to better capture this growth. The more disciplined operating environment for the crushing industry in China is also beneficial for us, hence we remain positive on the outlook in 2018.
In the Consumer Products business, our growth will continue to be underpinned by the transition from unpackaged to quality branded consumer pack products. We will continue to strengthen our brand reputation while improving our distribution networks, research and development as well as expanding our portfolio of product to grow our market presence globally.