Operations Review

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, Zimbabwe, Zambia, Tanzania and South Africa. 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 business.

Our operations 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, India, Vietnam and Thailand.

As at 31 December 2019, the Group has crushing plants and flour and rice mills located in the following countries:

Note: Crushing capacity includes oilseeds crushing and rice bran extraction

Our portfolio of consumer products include edible oils, rice, flour, noodles, sauces and condiments and are manufactured in China, Indonesia, India, Vietnam, Bangladesh, Sri Lanka and several African countries. 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, Indonesia and Papua New Guinea and rice in Ghana, Bangladesh and Zimbabwe as well as flour in Vietnam, New Caledonia, Thailand, India and Malaysia.

In 2019, trade tensions between the United States (US) and China continued to have an impact on soybean trade flows. Soybean imports in China declined significantly from a peak of 95.5 million MT in 2017 to 88.0 million MT in 2018 and remained largely unchanged at 87.5 million MT in 2019, with the bulk of the supply coming from South America. While Brazil’s overall exports of soybeans decreased 12% in 2019 to 73.5 million MT, Argentina’s soybean exports increased substantially to 10.2 million MT in 2019 due to a better harvest. US soybean exports increased 10% to 51.3 million MT in 2019 as trade negotiations progressed during the year. China remained the top importer of soybeans, accounting for approximately 58% of the world’s demand in 2019.

Nonetheless, total volume of soybeans crushed in China decreased 11% from 93.0 million MT in 2018 to 82.9 million MT in 2019 due to the lingering effects of the US-China trade tensions and the African Swine Fever (ASF) outbreak. As a result, both soybean meal and soybean oil saw lower consumption in 2019. Soybean meal consumption in China decreased 11% to 65.5 million MT while soybean oil consumption in China decreased 4% to around 16.0 million MT in 2019.

On the supply side, good weather in Argentina led to a rebound in soybean production and crop yields after a drought battered its crops in 2018. However, dry weather conditions during the start of the harvesting season in Brazil resulted in a slightly lower production.

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.

In 2019, the Oilseeds and Grains segment achieved a pre-tax profit of US$636.9 million, a 27% decrease from US$875.0 million in 2018 as overall crush volume and margins for the year were impacted by the ASF outbreak in the first half of 2019.

Consumer products sales volume improved by 7% from 6.0 million MT to 6.4 million MT as a result of the earlier Chinese Spring Festival in January 2020.

The 2019 novel coronavirus (Covid-19) outbreak has brought volatility to the commodity markets and further challenges our operating environment, especially in China. At the moment, we do not expect a major impact to our businesses as we are mainly operating in the food products industry. Nevertheless, a prolonged outbreak of Covid-19 may have a greater impact on our operations. We will continue to monitor key developments including any impact on food supply and food consumption in China as well as other major markets. Soybean imports into China are forecast to recover by 3% to around 85.0 million MT for the marketing period of October 2019 to September 2020.

In the Consumer Products business, we will continue to benefit as consumers’ preferences shift from unpackaged to quality branded consumer pack products. We will also continue to strengthen our brand reputation while improving our distribution networks, research and development as well as expanding our portfolio of products to grow our market presence globally.