Opportunities abound for Malaysian palm oil to gain wider foothold in South Africa
With a population of 44 million and a gross domestic product (GDP) of USS587.5 billion in 2006, South Africa is the richest and most economically developed country in the Sub-Saharan region of the continent. The country has a highly developed manufacturing sector and produces many finished products for its own needs and for export. Among the edible oils products produced, the output of solid fats is estimated at 250,000 metric tonnes (MT) a year. This production level is able to support about 80 per cent of the country's requirement, with the remaining 20 per cent being imported.
The solid fats sector
The solid fats cater to household and industrial sectors in the ratio of approximately 60:40. Industrial users are largely bakeries (including pastry makers), restaurants (including fast food outlets), food caterers and manufacturers of ice-cream, sweet confectioneries and snack food.
The household sector is the largest consumer of solid fats, using 86 per cent of this in the form of margarine, with remaining for shortening, which is mainly used for pastry and cake making. Margarine is widely used as spread for bread and as a cooking medium. The household margarine sold in South Africa is almost 100 per cent locally manufactured and sold in supermarkets and hypermarkets in packs and tubs of 125g, 250g, 500g and 1kg. The major manufacturers of margarine in South Africa are Unifoods (Pty) Ltd, South Africa Margarine (Pty) Ltd and Epic Food, which control 37 per cent, 19 per cent and 17 per cent of the market respectively.
| Brand |
Brand owner |
Market share (%) |
| Rama |
Unifoods (Pty) Ltd |
18 |
| Stork |
Unifoods (Pty) Ltd |
16 |
| Blossom |
Epic Foods (Pty) Ltd |
12 |
| Sunshine D |
South African Margarine (Pty) Ltd |
12 |
Much of this margarine has a high fat content, in excess of 50 per cent of the nett weight. The four widely sold brands – Rama, Stork, Blossom and Sunshine D – account for 58 per cent of the total margarine sold, with the two best selling brands from Unifoods, South Africa's largest producer.
In the industrial segment,, bakery and confectionery manufacturers producing bread, biscuits, cakes and pastries are the largest users. Shortening is very widely used, mixed with the dough and for biscuit fillings. Specialty fats such as CBS and CBE are also widely used as coating fats. Though the industry is fragmented, with some 6,000 small bakeries operating, there are five major producers of breads and pastries in South Africa – Pioneer Foods, Golden Wheat Biscuits, Chipkins Bakery Suppliers, National Brands (Bakers) and Genfood Bakeries.
The sweet confectionery and snack food sector produces a wide spectrum of products, ranging from candies, sweets and chocolates to popcorn, pretzels, roasted nuts, chips, cookies, crackers and meat snacks. Nestle SA has a strong brand presence in South Africa's sweet confectionery and snack market and accounts for 50 per cent of the solid fats used by this sector. Aarhus supplies the bulk of the Nestle SA's solid fats requirements. The other major users are Beacon Sweets & Chocolates, Canon Foods, Moonlight Sweets and Sugarbird Sweets Pty Ltd.
The dairy and ice-cream sector as well as the fast food sector are the smallest users of solid fats. Here, solid fats are used in place of milk fats. Very little edible oil-based solid fats are used – in fact, about 80 per cent of the fats used are milk fats. In the fast food sector, Super Crisp produced by Felda Bridge and Crispa Gold produced by Hudson & Knights are popularly used for frying. Collectively, Felda Bridge and Hudson and Knight supply about 90 per cent of the fast food operators' frying fats requirements in South Africa. These fats are sold in 20-litre buckets.
Market potential
The prospects and potential for solid fats use is very much dependent on consumer demands for snack food, baked foods, ice-cream, confectioneries and household margarine. The estimated sale of these products, obtained from trade sources for the period 2006 to 2011 is shown in Table 1.
| Table 1: Demand for Solid Fats |
| Year |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
| Household Margarine ('000 MT) |
250.7 |
246.8 |
247.3 |
248.8 |
248.8 |
248.8 |
| Ice-cream ('000 litres) |
127,355 |
126,616 |
125,907 |
125,154 |
125,357 |
125,550 |
| Confectionery, sweet & savoury snack ('000 MT) |
212.4 |
219.4 |
126.2 |
232.0 |
237.7 |
242.6 |
| Bakery ('000 MT) |
2,232 |
2,231 |
2,238 |
2,256 |
2,281 |
2,314 |
| Source: Trade sources |
Margarine use and solid fats consumption by the ice-cream sector are expected to experience slight drop in sales from 2006 to 2011. According to local sources, South African households are reducing the use of margarine because of concerns that it is fattening. The ice-cream sector is expected to show reduced sales as the product is generally deemed to be expensive. In the sweet and savoury snack sector, it is expected that there will be higher growth from 2006 to 2011 as flavour and packaging of snack food has improved, while disposable income among the lower- to middle-income groups is rising, making snack food more affordable. Increasing consumption of bakery and confectionery products can also be attributed to the establishment of more baked food stores by supermarket chains that produce tastier and better quality bakery and confectionery products.
Growing concerns over food product prices and about trans-fats being unhealthy are clear indications that palm oil can capture a larger portion of the growing market for solid fats demand. This can be achieved through the replacement of soft oils as a raw material for solid fats production or by taking advantage of the increasing demand for solid fats from palm oil.
Most of the household margarine sold in South Africa is produced from sunflower oil, which has to be partially hydrogenated to achieve the required hardness for margarine production. To eliminate trans-fat content in margarine, researchers have recommended replacing 20 per cent of the sunflower oil used with palm oil. With pressure from consumers – and realisation on the part of manufacturers – trans fats can be eliminated from margarine as well as other shortenings. This can then provide room for larger import of palm oil, and for margarine use alone, the amount can come up to 25,000 MT a year.
Conclusion
Products made with solid fats are consumed mainly by affluent South Africans in the urban centres. Just like their peers in Europe, these consumers are health conscious and it is therefore inevitable that the chorus for trans fat free products will rise. To capture this opportunity, Malaysian palm oil players will have to educate manufacturers of soft oil-based solid fats on the superior qualities of palm oil. Alternatively, Malaysian exporters can explain to users of solid fats the health benefits and cost-effectiveness of palm oil-based solid fats.
| Table 2: Estimated solid fats usage in South Africa |
| Year |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
| Household Margarine ('000 MT) |
135.4 |
133.3 |
133.5 |
134.4 |
134.4 |
134.4 |
| Ice-cream ('000 MT) |
12.7 |
12.7 |
12.6 |
12.5 |
12.5 |
12.6 |
| Confectionery, sweet & savoury snacks ('000 MT) |
53.1 |
54.85 |
31.55 |
58 |
59.425 |
60.65 |
| Bakery ('000 MT) |
558 |
558 |
560 |
564 |
570 |
579 |
Despite justifications for wider palm oil usage in both margarine for cooking and in manufactured food products, the big challenge Malaysian palm oil players will face is the traditional attachment of South Africans to locally produced sunflower oil. This loyalty could make it difficult for any major shift from sunflower oil to palm oil, despite the health and economic advantages palm oil offers. Malaysian palm oil players will therefore have to be very aggressive in their marketing tactics to take advantage of opportunities in South Africa's solid fats market. |
