Ban on trans fat could boost palm oil

Ban on trans fat could boost palm oil

Health concerns have led to a shift in consumption, with a government-favoured agricultural sector poised to benefit

A supermarket clerk stocks the cooking oil shelf with palm oil. (Photo by Jiraporn Kuhakan)
A supermarket clerk stocks the cooking oil shelf with palm oil. (Photo by Jiraporn Kuhakan)

The proposed ban on trans fat will force restaurants and cooking oil makers to modify their products, but the change may be a boon to the palm oil sector, an industry heavily supported by the government's Palm Oil and Palm Oil Industries Development Strategy.

In line with the global movement to phase out partially hydrogenated oils by 2020, the government announced this week its intention to ban trans fat, a common ingredient in bakery products, coffee creamers, margarine and frozen foods.

Further details of the policy, including the specific percentage of trans fat that will be acceptable under the regulation and when the ban will come into force, have yet to be released.

Trans fat occurs naturally in some meats and dairy products, but their artificial version in the form of partially hydrogenated oils gained popularity in the last century because they are cheaper than other oil alternatives and increase the shelf life of certain products.

The Thai ban on trans fats is not unprecedented. In 2015, the US Food and Drug Administration (FDA) asked food providers to eliminate the ingredient by 2018. According to the New York Times, the agency had been planning the ban since 2013, when it ruled that "partially hydrogenated oils" -- the source of trans fat -- were "no longer recognised as safe".

According to the Times, the estimated ban will cost food suppliers US$6 billion (194 billion baht).

Major bakery and food chains in Thailand are starting to draw up plans to cope with the regulation. Many, which are controlled by global corporate entities, began eliminating trans fat from their menus years ago.

"Trans-fat-free schemes are not a new thing," said Nongnuch Buranasetkul, senior vice-president of Thai Beverage Plc, the operator of the MX bakery chain and Oishi restaurants. "The trend started in Western countries two years ago. We already had a team working on trans-fat-free recipes, so that we could offer products that comply with the law as soon as the government implemented the policy."

The ban will not have a sizeable effect on the company's menu items, according to Mrs Nongnuch, with the exception of some bakery products that contain butter or margarine.

The company has seven MX bakery shops out of 241 food restaurants, which suggests that the effect of these products on the company's bottom line will likely be negligible.

Still, ThaiBev will face higher production costs, since the price of natural margarine is about 30% higher than that of regular margarine.

"We will reduce other operating costs instead of passing on the cost to consumers," Mrs Nongnuch said. "Worst-case scenario, we will modify our products."

Xavier Salhani, chief executive of Mudman Plc, the operator of Dunkin' Donuts and Au Bon Pain, said the company was aware of the trans-fat-free trend and knew it would come to Thailand soon, "so we sent our products to the laboratory".

"After testing," he said, "we confirmed that our doughnuts have less than 0.5% trans fat and our Au Bon Pain products are already trans-fat-free."

Menu changes may cause consumers to move away from doughnuts, Mr Salhani accepts, which is why the company is focusing on its sandwich and coffee products.

"Our doughnut products are less popular in Japan, because consumers are not interested in the brand," he said. "They can buy doughnuts from everywhere, including 7-Eleven convenience stores, which is why some doughnut chains in Japan have started to offer dishes like rice with curry."

Mudman followed suit by opening nine Dunkin' Donuts shops along the subway line with more coffee and sandwich products and fewer doughnut options.

The rest of the 100 Dunkin' Donuts stores will adopt the new menu by mid-June.

"We aim to offer Starbucks-quality coffee at Amazon [Cafe] coffee prices," Mr Salhani said.

Now that the government is restricting trans fat, he said, they should also think about restricting sugar, since more than 30% of Thai people are likely to develop diabetes.

The brunt of the policy may not fall to food suppliers, but to cooking oil makers that will be forced to adjust their products or lose market share. Doughnuts may taste slightly more bland, but cooking oil producers will have to make the largest adjustments, Mr Salhani said.

Ausanee Mahagitsiri, managing director of Krispy Kreme in Thailand, said she has been aware of the trans fat issue since she brought the franchise over from the US years ago.

"The company gave us two options: a 0% trans-fat formula or a 20% trans-fat formula," she said. "We chose the 0% option, even if it is 20% more expensive, because my son and I also consume the products."

Next year, Krispy Kreme Thailand will introduce brown sugar alternatives, currently in the testing process in the US.

Prapat Siangjan, general manager of Burger King Thailand, said the parent group asked the local arm to introduce healthier menu items by eliminating food colouring and monosodium glutamate in the first half of 2017.

Burger King also recently introduced its "real chicken meat" menu amid concerns about the fat content of beef and pork.

Potential upside

The ban on partially hydrogenated oils will damage food chains and cooking oil makers, who will be forced to adjust their products. But the policy could boost palm oil producers, who are already an important economic force in the country.

In other markets where similar bans were implemented, hydrogenated oil producers have lost market share to palm oil, which has become a favourite of large-scale manufacturers.

In 2003, the US FDA declared its intention to make trans-fat labelling mandatory in 2006. Between 2003 and 2013, palm oil imports to the US increased 552%, according to the Food and Agriculture Organization.

Thailand is already the third-largest palm oil producer in the world, and an increase in palm oil demand could have important effects in the local economy.

Indonesia and Malaysia produce 52.5 million tonnes of palm oil (85% of global production), and control 53.4% and 37.9% of the global export share, respectively.

Thailand is a distant third, with an annual production of 2 million tonnes (1.2% of world's share), according to a report by Krungsri Research.

The ban is unlikely to have an effect on global prices of the commodity, according to a source with a substantial interest in Foong Lee Sawiminyak, a major palm oil producer in Perak, Malaysia.

"If anything, the effect will be felt by domestic suppliers because transport costs may still favour local supply to local demand," the source said. "This will create a boost on the demand side, but I don't think Thai restaurants will affect global prices in a significant way."

The market for palm oil in Thailand is tightly regulated. The government has taken steps to stimulate the production of palm oil, including an import quota under the supervision of the Thailand Oil Palm Board and a price cap managed by the Internal Trade Department.

Initially concentrated in southern Thailand, palm oil production has expanded to the northern and central parts of the country, according to Krungsri Research.

As a result of these policies, close to 90% of the palm oil produced in Thailand is destined for the domestic market, Krungsri Research said, adding that cooking is the most common use for palm oil, comprising 33% of domestic production, and palm oil represents 65% of the cooking oil market in the country.

"The positive effect is more likely to be felt by domestic suppliers of branded cooking oil," said the Foong Lee Sawiminyak source.

The ban on trans fat may reinforce the government's Palm Oil and Palm Oil Industries Development Strategy for 2015-26, which aims to increase palm oil plantation by 3 million rai and expand production to 21 million tonnes.

The plan also calls for the expansion of domestic palm oil consumption by 300,000 tonnes, according to Krungsri Research.

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