Bangladesh is one of the most prosperous countries in Asia and is expected to become the 26th largest economy in the world by 2030 [1]. Even during the pandemic, while neighboring countries were experiencing a negative trend in their GDP growth rate, Bangladesh’s GDP per capita grew from USD 1,960 in 2020 to USD 2,130 in 2021. As a result, the expenditure per capita of the country increased from USD 1,470 in 2020 to USD 1,600 in 2021 [2]. Since more people could afford better quality food, regularly consumed items like edible oil and protein experienced a growth. From the HIES 2016 data, protein consumption per capita was estimated to be an average of 37 kg per year by 2020 and is expected to grow at a CAGR of 2.07 percent in the next 5 years [3]. Similarly, in the edible oil sector, consumption of major edible oils is currently at 2.7 million tonnes and is forecasted to be around 3.65 million tonnes by 2025 [4].

The emerging soy crushing sector and its competitive advantages

In recent times, there has been a growing trend among oil refineries to engage in the soy crushing sector. Large conglomerates like City Group and Meghna Group have recently increased their soybean crushing capacities to 7,000 metric tonnes and 5,500 metric tonnes per day, respectively [5]. A reflection of this growth can be seen in the total volume of soybean seeds imported in 2020. In a span of one year, the import of soybean seeds rose from 1.3 million metric tonnes to 2.5 million metric tonnes (around 92% increase) due to the growing capacity and demand from the leading crush players in the industry [6].

Import of Soybean in Bangladesh | Source: USDA

The reason for this increased interest in the soy crushing sector is due to the fact that soybean seeds can be crushed to give the two main outputs: crude oil and soy meal, which is a major animal feed ingredient. As such, the soy crush then caters to 2 different markets: oil and feed. A closer look at the soybean crushing process shows that it consists of 3 major steps: cleaning and dehulling soybean seeds, solvent extraction, and meal treatment. Primarily, the seeds are dehulled and the hulls are heated and ground to produce low (42 to 43 percent) protein content meals. The dehulled beans are then mixed with a solvent to make crude soybean oil, while the wet meal is ground to make high (46 to 48 percent) protein content meals [12]. From the aforementioned process, around 74 percent of the product is soybean meal that caters to the animal feed industry, while 19 percent of the output is the crude oil that is further refined to produce soybean oil. Since the majority of the crush by-product is subjected to the feed market, the crushing industry is heavily dependent on the animal feed industry. Additionally, the crushing industry receives an incentive in procuring raw materials as they do not have to pay any duties for importing soybean seeds, while oil refiners pay 15 percent customs duties on crude oil imports [7]. Hence, the opportunity to be a part of two blooming industries along with added cost benefits have led to the staggering growth of the soybean crushing industry in the past 3 years.

The foreseeable trajectory of the soybean meal and oil industry

Since disposable income has increased, there has been an upward shift in protein consumption. Consequently, the feed industry is expected to grow exponentially in the coming years. In 2020, the total feed market consisted of 7 million metric tonnes, out of which, 5 million metric tonnes were produced commercially and it is expected to grow at a CAGR of 8 percent in the coming 5 years. Since 60 percent of the feed industry consists of chicken feed, the rising demand for eggs and layer chicken will accelerate the growth of the feed sector as well as the demand for soybean meal. In Bangladesh, 64 percent of soybean meal used is procured from local sources, while the rest are being imported. Therefore, the opportunity for the soybean crushing industry to strengthen the domestic meal market is high, given the fact that the industry will be able to provide high-protein (46 to 48 percent) content soybean meal at a competitive price [3].

As a result of improved livability owing to increased disposable income, people aspire to shift towards using healthier food components, such as switching to soybean oil from palm oil. However, the palm oil industry has been growing as well due to its popularity among the lower-middle-income population for its price competitiveness and increasing consumption in the Vanaspati and food processing industry as well as the HORECA sector (hotels, restaurants, cafes). In the soybean oil industry, with the increase in consumption of soybean oil, import of Crude Degummed Soybean Oil (CDSBO), which is refined to produce edible oil, is forecasted to decline in the next 5 years as more soybean seeds are imported for the crushing industry and as locally crushed soybean oil is cheaper compared to imported crude degummed soybean oil [4] [6].

Consumption-and-import-of-soybean-oil
Consumption and Import of Soybean Oil | Source: MPOC

Challenges incurred during the pandemic

Due to the pandemic, the global soybean market has experienced supply chain disruptions that have made the entire crushing sector along with the markets of its by-products (oil and meal) volatile. While nations have suffered from business closures, bottlenecks in logistics, and trade restrictions, China’s total agricultural imports from the USA grew by 91 percent in 2020 compared to its previous year with the import of soybeans growing by 77 percent in the same period [8][9]. This massive concentration has led to the rise in the price of soybeans, soybean oil, and soybean meal in the global market as well as the domestic market [10].

Global Price Trend of Soybean, Soybean Oil, and Soybean Meal
Global Price Trend of Soybean, Soybean Oil, and Soybean Meal | Source: Index Mundi

Impact of Russia-Ukraine conflict on global food chain supply

With the ongoing conflict between Russia and Ukraine, exports via the Black sea have been halted, additionally, newly implemented financial restrictions on Russia have left importers opting for alternative sources. This has led to the upsurge of global oil prices and commodities, as Russia produces 10 percent of the global oil and the Black sea channel exports a quarter of the total exports of grains [11]. Since Bangladesh’s edible oil sector is mostly dependent on imported seeds and crude oil, the domestic price of oil is expected to increase even further.

Although the recent global scenario is yet to become stable, the flourishing future of the soybean crushing industry in Bangladesh is foreseeable. For crushing plants to be fully sustainable, they have to meet the demand of feed manufacturers who currently procure raw materials from abroad. As crush plants in Bangladesh are yet to operate in full capacity, domestic soybean meal prices are generally sold at a high price to cover production costs. Domestic soybean meal price is often higher than imported ones by USD 34 per metric tonne on average [6] [13]. To capture the domestic meal market, high-quality soy meal at a competitive price can shift the feed manufacturers away from the imported market.  In the long run, as both the feed and the edible oil industry are expected to grow, the soy crushing sector looks promising for the domestic market.

References

This article was authored by Fahmid Kaisar, a Business Analyst at LightCastle Partners. Advisory and editorial support was provided by Tamanna Shahnowaz Sohanee, Senior Business Consultant and Project Manager at LightCastle Partners. For further clarifications, contact here: [email protected]

  1. National Human Development Report 2021, Economic Relations Division.
  2. GDP and Expenditure per capita, The World Bank.
  3. Poultry Sector Study, LightCastle Partners.
  4. Bangladesh Food Industry – Continuous Growth and Growing Potential for Palm Oil Consumption, MPOC.
  5. Major Commodity Processors more into Crushing Oilseeds, The Daily Star.
  6. Bangladesh: Oilseed and Products Annual, USDA.
  7. Customs Tariff, Bangladesh Customs.
  8. Global Market Report: Soybeans, International Institute for Sustainable Development.
  9. China 2020 Export Highlights, USDA.
  10. Commodity Prices, Indexmundi.
  11. Chaos in Commodities as Russia’s War on Ukraine Upends Trade, Bloomberg
  12. Overview of the soybean process in the crushing industry, OCL
  13. Primary Research, LightCastle Partners
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