By Dominique Patton
BEIJING (Reuters) - A Chinese consumer backlash against genetically modified (GMO) crops is beginning to dent demand for soy oil, the nation's main cooking oil, and could spell crisis for the multi-billion-dollar crushing industry, which depends on GMO soybeans from the United States and elsewhere.
Soyoil sales account for about 36 percent of cooking oils used in Chinese kitchens, more than three times the next highest, and most of it is made from imported soybeans, which are nearly all genetically modified.
The Chinese government says GM foods are as safe as conventional foods, but wealthier urban consumers are replacing soyoil with sunflower, peanut or sesame, all free of biotech raw materials.
A Nielsen survey last year showed about 70 percent of consumers in China limited or avoided at least some foods or ingredients, compared with a global average of 64 percent, with 57 percent naming GMOs as undesirable.
"Everyone says soyoil has GMOs," said Mr Liu, a 70-year-old Beijinger, shopping with his wife in Walmart. "Better not eat too much. Apparently they're not safe. It's like those hormones. I'm just as afraid of eating GMOs as hormones."
That sentiment is already hurting retail sales. Supermarket sales of soy oil fell 1 percent last year to 35.7 billion yuan ($5.19 billion), data from Euromonitor shows, versus growth of between 2 and 6 percent for alternatives.
"Non-GMO oil is gradually replacing (soy oil)," said Johnny An, supply chain director at food-service firm Aramark, which serves meals in banks, government offices and schools in more than 60 Chinese cities.
A few years ago, 10-20 percent of Aramark's customers asked for GMO-free oil, he said. Now it's more than half.
The mood is causing headaches for crushers, said Paul Burke, Asia director at the U.S. Soybean Export Council, forcing them to find new markets for their soyoil, though it had not yet had a noticeable impact on bean imports, as demand for soymeal used for animal feed, the larger byproduct of soybean crush, is still robust as China expands its livestock industry.
The Nielsen survey found that more than four in five Chinese shoppers would be prepared to pay more for GMO-free products, and a 5-litre bottle of GM-free soy oil already sells at a 20 percent premium to GMO oil, but that isn't translating into a boon for the nation's soybean crushers.
China is the world's top soyoil consumer - it will use 16 million tonnes this year - but the crushers rely on the United States and Brazil, which grow GM-soybeans, for 86 percent of China's 84 million tonnes of soybean imports.
In China, which does not permit planting of GMO soybeans, labor costs are high and productivity low on small farms, making non-GMO beans costly to grow. They sell for a third more than non-GMO beans planted elsewhere.
Processors such as China Agri Industries, a unit of food and grains trader COFCO and one of the country's top crushers, told Reuters it needs to improve its sourcing of non-GMO materials, to meet "escalating market demand".
In the meantime, processors are losing money as increased competition with other edible oils and a ballooning glut has pushed soyoil futures in China down 18 percent so far this year to multi-year lows.
Some crushers are taking radical steps to find more GMO-free beans.
Henan Sunshine Oils and Fats wants to buy as much as 15,000 hectares of land in Ukraine to grow and process crops such as non-GMO soybeans, rapeseed and sunflowers, said Yang Renyi, group vice-president and general manager of the international affairs department.
That would be a very large plot; in the United States, the largest farms average around 1,052 hectares.
Yang's team made two trips to Ukraine last year to look into the feasibility of producing, storing and processing oilseeds there.
"If we managed to get a large area of land to grow oilseeds, we possibly will spend at least 200-300 million yuan there," said Yang.
Non-GMO oils - mainly rapeseed and sesame - already account for a fifth of the firm's sales since it started marketing the new offering late last year, he added.
The shift in attitude against GMOs in China has been fueled by social media and campaigning by high-profile personalities.
The agriculture ministry has sought to assuage consumers' fears, launching education campaigns and banning advertising that promotes non-GMO products as healthier.
But years of food scares have shaken consumers' faith in Beijing's ability to guarantee the safety of the nation's food supply.
Cooking oil is a particularly sensitive topic after a scandal over the use of recycled oil known as gutter oil, a few years ago, so shoppers are wary.
"Before everyone said soybean oil has GMOs, now the advertising is all about non-GMO soyoil. But we still don't buy it," said Maxine Li, a 28-year old bank worker, shopping at the same Walmart. "We think peanut oil is a bit healthier."
For a graphic on retail sales of edible oils in China, click: http://reut.rs/2q9CQwc
For a graphic on China edible oil production, consumption, imports and stocks, click: http://reut.rs/2oNTwW7
(Reporting by Dominique Patton. Additional reporting by Beijing Newsroom; editing by Josephine Mason and Will Waterman)