NCPA 2007 reeves

Major Issues Affecting the Cottonseed Oil Industry: 

Major Issues Affecting the Cottonseed Oil Industry Robert M. Reeves, President Institute of Shortening and Edible Oils Presented at the National Cottonseed Products Association 111th Annual Convention Destin, Florida May 5-8, 2007

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Trans Fat Biodiesel Federal Regulations Environmental Security Food Labeling Sustainability OVERVIEW

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Requires Trans Fat Content on Label Reason: trans fats raise LDL cholesterol, therefore cause increased heart disease risk. Applies to packaged foods at retail Stimulated reformulation toward “0 g. trans fat/serving” throughout retail food industry FDA Food Labeling Regulation (Effective 1-1-06)

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Total Fat = 32% Saturated Fat = 11% Trans Fat = 2% AMOUNTS OF FAT IN DIET

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80-85% - Hydrogenation of Vegetable Oils 15-20% - Tissue of ruminant animals SOURCES OF TRANS FAT IN U.S. DIET

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Trait enhanced oils (e.g., low linolenic soy, high oleic canola) Naturally stable oils (e.g., palm, cottonseed, corn, mid oleic sunflower) Mixing fully hydrogenated “hardstock” with unhydrogenated oils. Interesterification of mixture customizes melt point Modification of hydrogenation process (time, temperature, pressure, catalyst) Gelling or emulsifying agents TRANS FAT ALTERNATIVES

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Naturally stable without hydrogenation Enhances flavor of foods cooked in it Low flavor reversion Economically competitive with other oils Good source of essential fatty acids (linoleic, linolenic) “Beta-Prime” crystalline structure promotes smooth creamy texture in shortening COTTONSEED OIL AS A TRANS FAT ALTERNATIVE

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STATE LAWS AND MUNICIPAL ORDINANCES RESTRICTING TRANS FATS 20 states have proposed regulations Over 25 municipalities have proposed ordinances New York City Health Code: Requires restaurants to reduce trans fat to less than 0.5 g/serving in cooking oils, shortenings and margarine, by July 1, 2007 All other foods must comply by July 1, 2008 (e.g. specialty baking shortenings) Requires restaurants to provide calorie information for standardized menu items Over 25 school districts have proposed standards

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STATE & LOCAL TFA RESTRICTIONS

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SUPPLY AND DEMAND OF MAJOR TRANS FAT ALTERNATIVES Demand = 8 billion pounds (partially hydrogenated oil subject to replacement) Supply = Billions (Lbs.) Crop 0.90 low lin soy 1.25 high oleic canola 1.75 palm 0.60 other stable oils 4.50 Total Result: Large scale demand in short term unlikely to be met with adequate supplies.

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Corn plantings for 2007 = 90.4 M acres (highest in 67 years) Corn production = 13.8 B bushels in 2007 Farm corn prices to average $3.60/bu in 2007-2008 ETHANOL EXPANSION AFFECTING 2007 CROP OUTLOOK

MAJOR CROP PLANTED ACREAGE 2006-2007(Source: USDA – April 11, 2007): 

MAJOR CROP PLANTED ACREAGE 2006-2007 (Source: USDA – April 11, 2007) 2006 2007 % Crop (M Acres) (M Acres) Change Corn 78.3 90.5 +15 Soybeans 75.5 67.1 -11 Wheat 57.3 60.3 + 5 Cotton 15.1 12.1 -20 Rice 2.8 2.6 - 7

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National Ambient Air Quality Standard for Ozone (NAAQS) EPA ordered by Court to propose standard by 6-20-07 and finalize rule by 3-12-08 EPA has proposed a standard of 0.06 ppm ozone average over 8 hours (current standard 0.08 ppm ozone) Significant implications for generators of volatile organic compounds (VOC) and nitrous oxide (NO). Edible oil extraction and refinement facilities potential generators of VOC’s ENVIRONMENTAL REGULATIONS

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Spill Prevention, Control and Countermeasure (SPCC) Rule Designed to prevent oil spills SPCC applies to any facility having 1320 gallons of oil on hand, (e.g., cottonseed oil mills and refineries) Facilities in operation before 8-16-02 must maintain existing SPCC plan and amend/implement by 7-1-09 Facilities in operation after 8-16-02 through 10-31-07 must prepare and implement by 7-1-09 Facilities in operation after 10-31-07 must prepare and implement plan before beginning operations ENVIRONMENTAL REGULATIONS (Continued)

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Chemical Security Bill (S2145) passed 10-4-06 as part of Appropriations Bill Department of Homeland Security (DHS) designated to establish and enforce security standards at chemical facilities to thwart terrorist attacks DHS Interim Final Rule of 4-9-07 requires vulnerability assessments, response plans, facility registration, etc. DHS screening “chemicals of interest” which include some that may be used in edible oil extraction/processing plants (e.g., chlorine, hydrogen, ammonia, boron trifluoride) CHEMICAL SECURITY

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Requires food labels and warnings by states to be identical to federal rules HR4167 passed House by voice vote in September, 2006 S3128 submitted in Senate and hearing conducted. No action taken. Bill died in Committee as 109th Congress ran out of time. Unlikely to be revived under Democratic control of Congress FOOD UNIFORMITY LEGISLATION

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Major corporations (e.g., WalMart) requiring verifiable sustainability polices from suppliers Environmental stewardship principal goal/focus areas: Ingredients Packaging Energy use Water use Waste management/recovery Emissions SUSTAINABILITY