Flaxseed market - cancelation of the export duties is necesary
To date on the market of Ukraine it is very actual issue on the cancellation of the export duty for flaxseed. Thus, owing the popularity of flaxseed on the world market in Ukraine the situation is reverse due to the certain circumstances.
More detailed information on the market of flaxseed, and also the place it is taking in Ukraine is kindly provided by the General Director of “Enlightening-production and commercial firm “Syaivo” Ltd. – Nikolai Shkurko.
- Nikolai Petrovish, first please tell briefly about the major producers and exporters of flaxseed on the world market? What share is being taken by Ukraine?
The world leader on the production and exports of flax seed is Canada; in 2012 the country harvested 518.2 thsd tonnes. But according to the results of 2011/12 MY the first line on the world exports of flaxseed was taken by Russia. The country exported 397 thsd tonnes of the oilseed, by doubling the last year result (152 thsd tonnes). Kazakhstan also increases the oilseed supplies (240 thsd tonnes in 2011/12 MY as opposed to 59 thsd tonnes in 2010/11 MY) taking the third line. At the same time Canada slightly decreased exports: 391 thsd tonnes as opposed to 404 thsd tonnes.
The growth of the demand on the flax seed provided its world production increase. According to the data of Oil World in 2011/12 MY flax seed world production totaled 2.1 mln tonnes and essentially exceeded the last year result (1.82 mln tonnes).
The largest planted areas of flax seed are in Canada, China, USA, Russia, Kazakhstan. Meanwhile, Belarus also faced the flaxseed production increase. Ukraine is also the large-scale producer of flax seed.
The major buyers and consumers of flaxseed and its processing are the EU countries. The large-scale importers are also China and the USA. In 2011/12 MY Afghanistan also imported the oilseed by purchasing 42 thsd tonnes of flaxseed from the CIS countries as opposed to the previous year result.
- How do you characterize the situation on the flaxseed market? Who is the major consumer in the segment?
As for production, in the beginning of 2000 the flaxseed production in Ukraine was followed by the essential growth. Thus in 2008 flaxseed planted areas totaled 19.33 thsd ha and in 2009 – 47.74 thsd ha and in 2010 – 58.9 thsd ha. But still in the recent few years the planted areas stopped growing, despite the available potential, and totaled 55-60 thsd ha (57 thsd ha in 2012 the harvest totaled 48 thsd tonnes).
Besides in Ukraine flaxseed production is lower compared with the world leaders. Ukrainian flaxseed yield totals 8-9 c/ha meanwhile in the USA the stated rate totals nearly 14-15 c/ha, in Canada – 12-15 c/ha, in Russia – 8-12 c/ha. This fact also impacts on the Ukrainian flaxseed price formation.
Despite the growing popularity of flax seed and its by-products, Ukrainian flaxseed market is still niche and taking the small segment of the general oilseeds market. It is due to the limitedness of the sales markets of flax seed and its by-products.
The major consumer of flaxseed in Ukraine is the processing industry. Its main by-products are flaxseed oil and cake. Flaxseed oil is the excellent raw-material for the technical purpose in varnish-and-paint, soap, and leather industry, and also for production of aluminum and oil paints for art and other. Flaxseed cake is also the great high protein content component for mixed-feed production. Meanwhile chemical industry and cattle-breeding in Ukraine are in the loss so the flaxseed is being processed by the certain companies. Flaxseed cake is actively used for feed by the private sector just only in the regions of the commodity production.
Thus note despite the wide range of the flaxseed and its by-products use it takes small share in the segment of the oilseed raw-materials domestic market: it is as it was the export crop, the same as its by-products.
- How do you estimate the potential of Ukrainian flaxseed?
In the recent years since 2008 when in the Canadian flax seed there have been found gm additives, the EU faces the high interest to the CIS seeds because they are ecologic. Thus the total exports of the commodity from Russia, Kazakhstan and Ukraine as of the end of July 2012 totaled 510 thsd tonnes, up 2 times of the previous year rate (237 thsd tonnes). The major buyers of the Ukrainian flaxseed are Belgium, imported 8659 tonnes of flaxseed, Poland – 4286 tonnes, Lithuania – 2945 tonnes, Germany – 2048 tonnes, Italy – 1542 tonnes. This year there has been unexpected importer of Ukrainian flaxseed – Vietnam – nearly 10 thsd tonnes. In total last year Ukraine exported 30 thsd tonnes of flaxseed, or nearly 5.9% from the stated common exports. Meanwhile Kazakhstan and Russia face the active production increase of the flaxseed, Ukraine stopped the developing of the stated rate.
Though flax seed export is the prospective direction owing its popularity growth on the world market, in Ukraine its exports and production stopped the developing. One of the reasons is the stated regulation which does not provide the support for oil seed production.
Thus there is the import duty for flax seed imposed in 1999. This problem is actual for the interests of agricultural producer, processing enterprise, and exporter. The stated rate of duty of 10% has to defend the interests of the processing enterprises owing the providing with the advantage for the domestic price formation.
- How do the current import duties impact on the exports market?
The issue on the export duty imposition was initiated by the Association Ukroliyaprom uniting the major processors of the oilseed. Note the stated low imposed the duty also for sun seed and fals flax. The stated fact was effective for processors of sun seeds: increase of the number and efficiency of the enterprises producing oil and processing it for food (mayonnaise, margarine and other) caused the oil exports increase by 1.8 times in the period of the duty being active. So Ukraine became on the leading world exporters of sun oil. But in Ukraine there are only few enterprises processing flax seed. The share of processed flaxseed by them is wretched: in 2011 it was 8144 tonnes, or just15% from the harvested 53 thsd tonnes and just 0.11% from the oilseeds processing volumes. The main result of the work of the oil processing enterprise – volumes of produced oil. In 2011 flaxseed oil production totaled 2888 tonnes or 0.09% from the general production volumes of oils.
At the same time the agricultural producer has no opportunity to sell the commodity by the world prices and the exporter lost interest for trade with flaxseed. The agrarians state that after flaxseed production it is possible to organize the seeds realization. But unlike of sun seeds facing the active demand during the year the flax seed need to be stored by months before the active demand appears. Export duty for seed decreases the domestic sales price and does not let for agricultural producers to sell their commodities on favorable prices.
Thus flaxseed domestic price in Ukraine in 2012 totaled nearly 3600 UAH (450 USD) and then faced an increase to 4500 UAH (560 USD) meanwhile European prices are stable at the level of 550-600 USD so considering the duty, transport and other costs the Ukrainian flaxseed is uncompetitive.
- What are the main difficulties of the work on the foreign market of flaxseed?
First of all these are uncompetitive prices for the domestic flaxseed in comparison with other countries, in particular with Russia and Kazakhstan where is no the export duty. Ukrainian exporters note the clients refuse from purchasing in favor of Canadian or Russian flaxseed. The export duty delays the development of the stated market in Ukraine – from production to exports.
- What countries are the major competitors of Ukrainian flaxseed on the world market?
Our major competitors are Russia and Kazakhstan. Their producers are in more favorable situation unlike of the Ukrainian colleagues. First there is the program of the state support for flaxseed production. Agrarians get donations. Besides these countries have own energetic resources so the prices for fuel, mineral fertilizers and oil are lower of the Ukrainian ones causing the decrease of the prime-cost of the produced commodities. Besides, there is no export duty for flax seed in these countries. Despite the yield decrease in the Western Kazakhstan due to the unfavorable weather conditions, the flaxseed prices are still lower of the Ukrainian ones. Thus in Kazakhstan they reached nearly 520-550 USD, in Russia – 550-600 USD, meanwhile in Ukraine to 800 USD.
- And finally please, tell about the prospects of the Ukrainian flaxseed in total and on the world market in particular, if the exports duties are canceled.
Considering the experience of Russia the regulation of oilseeds exports by export duty is not optimal because it can cause the planted areas decrease. And on the contrary, its absence allowed increasing flaxseed production in comparison with Ukraine: in Russia by 3 times, Kazakhstan – 5 times meanwhile the prices are 1.5 times lower of the Ukrainian ones.
Exports duty cancellation would let for the agricultural producers to sell seeds on the world prices and renew fixed assets, purchase qualitative seeds and to increase production volumes.
Notable is the fact that the Ukrainian flax not apply, with a few exceptions, no dehydration, no forced drying. Natural weather conditions allow for Ukrainian flaxseed to ripe on the stem so it is more ecologic and more competitve on the world market but for high sales price. EU countries - the largest importers of the flax seed – pay more attention on its ecologic parameters.
Flaxseed is produced by small and mille-scale enterprises due to the small inputs on ha of the planting area. Meanwhile agricultural holding have the sufficient financial assets produce more profitable crops needing the essential inputs.
If to leave the situation as it is the government would enlarge the current problems meanwhile exports duty cancellation to satisfy all the interested sides. So, the demand and supply of flaxseed allow increasing agricultural production, to load processing enterprises and to increase exports.
Interviewed by Svetlana Gnoevec
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