2013/14 MY provided both pleasant surprises and unexpected disappointments to the fat-and-oil industry. But despite all difficulties and obstacles, the fat-and-oil industry of Ukraine - one of the few, which continues showing the growth rates, and once again confirmed its status of the world largest producer and exporter of high-quality sunflower oil. Stepan Kapshuk, General Director of the Association UkrOliyaProm, kindly agreed to tell us about the results of the season-2013/14 for enterprises of the industry, and prospects of the new season.
- Stepan Pavlovich, the season-2013/14 has already completed. What features of the industry would You highlight?
First of all, I want to say that the reporting marketing year is quite different because we work in terms of extreme instability. But despite the fact, the year for the fat-and-oil industry will become a "year of records”, according to our forecasts! The fat-and-oil industry shows the growth of production rates by 130-140%. It is the result of the record harvested volumes of sunflower seed and other oilseeds in 2013 - nearly 16 mln tonnes. Therefore, it is forecasted that the specialized enterprises will produce 4.3 mln tonnes of sunflower oil, and the exports will total nearly 4 mln tonnes. And taking into account small-scale workshops producing sunflower oil, the general production volumes would reach 4.4-4.5 mln tonnes. For the first time, Ukraine will achieve such results.
As for the other oilseeds, I would like to highlight the successes of soybean market. They mainly concern the growth of oilseed processing to 0.8 mln tonnes, and even to 1 mln tonnes. According to our preliminary data, in the season-2013/14 domestic enterprises processed nearly 160 thsd tonnes of rapeseed. In my opinion, in the nearest future the trend for growth of the processing volumes of such crops as soybeans and rapeseed, will continue.
- Like no other You know not only the achievements of the industry, but also the difficulties faced by fat-and-oil enterprises. What problematic issues would You like to mention?
Beginning of the harvesting campaign can be estimated as some difficulty. In particular, rainy weather conditions, which not only trouble the harvesting campaign, but also affected the qualitative indices of the raw material (moisture content, oil content). The enterprises faced a shortage of capacities for drying the received raw materials. The policy of agrarians concerning the price formation - constraining of sales expecting for price rising, led to the fact that the sellers became the losers, taking into account weakening of the national currency against USD. As a result, in addition to problems with the quality of oilseed raw materials, the processing enterprises faced some deficit of supply of sunflower seed of the harvest-2013 in the beginning of the harvesting campaign.
I would call the collapse of prices for sunflower oil, sunflower meal as another "disappointment" of the season-2013/14. In late August the prices of sunflower oil reached its minimum during several recent years - 735-745 USD/t FOB.
Many experts say that rapeseed was the major disappointment of the year - namely, the price situation on the export market of rapeseed in the reporting period.
- At the same time, the processing volumes of rapeseed increased. How do You think what was the primary cause?
First of all, it is the profitability on the markets of finished products, not only oil, but also rapeseed meal. The demand for rapeseed meal is growing, primarily from European countries - Poland, the Netherlands, the Baltic countries. Of course, it influenced the processing volumes of rapeseed. And I think that the current level of 160 thsd tonnes is not the limit. The domestic processing enterprises will be able to consume even 200-300 thsd tonnes of rapeseed in the future.
- The draft law registered in the Verkhovna Rada of Ukraine, on imposition of the 3%-duty on crude sunflower oil exports, can be attributed as one of the unpleasant moments of the season-2013/14. I would like to hear Your opinion on the issue.
It is really unpleasant fact, especially since to date the fat-and-oil industry demonstrates not only improvement of the production indices, but also increasing of sunflower oil and sunflower meal export rates. And taking into account that crude sunflower oil is the export-oriented product, which brings foreign exchange earnings to the state budget, which is especially important in the current difficult economic situation, it is nonsense for me. At the same time, authors of the draft law justify the reporting measures with the need to increase production of refined sunflower oil. Yes, partially we agree that it is necessary to increase the production of refined sunflower product, but the feature of world trade shows that mainly crude oil is in demand on the international market. At the same time, mainly Ukraine and Russia are competitors on foreign markets of the Black Sea region, and we can really lose the niche market to Russia, despite all our struggle for the market for several years. Therefore, I believe that the draft law will not be supported, especially taking into account the fact that the monthly sunflower oil exports totals 300 mln USD, and it is the additional factor to stabilize the exchange rate of the national currency.
- How do You think whether such event as signing of the economic part of the Association Agreement with the EU will influence the fat-and-oil industry?
The fact is that Ukraine supplies sunflower oil to the EU for a long time, and Ukrainian oil has established itself as the high-quality product. I would like to stress two important points in the economic part of the Agreement: zero import duties for the supply of sunflower oil to the EU countries, and zeroing of the export duties on sunflower seed during a transitional period of 15 years. 15 years is quite long period, but the zero export duty is not profitable for the Ukrainian fat-and-oil industry. Judge for yourself, annually Europe purchases 500-600 thsd tonnes of sunflower oil from Ukraine. But in terms of the zero duty on the raw materials, the demand in sunflower oil will disappear. It will be possible to buy sunflower seed, and process the raw material at its own facilities. And the fact that Europe purchases 90% of Ukrainian rapeseed and 70% of Ukrainian soybeans, is a good example of such possible development. As for zeroing of the import duties on sunflower oil, many experts expected the zero duties will lead to outflow of sunflower oil supplies to Europe. However, it did not happen.
- Stepan Pavlovich, is there developed any mechanism for reducing the export duty until its complete cancellation?
As far as I know, there is a schedule according to which the customs duty is replaced by some kind of additional charge. After ratification of the agreement and its entry into force, there should be worked out a mechanism of its collection in one-year period.
- Since August 25, 2014, the action of the EC Regulations #1151/2009 dd. 27.11.2009 "On application of the special conditions governing the import of sunflower oil originating in or consigned from Ukraine due to contamination risks by mineral oil” is canceled. Would You comment Your attitude to the fact?
To be honest, it is a surprise, a pleasant surprise from the European Union. Ukraine always demonstrates to the world that it produces the high-quality product - sunflower oil. And when in 2009 the EU proposed a mechanism for tightened control, which includes testing of each batch of sunflower oil at the specially accredited laboratories, which provide the health certificate, we were significantly surprised, since it was the only food product which required the health certificate. During 5 years there were no comments or complaints about the qualitative indices of Ukrainian oil. Once again it confirms the significant work realized at Ukrainian fat-and-oil enterprises: establishment of HACCP, laboratories. Therefore, cancellation of the health certificate will simplify the work of companies-exporters, but internal control at the enterprises will remain quite strengthened in order to keep the status of producer of high-quality commodities.
- The military operations, which are provided in eastern Ukraine, have already led to complete stoppage of some enterprises. In Your opinion, will stoppage of fat-and-oil enterprises in the zone of the anti-terroristic operation cause reduction of sunflower oil and sunflower meal production?
It is a tragedy what is happening in the East of Ukraine for every Ukrainian. 2-3 enterprises are located in Donetsk and Lugansk oblasts. They will not work in the current conditions, since they suffered certain damage, which is not so easy to fix. Nevertheless, it is also not possible to work in the area of combat operations. To date harvesting of sunflower seed in the reporting oblasts is one of the important tasks for agricultural enterprises, which will provide nearly 1 mln tonnes of the oilseed. So, there is the significant issue: how to harvest and take out the sunflower seed volumes from the reporting oblasts, and supply them to the enterprises in the neighboring oblasts (Kharkiv, Poltava, etc.), which are able to process the oilseed. I would not expect that the sunflower oil production will significantly decrease. Yes, the index may reduce by nearly 200 thsd tonnes, but it will not affect the domestic market.
- Stepan Pavlovich, how do You consider whether the growth of prices for Russian natural gas for Ukraine – either sentence for the Ukrainian enterprises, or the chance to develop new energy-saving technologies?
To date enterprises of the fat-and-oil industry practically do not use natural gas, and provide 90% of the heat energy by burning sunflower seed husks. Every year enterprises of the industry save 400 mln cubic meters of gas. But only two enterprises have the opportunity for complete covering their needs in the electricity of their own production. Therefore, limiting of the supply of electricity to enterprises of the fat-and-oil industry by nearly 30% is a very serious concern, as it may provide not only food, but also environmental disaster. Also, the issue of establishment of energy-saving technologies, installation of boilers and turbines that will generate more electricity, is quite important. But it is a long-term process, which is dramatized by deficit of crediting resources. In addition, there are active customs duties for the imports of energy-efficient equipment, which unfortunately, our machine-building enterprises can not produce.
- Would You kindly share Your vision for the new season?
We enter the new season with the difficulties associated with crediting. Banks do not want to give credits to sunflower seed buyers. If last season the deficit of high-quality sunflower seed affected operation of the enterprises, then in the beginning of the present season, we may face a lack of financial resources for purchasing of new crop sunflower seed. At the same time, the Government worsens the situation with non-payment of the VAT.
As for the harvest. It is quite early to talk about the new crop sunflower seed and soybeans at the present stage. The only thing I can say is that according to our data, the qualitative indices of sunflower seed became worse compared with the same period last season. The complaints mainly deal with the qualitative indices of oil content, which at the current stage of the harvesting campaign vary within 40-42%. In addition, the yield of sunflower seed will be lower compared with last season, especially in Dnipropetrovsk, Zaporozhye, Odessa, Kherson oblasts. To date the average yield in Ukraine totals 1 t/ha. Therefore, our preliminary forecast on the harvest of sunflower seed totals nearly 10 mln tonnes. There is expected another record soybean harvest - nearly 3-3.5 mln tonnes. Rapeseed harvest reached nearly 2 mln tonnes, which provides the general production of oilseeds in 2014at 15.5 mln tonnes.
Interviewed by Anna Platonova
