No matter what, Ukraine to remain world leading producer and exporter of sunflower oil – Stepan Kapshuk




Results of 2021, expectations for 2022

At the beginning of 2021, experts and market participants predicted the development of the agricultural industry in Ukraine under the high turbulence, which was facilitated by both external and internal factors and ongoing events. Last year, each of the branches of the agro-industrial complex faced its own "turbulence zone" with different amplitude. But the fact is that 2021 was both challenging and historical for the Ukrainian agro-industrial complex. Stepan Kapshuk, CEO of Ukroliyaprom Association described what 2021 was like for the fat-and-oil industry of Ukraine and what are the expectations and forecasts for 2022.

- Summing up the results of 2021 for Ukraine and fat-and-oil industry in particular, what conclusions did you draw as the head of the association?

- 2021 was the year when Ukraine celebrated the 30th anniversary of its independence. So, it was a special year. This is not the first time I am talking about this, but I emphasize once again that the revival and further rapid development of fat-and-oil industry in Ukraine was one of the main achievements over the years of the independence. This is one of the few industries that not only restored its production volumes since 1990 (sunflower oil - more than 1.0 mln tonnes), but also exceeded them by more than 6 times. After the export duty on sunflower seed was introduced in 1999 that provided the rapid development of domestic processing, almost 8 years of decline ended and the rapid development of the fat-and-oil industry of Ukraine began.

In 2021, the enterprises worked under unusually rough conditions, and this applies not only to severe quarantine restrictions, but also to the impact of the situation developing both in the global oilseed market and in the domestic market. The sharp rise in prices for sunflower oil in the domestic market has become the main challenge, all attacks and accusations were directed exclusively at producers. The reasons for the growth were not taken into account, but they were as follows (not to mention external factors):

  • Prices of sunflower seed of the harvest-2020, which were processed in September-August 2020/21 MY, with the production cost at 7000-8000 UAH/t and the expected selling price of 10000 UAH/t, increased to more than 27000 UAH/t during the season. Profitability sometimes exceeded 200%.
  • Reserved sales of sunflower seeds by farmers and non-fulfillment of the supply of the oilseed under signed forward contracts with oil plants. As a result, oil producers lost their fixed-price raw materials and were forced to buy sunflower seed at skyrocketing price.

Processing enterprises suffered significant losses due to the fact that they were forced to fulfill contracts for the supply of oil at the price of previously concluded contracts, and to purchase sunflower seed at prices that significantly exceeded those specified in the forward contracts.

The export of sunflower oil under previously signed forward contracts is one of the explanations why sometimes the oil exported was cheaper than the oil supplied to the domestic market. At the same time, mainly crude sunflower oil was exported, while refining and packaging were carried out at the enterprises of the importing countries. And you can also add the difference in VAT, logistics costs and advertising, trade allowances. And this is not a complete list.

The growth of prices on sunflower oil on the food market was predictable, taking into account all factors that have developed both in the global and domestic markets. Despite all the difficulties, enterprises of Ukrainian fat-and-oil industry have pursued and are pursuing a balanced pricing policy, ensuring the priority supply of sunflower oil to the chain store.

- In your opinion, what events did play a key role in the development of the agricultural industry in 2021?

- If you mean the lifting of the moratorium on the sale of agricultural land, then it is too early to draw any conclusions. However, I think to plant sunflower will be profitable under any circumstances, as long as there is a powerful fat-and-oil industry and conditions have been created for maximum processing within the country.

- What legislative initiatives of the Ukrainian government adopted in 2021 have become victorious or failed for the fat-and-oil industry?

- As for the fat-and-oil industry, the decision to introduce quotas and license the export of sunflower oil could have been a failure given that the industry is export-oriented and less than 10% of its total production is consumed on the domestic market. Such a scenario was already experienced by the industry's enterprises in 2008/09 MY and they understood what catastrophic consequences it could lead to.

In order to prevent the shutdown of enterprises and the destruction of the industry, feeling the support of enterprises and companies, the management of the association accepted an alternative proposal of the Ministry of Economy to sign a memorandum. The Memorandum of Understanding between the Ministry of Economic Development, Trade and Agriculture of Ukraine and the Ukroliyaprom Association signed on April 19, 2021 made it possible to approach the issue in a civilized way.

- As a result, what Ukrainian agrimarket had by the beginning of 2022?

- Our main result - is a developed infrastructure: powerful modernized enterprises, elevator logistics, seaports. The main one - powerful export potential of sunflower oil, which allows Ukraine to have a leading position on the global market.

Of course, to our main results we should also include 2021 crop of sunflower seeds, first of all, which will be processed in 2021/22 MY. This will provide oil extracting plants with oilseeds and will give the possibility to increase oil production, mainly sunflower oil, to rise export potential for the product with high added value while ensuring priority supplies to the domestic market in the trading network.

Ukroliyaprom Association estimates the production of main oilseeds crop in Ukraine at 22.9 mln tonnes: sunflower seeds - 16.5 mln tonnes (+3.4 mln tonnes or +25.9%); soybeans - 3.4 mln tonnes (+0.63 mln tonnes / +22.7%); rapeseed - 3.0 mln tonnes (+0.4 mln tonnes / +15.4%).

We expect significant growth of processing of sunflower seeds and sunflower oil production since the beginning of 2022. In 2021/22 MY sunflower oil production is expected to be record high in Ukraine - more than 7.2 mln tonnes (+24.1%). This is both local and foreign forecasts.

The production of sunflower oil in 2021, when sunflower seeds of the 2020 crop (13.1 million tons) were mainly processed (January-August), is estimated at 5.5 million tons. We counted on a significant increase in sunflower seed processing in September-December 2021, namely, during the period when the processing of a new record sunflower crop began, which could lead to an increase in sunflower oil production in 2021 by at least 5%. However, our hopes were not met because agriculture producers were holding back the sales of sunflower in anticipation of rising prices for this agricultural raw material.

In any case in 2021 Ukraine remains the global leader in production and export of sunflower oil. Despite decreased export of sunflower oil last year by 1.7 mln tonnes (by 15.2%), foreign exchange earnings increased by 1.07 bln USD (by 20%).

- What are the pressing issues and problems of the industry would you like to finally solve in 2022?

- First of all, we would like the issue of abolishment of export tax on sunflower seeds not to be risen in any way. Because every year on different levels there are such tries, which can have unexpected consequences for the industry.

Second issue is the resolving of logistics problems, mainly provision of tanks, grain carriers, traction, ensuring timely delivery to ports, the safety of goods, and extremely high tariffs for the transportation of goods.

The issues of technical regulation also remain top priorities.

Issue of sunflower oil delivery to Chinese market remains the relevant issue, due to new rules of registration of producers-exporters of sunflower oil with General Administration of Customs of China. Ukraine submitted all the necessary documents in a timely manner, for which I am especially grateful to the Embassy of Ukraine in the PRC, in particular, Counselor-Envoy Zh. Leschinskaya and State Food and Consumer Service of Ukraine. We hope to further increase the export of our products to China in 2022.

And the «gift» of the industry in the end of 2021 - inclusion of sunflower oil in the list of socially significant products (Resolution of the Cabinet of Ministers of Ukraine dated 12.30.21 No. 1432), increase of the selling prices for which is subject to declaration. We had no objections, considering that this is being introduced temporarily, only for the period of quarantine measures, and also in connection with the opportunity to provide assistance to industry enterprises, especially those involved in refining and packaging, to receive gas from their own production. In general, our position remains unchanged, in particular, the inclusion of sunflower oil in the list of socially significant products in the future is inappropriate.

- What are your expectations of the development of oilseed market in 2022?

- 2022 will be very difficult year for everyone, despite the record crop of sunflower seeds in Ukraine, which has both external and internal features. Particularly, this is true for price situation, which is intensified by energy crisis. Lower global demand on edible oils depending on speed of new strain of COVID-19, and intensification of quarantine measures in the world - all these will influence the price formation. As we can see, currently situation is changing every week.

We can say that situation is uncertain, but I believe that there will be no such unpredictable price growth as in the past MY.

I can assure you, that there will be a lot of work for agriproducers, processors, traders and other participants of oilseeds market. If there is work - there is prosperity.

- What are the goals and tasks set for the association and for You as for the current year?

- Despite all the obstacles, «Ukroliyaprom» association will continue to help ensuring the stable operation of the industry enterprises, growing of production and export potential of fat and oil products with high added-value, and meeting the needs of the domestic market as a matter of priority.

- In conclusion, what do you expect in a near future?

- I look at life with optimism and faith in the future of my country, the happiness of my children and grandchildren in my native Ukrainian land. These are not loud words, but the philosophy of my life, otherwise there would be no such desire to work and achieve success.

- Thank you for such an interesting conversation!

Interviewed by Elena Cherednichenko