Seeds of Discord: Why Sunflower Oil Prices Soared

Source: Oilworld.ru

Since the end of summer, sunflower oil has risen sharply. Russia is the world’s second-largest exporter of this product, and analysts warn that buyers will find alternative suppliers. The industry blames the poor harvest, which has pushed up prices for raw materials, but they assure that demand has long been formed and in conditions of limited supply, all products will be sold out. At the same time, the FAS (Federal Antimonopoly Service) believes that there are no grounds for raising retail prices. RIA Novosti is trying to understand the current situation.

Crop failure in Russia

In early September, Sovekon analysts reported that the country has a poor sunflower harvest, and vegetable oil may rise in price.

And so it happened: the prices for sunflower rose by 35 percent, for oil – by 22, in monetary terms – by 34 thousand rubles and 71 thousand per ton, respectively. The harvest is almost a quarter lower than last year. Affected by unfavorable weather conditions, primarily in the south of the country: drought in spring and summer.

The Ministry of Agriculture estimates the harvest at 13 million tons. It was only smaller in 2017: 10.5 tons.

Industry representatives give similar forecasts. According to the Russian Fat and Oil Union, if last year more than 16 million tons were harvested, then this will be at best 12-13 million. Purchase prices for raw materials increased.

Drought in Ukraine

Ukraine, the largest exporter of this product, also faced a crop failure, which threatens to cut production. The drought, which affected most of the south and central part of the country, destroyed up to five million tons of corn, ten million tons of grain and 1.5 million tons of sunflower seeds. According to the agrarians’ calculations, Ukraine will miss about two billion dollars in export earnings.

“In recent weeks, export prices for Russian oil have skyrocketed – more than a thousand dollars per ton. Then they dropped slightly: Ukrainian sunflower processing plants started working. Before that, they stood idle without raw materials,” explains Dmitry Rylko, General Director of the Institute for Agricultural Market Studies (IKAR) …

Foreign exchange export prices have adjusted by about ten percent – to $ 950 per ton, but here the factor of the weakening of the ruble has already entered into force: this is what keeps it from falling.

Importers will find a replacement

As Russian oil becomes too expensive, large importers may turn to other suppliers. However, to market players these fears seem far-fetched. In conditions of limited supply and generated demand, everything will be bought up even at high prices, says Mikhail Maltsev, executive director of the Russian Fat and Oil Union.

“When we seriously reduce the supply for export – and this is inevitable due to a poor harvest – there will be no problems with sales, because demand has not changed,” Maltsev notes.

Besides, in general, there is nowhere to look for alternatives. Ukraine and Russia control nearly 80 percent of the international sunflower oil market. The rest of the players – Argentina, France, Serbia – are not so important. And all that will be left to buyers is to find a replacement for the falling volumes, which key suppliers cannot offer.

There are cheap substitutes such as canola oil, soybean oil, or palm oil. However, the industry doubts that importers will be satisfied with this: now there is a steady trend towards the consumption of sunflower oil as a more useful product with a high nutritional value.

What consumers can expect

Problems will affect retail too – a bottle of oil risks rising in price by 20 percent. But consumers have no alternative either. Olive and corn oils are more expensive. The supply of rapeseed on the domestic market is limited, besides, as noted in the Fat and Oil Union, this product is “not perceived” in our country.

A rise in price cannot be avoided, the industry states. “Refining is already at the level of several percent of marginality, even sometimes goes into negative territory. There is no way to compensate for such an increase in raw material prices. Accordingly, we will see quite expensive oil in retail,” Maltsev points out.

The situation has already been commented on by the Federal Antimonopoly Service (FAS). The regulator sees no reason for a significant increase in consumer prices for this product in Russia: there is no direct correlation with the sunflower harvest.

The regulator also ruled out product shortages due to reduced sunflower production, noting that the draft and bottled vegetable oil markets are very competitive with a large number of participants and registered brands. That is, the consumer will have a choice in any case, according to the FAS. However, the question, as always, is the price.

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