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Everything for export: Sunflower oil price to rise twice?

Author : Olena Holubeva

Source : 112 Ukraine

Against the background of rising prices for most food products in Ukraine, sunflower oil remains the leader in the rise in prices
09:54, 25 November 2021

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From 1,56 USD per liter at the end of last year in May of this year, the average oil price jumped to a record 2,30 USD / liter and has not dropped below this mark for several months. It’s a paradox, but this is happening against the background of an excessive supply of the product in the country: the volume of oil production in Ukraine is 15 times higher than the volume of consumption. A record harvest of sunflower seeds is also expected this year. Despite this, on the shelves of Ukrainian stores, oil is even more expensive than in countries where it is exported from Ukraine, experts say.

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Oil rises in price

Rising food prices are back in the spotlight and seem to worry Ukrainians no less than rising gas prices and the prospect of rolling blackouts this winter. In particular, people are concerned about the high prices for sunflower oil. This socially important product has become the leader in food price increases over the past year. The average retail price for it increased by 67%.

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The Committee on Economic Development of the Verkhovna Rada thought about the need to extend state price regulation for this product.

Oil prices are growing contrary to the laws of logic, experts say. In the case of other products, the rise in price often occurs against the background of a deficit. But in the case of sunflower oil, there is no question of it: in Ukraine, there has been a stable mega-surplus of the product for many years. The country consumes only 10% of the sunflower oil produced, and the rest is exported. Back in 1998, the agrarian lobby achieved the establishment of high duties on the export of sunflower seeds, which gave a huge impetus to the development of the industry, in which Ukrainian agrarian billionaires made fortunes. From 1998 to 2021, oilseed processing capacities increased 9.2 times (from 2.6 million tons to 24 million tons per year), sunflower oil production - 16.3 times (from 432.800 tons to more than 7 million tons). The export of sunflower oil increased 33 times (from 206.100 tons to over 6.8 million tons).

"Ukraine has been holding the palm for many years in a row, remaining the largest supplier of oil to the world market," Yuriy Lupenko, Doctor of Economics, Professor, Vice President of the National Academy of Sciences of Ukraine, said in a comment to 112ua.tv. Every second ton of sunflower oil on the world market is produced in Ukraine, which accounts for more than 50% of world exports.

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This year, the area under sunflower crops in Ukraine has increased by 8%, and a record harvest of sunflower seeds is expected - 15.3 million tons, or plus 17% to the level of last year. According to the Ministry of Agrarian Policy, the production of sunflower oil in the marketing year will increase by 20.3%, to 6.88 million tons, exports - by 22.4%, to 6.4 million tons. more than.

What is pushing prices up then?

High prices in the world and expensive seeds

Sunflower oil sellers raised prices in sync with their increase in foreign markets, experts say. The logic is this: if it is possible to sell at a higher price abroad, why should Ukrainians pay less?

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"90% of the sunflower oil produced in Ukraine is exported, and this is the reason for the dependence of prices on external benchmarks. In the first half of the year, oil prices on world markets increased 1.7 times. an advantage to markets where the price is higher. And this, in fact, led to the current prices for sunflower oil on store shelves," says Lupenko.

The association "Ukroliyaprom" reported that the rise in prices for oils in the world began at the end of last year. This was facilitated not only by the decline in world production of sunflower oil, but also by palm oil, the European "green course", which intensified the demand for biofuels, and the rise in energy prices. The price index for vegetable oils, which is calculated by the Food and Agriculture Organization of the United Nations (FAO), in October 2021 amounted to 184.8 points, which is 73.5% more than in October last year. This is the highest indicator ever recorded.

It's a paradox, but in many countries of the world that are not producers of sunflower oil, prices are now lower than in Ukraine, Anna Lichman, head of the subcommittee on the regulatory policy of the Verkhovna Rada Committee on Economic Development, told.

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In addition to the desire to keep up with world prices, there are other reasons for the rise in prices for sunflower oil, experts say. Against the background of the general excitement, sunflower seeds (85% of the cost of oil) have sharply increased in price. In simple terms, only the greed of sunflower farmers can compete with the greed of the processors.

The energy component is less significant in the cost of oil production than the price of seeds, the Ukroliyaprom association said. Most of the enterprises have switched from expensive gas to burning husk. Oil and fat gas continue to be used only in the technological processes of oil refining. More tangible for them is the increase in electricity prices.

Why oil prices won’t go down?

By the end of summer, the price of sunflower seeds began to fall, but the price of sunflower oil seemed to have frozen in place. In May, when a ton of seeds cost 740 USD, the average price for a liter of sunflower oil in Ukraine was 2,30 USD / l. In August, when the price of seeds was already 600 USD, the retail price of oil rose to 2,37 USD. Suppose that not all processors take the seed "from the wheels" on the spot, but make stocks. But even in October, when the price of sunflower seeds dropped to 0,48 USD / ton, the price of a liter of sunflower oil decreased only by 0,07 USD / l.

And now the main question is what will happen to the prices for sunflower oil next? Let's make a reservation right away, few people believe in forecasts that the price may rise to 3,5 USD / l. The Association jokes that at such a price, sunflower will become such a profitable crop that it will even be sown on Khreshchatyk.

Optimists predict that prices for sunflower oil will remain at the current level, pessimists do not exclude further growth in prices by 10% in the event of an increase in the price of sunflower seeds and the price of electricity. No one expects a radical decline in prices for sunflower oil.

The dynamics of the export prices for sunflower oil oriented to the world market persists and has already reached a maximum since the beginning of the marketing season 2021/2022. If the rise in prices for sunflower seeds resumes and reaches 900 USD / t, the price of electricity continues to rise, prices for sunflower oil for the domestic market may rise by another 10%, the Ukroliyaprom association reported.

Related: Belarus restricts oil pumping in direction of Poland

"This year we have an excellent harvest of sunflower seeds - almost 20% more than last year. At the same time, the pressure from the external market persists. Consumer prices have slightly sagged: in October, compared to September, they decreased by 1.7%. at the same time, taking into account the growth of the energy component and the prices of sunflower seeds, during the winter prices may rise by another 10% to the current level," Yuriy Lupenko said to 112ua.tv.

It should be noted that, despite the increased attention to the topic of sunflower oil, the situation in retail remains stable.

The state can "hack to death" a profitable business

Running a little ahead, let's say that greed and desire to earn in Ukraine is not less than in export markets, which can cost dearly for the beneficiaries of the oil and fat industry. The authorities today have no other than radical methods to influence the situation.

The market way to achieve lower prices for products could be commodity interventions. True, they need funds that are not available. After all, you need to buy goods in the amount of at least 10% of the consumption in the domestic market. In addition, the purchase should have been carried out earlier, while the prices were at the minimum. Both structures that could carry out such operations - the State Reserve and the Agrarian Fund - are now paralyzed. The authorities have begun reforming them, but have not yet finished. Today, government agencies do not work.

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Price regulation, which is proposed as an option by the committee of the Verkhovna Rada, in practice will mean only an obligation for manufacturers to inform the relevant government agencies about this one month before the change in selling prices. At the same time, the state structures will not exert any practical influence on this process. The introduction of fixed prices is also not the best solution. "This can lead to a distortion of the market balance and cause a shortage of goods, losses for producers," Anna Lichman told.

The most radical way remains - export restrictions. By the way, the "servants" inclined to tough state regulation considered this option of price regulation back in the middle of this year, when the price had not yet passed the mark of 2,30 USD / liter. "The signing on April 19 of this year of the Memorandum of Understanding between the Ministry of Economic Development and Trade and the association of the largest producers Ukroliyaprom allowed to relieve the tension that arose in connection with the possibility of introducing quotas and licensing the export of sunflower oil," the Association reported.

The parties agreed on the boundary volumes of sunflower oil exports for the 2020/2021 marketing year in the amount of 5.3 million tons. In fact, 5.2 million tons were exported, which did not affect the further rise in prices in the domestic market.

Ukroliyaprom, as expected, strongly opposes export restrictions, which, according to its members, will cause enormous damage to the industry, which brings significant foreign exchange earnings to Ukraine.

Not only sunflower oil is getting more expensive in Ukraine

Oil is not the only item today whose prices have gone up. Other food products are also becoming more expensive. Against the background of the energy crisis and the state's unpreparedness for the heating season in the conditions of the "cold winter" in Ukraine, a food crisis may also break out, warns the vice-president of the NAAS Anush Balyan.

Related: Oil press explodes at sunflower oil factory in Kharkiv

Rising prices for essential products in retail have an alarming trend. Due to the energy crisis, manufacturers have to raise prices, and some are playing on speculative options, the vice-president of NAAS emphasized.

According to official statistics, prices for a number of social products, such as cereals, pasta, flour, and bread, have increased in Ukraine. "A kilogram of buckwheat added 17.5% in price, rice - almost 28%, semolina - 17.3%. The cost of popular bread increased by 20-22%. The sugar-making season is just unfolding, and the price of sugar has already jumped by 27-30 The prices of eggs in stores have increased up to 1,90 USD per dozen, and this is only an intermediate indicator. But these surges are not as impressive as the rise in prices for sunflower oil, which has risen in price by 67%," Balyan notes.

The expert noted that prices for lard, meat, sausages, and sausages have also increased in Ukraine, honey has risen in price.

The round table in the Verkhovna Rada Committee on Economic Development, dedicated to prices for sunflower oil, is the second in a series of such events to study the pressing issues of pricing in the markets of key food products, Anna Lichman told. According to her, before that, the situation on the sugar market was discussed, and in the future, similar measures are planned to consider options for containing prices for the main socially important goods of the consumer basket: flour, certain types of cereals, and meat, dairy products.

Related: Ukraine faces conflict with EU in case of ban on sunflower seeds export

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