Sunflower oil production is restricted by the feedstock base in Ukraine – ProAgro Company Research

According to ProAgro Company research "Ukraine: Oil-and-Fat Industry Portray", the global economic crisis influenced also the results of the Ukrainian oil-and-fat branch but this sector remains rather promising for investors. It is one of the most attractive areas for investments. Investment attractiveness remains at the above average level. The branches producing the essential goods - food products - remain attractive under any conditions. Interesting in terms of purchase are food product companies that went down in value and large agro-industrial holdings that own sowing areas together with the production facilities. A significant advantage of the oil-and-fat branches for investors is development of a powerful infrastructure that includes a network of elevators, processing plants, vehicle and trade companies as well as other production facilities.

Due to the unprecedented high yield of oilseeds in Ukraine (including sunflower, rapeseed, and soybean) in 2008, an increase of production of oil-and-fat products was observed for the first time in the last 20 years, according to the results of MY 2008/09. Nonetheless, the crisis and good rapeseed and sunflower yiled in the world caused a decrease of prices in the previous season. In view of this, despite a significant increase of the majority of items of the Ukrainian oil-and-fat products, their volumes decreased in terms of value. One should mention that in the structure of the agro-industrial complex export, about one third is accounted for by the oil-and-fat industry, including about 20% accounted for by vegetable oil.

As to production of sunflower oil, it is restricted by the feedstock base. Today, only 80% of facilities are loaded. Besides, some large players producing vegetable oil have already announced their plans to launch new facilities in 2010-2011. Recently, the market of sunflower by-products has been growing intensively, which has been caused by the emerging deficit of sunflower oil in the world.

An average rate of growth of the volumes of production of sunflower oil and meal was about 24% for the last five seasons (MYs 2004/05-2008/09), and in MY 2008/09 this indicator achieved 43% compared to the previous period. The average increase of the gross yield was about 26% for five seasons.

Sunflower seeds are in stable demand at any time of the year in all regions of Ukraine, which proves their high liquidity. Exports of oilseeds remain attractive due to the growth of world’s prices; however, it is slightly restricted by the export customs duties for sunflower in Ukraine - 13%. However, already on January 1, 2010 according to the agreements on the WTO accession, Ukraine decreased the customs duties for sunflower seeds to 12%.

In Ukraine, exports of soybean and rapeseed are not regulated, and a relatively high demand for these products in the foreign market make them attractive for exports and more competitive compared to sunflower.

Production facilities for crushing soybean are increased following the increase of the domestic sales market. Nonetheless, the market remains undersaturated. The share of soybean yield in 2008 was only 8% in the structures of overall oilseeds in Ukraine. An average level of increase of meal production during five seasons was 28%, and the yield - 27%. One should also mention that in MY 2007/08, the volumes of production of soybean meal doubled compared to the previous period. Despite this fact, constant deficit is observed in the soybean meal market; namely, during the previous season, 33% of the total consumption of this product was ensured by imports.

In it turn, rapeseed market in Ukraine is at an initial stage of its development. In MY 2008/09, 92% of rapeseeds were exported. This fact shows that in the domestic market, the demand is still low. Thus, an average growth rate of rapeseed oil during the last five years was 4% whereas the average growth rate of yield increase doubled. At the same time, in 2008 the agrarians harvested three times more rapeseed compared to the prior year. The main consumer of rapeseed in the world is the biofuel industry, but production of biodiesel in Ukraine so far has not been developed.