russia’s war against Ukraine threatens global sunflower oil market

russia’s war against Ukraine threatens global sunflower oil market

📍 russia’s full-scale invasion of Ukraine on Feb. 24 has significantly disrupted the Ukrainian sunflower oil industry and supply chain. A prolonged conflict also threatens the next growing season. And no other large sunflower oil exporter exists to rival Ukraine’s global leadership (50% of world exports).

🌻 According to USDA, Ukraine’s sunflower oil industry is export-oriented, with 91% of its production destined overseas. The supplies from the prior season are having difficulties leaving the country because ports are blocked by the war. In addition, the russian invasion has threatened the railway and road systems in Ukraine used to transport seeds from production regions to crushing facilities or export terminals. Further along the supply chain, the invasion has prevented Ukraine crushing facilities from operating.

➖ Short-term impact
The short-term supply disruptions already force some countries to do without some products for a time or be forced to pay exorbitant prices. As of beginning of April, UK, Spain, France and Belgium have reported scarce sunflower oil stocks and decided to limit its retail purchases. For instance, the price of sunflower oil in the UK jumped 60% from £1,130 per tonne in February to over £1,800 in March, according to analysts at Mintec. But cooking oil is used in abundance throughout the food industry. And due to food safety regulations in many countries, switching to a more available oil would require snack companies to produce new packaging entailing higher manufacturing costs and retail prices. 

➖ Oilseeds price increase
The shortage and record high sunflower oil prices (up 44% at the end of March, as compared with a year earlier) have boosted all oilseeds (rapeseed, sunflower, soy, palm), which are used to produce oils, animal feed and are also used as biofuels.

➖ Impact on European Biofuel market
Biofuels account for about 15% of global demand for vegetable oil, according to Rabobank. Guardian reports that 50%-60% of the rapeseed grown in Europe, and 60% of the palm oil imported by the region, is used for biofuel. Some foreign experts argue that the loss of Ukraine’s sunflower oil could be mitigated by temporarily suspending the use of edible oils in biodiesel. 

➖ Future projections and LR impact
In Ukraine, sunflower seeds are sown in April and May and harvesting usually begins in September. Tensions and military action in agricultural areas pose risks to the supply and demand of the next growing cycle. And the average yield per hectare of sunflower seed will take a major blow this harvesting season.

📍 Thus, experts forecast that Ukraine will export the lowest quantity of sunflower oil in 9 seasons. Additionally, the higher export of sunflower seed can be promoted by possible canceling of quotas and duty on Ukrainian sunflower seed to provide the food security in the EU. Overall, it seems that there simply isn’t sufficient sunflower oil in the rest of the world to cover the Ukrainian shortfall.

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