Ukraine, as well as the whole world, has faces unprecedented economic challenges. Unfortunately, the global economy still feels the effect of 2008 economic crisis, which means new challenges, both for domestic agricultural sector, and for oil and fat business in particular.
It’s no secret that Ukraine mainly operates in raw materials markets. A 50% and even 65% drop in energy prices is the clearest indicator of any resource-based economy performance.
Vegetable oils producers feel the same trend as energy materials producers. We observe price reduction, and the price spread between sunflower, soybean and palm oil is narrow today. There is a problem in consumption sphere as well. Over the last 50-60 years the middle class, which ultimately predetermines global consumption and economic growth, has been the major consumer of goods and services. Today some experts speak about middle class boundaries blurring.
At the same time, despite consumption and price reduction, we see production increase in vegetable oils market. Today Ukrainian oilseeds sector is based on the following trends: increase in raw materials processing capacities, expansion of oil crops acreage (sunflower seed, soybean and rapeseed) and exporting most of sunflower oil. If the trend of raw materials processing capacity expansion continues until 2020, it is expected to reach 20 MMT.
With all apparent success of the industry, today we need to consider the fact that fat and oil sector development strategy should be modified. Firstly, it is necessary to adapt to increased competition in the global markets. Secondly, there is a threat to raw materials base. Oilseeds planted area changes are quite possible, especially if strict cropping pattern regulations are introduced.
These two factors may result in reduction of enterprises utilization rate, production costs increase and profit margin decline.
UkrAgroConsult research results suggest significant undervaluation of sunflower seed and sunflower oil in the world market.
Overcoming this situation is possible only upon revision and improving of the existing oilseeds sector strategy. Certainly, the solution of such a problem is beyond the scope of any individual oil producer or exporter. Transformation of the existing paradigm is possible within the framework of at least an industry project (business support) with the necessary assistance from government agencies.
The suggested project would include a new strategy development to achieve the following objectives:
- Creation and promotion of a sunflower oil special brand on the global market, possibly a national brand “Ukrainian sunflower oil”.
- Introduction of sunflower oil as a premium product.
- Narrowing the range of sunflower oil price fluctuation, expansion of market capacity.
The main tools of “Sunflower oil” project implementation would include information influence technologies and other tools for positive image creation among consumers.
UkrAgroConsult experts believe that almost all participants of oilseeds and vegetable oils markets would feel the positive effect of oilseeds sector functioning in the framework of the new strategy. Farmers may expect stabilization and growth of revenue, business performance of sunflower oil producers/exporters would improve owing to significant reduction in sunflower oil market price volatility. Meanwhile, state and local budgets may get an additional source of proceeds.