Tensions Increasing Between World's Two Largest Producers of Sunflower Seed Oil

Summary

Russia and Ukraine are the world’s largest pro­duc­ers of sun­flower seed oil, with pro­duc­tion steadily increas­ing since the fall of the Soviet Union. Military ten­sions between the two coun­tries may impact the mar­ket­place for sun­flower and other cook­ing oils, with poten­tial con­se­quences for the indus­try and con­sumers world­wide.

Since the fall of the Soviet Union, Russia and Ukraine have been locked in a quiet com­pe­ti­tion to out­pro­duce the other in sun­flower seed oil. As a result, the two coun­tries are now the largest pro­duc­ers in the world. However, as mil­i­tary ten­sions esca­late between them, the mar­ket­place for sun­flower and other cook­ing oils may be affected.

According to the Food and Agriculture Organization of the United Nations (FAO), sun­flower seed oil pro­duc­tion in the Russian Federation has increased from 827,000 tonnes in 1992 to over 4 mil­lion tonnes in 2014. Over the same period, Ukraine has increased its pro­duc­tion from 857,000 tonnes to over 4.4 mil­lion tonnes. Argentina was the third largest pro­ducer in 2014 at roughly 932,000 tonnes.

Together, Russia and Ukraine account for over half the world’s sun­flower seed oil pro­duc­tion. Any dis­tur­bances in these two economies could have far-reach­ing ram­i­fi­ca­tions in the cook­ing oil indus­try, includ­ing olive oil.

Following the annex­a­tion of Crimea in 2014, mil­i­tary ten­sions have been sim­mer­ing between Russia and Ukraine. A recent pro­posal by the Pentagon and State Department to sup­ply Ukraine with anti-tank and anti-air­craft weaponry in its fight with pro-Russia seces­sion­ists in the Donetsk region is a sig­nif­i­cant depar­ture from the non-lethal sup­port of recent years. The pro­posal for arms deliv­er­ies coin­cides with recent leg­is­la­tion that will impose sanc­tions on Russia’s defense and energy indus­tries in response to Russian inter­fer­ence in the 2016 elec­tions in the United States.

At present, the new Western sanc­tions do not cover sun­flower oil exports from Russia. However, Russia may be con­tem­plat­ing impos­ing tar­iffs on its own sun­flower exports.

In June, Russia’s Sunflower Oil and Fats Union sent a let­ter to the Economy and Agriculture Ministries request­ing that the coun­try raise the export tar­iff on sun­flower seeds from 6.5 per­cent to 16.5 per­cent. It is hoped that the inter­nal tar­iff would sup­press the local price for sun­flower seeds — the raw mate­r­ial used for mak­ing sun­flower seed oil.

Sunflower seed prices have risen 9% in Russia since mid-May due to strong inter­na­tional demand. As a result, infla­tion­ary pres­sure is build­ing in an econ­omy where wages fell 9.5 per­cent in 2015. Rising prices and declin­ing pur­chas­ing power begin to put basic com­modi­ties like sun­flower oil out of reach for many Russian cit­i­zens.

Ukraine stands to ben­e­fit the most from any dis­rup­tion in Russian cook­ing oil sup­ply. Europe is the pri­mary con­sumer of Ukrainian sun­flower oil, import­ing 684,000 tonnes in 2015, or roughly one-quar­ter of all imports. This fig­ure has grown in recent years, aided in part by the lift­ing of import tar­iffs on Ukrainian sun­flower oil in 2014.

By 2016, the value of all veg­etable oils, together with ani­mal oils, and fats and waxes, imported from the Ukraine into Europe amounted to roughly $1.3 bil­lion, up from roughly $770 mil­lion in 2015. However, the Ukrainian cur­rency, the Hryvnia, is also now trad­ing at one-third of its early 2014 value, mak­ing the price of its sun­flower oil exports more attrac­tive on inter­na­tional mar­kets.

The Russian Ruble is also degraded and is cur­rently trad­ing at almost half its 2014 value, los­ing 2 per­cent in July alone. Low exchange rates, cou­pled with unsea­son­ably cold and rainy weather, is expected to impact Russian agri­cul­ture in the months ahead. However, it is Russia’s mil­i­tary and diplo­matic moves, par­tic­u­larly in rela­tion to its neigh­bor, Ukraine, that will invari­ably affect sun­flower seed oil prices the most.

• United Nations FAO


• Reuters


• The New York Times