Asia

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

Ukraine and Russia account for over half the world's sunflower oil production. As military tensions escalate between them, the marketplace for sunflower and other cooking oils may be affected.

Aug. 10, 2017
By Shawn Mitchell

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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.

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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.



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