Due to the blocking of the “grain corridor”, Ukraine risks losing global markets for oilseeds
In 11 months of 2022, during which Ukraine bravely resisted Russian aggression, foreign exchange earnings from exports of oils and fats amounted to $5.43 billion, while in the full year of 2021 it was $7 billion. The rise in global prices, which was driven by a number of factors, including Russia’s war against Ukraine, did not compensate our economy for the decline in production and exports, and we lost a significant share of value added. Nevertheless, in 2022 we managed to maintain our global leadership in sunflower production, which has been held by Ukraine for several years in a row, according to the Ministry of Agrarian Policy.
However, the war has had a negative impact on the functioning of Ukraine’s oil and fat sector. This means a complete shutdown of industrial enterprises, including oil and fat-producing ones in the combat zones and in the temporarily occupied territories.
The blockade of the Black and Azov Seas ports in the first months of the war led to a halt in the export of sunflower oil and meal. According to the Ukroliyaprom Association, in March-April, up to 70% of the main sunflower seed processing capacities were shut down, in particular due to the inability to supply sunflower oil for export. The oilseed sector was forced to quickly set up new supply chains and look for alternative markets.
The reorientation of exports to transportation by other modes of transport, in particular rail, has significantly changed the geography of sunflower oil and meal exports. In March-August 2022, the EU and Asia remained the main importing countries. In 2020 and 2021, India, China, and the Netherlands were the main importers of our oil. Ukrainian suppliers held leading positions in these markets with a share of 50% to 80%. Therefore, the geographical structure of sunflower oil exports has hardly changed, and thus, despite the war and logistical difficulties, we have retained our markets. In the future, Ukraine plans to popularize sunflower oil and cover other markets.
While in 2020/2021 season (September-August) we exported 5.3 mln tons of oil, in 21/22 season we managed to export only 4.5 mln tons due to the war. This season (September 2022-January 2023), 2.26 mln tons of oil have already been exported. However, the current blocking of the grain corridor by Russian inspectors may lead to a further reduction in exports this season, and, accordingly, in the production of sunflower oil and meal. It is important to note that traditionally, oil has always been exported by sea, as the logistics of land transportation for this product are not well established, so the normal operation of waterways is extremely important for the export of Ukrainian oil.
We are already seeing a decline in oilseed production. While last season (2021/2022) it was 22.8 mln tons, in 2022/2023, due to the occupation of the areas and the decrease in yields as a result of the war, the figure reached 17.44 mln tons.
One of the main features of the calendar year 2022 was the massive export of sunflower seeds from Ukraine, which reached almost 2.746 mln tonnes, while before the war we exported an average of 100 thsd tonnes per year. The main importers were EU countries – more than 70%, Turkey – more than 20%.
According to the industry association, this increase in sunflower seed exports has unpredictable negative consequences for the industry. This could lead to shutdown of oilseed processing plants, a catastrophic decline in sunflower oil production, which is classified as a socially important product, loss of global markets for high value-added products, job losses and budget revenues, which is unacceptable.
The Ministry of Agrarian Policy and Food of Ukraine has set up a working group to address the problems of uninterrupted operation of agricultural enterprises in the face of power outages, including the oil and fat sector. The issue of including the industry’s enterprises in the list of critical infrastructure facilities is currently being considered in order to establish their normal functioning.
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