Sunflower oil is at the center of the controversy. A few days ago, the European Association of Vegetable Oil Producers (FEDIOL) warned that, if the supply of sunflower oil from Ukraine was affected by the war, the Union’s reserves would only be sufficient to cover demand for four or six weeks. And it’s not a hypothetical threat. In response, chains such as Mercadona, Consum or Eroski are already rationing sales to avoid shortages and a certain collective hysteria has arisen.

an unexpected consequence. All of this was predictable. However, some consequences have been surprising. For example, the shares of Deoleo, the largest producer of olive oil listed on the stock exchange (grouping brands such as Carbonell, Bertolli, Hojiblanca or Koipe), shot up 24% and that has raised many doubts on the table. What implications does the “geopolitics of the pantry” have in an industry as important in Spain as oil? Are we facing the great opportunity of olive oil to conquer Europe? Could these tensions end up raising (further) the price here in the country?

What does the Ukraine conflict have to do with all this? Perhaps the first step is to clarify what the Ukraine conflict has to do with oil. Ukraine supplies more than 54% of world exports of sunflower oil. In Europe, according to FEDIOL, it represents between 35% and 45% of everything that is consumed. The explanation is twofold: on the Ukrainian side, since 1999, the country has an “export duty” (“export duty or tax”) on sunflower seeds. This means that for Ukrainian producers it is more profitable to sell their seeds outside the country than inside and, as a consequence, the national industry has been focused on the international market for almost three decades. This capitalization and modernization has turned it into the agro-industrial giant of this crop.

On the community side, since 2017, with the incorporation of Ukraine into the ‘Deep and Comprehensive Free Trade Areas’ (a series of treaties that allows third countries access to the single market in certain sectors), Ukrainian sunflower oil (which was already very competitive) ended up flooding the European market. To this, we must add that Russia is the producer of 26% of world production (between the two, they add up to 80%) and with the Kemlin sanctions, the European market loses the second great oil supply channel. The problem is obvious.

a thirsty continent. If we land the data, with the war escalating, Europe will stop receiving at least 200,000 tons of sunflower oil every month. This, almost necessarily, is going to create a gap that is going to strain supply lines at an international level and is going to “force” a good part of the market to resort to other types of oils. On Euronext (the Dutch stock exchange where the futures of these natural resources are traded) rapeseed closed the session on March 8, gaining 37.75 euros, reaching the historical value for May deliveries of 882.75 euros per ton. Cereals such as wheat or corn are also at historical prices these days.

The Ukraine conflict is going to claim two unexpected victims: fertilizers and wheat

An opportunity for olive oil? That is what many are wondering. The first bad news is that the olive sector has a relatively limited growth capacity. The European Commission estimates that, until 2030, the sector will grow around 1.1% per year. That translates into an increase of 400,000 tons in ten years. At a productive level, it cannot, therefore, supply the demand that the sunflower leaves without supplying.

Therefore, a good part of the olive oil that is used to fill that gap will come from the oil that we already consume. In other words, the price escalation is on the table. And, the more efficient the oil industry is in placing olives in Europe, the greater this escalation will be. Fortunately for the consumer, to the price problems, we have to add that there are certain cultural problems associated with olive oil in Europe that does not consume it. The main one, for what interests us, is that it has a very decisive flavor that contraindicates it for many of the uses of seed oils (especially the most intense one).

the two europes. What seems clear is that, despite the problems that the olive industry has to gain ground in Europe, the circumstances are going to play in favor of that great European cultural division (that of oil versus butter) beginning to close. The question is whether the industry will be able to fight other seed oils (such as rapeseed), a fight that they go to with a productive hand tied behind their back.

Image | Ron Lach on Pexels


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