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POINTERS 2014 MPOC
Palm Oil Internet Seminar
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Section 2 : Global Palm Oil Market Focus:
Ukraine and Russia Margarine and Industrial Fats Market
By: Ms. Mozgova Olga

Profile: Analyst specialized in food industry and agribusiness. Significant experience in preparing analytical materials and market researches of economic trends and legislation of Ukrainian and international markets of material and technical supply of agricultural and food sectors. Formed working contacts with Ukrainian and foreign participants of these markets. Centre of Marketing Researches "UkrAgroConsult" - head of projects, Analyst of markets of material and technical supply of agricultural sector, animal breeding, meat and dairy and other food markets. 2001-2014 - Coordinator and performer of the following projects: • 2008-2010 - Feasibility study and business plan of elevator construction, client - Victoria, Goldgrain, • 2010- Evaluation of prospects of building river elevators and terminals, client - Ukrrichflot, • 2001-2014 - Ukrainian dairy and meat markets (monthly and annual surveys), clients -USDA, Tetra Pak, ALTA, Lactalis, Elopack, APK Invest etc., • 2008-2014 - Ukrainian and Russian starch markets, clients - Toepfer, MHP, Unifex, • 2011 - Potential of non-energy use of agricultural wastes, client - "Biomasa", • 2004-2013 - Ukrainian market of plant protection products, clients - Kynetec, Syngenta, BASF, Bayer, Raiz, GreenExpress, Tridenta, Agrokhimcentre etc., • 2004-2014 - Ukrainian seed market, clients - Raiz, Solvey, Bayer, Syngenta, Praivat etc., • 2012-2014 - Russian sunflower oil and fats market - Troika Dialog, Efko etc., • 2012 -2016 - Ukrainian market of special fats and margarines - Maselko, Deloitte. etc., • 2015 – Legal regulation of markets of meat and meat products, milk and dairy product in Ukraine, CIS, EU and other countries, client - Deloiette • 2014 – Food security in Ukraine and ways to prove it, client – World Food Programme • 2015- The survey of prospects of commodity exchange market and commodity derivatives market,client USAID/FINREP-II • 2015 - Estimates of development level in Ukrainian grain market, developing the logistics scheme for the planned infrastructure projects in Ukraine, client Daewoo International Corp • 2016 – Mapping of Russia: Research on Vegoil and Industrial Fats market : client - MPOC • 2017 - Study on the Impact of Animal Welfare in Ukraine, client EC
VIEW PROFILE
The production of margarines and industrial special fats is developed quite well both in Ukraine and Russia. The production trends in these countries have both similar and different features. Additionally, the market development in Russia is influenced by the import substitution policy.

In both countries, palm oil represents a significant portion of raw materials for production of margarines and special fats. The key sources of palm oil supplies are Indonesia and Malaysia. Ukraine and Russia have specialized port facilities for handling palm oil.

The margarine production structure both in Ukraine and Russia corresponds to the geographical spread of major producing companies. The fat-and-oil markets in the two countries show strongly pronounced seasonality. These products enjoy the greatest demand in the fall and winter, but it traditionally slackens in the summer.

The behavior of Russian margarine production has been diverse over the recent years. It shows both drops and rises. At the same time, production growth was achieved in Ukraine this year for the first time since 2010. This confirms stabilization and restoration of the Ukrainian market of margarine products.

The recent years featured a decrease in the share of CIS countries in total margarine product exports from Ukraine.

To a substantial extent, the markets of margarines and special fats both in Ukraine and Russia are driven by development trends in the food sectors consuming these products, as well as by foreign-trade activity and consumer preferences.


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Questions & Answers (5) :
Ganesan Srinivasan
9 months ago
Is margarine an input into the industrial fat production or are their production/consumption independent of each other?
Olga Mozgova:
Dear Ganesan Srinivasan, Thank you very much for your question. Data are given separately for margarines and fats. This are the estimates of UkrAgroConsult on the basis of a comprehensive analysis of statistical and marketing data. Best regards, Olga Mozgova
9 months ago
Ganesan Srinivasan
9 months ago
Is vegetable shortening included in your numbers for Russia/Ukraine? Looks like you include animal fat (assume butter). Do you numbers contain any other animal fat, such as lard?
Olga Mozgova:
Dear Ganesan Srinivasan, Thank you very much for your questions. Is vegetable shortening included in your numbers for Russia/Ukraine? We present the estimate of UkrAgroConsult of domestic consumption of sunflower and palm oil. These oils are mainly used in the production of margarines and industrial fats in Ukraine and Russia. The increase of imports of palm oil reduces consumption of vegetable oils, but within the limits of technological regulations. Looks like you include animal fat (assume butter). Do you numbers contain any other animal fat, such as lard? We give examples of the trend in the production of products using industrial fats (spreads, milk containing products), but not trends in the production of animal fats. We have data on the production of animal fats and will be able to provide them on request. Best regards, Olga Mozgova
9 months ago
Hazlan
9 months ago
You reported that there is conflict between Ukraine and Russia. How is the edible oil trade between Ukraine and Russia affected following this development. Has it drop drastically? Ukraine has been seen by some in the business circle as a good distribution hub for edible oil trade including palm oil to the CIS country including Russia. With this development, can the fundamental in Ukraine still support this type of development?
Olga Mozgova:
Dear Hazlan, Thank you very much for your questions. You reported that there is conflict between Ukraine and Russia. How is the edible oil trade between Ukraine and Russia affected following this development. Has it drop drastically? Yes, indeed, the supplies of Ukrainian margarines and fats to Russia fell sharply. If in 2012 supplies from Ukraine to Russia accounted for 65%, 2014 - 54%, 2015 - 24%, then in 2017 their share was only 8%. Ukraine has been seen by some in the business circle as a good distribution hub for edible oil trade including palm oil to the CIS country including Russia. With this development, can the fundamental in Ukraine still support this type of development? In previous years about 25-28% of total tropical oils imports to Russia were supplied through the state-owned Ukrainian ports. During the last 3 years tropical oils transit through Ukraine declined considerably. At the same time, significant volume of tropical oils and processed products may arrive through private port facilities, located on the Black Sea coast. In Ukraine, the largest private terminals / plants for handling and processing of palm oil are located in the port of Ilyichevsk and Yuzhnyi. These are Delta Wilmar CIS and Ilyichevsk Fat and Oil Plant. Almost all exports from Ukraine are carried out by Delta Wilmar CIS. So, Ukraine has well-developed infrastructure and logistics for transportation of tropical oils. Therefore, Ukraine has good prospects as an alternative route for the supply of tropical oils to other countries, for example Belarus, Moldova, Romania, Hungary, Bulgaria, Azerbaijan, Kazakhstan, Armenia and Georgia. Best regards, Olga Mozgova
9 months ago
Olga Mozgova
9 months ago
Dear Burhan, Many thanks for your questions. 1. In your presentation, you mentioned there is sanction being imposed on Russia. Which country is not allowing Russia to import or export their goods and why? Sanctions in connection with Crimea annexation by Russia and stirring of military activities in eastern Ukraine consist of a set of restrictive political and economic measures introduced against Russia and a number of Russian and Ukrainian individuals and companies, which according to international organizations and states, were implicated in destabilization of situation in Ukraine, including responsibility for the violation of sovereignty and territorial integrity of Ukraine, as well as retaliatory actions of Russia. The US government was the initiator of sanctions introduction. Then countries of EU, G-7 and some other counties which are the USA and EU partners joined the sanctions. In general, the sanctions against Russia provide for assets freeze and introduction of visa restrictions for individuals included in the special lists, as well as prohibition for companies from the countries which imposed sanctions, to keep up business relations with individuals and organizations included in the lists. Apart from the above mentioned restrictions, it was undertaken to scaling down co-operation with Russia and Russian companies in various scopes of activities. Russia has taken a series of retaliatory measures. On August 06, 2014 the decree of Russian President "On introduction of certain special economic measures to ensure security of Russian Federation" prohibited imports of "certain types" of agricultural products, raw materials and foodstuffs, which country of origin is a state, which imposed economic sanctions against Russian legal entities and (or) private individuals or joined in sanctions. EU countries, the USA, Australia, Canada and Norway were put under the embargo. The ban on foodstuffs imports not only violates the principle of most-favored-nation treatment, but is also a gross violation of WTO rules which prohibit such restrictions. This rule is written directly in the General Agreement on Tariffs and Trade. Russian import substitution policy pursued since 2014, has led to a sharp reduction of food supplies from the sanctions list countries, and at the same time – to increase in import permits issuance to other countries. In general, the restriction of finished goods supply showed that it is often impossible to replace import raw materials for foodstuffs production, and similar products have a fairly low quality. The further expansion of tropical oils imports was observed in the fat and oil complex of Russia during this period. These oils have become more widely used in production of finished food products. 2. According to your study, Russia and Ukraine margarine and fats production has a peculiar behaviour. It peaks in fall and winter but fall in summer. Why? The seasonality of margarine and fat production in Ukraine and Russia stems from a number of key factors: - weakening demand from retail trade in the summer months because this is a perishable product and it becomes less popular in the summer, when the food pattern changes in favor of fresh foods -a decrease in consumption by confectionary factories producing cream items (cakes, pastries) because these items are perishable and demand for them weakens in summer -routine maintenance works on the factory’s technological lines are normally conducted in summer 3. Ukraine palm oil import starts to pick up in 2014/15 start. Would you be able to explain why? Among the main driver that pushed up palm oil imports in MY 2014/15 was a sunseed crop failure that entailed a considerable drop in sunoil production. As export demand for sunoil stayed at a high level, the domestic market strengthened demand for palm oil as a raw material. High sunoil exports from Ukraine that have persisted over recent years continued supporting palm oil imports. In addition, the upturn in imports was promoted by a price spread between sunflower oil and palm oil in favor of the latter. Going forward, what do you think the trend will be? The development of margarine and fat exports, as well as growth of domestic production of these products will strengthen demand for palm oil from the Ukrainian industry. In the near future, palm oil supplies may be curbed by the adoption of a Law of Ukraine limiting or even prohibiting palm oil content in foods. Bills with such proposals have been submitted to Parliament, but they have not yet been considered and passed. How about Malaysia’s margarine and fats export position? The share of Malaysian fats in total imports of such products to Ukraine has been increasing lately. For instance, it expanded from 5.8% in 2015 to 9.5% in 2017. The supplies include mostly cacao-oil substitutes. Deliveries of these commodities to Ukraine will be driven mainly by upward trends in the development of Ukraine’s confectionary industry. 4. Your article shows that almost all Russia’s margarine and industrial fats production facilities are located in Western Russia. The issue is how the margarine and industrial fats requirement in Eastern Russia is served. Is it mainly through import? No, this is not entirely correct. The production of margarines and fats is concentrated in the European (Western) part of Russia. The reason is proximity of raw material sources: oilseed growing and processing are concentrated mostly in this part of the country. In addition, terminals handling tropical oils are located there. The margarine and fat producers have extensive logistics and distribution networks enabling them to supply their products to all regions of Russia. That is why the share of foreign supplies is insignificant. Mostly fats for the confectionary industry are imported. Best regards, Olga Mozgova
Burhan
9 months ago
In your presentation, you mentioned there is sanction being imposed on Russia. Which country is not allowing Russia to import or export their goods and why? According to your study, Russia and Ukraine margarine and fats production has a peculiar behaviour. It peaks in fall and winter but fall in summer. Why? Ukraine palm oil import starts to pick up in 2014/15 start. Would you be able to explain why? Going forward, what do you think the trend will be? How about Malaysia’s margarine and fats export position? Your article shows that almost all Russia’s margarine and industrial fats production facilities are located in Western Russia. The issue is how the margarine and industrial fats requirement in Eastern Russia is served. Is it mainly through import?
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