When the war in Ukraine started, and with it the prices of sunflower oil, it took trader Lars Schipper a few days to let it take effect, he says. The price of sunflower oil rose during the night from 1,500 euros per ton to 2,000 on the vegetable oil market. “Then you get scared. And I don’t get nervous easily’.
That week – February 24 – Ukrainian truck drivers arrived at Schipper’s company in Werkendam with tanks full of sunflower oil. For now the latter, they said, because they wanted to join the fight once back in Ukraine. “Strange”, said Schipper. “One of the drivers said he would eventually come back to Holland to deliver oil. That determination struck me: knowing for sure that you will come back, while what you have to do is life-threatening.”
The ‘drama’ in Ukraine has an impact on the market for vegetable oils (besides sunflower oil, e.g. rapeseed oil and soya oil), says Frans Claassen from MVO, the Dutch chain organization for oils and fats. Ukraine is the largest producer of sunflower oil worldwide. Exports have come to a standstill due to the war in the country. In 2018, Ukraine produced more than 5.1 million tons of sunflower oil, according to the UN’s Food and Agriculture Organization – about 25 percent of the world’s export market.
How do you trade in sunflower oil when almost everything has come to a standstill due to the war and the prices of all vegetable oils are skyrocketing?
The Netherlands processes around 900,000 tonnes of sunflower oil per year. And more than 70 percent of that comes from Ukraine, says Claassen. The rest comes mainly from other European countries, such as Germany, Hungary, France and Spain. But the producers there also use a lot of Ukrainian sunflower seeds. The entire chain is struggling with major deficiencies, says Claassen from MVO. “It is a matter of weeks before the shelves of bottles of sunflower oil in the supermarket run out. Fortunately, consumers can turn to other vegetable oils. There is no need to panic.” Supermarkets Jumbo and Plus have only given customers a maximum of one bottle of sunflower oil since this week – as a precaution against hoarding behaviour.
Margarine, cookie, chips, frying fat
It is more difficult for producers and traders to switch to alternatives to sunflower oil than for consumers. All the oil imported by the Netherlands is used by companies that make margarine, biscuits and chips, but also by manufacturers of frying oil and cosmetics. Many of these products can be made with other types of oil, but the label is no longer correct. It will then in reality be a different product, which is admittedly very similar to the original. Claassen: “Companies are now trying to replace their products at lightning speed so that consumers can keep buying everything and the shelves don’t run out.” For example, think of frying fat without sunflower oil – that’s fine, says Schipper. Usually it consists of a mixture of vegetable oils.
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How did Ukrainian exports come to a standstill? This consisted of two streams: a stream of sunflower oilseeds, which were processed into oil by refineries elsewhere in Europe. And a stream of ‘ready-to-use’ refined sunflower oil. Many of these flows came from southern ports like Odessa’s, Claassen says. Ships sailed with sunflower seeds or oil for e.g. Rotterdam, where the major refineries in the Netherlands are located, such as the food giants Cargill and ADM. But the southern ports are now closed for fear of Russian attacks, says Claassen. In the past, ships were even hit by Russian missiles.
Trader Schipper mainly bought refined sunflower oil from Ukraine, around 300 tons per week. So it was transported overland to his company Oiltrade Werkendam. He imports the rest of the oil from other European countries. In total, he got about 35 percent of his income from sunflower oil, the rest from other oils. The last shipment of sunflower oil from Ukraine arrived at Schipper two weeks ago, he says. Many Ukrainian refineries are closed. Employees joined the fight in the war or fled. The refineries also suffered from high energy prices. Schipper: “In addition, entire transport companies are down. It has become very difficult to get permission to transport because of the war.” Some roads are also closed or impassable.
How does Schipper deal with the shortage? And with prices rising so quickly? Although the market is in flux, the director of Oiltrade himself is “not hesitant”. This is partly because he can fall back on other types of vegetable oil for sale. However, he can no longer accept new customers while the phone keeps ringing.
The trader sells a lot of ‘no’, also to existing customers – often food producers and industrial companies in the Netherlands. They usually have a six-month contract, but most refineries no longer deliver anything, or at most 25 percent of what was agreed – and it’s falling all the time. According to the contracts, it is a question of ‘force majeure’ for both Oiltrade and the refinery. Schipper: “But it is still difficult for morality not to honor an agreement.”
The trader sees panic rising among his customers. Factories with a lot of staff – “up to 300 employees” – are particularly “nervous”. This comes on top of high energy and grain prices. And they are sometimes tied to price agreements with, for example, a supermarket. Twenty people work at Oiltrade.
Schipper now calls his customers daily instead of weekly. Sometimes they “sigh” together, advice is impossible in wartime, he says. “You can no longer give pleasant advice about the weather and the plants that are doing well.”
The trader cannot agree to the hoarding behavior of the customers. A customer who orders one pallet of frying oil every week does not suddenly get two. He has soybean oil from Argentina or Brazil for them, or rapeseed oil from Germany. But he sells them only at the high prices that brokers set on the market for vegetable oil. The price of soybean oil rose from 1,250 euros per tonnes in January to 2,200 this week. And palm oil rose from 1,600 euros per ton in January at 2,300 euros. The course of these prices is quite irregular, per day it can vary by around 100 euros per ton. Sometimes he buys a little extra on a “good” day.
But Schipper no longer buys in advance, even though prices may well continue to rise. Sowing season is in two weeks. Although there is mainly fighting around the towns, so it may still be possible to see here and there, it is very uncertain whether the harvest in September and the transport around it will be successful. Schipper: “But suppose that the negotiations between Ukraine and Russia go well, while I would have bought before the third quarter. Then the price would drop and leave me with all that expensive oil. That kind of loss can run into millions. Then I could close the tent.”
A version of this article is also published in NRC Handelsblad on March 19, 2022