When the war in Ukraine started, and with it the prices of sunflower oil, trader Lars Schipper needed a few days to let it take effect, he says. The price of sunflower oil skyrocketed overnight, from 1,500 euros per ton to 2,000 in the vegetable oil market. “Then you will be scared. And I don’t get nervous that easily.”
That week – of 24 February – Ukrainian truck drivers arrived at Schipper’s company in Werkendam, with tanks full of sunflower oil. They said the last one for the time being, because they would join the fight once back in Ukraine. “Weird”, said Schipper. “One of the drivers said that he would eventually come back to the Netherlands to deliver oil. That determination struck me: knowing for sure that you will come back, while what you are going to do is life-threatening.”
The ‘drama’ in Ukraine has an impact on the market for vegetable oils (in addition to sunflower oil, for example, rapeseed oil and soybean oil), says Frans Claassen of 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 United Nations 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 because of the war, and the prices of all vegetable oils are soaring?
The Netherlands processes about 900,000 tons of sunflower oil per year. And more than 70 percent of that comes from Ukraine, says Claassen. The rest comes mostly 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 shortages, says Claassen of 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 been giving 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 producers of frying oil and cosmetic items. Many of those products can be made with other types of oil, but the label is no longer correct. It then in fact becomes 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 continue to buy everything and the shelves do not run out.” Think, for example, of frying fat without sunflower oil – that’s fine, says Schipper. It usually consists of a mix of vegetable oils.
Read alsoWar leads to explosion of wheat prices: less bread on the table for millions of people in the world
How did Ukrainian exports come to a standstill? This consisted of two flows: a flow of sunflower oil seeds, which were processed into oil by refineries elsewhere in Europe. And a stream of ‘ready-to-use’ refined sunflower oil. Many of those flows came from southern ports such as Odessa’s, Claassen says. There, ships carrying sunflower seeds or oil departed for Rotterdam, for example, where the major refineries in the Netherlands are located, such as those of food giants Cargill and ADM. But those southern ports are now closed for fear of Russian attacks, Claassen says. Previously, ships were even hit by Russian missiles.
Trader Schipper mainly bought refined sunflower oil from Ukraine, about 300 tons per week. So that was transported overland to his company Oiltrade Werkendam. He imports the rest of the oil from other European countries. In total, he got around 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 a permit to transport because of the war.” Some roads are also closed or impassable.
How does Schipper deal with the shortages? And with the prices rising so fast? Although the market is in flux, the director of Oiltrade himself is “not hesitant”. This is partly because he can fall back on other vegetable oil types for sale. However, he can no longer accept new customers, while the telephone continues to ring.
The trader sells a lot of ‘no’, also to existing customers – often food producers and industrial companies in the Netherlands. They usually have a contract for six months, but most refineries no longer deliver anything, or at most 25 percent of what has been agreed – and that is decreasing all the time. According to the contracts, this is ‘force majeure’ for both Oiltrade and the refinery. Schipper: “But it remains difficult for morality not to keep an appointment.”
The trader sees panic increasing among his customers. Factories with a lot of staff – “of 300 employees” – are especially “nervous”. It 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.”
Hoarding behavior
The trader cannot go along with the hoarding behavior of customers. A customer who orders one pallet of frying oil every week does not suddenly receive two. He does have soy oil from Argentina or Brazil for them, or rapeseed oil from Germany. But he only sells them at the high prices that brokers set on the vegetable oil market. The price of soybean oil rose from 1,250 euros per tonne in January to 2,200 this week. And palm oil shot up from 1,600 euros per tonne in January to 2,300 euros. The course of those prices is fairly erratic, per day it can differ by about 100 euros per tonne. Sometimes he buys a little extra on a “good” day.
But Schipper no longer buys in advance, even though it could well be that prices continue to rise. Sowing season is in two weeks. Although fighting is mainly going on around the cities, so that it may still be possible to sow 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 plummet, leaving me with all that expensive oil. Those kinds of losses could run into the millions. Then I could close the tent.”
A version of this article also appeared in NRC Handelsblad on 19 March 2022
A version of this article also appeared in NRC in the morning of March 19, 2022
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