Sunflower Oil - Sunny gains that never set March 2018 issue

After Ukraine and Russia, Argentina is a distant third sunflower oil exporter

Sunflower Oil - Sunny gains that never set

In India, sunflower is more known as the source of an edible oil than as a flower. For, with its high smoking point, the slightly amber coloured sunflower oil is considered perfect for Indian cuisine. But, did you know almost a fourth of the sunflower oil we consume is imported from Ukraine? Here’s The Dollar Business’ take on a flower that’s not just vibrant & beautiful, but also a profitable business

Sisir Pradhan | The Dollar Business


Sunflower oil has traditionally been marketed in India as a healthy edible oil because of its lighter character and low absorption. One is certain that those of you who grew up in the pre-satellite television era, would definitely remember the ad of a then popular sunflower oil brand, wherein a young boy gets up from bed, enters the kitchen doing somersaults before hugging his mother, while “the healthy oil for healthy people” jingle continued in the background. Even 20 years later, sunflower oil continues to be marketed in India on the same lines – targeting the urban middle class. The reason for this being that, on an average, a litre of packaged sunflower oil costs anything between Rs.80 and Rs.170, whereas its peers palm oil and soybean oil are available, on an average, at Rs.60 and Rs.80, respectively. But despite being substantially costlier, as the Indian middle class swells in size, so does the demand for sunflower oil. Speaking to The Dollar Business, Dr. B. V. Mehta, Executive Director, The Solvent Extractors’ Association of India (SEA), agreed with this view and said that sunflower oil’s popularity is also rising because of its physical characteristics. “Sunflower oil is getting more popular among housewives, primarily because of its light golden character. They prefer it because of its crystal clear look as it is assumed to be something related to clarity. This is the reason why the acceptance for sunflower oil is growing,” Dr. Mehta said. However, he doesn’t buy the idea of marketing sunflower oil as a healthy oil, which is cholesterol-free. “Almost all vegetable oils are cholesterol-free,” he quipped.

Crude Sunflower oil exporters


Unhealthy duty

Profit estimates for sunflower oil imports

Although the jury is still out if sunflower deserves to be marketed as a healthy oil or not, there is no denying the fact that all edible oil companies in India, whether small or big, see a great potential for the product. Most of them agree that with rising incomes, more and more people are now ready to try sunflower oil. At the same time, they claim that edible oil consumption pattern in India, changes from region to region, with sunflower oil being the most popular in the western and southern states. Given its higher price tag, it comes as no surprise that more than half of the total sunflower oil consumed in India in FY2014 – about 1.8 million metric tonne (MMT) – was done in the relatively prosperous southern states.

However, despite the positive trend in sunflower oil consumption, sunflower seed production in India has not kept pace with demand. And this has led to more and more imports, mostly from Ukraine. Low duty on sunflower oil imports – less than 3% including cess – has also led to rising imports and, in fact, might have played a part in stagnating domestic production. In fact, low import duty has ensured that not only sunflower oil is much more affordable, leading to higher demand, but also ensured healthy profits for those importing.

Dr. Mehta agrees with the theory that low import duties have ensured stagnant sunflower seed production in India and has dissuaded farmers from sunflower farming. “Due to India’s low duty structure, not many farmers are keen to grow sunflower. That’s why, we have proposed to the government to increase duty to 10% on all crude edible oil and 25% on refined oil,” he said while adding, “This will also help reduce outgo of forex.”

Due to a plethora of new brands coming up, Indian branded sunflower oil retailers have seen their margins erode in the last few years


Feeding a billion

In a country, where farmer welfare and forex reserves are two of the touchiest issues, not many edible oil companies are keen on revealing how much foreign exchange they spend to import sunflower oil. However, the FY2014 Annual Report of Ruchi Soya Industries, which markets one of India’s most popular sunflower oil brands Sunrich, reveals that while during the year, the company earned Rs.4,843.68 crore worth of foreign exchange, its foreign exchange outgo was Rs.8,283.83 crore. And while the outgo for sunflower oil imports was not revealed, it’s not too difficult to guess the figure.

On the other hand, many say the imports are justified as India’s edible oil production is not enough to meet the demand of more 1.2 billion people. According to SEA, total oilseed production in India in FY2014 was 44.27 MMT, with that of sunflower seed being 0.54 MMT. So, if you go by the consumption figure of 1.8 MMT, you would have no choice but agree that imports are justified. What also makes imports necessary is the fact that sunflower crop productivity in India is about 39% lower than the world average. Justifying imports, Shailesh Singh, Director, Cargill India, told The Dollar Business, “With ample production of cheaper sunflower oil in Russia and other Black Sea countries, it makes more sense to import the oil instead of increasing local production.”

India's crude sunflower oil imports


Dotting the coast

India’s vegetable oil consumption pattern has also changed remarkably over the last two decade. Until the early 1990s, palm, soybean and sunflower oil accounted for just 4% of the total edible oil market. But starting the mid-1990s, with the reduction of import duties on edible oil, market dynamics saw a tectonic shift and India became a major edible oil importing country. This is the reason why most of the top edible oil refineries are located near ports like Paradip, Kakinada, Krishnapatnam, JNPT and Haldia. Lower duty on crude edible oil as compared to that on refined oil, to compensate for refining cost, also aided this trend.

sunflower oil imports-The Dollar Business

Almost monopoly

The main reason, why there has been a spurt in new players entering the branded edible oil market, is the fact that sunflower oil can be processed in small plants. On an average, even a 50 MT/day sunflower oil plant is operationally viable, unlike that for a palm oil plant.

Another interesting chapter in the Indian sunflower oil story was when Ukraine, the largest producer and exporter of the oilseed in the world, had put restrictions on the export of sunflower seeds a few years back. Although this was quickly negated by the ramping up of sunflower oil producing capacities over there, it’s a testimony to the fact that any disruption in Ukraine (be political or otherwise) severely affects prices and margins in India. Today, Indian edible oil importers are aware of this  fact and, hence, to insulate themselves from any form of price volatility, strike long-term agreements. However, despite such precautions, sunflower oil import prices shot up to around $960/MT in March 2014 as from around $895/MT in January 2014 due to the military standoff between Ukraine and Russia over Crimea. Such risks notwithstanding, Indian importers continue to earn margins of at least 2% (according to Dr. Mehta of SEA).

Oily gains

Although consumers in India are often considered very price sensitive, an ever growing middle class, higher incomes and increasing health consciousness, have ensured a manifold jump in sunflower oil consumption in the country.  Even the growth is probably here to say, particularly if you consider the fact that per capita edible oil consumption in India is almost 40% less than the world average. Add to this the fact that Indian farmers are not very keen to take up sunflower production and that import duty is expected to remain low. Result: You, as an importer, get as profitably safe a commodity to import as possible. Need we say more?!


Igor Ostapchuk, Expert, UCAB

Ukraine is the world no.1 in the production and exports of sunflower oil. Volume of production in MY2014 (September to August) was about 4.5 MMT, giving us a 28.5% market share in the world. Of this, about 3.9 MMT was exported, which was about 54.1% of global sunflower oil trade. That is why Ukraine has a strong influence on this market. Among all our export markets, the most important one is India, which accounted for 33.5% of our total exports in 2013. Despite this, our sunflower exporters don’t affect prices much in India because of other oils like soybean and rapeseed. The main factor, on the other hand, that influences global sunflower oil prices is global production. According to USDA, global production is expected to fall by 1% to 15.4 MMT in MY2015. They expect a 4.3% decrease in production in Ukraine, on the back of a 13.8% fall of sunflower production due to unfavourable weather during the summer and autumn, which resulted in a lower yield. However, we forecast only a 10% fall, which means the production of oil by Ukrainian enterprises won’t fall much.


Shailesh Singh, Director, Cargill India

India consumes nearly 1.7 MMT of sunflower oil every year, out of which almost 90% is imported. We, and most other leading players in this industry, meet almost the entire requirement via imports. This entire supply chain is largely profitable for the players. However, in the current year, there has been a decline in production in Black Sea countries and Russia, which has led to a fall in sunflower oil supplies. This has pushed sunflower oil prices above that of other competing vegetable oils. We expect the premium to further increase, resulting in a decrease in consumption. On the other hand, recent trends show that sunflower seed economics is not competitive to the Indian farmer as compared to other competing crops. With ample production of cheaper sunflower oil in other countries, it makes more sense to import the oil instead of increasing local production.



Yuriy-Davydov-The Dollar Business
Yuriy Davydov, CEO, Creative Group

Ukraine continues to be the biggest exporter of sunflower oil in the world, accounting for over 50% of the total volume of sunflower oil exports, with India, China and Egypt being the largest consumers of Ukrainian sunflower oil. Marketing Year (MY) 2014 turned out to be a very successful year for Ukrainian companies operating in the oil and fat market. The harvesting of about 10.5 MMT of sunflower allowed the maximum utilisation of local processing capacities. Subsequently, 4.5 MMT of sunflower oil was produced, of which, almost 4 MMT was exported. Being one of the largest sunflower oil producers in Ukraine, Creative Group ranks 2nd among all Ukrainian sunflower oil exporters. According to the preliminary results of MY2014, we have processed about 1 MMT of sunflower seeds and produced about 450,000 MT of sunflower oil, with the entire quantity exported. For MY2015, we plan to process 1.2 MMT of sunflower seeds, which is about 20-25% more than last year. Being an export-oriented company, we sell two thirds of our products outside Ukraine. As far as India is concerned, it is a key strategic export market for us and we have plans to increase our exports to it.


Sanjeev-Giri-The Dollar Business
Sanjeev Giri, Business Head, Dhara (Mother Dairy)

Currently, there is a flush of sunflower oil in the market. This can be gauged by the fact that the prevailing spread between crude sunflower oil and crude soybean oil is very low. Thus, consumers are shifting to sunflower oil, which is, actually, getting commoditised. As a result, the branded category no longer commands the premium it once commanded. Since India is a major importer of sunflower oil, there are two ways in which the government can help the industry. While on one hand, it can reduce import duty (which will help tame inflation but will make the domestic crop relatively expensive), on the other hand it can promote the domestic crop by offering incentives to farmers. This can be done by benchmarking the MSP with import prices by either paying the difference as subsidy or simply changing the duty structure. However, none of these can work in isolation.