July 13, 2001

Russia and Ukraine: Sunflowerseed Slip Seen for 2001/02

A reduction in sown area and estimated yields will lower 2001/02 sunflowerseed production in both Russia and Ukraine. Russian output is forecast at 3.2 million tons (against 3.9 million last year), from an estimated area of 3.9 (4.4) million hectares. Ukrainian production is forecast to drop by nearly 30 percent from last year’s 3.5 million tons, to an estimated 2.5 million for 2001/02. Ukrainian area is estimated at 2.2 (2.8) million hectares. Lower yield is expected in both countries, due in part to unfavorably wet, cool weather which impeded planting and slowed early establishment. Weather has been especially wet in Ukraine’s main sunflower region, with excessive rainfall during both May and June.

Sunflowerseed production in the former Soviet Union peaked during the past two years. Area and production reached record or near-record levels in Russia in 1999/2000, at 5.5 million hectares and 4.2 million tons (output was 4.2 million in 1995/96 also), and Ukraine reached record area and production just last year, at 2.8 million hectares and 3.5 million tons. Agricultural officials in both countries have expressed concerned in recent years about the explosive growth of sunflower area and its contribution to depleted soil fertility and the spread of soil-borne fungal disease, and have encouraged farmers to reduce the frequency of sunflowers in their crop rotations. Specialists in Ukraine, for example, recommend that total sunflower area should not exceed 1.6 million hectares. Due in part to stricter adherence to traditional crop rotations -- and to other factors, such as the increased profitability of wheat in Russia, and Ukraine's guaranteed base price for sugar beets -- sunflower area has dropped significantly.

According to most observers, sunflowerseed remains the most profitable crop in Ukraine, even considering the high cost of production. Crushing facilities are operating at only 75 percent of capacity and crushers are trying to increase procurements of seed for processing. In an effort to reduce sunseed exports and protect the domestic vegetable-oil industry, the government imposed a controversial 23-percent export duty in October 1999. Some officials opposed the duty, maintaining that sunseed’s value as an export crop should be exploited in order to enable the State’s agricultural sector to purchase much-needed inputs such as fertilizers and plant-protection chemicals. According to the U.S. agricultural attache in Kiev and other sources, the effectiveness of the export duty in stemming exports was limited by traders who evaded the export duty by means of so-called tolling schemes, whereby seed was sent overseas, ostensibly for processing but in reality as straight exports. In a move which was anticipated by many traders and analysts, the Ukrainian parliament passed legislation in June reducing the export duty on sunseed from 23 to 17 percent and banning the tolling schemes. The new legislation’s impact on 2002/03 Ukrainian sunseed production is difficult to forecast at this time, but it is unlikely to have a significant effect on 2001/02 output since the crop was already in the ground by the end of May.

(Ukrainian officials, meanwhile, have been trying to boost rapeseed production in western Ukraine, reportedly in a effort to spread out the workload at oilseed crushing plants. Rapeseed is harvested earlier in the season and can be processed before sunflowerseed deliveries begin to arrive. Area climbed rapidly in recent years to a record 250,000 hectares in 2000/01, but leveled off in 2001/02. Consumers typically prefer sunflowerseed oil over rapeseed oil and most traders and commodity analysts suggest that there is not a big future for rapeseed production in Ukraine.)

Sunflowerseed is still a priority crop in Russia, but wheat is currently regarded as more profitable. In many cases -- especially in the North Caucasus, one of Russia’s key agricultural regions -- farms have shifted from sunflower to winter wheat, which is cheaper to produce and easier to sell. As in Ukraine, production of sunseed appears to be declining even as demand is increasing. Companies are investing in new crushing facilities and new plants are being built. In April, the government increased the export tariff on sunseed from 10 to 20 percent to reduce exports and support domestic crushers.

It is unlikely that sunflowerseed producers in Russia and Ukraine will be able to compensate for the decrease in area by boosting yield. Application of fertilizer is increasing, following ten years of steady decline, but application rates are still considerably below optimum levels. Furthermore, the majority of fertilizer is applied to wheat, not sunflowers. Russia imported more high-quality planting seed this year, which will benefit yield, but -- as with grain -- weather remains the chief determining factor for sunflowerseed yield.

For more information, contact Mark Lindeman with the Production Estimates and Crop Assessment Division on (202) 690-0143.