The consequences of changes to the Ukrainian Tax Code for rapeseed are even more negative than for soybeans. Let's understand this.
The world market of rapeseed shows a clear upward trend in recent years - global production over the last 10 years increased by 45%, and in the 2017/2018 MY is forecast to be 73.09 mln tons. According to the USDA, the main producing countries in the 2016/2017 MY were the EU (20.5 mln tons), Canada (19.6 mln tons), China (13.5 mln tons) and India (7 mln tons). Worldwide rapeseed trade in this period is estimated at 15.9 mln tons and for 70% is covered by Canada. Import demand in recent years is growing steadily from China, Japan and the EU that helps for oilseeds to remain profitable for producers.
Ukraine in the world market is fairly stable. According to the results of 2016/2017 MY, 1.2 mln tons of rapeseed was supplied to the world market. The main market for Ukrainian oil is traditionally the EU countries, which account for 98% of total exports. According to Department of Phytosanitary Security, Control in Seed Production and Seedling, as of January 17, 2018 with the beginning of the current marketing year 2 mln tons of rapeseed was exported, which is 0.8 mln tons more than for the entire 2016/2017 MY, that reflecting the stable high level of demand for crop.
Ukraine remains the main country in which 2017/2018 MY the growth of rapeseed production is projected. Recall that due to adverse weather conditions (drought in Canada, Australia and North America and frost in the EU), a number of key producer countries are forecasting a decrease in both production and export volumes of seeds of this oilseed crop that for several years has been causing a strained world balance. Taking into account this weather factor, which is observed in recent years quite often, Ukraine has high chances to increase rapeseed production, secure the status of a reliable supplier and significantly expand the existing export geography.
The global market of rapeseed processed products for Ukraine remains not very attractive, as the processing technology of this crop is rather complicated, the terms of its implementation, in particular rapeseed meal, are limited, logistics is not developed, the market niche is narrow, and the profitability of production isn’t good. Thus, according to the results of 2016/2017 MY, the share of Ukraine in the total world production of rapeseed oil was 0.3%, rapeseed meal - 0.26%.
Domestic consumption of rapeseed products is also negligible. Rapeseed meal consumption is assessed in 2016/2017 MY at the level of 30 thous. tons, oil - 15 thousand tons. There are no preconditions for the growth of consumption of rapeseed products yet. The reasons for this are the lack of a culture of rapeseed oil consumption for food purposes, the lack of a biodiesel market and the low consumption of meal, compared to sunflower and soy, for feed-stuff purposes.
What to expect after January 1, 2020?
With the entry into force of the amendments to the Tax Code of Ukraine, the profitability of rapeseed production will be significantly reduced and, according to UCAB forecasts, will be 16% in 2020, which is almost three times less than the indicator of 2017 (46.3%). With such a significant fall, the farmer will begin to grow other, more marginal crops. If in the case of soybean it is possible to expect a slower rate of reduction of sown areas, the crop area under the rapeseed in 2020 can be reduced to 100 thous. hectares, and gross production - up to 300 thous. tons. Nowadays, rapeseed is a crop that gives for farmer the working capital during the off-season, because the sales of this crop are carried in late June. Taking into account the preliminary data, in 2017 rapeseed became the most profitable crop and provided an opportunity for agrarians who grow other crops, to hedge and be more stable in the event of high price volatility on other crops.
Changes to UTC can exclude Ukraine out of the key rapeseed producing countries, and the fall in gross output will trigger a fall in foreign exchange earnings from exports of seeds. Regarding the prospects of processing, such artificial stimulation methods will not benefit the industry, but only can stop the natural growth of rape processing in Ukraine in 2020.
The data of the USDA and the State Statistics Committee of Ukraine were used in preparing the material.