The domestic fats and oils industry is facing a struggle for profitability, which has become a matter of survival.
Experts note that until recently, the Russian fats and oils industry demonstrated extensive growth, increasing production capacity. Now, however, we are seeing a different trend: competition for every percentage point of profitability.
This efficiency metric is becoming paramount, as companies with low efficiency risk simply not surviving the current competition and leaving the market altogether.
This particularly applies to companies with problems in management, technology, logistics, or raw material availability.
At the same time, analysts are confident that large-scale new investment projects are unlikely to appear on the market: there are currently plenty of existing ones.
The same applies to the possibility of creating new production capacity. Currently, there is generally sufficient capacity—in fact, in recent years, we have seen competition among them for raw materials.
Thus, competition between existing companies is currently becoming a significant trend, which will likely lead to only the most efficient remaining in the market.
In particular, those that are capable of switching from one oilseed crop to another if necessary, although this is not always technologically easy to accomplish.
Another serious problem in the Russian oil and fat market is the profound divergence of interests between participants in the chain.
This is because farmers’ costs have risen sharply, and they believe that a fair price for oilseeds should be significantly higher than the current one. Processors, meanwhile, are constrained by the export situation: the dollar exchange rate determines their ruble revenue, plus there is an export duty that significantly cuts their income.
As a result, the price that processors can offer without going into the red is, in many cases, simply unacceptable to producers: if they agree to it, they themselves will be operating at a loss.
In the current environment, it’s clear that most companies in the market are operating with minimal profitability.
Margins of 5-10% are becoming the norm, and 15% is an unattainable ideal. A company’s primary goal is to avoid going into the red.
Clearly, under these conditions, investments in further development are questionable, and this is an extremely negative factor for this market, experts emphasize.
