Overview of the Russian oil and fats products market in 2021
A lower sunflower harvest in 2020 (–13% compared to 2019) drove the sunflower oil production in the 2020/2021 season down by 9%. This, together with strong global demand for vegetable oils as the final carry-overs run out, improved domestic sunflower oil pricing. Russia imposed restrictive measures on the export of sunflower seeds and sunflower oil and froze maximum retail prices to curb the price development.
Production
Crude vegetable oil
Vegetable oil production in the 2020/2021 season fell by 7%, reaching 6.8 mn tonnes. Sunflower oil was the core driver of the decline as its output dropped by 9% and stood at 5.3 mn tonnes due to a lower sunflower harvest in 2020 (–13% from 2019 level). For 2021 calendar year, Russia produced 5.0 mn tonnes of sunflower oil, down 14% year-on-year. This downturn was partly contained by export duties on sunflowers. With a 17% increase in the sunflower harvest in 2021, sunflower oil production in the 2021/2022 season can yet rise to 5.9 mn tonnes (+10%).
Source:
Industrial fats
Higher demand against stagnant household incomes in 2021 caused production of industrial fats in Russia to rise by 6%, amounting to 1.3 mn tonnes. This growth mainly concerned universal fats (+8%, or 28 ths tonnes), cocoa butter analogues (+31%, or 15 ths tonnes) and confectionery fats (+19%, or 12 ths tonnes). The output mix of the different categories of industrial fats is determined by strong demand from the domestic confectionery and dairy industries and shows a slight year-to-year variation.
Source: expert assessment based on data from the
Consumer products
Production of the main categories of consumer oil products in Russia in 2021 remained at about the same level as in the previous year. There was a mild increase in the output of packaged vegetable oil and mayonnaise (+2%) — up to 1.9 and 0.9 mn tonnes respectively (+35, and 16 ths tonnes). Following an occasional upswing in demand for these products due to quarantine measures related to the COVID-19 pandemic, production of packaged margarines and spreads still decreased by 4% (down 8 ths tonnes) to 2019 levels (0.2 mn tonnes). The output of cheese and cheese products in 2021 amounted to 0.8 mn tonnes,
Source: Rusagro’s estimate based on the data from the Russian Federal Service for State Statistics (Rosstat), Federal State Statistics Service, BusinesStat
Key players
Crude vegetable oil
The 2020/2021 season witnessed seven players, jointly holding 57% of the total domestic production of crude sunflower oil. With a 13% share (+1.0 p.p. against the 2019/2020 season) and crude sunflower oil output
Source: the
Industrial fats
The Russian industrial fats market in 2021 featured three major players, with a combined share of 81%. The market leader is EFKO — in 2021 the company claimed 48% (+0.9 p.p.) of the domestic industrial fats market. Rusagro secured its second place and a 22% share. Cargill is traditionally in third place — its share rose up by 1.5 p.p. and stood at 11%.
Source:
Packaged vegetable oil
Five players account for more than half of national packaged vegetable oil output (56%). The largest of these is Yug Rusi. As this company does not belong within the Russian Oil and Fats Union, Rusagro expertly estimated its production volumes
Source:
Consumer margarine
For many years Rusagro has been leading the way in Russian market among consumer margarine producers. Rusagro’s share of this product category in 2021 is estimated at 49%
Source:
Mayonnaise
The top five producers account for 70% of Russian mayonnaise output. In 2021, Essen ranked first with a share of 18%. Rusagro was again in the second place with a share of 16%.
Source:
Exports and imports
Crude vegetable oil
Contracting domestic production of vegetable oil in the 2020/2021 season pushed exports down by 14% season-on-season. This has to do with smaller amount of crude sunflower oil shipments, which totalled 2.7 mn tonnes as of season-end (–19% from the season earlier). Export volumes are anticipated to increase in the new season as there are projections of output growth in January–August 2022 on the back of a higher sunflower harvest in 2021.
Turkey, Iran, China and Egypt have been the main buyers of Russian crude sunflower oil for the past few years. In the 2020/2021 season, Turkey and Iran accounted for 28% (+8 p.p.) and 27% (+14 p.p.) of all Russian exports, respectively. As Turkey has zero duties on sunflower oil imports, supplies to this country increased by 12%, totalling
Source: Federal State Statistics Service
Governmental restraints
On 1 September 2021, Russia introduced a floating export duty on sunflower oil exported outside the EEU and will have it place until 31 August 2022. This duty is 70% of the difference between the benchmark price (USD 1,000/t) and the indicative price (arithmetic average of monthly market prices), minus the adjustment factor (USD 50/t). In 2021, the export duty on sunflower oil hardly weighed on export volumes, but still it curtailed the influence of soaring world prices on domestic prices.
Driven by a recovering demand for palm oil from the confectionery and dairy industries, imports of crude vegetable oil in 2020/2021 rose to 1.4 mn tonnes (+4%). Imports of this product jumped by 34% and reached 1.1 mn tonnes. Indonesia remained the main importer of palm oil in 2021, accounting for 97% of the total import volume in the 2020/2021 season.
Source: Federal State Statistics Service
Industrial fats
In 2021, Russia exported 127 ths tonnes of industrial fats, up 33% (up 32 ths tonnes) above the 2020 level. The upward trend was spurred by a 135% increase in supplies of universal fats (up to 55 ths tonnes), which accounted for 43% of the total export volume on the year-on-year basis. More than half of Russia's supplies of industrial fats (54%) were sold to Uzbekistan
Imports of industrial fats were trending down for the second year in a row (–23% in 2020 and –15% in 2021) and amounted
Source: Federal Customs Service of Russia
Source:
Consumer oil and fats products
In 2021, Russia cut down exports of the major categories of consumer oil products by 25% (down
Uzbekistan had traditionally been the world's largest importer of major categories of Russian consumer oil and fats products, being the main buyer of packaged vegetable oil. 2021 exports to this country amounted
Source: Federal Customs Service of Russia, Eurasian Economic Community Customs Union, BusinessStat
Russia imports a small amount of consumer oil products — mainly olive oil from Spain and Italy. Vegetable oil imports in 2021 were 25 ths tonnes (+1%), including 10 ths tonnes from each of these two countries. Imports of mayonnaise and mayonnaise-based sauces continued to decline
Prices
Crude sunflower oil
The average annual price for sunflower oil in Russia rose by 60% in 2021 compared to the 2020 average, reaching
Consumer oil and fats products
Higher inflation and vegetable oil prices in 2021 fuelled up the producer prices for the major categories of consumer oil and fats products. Thus, the market prices for packaged sunflower oil rose by 54% —
Governmental restraints
A price cap on retail bottled sunflower oil was in effect from 20 December 2020 through to 1 October 2021 to protect Russian consumers. Thus, producers agreed to keep
Source: BusinesStat
Results of Rusagro’s Oil and Fats Business in 2021
Oil and Fats Business revenues grew by 57% (up RUB 45.5 bn) in 2021 and reached RUB 125.2 bn, driven by favourable global pricing environment. However, rising vegetable oil prices increased the cost of production and thus pushed down the profit margin from 12% to 10%. As a result, the Company managed to increase adjusted earnings before interest, tax and depreciation (EBITDA) by 36% (up RUB 3.4 bn) to record RUB 12.8 bn.
Operating results
Financial results
Overview of assets
Oil extraction
Rusagro's total sunflower processing capacity in 2021 did not change, being 4.6 ths tonnes of sunflower seeds per day or about 1.6 mn tonnes per year. Given the level of oil content of raw materials and the capacity of the plant, this allows for the production of around 660 ths tonnes of crude oil and 600 ths tonnes of meal. In addition, Rusagro owns a soybean processing plant in the Far East with a maximum annual capacity of around16 ths tonnes of soybean oil and 74 ths tonnes of soybean meal.
Storage and conditioning
Rusagro’s Oil and Fats Business owns five elevators with a storage capacity
Production of oil and fats products
In 2021, Rusagro's total annual production capacity for industrial fats approximated 400 ths tonnes, and for consumer products – 700 ths tonne (+5% against 2020 capacity), including around 320 ths tonnes of bottled oil (+5%), 300 ths tonnes of mayonnaise and mayonnaise-based sauces (+8%
Dairy products production
Rusagro's designed milk processing capacity at the butter and cheese plant is 270 tonnes of milk per day. The total production capacity of dry industrial mixes is 17 ths tonnes. Milk is purchased from private farms in the Ulyanovsk and Samara Regions and in Tatarstan. The product line includes cheese and cheese products, butter and spreads, cream and dry mixes. The plant specialises in the production of cheese and cheese products of the rennet type; by-products of this process include butter and cream, as well as cheese whey-based dry mixes.
Brands
Rusagro's Oil and Fats Business has a product portfolio in four segments: sauces, liquid oils, solid fats and soaps, and dairy products. The key brands of sauces are Ya lublu gotovit, Mechta Khozyaiki (Dream of the Housewife), Provansal EZhK and the brands of margarine – Schedroe Leto (Generous Summer) and Chudesnitsa (Mischievous Lady). Yet, Ya lublu gotovit (I love cooking) is an umbrella brand that unites three local brands of mayonnaise (Moscovsky Provansal, Saratovsky Provansal and Novosibirsky Provansal).
Other brands include Rossiyanka, BENEFITTO, Maslava and Leto Krasno (butter), Saratovsky (margarine), Zhar Pechka and Buterbrodnoye Leto (Sandwich Morning) (spreads), Oliviez (mayonnaise), Melie and Syrnaya Kultura (Cheese Culture) Cheese Culture (cheeses). According to AC Nielsen research, the Company's margarine brands captured 34% of the consumer margarine market and mayonnaise brands – 13% of the mayonnaise market in Russia in 2021. In the Central Russia, the most recognizable brand is Moscovsky Provansal, in the Urals – Provansal EZhK and Schedroe Leto. The latter is also the number one brand in exports from the Russian Federation and dominates the markets of Uzbekistan, Tajikistan, and Turkmenistan. Mechta Khozyaiki is the market leader in Moldova and Azerbaijan, Oliviez – in Uzbekistan. To the Chinese market the products are supplied under the Leto Krasno brand.
Investments
In 2021, Rusagro invested RUB 2.1 bn into development and maintenance of the Oil and Fats Business, The 15% year-on-year increase in investments was attributable to the costs of a project to relocate oil and fats production capacities between sites and to increase the capacities of the Balakovsky Oil Extraction Plant.
Major investment projects of the Oil and Fats Business
Location: Saratov Region
Goal: relocation of mayonnaise production line from Moscow Oil and Fat Plant due to expiry of lease and abandonment of the site
Project cost: 1.9 RUB bn, excl. VAT
Implementation period: 2020–2022
Investment volume in 2021: 0.7 RUB bn, excl. VAT
Location: Saratov Region
Goal: increase in sunflower processing capacity from 1.5 ths to 1.8 ths tonnes per day
Project cost: 1.2 RUB bn, excl. VAT
Implementation period: 2020–2022
Investment volume in 2021: 0.3 RUB bn, excl. VAT
Location: Saratov Region
Goal: increase in sunflower processing capacity from
Project cost: 0.8 RUB bn, excl. VAT
Implementation period: 2021–2023
Investment volume in 2021: 0.02 RUB bn, excl. VAT
Location: Saratov Region
Goal: doubling the production capacity of puff pastry margarine
Project cost: 0.6 RUB bn, excl. VAT
Implementation period: 2021–2022
Investment volume in 2021: 0.1 RUB bn, excl. VAT
IT and innovations
Oil extraction
Digital twins of oil extraction plants and raw material management models based on the Digital Farmer platform and transportation management systems (TMS) and yard management systems (YMS)
Optimisation of the sunflower transportation cost and timing, and its storage and processing locations
Production of oil and fats products
System for optimised planning of oil and fats products with the creation of a digital twin
Increased quantity of output and lower production costs
Product storage and logistics
Enterprise Warehouse Management System (WMS) and Yard Management System (YMS)
Faster and more accurate warehouse operations
In 2021, Rusagro successfully launched a desktop and mobile application, Digital Farmer, to automate work with raw material suppliers. More than 1,500 agricultural producers in the three regions where the Oil and Fats Business operates were already using the app as at the end of the year. In good time, we expect to roll out the app to other Rusagro regions as well. The Company also expressed a willingness to provide access to the app to non-competitors of Rusagro.
In users' opinion, this additional method of interaction saves time and simplifies the agricultural produce selling procedure. With the digital service on offer, suppliers have the opportunity to use transport ordering, digitally signed purchase and sale options, exchange information on deliveries and professional advices, and receive
In addition to technology-related projects, Rusagro's Oil and Fats Business is interested in using advanced technologies to create innovative products with improved consumer properties. For example, since 2021 the Company has been involved in a project to produce compound fats from micro-organisms for use in various sectors of the food industry. Also, the Company is looking into unique alternatives to existing cocoa butter substitutes on the market.
Operating results
Production
Rusagro’s crude vegetable oil production in 2021 decreased by 3% (down
Rusagro produces all the main types of industrial fats, except cocoa butter analogues. The bulk of the products mix is represented by universal margarines and fats that are the most in-demand at the domestic market. In 2021, the Company stepped up its production of industrial fats by 11%,
Following a turndown in demand for finished products on domestic and global markets and a simultaneous increase in demand for crude oil, Rusagro’s output of consumer oil products in 2021 declined by 12% and stood
Sales
In 2021, Rusagro’s industrial oil and fats sales volume increased by 2% (up 25 ths tonnes) and totalled
Sales of consumer oil products fell by 5% (down
Sales of dairy products amounted to 30 ths tonnes – 7% higher than in 2020 (up 2 ths tonnes). Sales of whey powder mixes used as ingredients for instant products, as cream powder for instant coffee and as additives for meat and confectionery products rose by 6% and totalled
Exports
In the reporting period, 41% of all oil and fats products sold by the Rusagro were destined for export, its total volume amounting to
Export volumes of consumer oil and fats products shrank by 23% (down
Rusagro was pressing forward the sales of consumer oil and fats products in China in 2021. For example, the Company supplied sunflower oil under the Leto Krasno brand to the Hema network (Alibaba Group Holding Limited) for the first time in August. With a view to develop online sales, a speciality store of oil and fats products called Hangzhou Rusagro was opened on the JD.com marketplace, featuring both bottled oil under Leto Krasno brand and mayonnaise under the Ya lublu gotovit brand – Moscovsky Provansal. In November, the Company successfully sent to China a whole train of bottled sunflower oil of the Schedroe Leto, Ya lublu gotovit, BONISSIMO, and Leto Krasno brands.
JSC Zhirovoy Kombinat (Fats Plant), part of the Rusagro Oil and Fats Business, won first place in the "Agribusiness Exporter of the Year" nomination in the "Large Business" category of the "Exporter of the 2021 Year" federal competition hosted by the Russian Export Center. The awards ceremony was held on 10 December in Moscow at the Made in Russia forum. The ceremony was attended by Vladimir Aleksandrov, General Director of Rusagro’s Oil and Fats Business.
Brands
In 2021, 42% (+2 p.p.) of oil and fats products sales and 60% (–3 p.p.) of Rusagro's Oil and Fats Business revenue came from the consumer segment. Rusagro’s oil and fat products traditionally occupy leading positions in the home regions. Thus, according to AC Nielsen data for 2021, Provansal EZhK mayonnaise ranked first in the Urals with a 42% share, while Moskovsky Provansal was number two in the Central Russian with a 22% market share. As of the year-end, the Schedroe Leto consumer margarine brand is the number one on the Urals market with a share of 59%, and the Saratovsky Provansal brand is in second place on the Volga Region market with a share of 28%. These two brands also hold prominent positions in the Russian market — they are in third and second place respectively (each with 12% share).
Financial results
In 2021, Rusagro's Oil and Fats Business generated RUB 125.2 bn in revenue, which grew by 57% (+ RUB 45.5 bn) due to higher market prices for industrial and consumer oil and fats products on the back of strong global demand for vegetable oils. The production cost of sell goods climbed up more slowly than selling prices, however driving the profit margin down from 12% to 10%. As a result, adjusted earnings before interest, tax and depreciation (EBITDA) posted less growth than revenues (+36%) and stood at RUB 12.8 bn.