There may be a shortage of vegetable oil and an increase in prices for it

On April 28, as a result of a fire occurred in “Azersun Industrial Park” and covered a total of 5,000 square meters, serious material damage was caused to warehouses owned by Sun Food LLC. there is a 5-6-month supply of oil intended for sale, media reported.

"Azersun Holding" in its message on the official Facebook page informs that as a result of a fire in "Azersun Industrial Park" warehouses belonging to "Sun Food" LLC suffered serious material damage. Also in this post it is noted that due to the fact that the production enterprises are located far from the place of the fire, no damage was done to them, they work as usual. Although “Azersun Holding” does not disclose how many specific goods and products were lost as a result of the fire, the company noted that Sun Food's warehouses located in Khirdalan and other areas have sufficient stocks, and there will be no difficulty in providing oil and other foodstuffs in the country.

We tried to get information about the activities of “Azersun Industrial Park”, production, export and import indicators. According to information published on July 12, 2016 on the holding's Facebook page, the Baku and Sumgayit oil mills operating under “Azersun Holding” are enterprises with great production potential. It is further noted that the enterprise was opened in 1997 and in 2014 it was transferred to the Sumgayit industrial zone, equipped with new equipment, and production volumes were increased. The plants, equipped with modern deodorization and ventilation systems, operate using “non-manual” technologies, working completely harmless to the environment.

The enterprises produce high-quality sunflower and corn vegetable oils, packaged vegetable oil, ghee and ghee, mayonnaise, as well as industrial oils for confectionery and confectionery factories. The enterprise with an annual production capacity of 270,000 tons fully meets the needs of Azerbaijan and has a great export potential. The plant manufactures products under more than 40 names in various categories for domestic and foreign markets. Among the main brands, the following can be distinguished: “Final”, “Möcüzə”, “Gülüm”, “Super Sun”, “Zeytun bağları”, “Wellington”, “Bizim Süfrə” and others. Firstly, despite the fact that the annual the production capacity of this equipment is 270,000 tons, in general, Azerbaijan has never produced so much oil. The highest indicator of oil production in Azerbaijan in 2014 amounted to 159.6 thousand tons, which is 110.4 thousand tons less than the production capacity of the enterprise (270 thousand tons). Calculations made on the basis of information provided by GSK show that after equipping “Azersun Industrial Park” with new equipment and increasing production volumes in 2014, the production of vegetable oil and gross oil in Azerbaijan began to decline (Table 1).

Table 1. Production of oils, tons. Source – State Committee on Statistics

Secondly, the assertion that the enterprise fully satisfies the needs of Azerbaijan does not correspond to reality. Thus, calculations made on the basis of information provided by State Committee on Statistics showed that until now Azerbaijan has never been able to produce oil in a volume that can provide for itself. In 2020, 300.7 thousand tons of oil (vegetable, butter and margarine) were used and processed as food (Table 2). In the same year, more than half of the 300.7 thousand tons of oil was consumed, 180.8 thousand tons were imported (Table 3 in the Appendix).

Table 2. Oils used for food and processed, tons. Source State Committee on Statistics

Figures show  that Azerbaijan is able to satisfy only 49.7 percent of the oil it consumes through domestic production. Due to the impossibility of obtaining production indicators of “Azersun Industrial Park”, it is also impossible to determine the share of the enterprise in total consumption. Considering that Azerbaijan exported only 25,000 tons of butter in 2020 (butter - 388 tons, vegetable oil - 21,880 tons, margarine - 2,737 tons), it can be assumed that “Azersun Holding” was mainly involved in the export of such a quantity of butter. However, in 2013, before being equipped with modern equipment, Azerbaijan exported 3.2 times more oil than now (oil - 158 tons, vegetable oil - 81,615 tons).

Although it is not clear how much butter is produced in Azerbaijan's “Azersun Industrial Park”, vegetable oil production in the country has decreased from 106.8 thousand tons in 2014 to 75 thousand tons in 2020, butter production has decreased from 25 .6 thousand tons in 2016 to up to 24.6 thousand tons in 2020 in 2014. In the country as a whole, a reduction in total butter production from 159.9 thousand tons in 2014 to 149.6 thousand tons in 2020 and a 3.2-fold decrease in butter exports suggests that this enterprise is also experiencing a decline in butter production .

The media noted that the damage caused only to products as a result of a fire in the warehouses of the “Azersun Industrial Park” complex could amount to 20-30 million manats. According to the media, citing an official source in “Azersun Industrial Park”, the fire first started at a plastic utensils factory, and then spread to a refrigerated warehouse where butter was stored. The report also notes that there was a supply of oil for 5-6 months in the refrigerated warehouse, intended for sale. It is also reported that the oil products in the warehouse were intended not only for the local market, but also for export abroad. The management of “Azersun Industrial Park” knows exactly how much oil is stored in warehouses. The calculation of how many products are burned in warehouses takes only one hour, while accurate accounting of products shipped and removed from warehouses must go from the production facility to the warehouses. I believe that the management of “Azersun Industrial Park” can clarify the volume of products lost as a result of the fire as soon as possible.

I should note that the raw material base of the “Azersun Industrial Park” is formed mainly through imports.

Answering journalists' questions about the production of butter and spread butter back in 2017, company representatives said that fat and oil products are imported from New Zealand and account for only 5-7 percent of “Azersun Holding's” share in the butter market. It was noted that in Sumgayit, large volumes of imported oil are packed into smaller volumes and sold. Also, the raw material base of the enterprise is formed mainly due to crude vegetable oils imported from Spain, Portugal, Ukraine, Argentina and Brazil.

If it is true that the damage to products as a result of a fire in the warehouses of “Azersun Industrial Park”, owned by Sun Food LLC, totaled 20-30 million manats, and a 5-6-month supply of oil intended for sale burned down, then there may be certain problems with the supply in the domestic oil market. Thus, it will not be possible to compensate for the loss of goods caused by the fire through domestic production in a short time. Azerbaijan imports more than 40% of the oil consumed. It should also be taken into account that in the first quarter of this year, The price of butter in the country rose by 34%, while the volume of imported butter increased by 19.4% compared to the same period last year. On the other hand, the destruction of the refrigerated warehouses of the enterprise, as well as the loss of tens of millions of manats of working capital as a result of a fire, can lead to a decrease in oil production at the enterprise. Certain difficulties for Azerbaijan will also be created by the fact that the fire I dreamed of a time when, as a result of the Russian-Ukrainian conflict, problems arose with the supply of oil in the world.

Thus, as a result of a fire in “Azersun Industrial Park”, the main oil producer in the country, there may be a shortage of oil, and oil prices may rise.

Table 3. Imported oil