Ukraine Israel Free Trade Area: the first risks

Ukraine has come close to signing the Free Trade Area Agreement between the Ukraine and Israel. The sixth round of negotiations was held  at the end of July. Everything indicates that by the end of this year Free Trade Area may become a reality. 

Israel is one of the top-twenty countries that the Ukraine trades agricultural goods with. Last year Israel imported Ukrainian agricultural products worth 292 million dollars. In 2017, the same amount was reached within the first half of the year.

One of the top products that the Ukraine sells on foreign markets, including Israel, is sunflower oil. Experts believe that with the creation of a Free Trade Area, the supplies will only increase. But at the same time there are higher risks of fake product exports, which are already a problem in Europe and have led to public scandal.

In the Ukraine, the competition of processing oil seeds, in particular soy and sunflower seeds, is getting tougher. In an attempt to tap into foreign markets, some exporters started risking the quality of products.

Ukrainian Institute of Consumer Product Testing has stated that oil-extracting factories in the Ukraine began to produce fake sunflower oil industrially. And because of international markets, sanctions can be imposed on Ukrainian exporters of sunflower oil in 2017. For the first time, people are talking about the catastrophic consequences of fake Ukrainian production.

Importers from the Netherlands noticed, in 2015, high cholesterol content in some batches of Ukrainian product.

The Institute of Consumer Product Testing in Ukraine believes that at the beginning of 2017, the problem has become even more prevalent than before. “We get signals from different regions that the demand for chicken fat has drastically increased. Intermediaries explain that chicken fat is bought up for bio fuel production and other technical purposes, however everybody on the market secretly knows that in reality it is used as admixture to sunflower oil” – Yurii Chernobrivets, the Director of the Institute says.

According to him, chicken fat added to sunflower oil even in small amounts causes an increase of cholesterol.

An active buyer of chicken fat in the Ukraine is the Allseeds oil-extraction factory located in the Ukrainian port of Yuzhniy. The company meets all necessary requirements, having on the same territory as an oil-extraction factory and capacities for storage.

In the Spring, the scandal connected with the supply of Ukrainian sunflower product diluted in chicken fat broke out in Egypt – also a major importer of Ukrainian agricultural products. Egyptian media drew attention to one supplier of diluted oil from the Ukraine – Allseeds.

Ukrainian people understand the risks of the actions of certain exporters, but the question is: do Israeli purchasers understand these risks, too? Because it’s possible that seed oil with chicken by-products in it might be on the tables of Israeli people.

Despite all the accusations concerning fake seed oil with chicken fat, Allseeds has announced its intentions to expand production and is trying to attract foreign investors for this project. In the Ukraine, it is believed that creditors should be extremely vigilant because Allseeds is not only involved in the scandal connected with the supply of fake product, but also there are suspicions that it is financially insolvent.

It turns out that the company cannot even pay off its loan to the state Ukrainian bank “Oshchadbank” owing 68 million dollars. If Allseeds cannot pay off this relatively small loan, it indicates that their financial position may pose an imminent problem.

Yulia Harkavenko, the leading expert of the Ukrainian consulting company, UkrArgroConsult believes that the Allseeds’ project to expand the production makes no sense, because there are far too many sunflower and soy processing plants.

Therefore, such investments are likely to lead to losses, because the new factory will stand idle. “In the Ukraine in the sphere of production of all kinds of oils, not only sunflower one, there is more supply than demand. So before building something, it is necessary to think first if it is going to be profitable. Perhaps in three or four years something will change. Then maybe there will need to build something new. But now there are no reasons for this” – Harkavenko said.

Experts believe that the attempts of one company to make its business better in no way should affect the health of final consumers and the reputation of Ukraine.