Bloated vegetable oil market threatens Raisio production

By Sarah Hills

- Last updated on GMT

Related tags Financial crisis Material Peak oil

The Finnish food group Raisio said it will come to a decision within days on whether to dramatically cut its vegetable oil production because of a glut in the market.

The maker of the Benecol brand said the economic crisis is taking its toll on the oil milling business and there is a weakening of demand for rapeseed oil, which is denting profitability.

As a result the company is in negotiations to adapt its vegetable oil production to the market situation and said it is “initiating the talks with the aim of laying off the entire staff at its oil milling plant for a maximum of 90 days”​.

A spokeswoman for Raisio told FoodNavigator.com that the price of vegetable oil in global markets had dropped by about 50 per cent over the last six months and said: “It is a huge decrease. The demand is much weaker than it was.”

She added that the negotiations, which concern 31 staff, will end “within the next week”​ but meanwhile she said: “Our staff is working at the moment and we are producing.

“The decision to be made is if we are going to continue that, or if we are going to have to lay off our personnel.”

Raisio uses about 25 per cent of the rapeseed oil it produces for its own food and feed production for products such as margarine. The company claims to be the only Finnish producer of margarine.

Most of the oil it currently manufactures, which last year amounted to 160m kilos of extracted raw material, is being sold on international markets.

The spokeswoman said that any cuts would be in the oil it produces and not in the oil it uses for its own food and feed segments.

Exports

Raisio said that the indirect effects of the global financial crisis had resulted in a fall in vegetable oil price and a weakening of export possibilities.

This weakening in demand was evident in “bloating of stocks”​ and a weakening in profitability.

It said in a statement: “One significant reason is the reduction in the manufacture of biodiesel as a result of the low crude oil price and the economic downturn.

“The profitability of the Finnish oil milling industry is also being weakened by the scant availability of domestic raw materials and the necessity of resorting to the use of imported seed.

“Adapting vegetable oil production to the market situation is Raisio’s way of controlling the pressures on the profitability of feed raw material.

“The company is ensuring that it maintains its profitability and is reacting to changes in demand by adapting its operations.”

Financial performance

The company saw a 20 per cent increase in sales in 2008 which hit €504m compared with €421.9m in 2007.

The year also saw profit jump from €9.9m in 2007 to €24.1m excluding one-off items – representing 4.8 per cent of sales.

However when its results were announced last month, Raisio noted a catalogue of concerns that may impact its performance. These included volatile raw material and energy prices, reduced demand for biofuels and reduced demand for feedstock as livestock head dwindle.

Related topics Market trends Fats & oils

Related news

Follow us

Products

View more

Webinars