A BOOST FOR THE INFAMOUS WEROL PLANT

30 August 2016
Tanel Saarmann, tanel.saarmann@arileht.ee
Eesti Päevaleht

 

Estonia's only rapeseed oil plant is now more powerful than ever. However, the year 2016 will still be difficult.

Werol plant, part of the group AS Pere that belonged to Rein Kilk, started operating in Estonia in 1998. In 2012, Baltic Agro assumed ownership and proposed several changes and invested millions of euros. A very important company for agriculture in Estonia is on its feet again. Scandals are now behind them.

Werol's saga was long and complex and ended in bankruptcy. Baltic Agro also had a debt claim against them that amounted to 9.5 million euros. They were not able to sell the plant in the first public auction; a price of 10.4 million was too high. Baltic Agro bought it for 8 million euros in the second auction.

"We can't speak for others and say what went wrong for them. The market we operate in is volatile. It's an undertaking that needs a lot of money. The plant works all year round, but you have to buy all the raw material in autumn. It may just be that back then they were simply unlucky," said Ants Puusta, member of the managing board of both Baltic Agro and the plant that now has a new name, AS Scanola Baltic.

"During a normal year, Estonian harvest is enough for Scanola's oil production needs, but this year, it's different.”

The plant they took over was functioning but had temporary difficulties. The old plant kept on operating during the bankruptcy process. The people and the knowledge were still there. The new building of the plant was also 80% complete; it was only missing finishing touches and apparatus. It was Scanola that started production in the new building. Investments to warehousing were made as well, because storage of raw material is paramount. The second main objective was increasing effectiveness by automatisation as well as energy management. In a month, Scanola consumes 100,000 euros worth of gas and 50,000 euros worth of electricity.

Buying the plant was a logical step for Baltic Agro, whose turnover in 2015 was 250 million. Previously, they were a big rapeseed trader and exporter. Among other buyers, some of the harvest was sold to Werol. Now, they do not export anymore. All the raw material that is grown in Estonia is valorized in Scanola.

"When times are good, the plant produces 5,500 tons of cooking oil in a month. 60% of it goes out of Estonia to Latvia, Finland, Denmark, and Israel," said Puusta.

The countries can be broadly divided into two categories. In Russia and towards the east, people prefer sunflower oil and in Estonia, Finland and Scandinavia people like rapeseed oil. In Israel as well. Scanola sees a huge development opportunity there.

There are no precise statistics available about the cooking oil market, but Scanola, who produces products under the Olivia brand, believes that its market share is 40–45%. In addition, they produce private-label products for chains. In Estonia, there is no other plant quite like this.

During a normal year, Estonian harvest is enough for Scanola's oil production needs, but this year, it's different. Last year 200,000 tons of rapeseed was harvested in Estonia, this year expectations are lower, at 120,000 tons. Scanola needs 140,000 to 150,000 tons a year.

Running an oil business is like walking on thin ice

"The question is whether we can produce at full capability or should we reduce production for a few months. In September, we will find out how much of the Estonian rapeseed we are able to collect. Occasionally, we have also brought some from Eastern Latvia. Running an oil business is like walking on thin ice. If you have to buy raw material at a price 10 euros higher, then you are no longer competitive.

In agriculture, rapeseed is a catch crop and cannot be grown every year. Furthermore, it competes with other catch crops, for example peas and beans. Price of one ton of rapeseed has been around 500 euros at best, but sometimes also as little as 300 euros.

During the time of Werol's takeover, around 60 people worked there. Currently it employs 44, including drivers, but the production has doubled.

"Machines do more, but this also means that workers have more time to think. They don't have to go all out from morning till evening," said Puusta. 

"In agriculture, we produce in big volumes and the wholesale trade has a small margin.”

A by-product of oil production is rapeseed oil cake that can be sold, too. A big advantage that Scanola has compared to a lot of competitors is a guarantee of no salmonella in their rapeseed oil cake. But the rapeseed oil cake sale is influenced by the current state of milk production. If it is bad, the demand for rapeseed oil cake in Estonia is smaller. Then it has to be exported, but the problem is that it cannot be taken very far. It is a different story when it comes to oil; there is a possibility of entering new markets. On a local scale there is a limit to how much we can sell, because Estonians will not start eating pancakes more than once a day.

In 2015, Scanola's profit was 1.33 million and turnover 59.47 million euros. The same indicators for Baltic Agro were actually 4.4 million and 252.79 million euros.

"I have a lot of friends who don't work in agriculture. When I mention Baltic Agro's profit and turnover figures to them, they ask me if all I do at work is spend money every day. In agriculture, we produce in big volumes and the wholesale trade has a small margin. When we have raw material, we are doing good, but 2016 will be hard for all the market players," explained Puusta.

Two to three million euros have been invested into the plant every year. This year's plan is to take a breather.

Only the new building is currently operating. In the future, they are thinking of using the old building, too. If only there was enough rapeseed that needed processing.

Neither the state nor Kilk could keep Werol afloat

The company Werol Tehased AS, which set up the rapeseed processing plant, was established in 1997. Production started in the winter of 1999. Estonia was then hit by the financial crisis and the Russian crisis. In order to avoid closing the plant, 98% of it went to Hüvitusfond (State Compensation Fund) in 2002.

During the liquidation of the Hüvitusfond in 2003, Werol's assets went to the Ministry of Agriculture. Erki Aavik became the head of Werol, but was fired already in 2004. He had managed to create a loss of 22 million kroons.

In the early years, the plant was continuously making losses. The company was run by Tiit Tammsaar, Villu Reiljan, Ester Tuiksoo and even Arnold Rüütel. Eventually, the plant with a debt burden of 60 million kroons was put up for sale.

In 2006, the company owned by Rein Kilk, Pere Leib Tootmine, bought Werol's shares.

As late as 2010, the plant released good news about their plans to build a new pressing plant. There was so much rapeseed being grown in Estonia that the old building was not able to process it all.

Werol's sales figures were continuously good but the lack of money was tremendous. This brought the company to its knees and four big suppliers did not make it, they filed for bankruptcy. Werol that was part of the group Pere owed these suppliers more than three million euros. Rein Kilk tried to calm down the frustrated masses by telling them that an investor will soon be found. No one believed that. Werol's buildup of arrears kept on increasing and bankruptcy was inevitable. In 2012, a new page was turned in the Werol's saga. Baltic Agro took over.