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Your deep-fried favorites will burn a hole in your pocket

If you’re someone who likes cooking, you’re likely fuming at how expensive things have gotten in the last few months. While prices of fresh produce and FMCG are an inconvenience, nothing could have prepared us for the spike in vegetable oil prices – especially sunflower oil.

Global sunflower oil prices have gone up over 100% in the last month, with traders fearing the worst is yet to come. In general, inflation in vegetable oil prices can be tied back to several factors – often the case when a commodity is widely consumed and is sourced across different geographic markets.

But such an explainer works well when inflation percentages range in the single- or double-digits, not when there’s galloping inflation as is the case today. For instance, the price of Sunflower Oil 6 Ports Option moved up by $800 per metric tonne (mt) to $2,650 per mt on March 8, up from $1,850 the day before. That’s a 43% increase in a day. In commodity language, that’s nothing less than a short squeeze.

Why did this happen? Point all fingers to the Russian invasion of Ukraine. Ukraine and Russia control over 60% of the world’s production of sunflower seeds, with Ukraine alone contributing roughly 35% of the world’s sunflower oil production. In total, Ukraine and Russia contributed 77% of global exports in 2020-21. Today, Ukrainian oil is out of reach, with shrunken harvests and oil supplies unable to leave its boundaries.

sunflower oil producers

For Russia, the issue is with the embargoes. Several countries have banned Russian exports, and major shipping vessel operators and ports refuse to work with Russia. The European Union has announced a blanket ban on all Russian-operated vessels from its ports, with sanctions expected to be stepped up as the war continues to flare. So with Ukrainian oil out of reach and Russian oil being embargoed, it’s little surprise that sunflower oil prices have exploded over the last month.

sunflower oil prices
Source: S&P Global

While prices are an immediate concern, the issue in the longer term would be availability. With more than half of the world’s sunflower oil output siphoned off in a matter of weeks, it will be difficult – and nearly impossible – to find a replacement.

To understand the impact, it makes sense to check out supermarkets across the globe, which reflect the scarcity playing out in the absence of Ukrainian sunflower oil. For instance, Ukraine contributes to over 90% of the EU’s sunflower oil needs, aside from a meaty 40% of rapeseed and soybean oil – popular alternatives to sunflower oil in the continent.

Meanwhile, India – Ukraine’s largest importer of sunflower oil – is having a headache with its imports, as 360,000 metric tonnes of Ukrainian sunflower oil shipments that had to be delivered in March are stuck across its ports due to the conflict. Between November and February, India has imported 715,934 mt of sunflower oil from Ukraine and 121,323 mt from Russia, making this war a costly affair. While India looks to continue buying Russian sunflower oil, transporting the oil seems tricky considering the shipping embargoes.

With sunflower oil being in demand and supply virtually limited, it puts the spotlight on its alternatives. The demand for Ukrainian sunflower oil was forecasted to hit 6.6 million mt in the 2021-22 season, which would considerably fall short in the current circumstances.

Sunflower oil is one of the big four vegetable oils, with the other being palm, soybean, and rapeseed oils. The soybean oil market is also under stress, considering a major production region – South America – has been affected by drought, reducing supplies. Canada, the largest producer of rapeseed oil, also suffered lower yields in ‘21, thanks to a sweltering hot summer. Reading between the lines, it’s evident climate change is increasingly becoming a spoiler for ag production.

Palm oil is by far the most used vegetable oil, with production concentrated in Indonesia and Malaysia, which control 85% of the global palm oil supplies. Even here, the region saw a lower yield of palm oil this year – the culprit being extended pandemic lockdowns that shut the doors on migrant labor who move into the countries during the harvest season. While cheap and ubiquitously used in food products, detergents, cosmetics, and even biofuel, palm oil is stigmatized, as its production has led to extensive deforestation in Southeast Asia, destroying indigenous flora and fauna.

But with options being limited, it is evident that palm oil usage will see an uptick at the expense of sunflower oil. In a recent meeting, the Malaysian Palm Oil Council (MPOC) strengthened this view, calling this the single biggest factor in palm oil demand and price direction. True to this, palm oil prices went from $1,640 mt on February 25 to $1,990 mt on March 2 – a 21% week-over-week increase.

Another reason for a future increase in the price of vegetable oil has to do with fertilizers. While most farmers do stock fertilizers for a short period of time, they’d have to buy more eventually. Fertilizer prices have been on the surge – not surprising, considering Russia and Ukraine contribute to 48% of the world’s ammonium nitrate, 28% of nitrogen and phosphorus, and 11% of the world’s urea. Russia and Belarus contributed to roughly 40% of the world’s potash exports last year. With the costs of fertilizer per acreage increasing substantially, farmers around the world are looking to ration their reserves, which ultimately impacts yield.

Human consumption aside, all vegetable oils play a role in reducing fuel-related carbon emissions, by being a key feedstock in biodiesel production. Around 15% of global vegetable oil production goes into making biodiesel. But now, with pressure coming in from consumers, countries are diverting their reserves – especially of sunflower oil – into the food industry. Nonetheless, if there’s sustained pressure on supplies on account of the crisis in the Black Sea region, the world will have a hard time supplying edible oil to growing demand in the medium term.

About Vishnu : Vishnu is an independent journalist appearing on several news outlets within the logistics and transport niche. He predominantly covers maritime- and trucking-related stories, and writes commentaries on supply chain trends. This aside, he also profiles freight-tech startups and brings perspective from industry thought leaders.

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