Rising Edible Oil Prices: Causes, Impact and the Future

Rising Edible Oil Prices: Causes, Impact and the Future

  • Prices of sunflower oil, soybean oil and palm oil have been rising due to the Ukraine war, the drought in Argentina and Indonesian export ban
  • FMCG and the cosmetics industries may face input cost increases given their dependence on edible oil
  • Businesses are substituting ingredients in products and supermarkets are limiting the sale of cooking oils
May 23, 2022 | Agro Blogs

Edible oil prices are on fire.

The prices were already high because of the explosion of demand from consumers coupled with supply disruptions amid Covid-19 restrictions.

Then came the Russia-Ukraine war and Indonesia’s ban on palm oil exports, directly affecting buyers in India – the world’s biggest edible oil importer.

War’s impact on edible oil market

The Black Sea region of Russia and Ukraine accounts for 60% of the world’s sunflower oil output and a staggering 76% of exports.

The loss of shipments from Ukraine, the world's top supplier of sunflower oil, amid port blockades along with a drought in Argentina, the world's top soybean oil exporter, have been pushing up vegetable oil prices.

Also Read: Tackling the Global Wheat Supply Shortage Amid the Ukraine War

Indonesia’s palm oil export ban

Fall in supplies of sunflower oil led to higher demand for other edible oils. Following this, Indonesia announced a ban on palm oil exports to protect domestic supplies, rattling markets worldwide amid fears it would further stoke food inflation.

Palm oil remains the most consumed edible oil in the world and up to 60% of the supply comes from Indonesia.

This move led soybean oil prices to soar to record highs as it heightened concerns about already depleted supplies of alternative vegetable oils.

Later, Indonesia clarified the export ban would exclude crude palm oil and only cover shipments of refined, bleached, deodorized palm olein, providing some relief.

Effect on industries that use edible oil

Palm oil can be found in nearly 50% of all packaged goods, according to a World Wild Fund estimate. The oil is used to make soaps, margarine, shampoo, noodles, biscuits and chocolates. So, any rise in palm oil prices will push up the raw material costs for these products.

The cosmetics industry has also been affected since sunflower oil is used to make cosmetics.

A limited supply of sunflower and palm oils may further push up prices of soyabean oil and canola oil.

Possible solutions

Companies have tried to adjust to what’s available, for instance, by reformulating recipes with palm oil or soybean oil. Rapeseed oil, which otherwise finds application in the biodiesel market, has now been redirected to food use.

The shortage of sunflower oil has prompted FMCG giant Unilever to alter some of its recipes where rapeseed oil is used as a substitute for sunflower oil. The move is likely to drive savings as input costs skyrocket.

Governments are also assisting buyers in coping with these changes. For instance, France is allowing a six-month window to companies that have substituted sunflower oil to update product labels to reflect recipe changes.

Retail end-use consumers of cooking oil, too, face challenges similar to commercial buyers.

Britain, which imports more than three-quarters of its sunflower oil from Ukraine, has asked buyers to show restraint and flexibility.

Leading supermarkets are restricting the number of cooking oil bottles consumers can buy at one go. For instance, people are restricted to three oil bottles in Tesco and two in Waitrose and Morrisons. Moreover, Norwegian supermarket chain Rema 1000 is considering a return to selling palm oil, which it had previously banned for environmental reasons, and its Danish counterpart has limited shoppers to three bottles of edible oil.

The outlook for edible oil market

The current ban on palm oil export is expected to be a short-term measure by Indonesia to give relief to its citizens from high prices and supply issues. Possibilities of a complete ban on the export of palm oil for a longer period do not seem like a sustainable alternative since Indonesia consumes less than 40% of its total annual palm oil production.

However, due to uncertainty over the climate in Argentina and the war in the Black Sea region, immediate restoration in the supply of soybean oil and sunflower oil is unlikely.

References:

https://www.moneycontrol.com/news/business/economy/explained-why-sunflower-oil-prices-in-india-may-rise-another-5-10-this-year-8268411.html

https://www.reuters.com/business/environment/argentina-farm-belt-drought-awakens-ghost-2018-soybean-disaster-2022-02-10/

https://www.reuters.com/business/indonesia-seeks-balance-international-local-palm-oil-demand-official-2022-05-11/

https://www.wwf.org.uk/updates/8-things-know-about-palm-oil

https://www.reuters.com/business/amid-sunflower-oil-shortage-unilever-substitutes-rapeseed-oil-some-recipes-2022-04-28/

https://www.dailymail.co.uk/news/article-10745675/supermarkets-start-rationing-cooking-oil-supplies-decimated-war-ukraine.html

https://www.nytimes.com/2022/04/30/world/europe/cooking-oil-shortage-ukraine.html

https://www.business-standard.com/podcast/current-affairs/how-much-should-india-worry-over-indonesian-palm-oil-export-ban-122042900082_1.html

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