Edible oil prices may rise more, hit new highs after jumping 25-40% as Ukraine war chokes supplies

Rising edible oil prices may hit new highs in coming days, if the war in the Black sea region does not get contained soon. Domestic edible oil prices have risen 25-40 per cent in the last month, industry players and experts said. The Russia-Ukraine war has dealt a triple blow to sunflower oil, palm oil and soybean oil supplies. The pressure on sunflower oil supplies from Ukraine has further squeezed export policy from Indonesia, affecting palm oil imports; also, it has exacerbated crop loss concerns in South America, impacting soybean oil supplies.

“The prices (of edible oils) have gone up from Rs 125 to around Rs 170-180 within only a month’s time… and these will further shoot up during May or June. The quantum of further price rise will depend on a lot of factors… but it will certainly not be a small hike,” said Shammi Agarwal, MD, Pansari Group. India is a net edible oil importer and it depends on imports from countries including Ukraine, Argentina and Indonesia for more than fifty per cent of its cooking oil needs.

“Recent spikes in edible oil prices are unlikely to sustain for a prolonged period as demand for edible oils will deteriorate at higher price levels. However, if the war situation in black seas region looms large, we may see edible oil prices making new highs in coming weeks,” Ravindra V Rao, head of commodity research at Kotak Securities told FE.com. “Till the situation between Russia-Ukraine does not improve, we expect edible oil prices to trade range-bound with positive bias for the near future,” he said. “Countries who depend on foreign supply for edible oils, like India, are prone to feel the heat of boiling edible oil prices in the international market,” he added.

Dive Deeper: Why and how a war in Ukraine hurts India’s edible oil users more than other nations

India more dependent on edible oil imports from Black Sea region

Though India is self-sufficient in almost all food items, edible oil remains an exception. In the last five years, India’s oilseed production capabilities have improved, but it is still not sufficient. Of the 19 kg of edible oil consumed by an individual in India every year, more than 11 kg comes from imports, according to JK Arora, Chairman of Tradologie, a global B2B agri products marketplace.

“The war has led to an immediate halt in supplies of sunflower oil, which has resulted in demand surge on other varieties of edible oils such as Palm Oil and Soybean Oil, which themselves were seeing demand-supply mismatch before the war. This has resulted in about a 40 per cent increase in prices of Palm Oil and Soybean Oil. The prices of all varieties of edible oil are expected to surge in the near future,” JK Arora said. The long term pricing outlook will only become clearer once we know the fate of the war and more importantly, once we know its repercussions on Ukraine and Russia, he added.

Current consumption of edible oil in India is approximately 22 million tons, out of which 13 million tonnes or roughly 59 per cent is imported, according to BV Mehta, executive director of Solvent Extractors’ Association of India. India imports 8 million tonnes of palm oil from countries such as Malaysia, Indonesia; 3.5 million tons of soybean oil from Argentina, Brazil and USA, and 2 mln tonnes of sunflower oil from Ukraine, Russia and Argentina.

Double whammy: Sunflower oil shortages from Black sea, Palm oil crunch from Indonesia

Where does India’s edible oil come from?

On one hand, India is directly impacted by the crisis in Ukraine vis-a-vis its sunflower oil supplies as 90 per cent of its total sunflower oil imports come from Ukraine and Russia. “Market pressures and increased demand for US Sunflower oil (seasonal and subject to agricultural constraints for production) from other countries has resulted in prices skyrocketing due to limited stocks available. This is not expected to ease in the short term as Sunflower is a seasonal crop and sown in April/May for harvesting in September/October in the Black Sea region,” Veena Giridhar Gopal, founder of salesBeat, a sales intelligence provider in FMCG said.

On the other hand, palm oil, which is the largest imported edible oil, has seen its prices soar from the start of the year. Palm oil imports have also been hit mainly by trade sanctions put by the Indonesian government. The oil is supposed to be a cheaper alternative but in recent days, with increased demand, it has become the most expensive oil for the first time, according to JK Arora, Chairman, Tradologie.

When will edible oil supply shortage ease?

“Currently the shortages (of palm oil) are to do with supply side issues from Indonesia where the government has said that palm oil producers have to sell 30 per cent of their produce in the local market, from an earlier quota of 20 per cent. Therefore only 70 per cent will be allowed to be exported,” Solvent Extractors’ Association of India’s BV Mehta said. “The delay in issuance of export permit resulted into lesser supply while on the other side ships are waiting to load and tankage in factories are full,” he added.

Global supply chain crunch coming for all three major edible oils (sunflower oil, palm oil, soybean oil) can lead to a global crisis for edible oil in the upcoming months, Tradologie’s JK Arora said. “Malaysian palm oil futures hit new all-time highs in multiple months last year and in every month so far in 2022. Production woes in top soybean oil exporter Argentina have also caused stress for traders of both the vegetable oil and raw soybeans. Recent downturn in exports of Palm Oil from Malaysia and Indonesia, the damage to the Soya Crop in Argentina and the War in Ukraine shall result in a global crisis for Edible Oil in the upcoming months.”

Unexpected winner from higher cooking oil prices – Indian farmers

BV Mehta said despite the shortages of sunflower oil, which forms 9 per cent of total edible oil consumption, India will not face edible oil shortages since it has enough alternatives at hand. In fact it will benefit Indian farmers. Indian farmers may benefit with higher prices for their produce.

Farmers will receive a price higher than the MSP (minimum support price) for their produce. According to an Indian Express report, Indian farmers will realise good prices for their mustard crop due for harvesting from mid-March. In the last week of February, mustard was trading in Rajasthan’s mandis at Rs 6,700-6,800 per quintal, way above the government’s minimum support price of Rs 5,050. High prices should also incentivise farmers to increase acreages under groundnut, soyabean and sesamum in the coming kharif season, the report added.