Why Ukraine-Russia Conflict Will Spike Sunflower Oil Prices

Vegetable oils are a key item in diets around the world and an essential source of fats. It accounts for about 10% of daily caloric food supply (300 kcal per day per person), making them the second most important food group after cereals. Vegetable oils are also an important nutritional source of omega-3,omega-6,fatty acids and vitamins E and K. Vegetable oils are also an essential cooking medium, particularly for poor consumers unable to shift to more expensive animal fat-based products.

Since the day of invasion, the increase in price of sunflower oil has been more than 40% .. Ukraine and Russia account for about 50 and 25%, respectively, of the sunflower oil traded in the world. Since vegetable oils require little or no processing, high prices has already been passed through to consumers, and some retail shortages have been reported.

Importance of Sunflower Oil

The sunflower is the essential basis of numerous production lines, both food and non-food specifically in Italian economy. Oil involved in the food industry and bakery sector, flours for zootechnical use. It is used in the production of preserves, sauces, mayonnaise, spreadable condiments, all products intended for large food distribution. Oleins are essential for the oleochemical and energy industry in the form of biodiesel. In particular, the annual consumption of sunflower oil is around 770 thousand tons.

Role of Ukraine

According to the Observatory of Economic Complexity, Ukraine is the largest exporter of sunflower oil in the world. Contribution is up to 46% of sunflower-seed and safflower oil production, . The second largest producer is Russia, which exports about 23% of the world’s supply.

According to the S&P Global: Commodity Insights, the Black Sea, the sea between Russia and Ukraine accounts for almost 80% of global sunflower oil exports. In the present condition when  trade with Russia is  blocked, and Ukraine in no position to coordinate any exports, there are going to be serious food shortages in many countries that need them most.

Ukraine’s oil production capacity far exceeds the production of sunflower seeds in the region. According to USDA data, the total production capacity of Ukraine’s oilseed presses in 2020 was about 23 million tonnes, of which 19 million tonnes were sunflower seeds.

Fluctuating Oil Prices

The ongoing crisis is threatening the availability of food and edible oil in countries that heavily rely on grain and other food exports from Ukraine and Russia. After just a few days of conflict, the commodity market faltered and the price of sunflower oil FOB Black Sea Ukraine shot up by US$ 470.50 from US$ 1480 per metric tonne, finally settling at around $1,950.50 per metric tonne. This is the highest that sunflower oil FOB Black Sea reached since 2018.

In Ukraine, sunflower seeds are sown in April and May and harvesting usually begins in September. Tensions and military action in agricultural areas pose risks to the supply and demand of the next growing cycle.  With trading routes being blocked, import-export facilities shut down, and farmers unable to plant, the average yield per hectare of sunflower seed will take a major blow this harvesting season. 

Approximately 300,000 tons of Ukrainian sunflower oil was scheduled to ship in late February and March. Due to the ongoing crisis, destination markets will be required to replace these quantities with edible oils available from other sources. The closure of sunflower oil production plants and shipping facilities has also influenced the edible oil packaging industry in Ukraine.   

Impact on Indian Edible Oil Market       

India consumes around 200,000 tonnes of sunflower oil but currently refiners can import around 80,000 tonnes only. Companies in India and China, which imports 23% and 12% of its sunflower oil mostly from Ukraine, Ukraine and Russia respectively, may start turning to U.S. manufacturers of sunflower oil, driving up the raw materials price everywhere it is made.

It is too early and difficult to predict the rate at which the global sunflower oil market will recover. As of now, it depends on the extent of the damage to the supply chain and the overall duration of the war.

Way Ahead

As the world watches on with anxiety and fear, countries that depend on Ukrainian and Russian edible oil supplies are collaborating with non-Russian grain and oil producers to diversify their agricultural supply chains. This could create opportunities for emerging suppliers like India and China. But at the consumer end, these adjustments will create production bottlenecks and some shortages, while increasing production costs and at the end, prices for consumers. Export restrictions threaten to aggravate supply shortages, particularly for key vegetable oils. Hopefully, restrictions such as the Indonesian ban on palm oil exports will only be temporary, and will not spread to other countries. If not, higher prices will only make it more costly for the world’s poor to meet food security and nutrition needs.

How long high prices persist will depend much on how quickly peace returns to Ukraine and how long its agricultural economy takes to recover. Under the best of circumstances, however, prices are likely to remain high throughout this year and into 2023.

References:

https://www.newfoodmagazine.com/article/162772/supply-chain-ukraine/

https://www.ifpri.org/blog/impact-ukraine-crisis-global-vegetable-oil-market#:~:text=Sunflower%20oil%20has%20been%20most,oil%20traded%20in%20the%20world.

https://time.com/6155095/sunflower-oil-russia-ukraine/

https://www.businesstoday.in/latest/world/story/ukraine-war-impact-india-buys-russian-sunflower-oil-at-record-high-price-327733-2022-03-29

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