Will the Russia-Ukraine War Increase India’s Sunflower Oil Prices?
Summary: How is the Russia Ukraine War going to affect sunflower oil prices in India? We take a look.
What’s common between the crispy Dosas of South Indian breakfasts, the lip-smacking samosas of the North, and the famous egg rolls of Kolkata? That’s right. It’s cooking oil, and to be specific, white oil.
Whether it’s the use of coconut oil and sunflower oil in the southern states, mustard oil in any of the northern and eastern states, and palm oil in the central territories – oil is indispensable to desi cooking. It is not an overstatement to say oil forms the lifeline of Indian cuisine.
Understandably, India is one of the largest importers of edible oils globally. India imported 133.52 lakh tonnes of edible oils in 2020-21, valued at Rs. 80,000 crores, as per the Ministry of Agriculture and Farmers Welfare, Govt. of India. Palm oil has the largest share of 56% of these imports, followed by soybean oil ( 27%) and sunflower oil (16%).
The Eastern European region comprising Ukraine and Russia is the largest hub of sunflower oil exports globally. Thus the current conflict has adversely impacted the sunflower oil supply to India. India imports 1,75,000 – 2,00,000 tonnes of sunflower oil every month.
However, as per the latest estimates of the Solvent Extractors’ Association of India, the number of imports has fallen by nearly 25% to 1,52,000 tonnes in Feb 2022 due to the current conflict. It is estimated that there will be a similar fall in imports in March 2022, mainly due to the closure of ports in the Ukrainian region. Therefore, if the conflict continues, there could be a significant decline in the shipment of sunflower oil in the ensuing months.
Adding to the above, the Indonesian government has recently imposed trade restrictions of reducing their export supplies by 10%, focusing on their domestic markets. Indonesia is the world’s largest exporter of palm oil. These two factors have led to high volatility in the edible oil prices in the international market over the past two weeks.
This slump in oil imports has already resulted in an increase in retail prices of edible oil by nearly 20%. Sunflower oil is now being sold at Rs. 180 per kg, which used to hover around Rs.150 per kg, a few months back. The same is true for other oils like palm oil, groundnut oil, etc. The rise poses a threat of a surge in food inflation. It is expected to have repercussions on the food and hotel industry, given that the majority of the food products need cooking oil in their preparation.
Despite the above developments, the edible oil industry has not pressed the panic button yet. The primary reason behind this is that almost all edible oil processing companies in India have an inventory of up to 45 days. Hence, the situation is not so alarming that India is left with very minimal oil. As the companies have a backup stock of 35-45 days, there can be some impact on the prices due to tightened supplies, but it is not drastic.
The industry is also taking measures to substitute sunflower oil with palm oil and soybean oil because of their blending properties, sourcing them from Malaysia and South America, especially Brazil and Argentina. However, if the conflict prolongs after April, the situation has to be re-assessed to predict the direction of future oil prices. Only a quick normalization of the ongoing Russian-Ukrainian war can restore normalcy across the global supply chains.