When the Russian military invasion cut off Ukraine’s ability to export sunflower oil and wheat, it helped push “a cascading food crisis around the world,” according to a spokeswoman for the U.S. Agency International Development. Now Indonesia, by banning palm oil exports last week, has exacerbated the conditions that are driving global shortages and price spikes of vegetable oil.
Global supplies of vegetable oil – a key food ingredient around the world – were tight well before the Russian invasion of Ukraine.
Drought last year in Canada’s canola fields and the rise of soybean oil-based renewable diesel have both played roles, according to Joe Glauber, senior research fellow at the International Food Policy Research Institute and a former USDA chief economist, but war in the Ukraine and food export bans are now playing an outsized role.
“Everything that could go wrong has gone wrong in terms of supply,” Glauber said, stressing that global vegetable oil prices have risen by 30% since February.
The move last week by Indonesia – which together with Malaysia exports 92% of the palm oil on the international market – caused prices for the commodity to jump 7.5%, according to Gro Intelligence, a data analytics company. Palm oil prices are up 75% so far this year.
That’s making it extremely hard on countries like Bangladesh, which buys 80% of the 1.6 million tons of palm oil it imports from Indonesia, according to IFPRI.
“Vegetable oils are a key item in diets around the world and an essential source of fats, accounting for about 10% of daily caloric food supply … making them the second most important food group after cereal,” IFPRI researchers – including Glauber - said in a blog post published Tuesday.
The sunflower oil shortage is hitting the European Union especially hard.
“Depending on the year, EU refineries of vegetable oils source between 35% and 45% of the sunflower oil consumed in the EU from Ukraine,” according to the EU Vegetable Oil and Protein Meal Industry association, or FEIDOL “Ukraine being the major exporter of sunflower seed oil, these volumes are difficult, and could be impossible, to replace on short notice, as other players on the world market face a similar shortfall in their supply.”
Ukraine is succeeding in exporting limited quantities by rail to Europe, but trade is mostly shut down and sunflower oil is getting impossible to find in Europe. Sunflower oil represents 13% of all the internationally traded vegetable oil and Ukraine traditionally accounts for about half of that.
Even if more sunflower oil could be shipped out of Ukraine, the country isn’t producing much because the war has shut down many of the processing plants, according to the consulting firm APK-Inform. The bottles of refined oil that do make it out are selling for 40% more than before the Russian invasion that began on Feb. 24.
While vegetable oils are mostly interchangeable, European companies that use it to make products like baby food are scrambling to find replacements and beseeching government food safety agencies to allow them to do so.
“The shortfall of Ukrainian commodities on the EU market, notably sunflower oil, which cannot be replaced in the short term, has already triggered adjustments on the market,” says FEIDOL. “There have been fast reactions of downstream operators who decided to reformulate their product recipes with a view to replace sunflower oil with (canola) oil where possible.”
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While there is no shortage of vegetable oil in America, the U.S. does import some sunflower oil, and the international strain on supply has increased vegetable oil prices everywhere.
“In the U.S., a basket of vegetable oils commonly used by food manufacturers currently costs 42% more than a year ago, and has surged in price by 152% over the past two years, outpacing overall food inflation,” says Gro Intelligence.
It’s unclear how long Indonesia intends to keep the palm oil export ban in place, but Gro Intelligence says it doesn’t believe the country can maintain it for long because of storage constraints. Indonesia only has a storage capacity for 2 million tons, but it produces 2.3 million tons per month.
“Even assuming that the storage tanks are completely empty at the beginning of the export ban, which isn’t likely, the Indonesian government will be forced to relax the ban within 26 days, or by the fourth week of May, to keep the storage tanks from overflowing,” the firm says.
Glauber took note of reports that the Indonesian ban was not expected to last long, but he has his doubts, saying it could remain in place for the rest of the year.
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