The sunflower oil industry is centred in Eastern Europe, with Russia and Ukraine being the largest producers of this ingredient. If you’re not familiar with sunflower oil, it’s a popular carrier oil used by many natural cosmetic manufacturers and used as cooking oil too. Because this area has been so entrenched in conflict recently, there’s been a shortage of sunflower oil and that’s why the sunflower oil prices have increased dramatically.
While it’s uncertain how long these high prices will last, we wanted to take some time today to talk about how this might have an impact on your pocket!
The two countries together produce about 60% of the world’s sunflower oil. However, due to a trade embargo, Russia has banned all Ukrainian imports. This means that companies in the US and India must find alternate sources for this vital commodity.
“This is a big impact,” said John Thomas from INTL FCStone.
On July 1, 2014, Russia banned all food imports from the European Union, the United States, and other western countries. This was in response to economic sanctions imposed by those countries over Russia’s annexation of Crimea and its support for pro-Russian separatists in eastern Ukraine. The ban was expanded to include Ukraine earlier this month.
What Impact Will the War in Ukraine Have on Sunflower Oil Prices in India?
Ukraine is the largest producer of sunflower seeds and the world’s second-largest exporter of sunflower oil after Russia. The Ukrainian economy is heavily reliant on agricultural production, with the sector accounting for almost 10% of GDP.
The uncertainty caused by the recent armed conflicts in Ukraine has led to a sharp drop in the country’s currency and a steep rise in domestic inflation. This may cause some producers to hold back exports in order to take advantage of higher local prices.
Being the world’s second-largest exporter of sunflower oil, which is used for cooking oils and biodiesel, Ukraine is also the largest producer of sunflower seeds (38% of world production). Russia, Ukraine, and Argentina are the three leading producers and exporters of sunflower oil. The EU is a large consumer of sunflower oil, importing about 50 percent of the world’s trade each year.
It’s not easy to predict the impact on sunflower oil prices in India as it’s not a simple supply-demand equation. The war in Ukraine can be contained to a large extent within that country or it can spread to other countries in the region. There are old territorial disputes between Russia and some other countries (like Moldova) in the region which could escalate if these countries choose to align with Western powers.
The Russian economy is already under stress because of low oil prices. While it will hurt Russia, it will benefit India as the latter imports 80 percent of its crude oil requirements from Russia at a high price. A reduction in crude prices would be beneficial for India as crude contributes to about 40 percent of our total import bill.
Sunflower oil accounts for about 20 percent of our cooking oil consumption and we import about 60 percent of it from Russia/Ukraine.
380,000 tons of sunflower oil bound for India got stuck in Russian & Ukrainian ports
India is one of the biggest importers of sunflower oil in the world. The country’s annual demand for sunflower oil is estimated at around 7 million tonnes, and it imports nearly 2 million tonnes every year, mostly from Russia and Ukraine.
Almost 380,000 tonnes of sunflower oil meant for exports to top consumer India are stuck at Russian and Ukrainian ports following the imposition of a ban on shipments from Russia’s Black Sea ports.
The Russian agriculture watchdog banned all oilseed exports from Novorossiysk, Russia’s largest Black Seaport and a major transit route for grain, since the start of July due to poor weather.
“About 200,000 tonnes of sunflower oil are stuck at Russian ports and another 180,000 tonnes at Ukrainian ports, “said a European trader.
“This is hitting the markets quite hard. The situation is not normal as there was always some flow of cargoes.”
India’s edible oil imports from Russia have increased steadily in recent years, rising from a negligible volume in 2010/11 to around 1 million tonnes in 2013/14, according to data from the Solvent Extractors’ Association of India (SEA).
India, the world’s largest importer of edible oils, mainly buys palm oil from Indonesia and Malaysia but also buys soybean and sunflower oils.
Cooking oil prices may surge in India
The prices of cooking oil may rise in India in the coming months as Russia and Ukraine, two major producers of sunflower seed from which cooking oil is extracted, are locked in a war. If the conflict worsens, so would the prices as well as the availability of cooking oil.
In India, about 70 percent of cooking oil comes from imports. According to industry experts, India imports around 10 million tonnes of edible oil annually out of which four million tonnes come from Russia and Ukraine.
If the current standoff between Russia and Ukraine continues, it will definitely impact India’s cooking oil market as most of the edible oils that we import come from these two countries. The prices may go up by 20 percent, said a leading edible oil importer on condition of anonymity.
For India, Russia is currently the largest supplier of sunflower oil followed by Ukraine. Both countries are major suppliers to South East Asian markets as well such as Malaysia, Indonesia and the Philippines too.