Ukraine War Sparks Global Scramble for Cooking Oils
By Saabira Chaudhuri, Apr. 6, 2022, WSJ
Russia’s invasion of Ukraine has sparked a global shortage
of sunflower oil that has in turn pushed prices of other
edible oils to record highs, hitting food makers and consumers
already grappling with inflation.
Ukraine is a major producer of sunflower oil, making up over
47% of the world’s exports, according to research firm Mintec.
But shipments of sunflower oil—and seeds used by crushers
elsewhere—have ground to a halt amid the war, disrupting
supplies of a commodity widely used for cooking and as an
ingredient in everyday products like margarine, mayonnaise
and bread.
The shortage of Ukrainian sunflower oil has triggered a
domino effect that underscores how interconnected global
commodity markets are pushing up the price of other oils
produced elsewhere, including those not ordinarily considered
substitutes for sunflower oil.
The disruption comes on top of already high prices for
edible oils after crop failures in Canada and South America.
“We were already in the middle of an inflection point,” said
Luciano Chiumiento, commercial director of Italian pesto maker
CLAS SpA., ordinarily a major user of sunflower oil. “Then
there was the war and it made everything more crazy.”
Global sunflower oil prices were up 44% at the end of March
compared with a year earlier, while rapeseed oil had risen
72%, according to market data firm Mintec Ltd. The price of
soybean oil is up 41%, palm oil has gained 61% and olive oil
is 15% higher. Other than olive oil, all the rest hit record
high prices in March, says Mintec.
At first, many food manufacturers switched to rapeseed oil,
the easiest substitute for sunflower oil, said Gary Lewis,
head of KTC Edibles Ltd., a U.K.-based seller of cooking and
ingredient oils.
Rapeseed oil prices quoted by crushers quickly jumped between
40% to 50%, Lewis said. Rapeseed supplies then soon began to
run low, too. Now, KTC isn’t selling either sunflower oil or
rapeseed oil, he said, because they can’t get hold of them.
“The world's realizing it’s not easy to take a major commodity
like sunflower oil and switch to an alternative,” Lewis added.
Sunflower oil is a popular cooking oil but also an attractive
ingredient for products like mayonnaise & margarine, particularly
in Europe, because of its relatively mild flavor and wide
availability. Substituting in palm oil can be tough because
it is more dense, while soy oil raises allergy risks and
concerns over genetically modified organisms, said Albert
McQuaid, chief science and tech officer for Irish ingredients
maker Kerry Group PLC. The company is in the process of swapping
sunflower for rapeseed oil in the emulsifiers it makes for
mayonnaise and margarine makers.
Olive oil, a relatively niche and expensive product, has
emerged as a more unlikely substitute, executives say.
Prices of refined olive oil generally trend about 4 times
higher than those of sunflower oil, while global production
of sunflower oil is more than seven times as large as olive
oil, according to Walter Zanre, U.K. head of Italian olive
oil brand Filippo Berio. The recent price jump shows how far
the search for substitutes has spread, he added.
Filippo Berio is planning on raising the prices of its olive
oils globally by about 20%, with rises in some places starting
in May once existing supplies run out. “Because of the scale
of the increases, olive crushers are not delivering at prices
contracted at in February,” said Zanre. “They are demanding
the new market price in order to deliver.”
For its line of pestos, of which sunflower oil is ordinarily
a key ingredient, Filippo Berio is now running taste tests and
shelf-life assessments to see if it can swap in rapeseed oil.
Here, too, the company plans to raise prices, said Mr. Zanre.
CLAS is also exploring rapeseed oil, and soybean oil, as
potential alternatives to sunflower oil, which makes up about
40% of an average pesto. Chiumiento said higher prices for
all these oils mean higher prices on shelves are unavoidable.
The company is already grappling with higher energy and
transport expenses, while the price of glass jars—another
product usually produced in Ukraine—has jumped as much as
45%, Chiumiento said.
Since the outbreak of war in Ukraine, CLAS has increased
prices on its pestos by between 30% and 50% and would need
to raise prices as much as 60%-70% if it keeps product
formulations the same, Mr. Chiumiento added.
As more producers substitute sunflower oil with rapeseed,
the U.K.’s Food Standards Agency conducted risk assessments
to test for allergies. The agency said it doesn’t expect
label changes to move as quickly as formulation changes,
raising the risk that some consumers could unknowingly
consume rapeseed. The FSA concluded the risk of allergies
to rapeseed is very low.
Grocery stores in some European countries, including Belgium
and Spain, have rationed sunflower oil, while British super-
market chain Iceland recently said it would include more palm
oil in its products because of the sunflower oil shortage.
Iceland said it made its decision with “huge regret” after
having pledged in 2018 to remove palm oil from its own-label
products because of concerns about deforestation.
“The only alternative to using palm oil under the current
circumstances would simply be to clear our freezers and
shelves of a range of staples including frozen chips and
other potato products,” Iceland’s Managing Director Richard
Walker wrote in a blog post.
Ukraine, whose national flower is the sunflower, has been a
major exporter of the oil pressed from the plant’s seeds for
decades. Global agricultural trading houses including Cargill
Inc., Archer Daniels Midland Co. and Bunge Ltd. invested in
ports, grain facilities and processing plants in the Black
Sea area since at least the early 2000s.
Since the war, Bunge, ADM and Cargill have all suspended
their Ukrainian sunflower refining operations.
Much of Ukraine’s sunflower oil exports—like its sizable
grain shipments—are sent to developing countries, where
higher food prices will have an outsize impact on poorer
consumers. India, for instance, is the world’s largest
importer of edible oils, sourcing most of its sunflower oil
from Ukraine. India also gets its sunflower oil from Russia,
the world’s second-largest exporter, which has said it would
introduce export quotas starting later this month. Russia has
also said it would ban the export of sunflower and rape seeds
from April until the end of August to protect domestic supply
as prices surge.
India also imports palm oil from Indonesia, which has said
its palm oil producers must sell 30% of what was earmarked
for exports domestically in an attempt to contain cooking
oil prices.
As planting season approaches, U.S. growers spying an
opportunity amid soaring prices could increase sunflower
seed output by 30%-40%, according to John Sandbakken, head
of the National Sunflower Association. Growers should be
motivated to shift to sunflowers from other crops that
command a less attractive price, he added.
Still, analysts don’t expect any U.S. increase to significantly
ease price pressure given the country accounts for a tiny slice
of exports and typically sends its sunflower oil to countries
like Mexico and Canada that don’t rely on Ukrainian imports.
The European Union, Argentina and Turkey are the world’s third,
fourth and fifth largest producers of sunflower oil respectively.
Some other sunflower oil-producing countries are refusing to
sell or even quote prices in the hope that prices could rise
further still, according to Mr. Zanre and other buyers. Even
when they do, there will still be gaps in the market.
“There simply isn’t sufficient sunflower oil in the rest of
the world to cover the Ukrainian shortfall,” Mr. Zanre said.
https://www.wsj.com/articles/ukraine-war-sparks-global-scramble-for-cooking-oils-11649239342
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