Sunflowers are known to follow the Sun's movement throughout the day. Sunflower oil prices, however, are more likely to follow the events transpiring in Ukraine. Edible oils are placed on the top of any list of commodity exports that are hit due to Russia's invasion of Ukraine. The ongoing war has shut down several factories, businesses and ports that were crucial to mobilise these exports. The result is a massive supply crunch and skyrocketing prices.
This is particularly concerning for India, which gets more than two-thirds of its edible oil supplies through imports. As of now, close to 3,80,000 tonnes of sunflower oil shipments to India are stuck at ports in the Black Sea region, which has become the epicentre of the ongoing conflict.
So, cooking oil is going to get more expensive in a country where food is fueled, not just flavoured, by oil. Indian buyers have already begun replacing sunflower oil with soybean oil and palm oil for March-April shipments.
But if you understand anything about Indian cooking, you'd know just how elemental sunflower oil is to it. Let's try and understand why our palates may be left dry this summer.
Sunflowers of Anarchy
As of now, Indian traders have contracted for imports of 5,50,000 tonnes of sunflower oil from Ukraine and Russia for deliveries in February and March. Nearly 1,80,000 tonnes have managed to leave the ports, but the fate of the rest is uncertain. Oh, and remember that edible oil is a perishable commodity.
Ukraine and Russia together account for nearly 80% of the world's sunflower oil shipments. Given that the ongoing war shows no signs of de-escalation, the timing for the movement of the rest of the shipments will be anybody's guess.
If the supply continues to remain stagnant, cooking oil prices will spike to levels unknown. Consumer food prices in India already touched their highest in 14 months in January 2022. Adding both these equations means continuing stretches in household budgets, a surge in global edible oil futures, and elevated food prices in the coming months. Here are some facts:
India imports 25 lakh tonnes of sunflower oil annually, of which 74% comes from Ukraine and 12% from Russia.
Sunflower oil accounts for 14% of India's total 220-230 lakh tonne of annual domestic demand for cooking oils.
Sunflower is the fourth-most consumed edible oil in India after palm, soybean and mustard.
60-75% consumption of sunflower oil is accounted for by the Southern states. The prices of six edible oils – groundnut, mustard, vanaspati, soya, sunflower and palm – have risen between 9% and 56% at all-India levels over the last year
The situation is further aggravated by the fact that the rise in the sale of branded cooking oils in India rose by a massive 28.2% YoY between April and December last year. With a surge in consumption levels like that and a boost in B2B retail markets, the prices are predictably going to rise if the stalled cargoes aren't moved soon.
Relief, But Short-Lived
The scarcity of edible oil has been an observed trend for a while now. In India, palm oil bags the largest market share in terms of demand and supply. However, Indian oil importers were compelled to replace palm with other imports owing to steep price escalations in palm oil (up by 27.5% this year), primarily due to policy changes in Indonesia, which is India's biggest exporter.
Soybean oil, on the other hand, has also witnessed limitations in supply owing to droughts throughout South America (particularly Argentina), which is the major producer and exporter.
Meanwhile, the unfavourable weather reported in major oil-exporting countries coupled with heavy labour shortages in the COVID-19 pandemic's aftermath have also led to a decline in exports lately. In order to control the price rise stemming from these shortages, the fovernment has taken two major steps:
Reduction in import duty on edible oil multiple times throughout 2021
An investment of up to Rs 11,040 cr ($1.4bn) in August 2021 to boost palm oil cultivation under the National Mission on Edible Oils.
These steps evidently played their part in stabilising prices for a while – a handsome reduction of 10% to 30% from the January 2022 peaks. However, the stability is anticipated to be short-lived, with war intensifying on the Russia-Ukraine border.
For a world that is recuperating from supply chain disruptions, overheating economies and post-pandemic stress disorders in general, a blockade in further supplies bodes radically unwell for almost everyone. Since oil is the overarching macro price determinant, stalled businesses and sanctions upon a major oil-exporting country like Russia, however necessary, inhibit all forms of growth. Having said that, a war also necessitates inevitable changes.
For years now, India's domestic sunflower oil production has remained stagnant (hovering around 60,000 tonnes annually) even though it received heavy policy impetus in the beginning. But here are some interesting facts. When sunflower was first introduced in India, a total of 1.03 lakh hectares was brought under cultivation. In the year 1995-96, total production stood at 1.61 tonnes (593 kg per hectare). However, the state of Punjab alone accounted for an average yield of 1,566 kg per hectare. Today, the total area under sunflower production is significantly less. The average yield, however, has increased to 1,933 kg per hectare (2018-19).
What does this tell us? More can be grown from a smaller area, which means that if more land was brought under sunflower cultivation, India could potentially fulfil its entire sunflower oil demand domestically.
States like Punjab are literally ripe for plucking sunflower seeds given the elongated spring season in the state, which is most conducive for sunflower production.
Crop marginalisation of sunflowers effectively pushed India down a path of import dependence. Perhaps a war could reversibly push the country down a path of import substitution by scaling up domestic cultivation and processing facilities.
(The writer is an alumnus of WBNUJS, Kolkata. She currently works as a financial news editor. This is an opinion article and the views expressed are the auhor's own. The Quint neither endorses nor is responsible for them.)