Supply disruption by Russia-Ukraine conflict could shorten supply of Sunflower oil

Supply disruptions caused by the Russia-Ukraine conflict could lead to a supply shortfall of at least 4-6 lakh tonne of crude sunflower oil for India next fiscal, a Crisil estimate released on Thursday said. This, in turn, will have a bearing on the production planning of domestic edible oil processors.

For the record, refined sunflower oil constitutes ~10% of India’s consumption of 230-240 lakh tonne of edible oils (all types) annually. The country imports nearly 60% of its edible oil requirement, which makes it extremely vulnerable to adverse developments in global trade as well as oilseed production and regulatory changes in key import centres.

What’s worse, as much as 90% of India’s annual crude sunflower oil requirement of 22-23 lakh tonne comes from Ukraine (70%) and Russia (20%), and the rest from Argentina and other countries. Cumulatively, Ukraine and Russia export 100 lakh tonne of crude sunflower oil annually, with Argentina in third place with 7 lakh tonne.

As things stand, Russia’s major banks have been severed from the SWIFT system following sanctions imposed by the US and European nations. Although trading of food products with Russia has not been prohibited, trade settlement has become difficult, leading to supply disruption.

Domestic edible oil processors typically maintain raw material inventory of 30-45 days, which should help them tide over the supply shock in the immediate term. However, supply and prices will start hurting if the conflict — and the attendant trade disruption — prolongs.

Nitin Kansal, Director, Crisil Ratings said “A protracted trade disruption will push edible oil processors to source more crude sunflower oil from Argentina. This, however, will not be enough to offset the material shortfall in volume from Ukraine and Russia. To reduce the resultant idle capacity, the processors may choose to refine other edible oils.”

The supply disruption comes on the back of a 25% on-year increase in the average price of refined edible oils this fiscal. Prices of crude edible oils have run up this fiscal because of supply-side factors. For example, crude soybean oil has soared following a bad crop in Brazil, while crude palm oil flared up because of weak output in Indonesia and Malaysia, the world’s top producers. Soybean oil and crude palm oil constitute more than 75% of India’s edible oil imports.

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