Food price crisis: Sunflower and all other edible oil prices expected to skyrocket

Not only sunflower oil, but all edible oils will cost more due to the war in Ukraine that will now make a product that was already getting expensive due to the imbalance of supply and demand even more costly.

Ukraine is the largest producer of sunflower oil in the world, producing 30% of global production, 61% of sunflower meal and 50% of sunflower oil, while Russia is the second largest producer, producing 27% of global production, 20% of sunflower meal exports and 28% of sunflower oil exports.

With both countries unable to export, consumers can expect high prices to follow, but Mornè Botes, commercial director of Soill, says it is important not to look at sunflower oil in isolation, as Russia also exports canola and the whole oil complex, canola, soya, palm and sunflower oil will be affected.

All these edible oils can act as a replacement for each other in the market and the industrial market can substitute sunflower for canola or soya oil, depending on price and availability, he says.

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South African production of sunflower oil

South Africa only produces about 45% of its total edible oil and fat demand, meaning about 55% is imported.

The full South African oil and fat demand was 1,7 mil metric tons (MT) in 2020, of which 800,000 MT was produced locally.

Dr Erhard Briedenhann, chairperson of the Oilseeds Advisory Committee says there is no direct answer to the question of how much sunflower oil the country needs.

“Sunflower oil can be substituted by other oils if necessary but it is very sought after and nice to have, but the country will not become dysfunctional if it had no sunflower oil.”

The demand for sunflower oil is influenced strongly by its price relative to other oils and it is a premium quality oil in certain SA markets.

Over the past five years the average production was approximately 287 000 tons per year, fluctuating according to crop size. South Africa imported an average of 160 000 per year over the past five years, he says.

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Edible oils were already getting expensive

Botes explains that the whole oil complex was trading at a slight premium already due to droughts in North and South America, along with exports limited in Indonesia and labour issues in Malaysia on palm oil production due to Covid-19.

“The outlook for 2022/23 was that pricing was going to start decreasing as new season crops were harvested and production hectares increased due to demand, especially in Ukraine. However, the war has removed the potential discounts from the market, as uncertainty of supply pushes up pricing,” Botes says.

Botes says the price of sunflower oil increased by 40-50% in the short term but is slowly rectifying and will have a 15-20% market impact in stores. Briedenhann says globally the price doubled within three weeks, although we have not yet seen this in South Africa.

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Why is sunflower oil important?

Why is sunflower oil so important? Botes says it is an edible oil used in margarine, spreads, snacks, cosmetics and as a frying oil in the restaurant industry. Briedenhann adds that it could also be used for biodiesel production, but not in South Africa.

Briedenhann says consumers prefer sunflower oil and according to Botes consumers can and will switch from sunflower oil based on price pressure if it becomes more expensive, but based on supply and demand, the demand on the other oils will then increase and push up pricing further on the other oil products.

Can producers not just use another kind of oil? They can, but it is not so simple, says Botes.

“The availability of all edible oil in the world on the supply side is tight and removing one of the largest exporters out of the supply basket puts pressure on balancing the books.”

In addition, labelling legislation for fast moving consumer goods require that producers specify the kind of product used. Therefore, the sudden shortage of stock does not give producers sufficient time to do product development to change the oils used in their manufacturing formula and get packaging label changes done in time. If the supply risk is longer term, these changes will happen.”

Briedenhann adds that edible oils also have different characteristics and properties, including taste.

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Can SA grow more sunflower and edible oilseeds?

Is it time to encourage other countries to grow more sunflowers to produce more oil?

Briedenhann says if it is a good economic proposition, sunflower production will increase, but there are many complex factors that determine if more of a specific crop is grown, such as profitability.

“Yields of sunflowers are less than half of soybeans and far less than canola.”

Botes points out that supply will not increase overnight and will require a season to come into effect, but the changes will still not be sufficient to make up for an entire crop from Ukraine and Russia and supply is bound to be tight for at least two to three years.

“The balance will not necessarily come from sunflowers, but will come from replacement products as well, such as increased planting of canola, soya and palm oil.”

What should we learn from this? Should we not rather diversify where we buy our edible oils? Botes says we are not only buying from Black Sea countries, but the fact remains that Ukraine and Russia are the largest exporters in the EU and the net effect is that there is a decreased supply of sunflower oil in the world, driving up the world price, irrespective of origin.

Briedenhann says South Africa produces nearly 2 million tons of soybeans, on average nearly 800 000 tons of sunflower seed and Canola production has grown to nearly 200 000 tons. “All require different climatic conditions and are suitable in different production regions. We have made remarkable progress to become self-sufficient on protein for animal feed and oil requirements.”

He says globally soybean production dominates the oilseeds at 364 million tons, followed by Canola at 71 million tons and sunflower seeds at only 3rd at 57 million tons. The global major player in the oil market is palm oil at 75 million tons, which shows there is no scenario of putting all our eggs in one basket.