Monday, Sep 26, 2022

Explained: Global edible oil prices crash; will other food commodities follow?

Palm oil down 43 per cent from March peak, sets the stage for easing of global food inflation.

The effective import duty is currently 5.5% on crude palm, soyabean and sunflower oil, while it is 13.75% for RBD palmolein.

The present prolonged bout of global food inflation from around end-2020 began with edible oils. Could it end with edible oils?

As far as overall food inflation goes, these are still early days. The United Nations Food and Agriculture Organization’s (FAO) food price index hit an all-time high of 159.7 points in March, the month immediately following the Russian invasion of Ukraine. Since then, the index — a weighted average of world prices of a basket of food commodities over a base period value, taken at 100 for 2014-15 — has eased a tad, by 3.4%, to 154.2 points in June.

The picture is clearer in vegetable oils, where the FAO’s sub-index has fallen by 15.9%, from 251.8 to 211.8 points, between March and June. The rise during April 2020 to March 2022 was sharper for vegetable oils (from 81.2 to 251.8 points) than for the general index (from 92.5 to 159.7 points). But so has been the subsequent dip from March to June (See chart).

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Palm vs ‘soft’ oils

A better idea of the price decline can be had by looking at individual oils. Crude palm oil (CPO) traded at a record 7,268 ringgit per tonne at the Bursa Malaysia derivatives exchange on March 9. On Friday, the most-active two-month futures contract settled at 4,157 ringgits. That’s 42.8% down from the peak.

Four months ago, the landed price (cost plus freight) of CPO in India was about $2,000 per tonne, while it was $1,960 for RBD (refined, bleached and deodorised) palmolein, $1,925 for crude degummed soyabean oil and $2,100 for crude sunflower oil. Those prices have since retreated to $1,185 (CPO), $1,160 (RBD palmolein), $1,460 (soyabean) and $1,700 (sunflower) per tonne.

The accompanying table shows much of this price collapse to have taken place in just over the last one month, with the fall more in palm than for so-called soft oils, namely soyabean and sunflower. It is also reflected in the data from the Department of Consumer Affairs. Between June 8 and July 8, the all-India modal (most quoted) retail price of packed palm oil has come down from Rs 160 to Rs 145 per kg; it has been less for soyabean (Rs 170 to Rs 160/kg) and sunflower (Rs 190 to Rs 182.5), and non-existent for groundnut (Rs 180).

“The transmission of international to domestic prices will be higher for imported oils and which require less voyage time,” says BV Mehta, executive director of the Solvent Extractors’ Association of India (SEA).


India annually consumes around 23 million tonnes (mt) of edible oils, out of which 13.5-14.5 mt is imported and 8.5-9.5 mt domestically produced. The imported oils mainly comprise palm (8-9 mt), soyabean (3-3.5 mt) and sunflower (2-2.5 mt), while those sourced indigenously include mustard (2.5-2.8 mt), soyabean and cottonseed (1.2-1.3 mt each), rice bran (1-1.1 mt) and groundnut (0.5-0.8 mt).

“Palm oil tanker vessels from Malaysia and Indonesia take 8-10 days to arrive in India. The same for soyabean oil from Argentina and Brazil is 40-45 days. Given the steeper fall in international prices of palm oil and less time to bring fresh cargoes, it’s natural to see it becoming cheaper first before the other oils,” adds Mehta.

Being a ‘hard’ oil that is semi-solid (as opposed to liquid) at room temperature, palm oil isn’t used much in home kitchens for direct cooking or frying. Most of it goes to make hydrogenated fats (vanaspati, margarine and bakery shortening) or as key ingredient in bread, biscuits, cookies, cakes, noodles, mithai, namkeen, frozen dessert, soap, and cosmetics. The benefits of the slide mainly in palm oil prices will thus accrue more to the food, restaurant, or skincare industries than to households. They would want prices of ‘soft’ (soyabean and sunflower) and indigenous (mustard and groundnut) oils to fall more.


The other side

Davish Jain, chairman of the Indore-based Soyabean Processors’ Association of India, feels that the government should review the existing import tariffs on edible oils, considering the recent crash in world prices and the ongoing planting season for kharif oilseeds.

The effective import duty is currently 5.5% on crude palm, soyabean and sunflower oil, while it is 13.75% for RBD palmolein. Further, the Centre, on May 24, allowed up to 2 mt each of crude soyabean and sunflower oil to be imported at zero duty during 2022-23 and 2023-24 (April-March). Quantities beyond this would attract the regular 5.5% duty.

“Domestic soyabean prices have already dropped from roughly Rs 69,000 to Rs 62,000 per tonne in the past month. If the trend in international prices continues, it will send a negative signal to farmers when kharif sowing is at its peak. A rollback of the customs duty exemption and even a gradual increase is in order,” points out Jain.

According to the Agriculture Ministry, farmers had planted 77.80 lakh hectares (lh) under kharif oilseeds till July 8, against 97.56 lh during the corresponding period of last year. Acreages are down in soyabean (from 69.54 lh to 54.43 lh), groundnut (25.31 lh to 20.51lh) and sesamum (1.71 lh to 1.53 lh). The lower area covered has been attributed to weak monsoon activity in June, with all-India rainfall 7.9% below the historical average and 24 out of the country’s 36 meteorological subdivisions registering shortfall in excess of 10%.


July, however, has recorded 31.3% above-normal rains so far, resulting in the cumulative rainfall from June 1 to July 10 turning 5.2% surplus. SEA’s Mehta expects a substantial pick-up in sowing due to the monsoon’s revival and the acreage gap closing before the month-end.

Ukraine to Indonesia


As noted earlier, the current global food inflation began with edible oils. The initial trigger was the 2020-21 drought in Ukraine (the world’s biggest sunflower oil producer) and Covid-induced migrant labour shortages in Malaysia’s oil palm plantations. The war was the final straw. The supply disruptions from Ukraine and Russia were aggravated by Indonesia’s restrictions on exports of palm oil in response to domestic price increases and drought in South America badly affecting the region’s 2021-22 soyabean crop.

Those supply shocks seem to be easing somewhat. Soyabean production in Brazil, Argentina, and Paraguay is set to recover this year. Indonesia was forced to lift its ban on palm oil shipments in late-May after a piling up of stocks. Excess supplies from the world’s largest producer are now exerting downward pressure on prices.


Whether other food commodities will follow vegetable oils may be only a matter of time.

First published on: 11-07-2022 at 06:09:44 am
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