Home Impact producer Oil Crisis: Global Forces Fuel Rising Food Prices Amid War in Ukraine | Cost of living crisis

Oil Crisis: Global Forces Fuel Rising Food Prices Amid War in Ukraine | Cost of living crisis

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Whether it’s fries, stir-fries or curry on the menu, the financial shock of war in Ukraine is being felt hard in the kitchen as cooking oil prices hit record highs.

The cost had already skyrocketed even before Vladimir Putin’s invasion, but now vegetable oil costs £1.30 a liter in the supermarket, up 23p, or 22%, from a year ago. Sunflower oil – of which Ukraine and Russia are the main producers – is also up sharply, by 17p to £1.34 a litre, according to NielsenIQ Scantrack data.

Three out of four households buy cooking oil and in the UK they spend nearly £400million a year on the product. Shoppers stock up every eight to 10 weeks, says NielsenIQ’s Mike Watkins, meaning there could be “shelf shock for many” when they return.

As well as being a staple, cooking oil is used throughout the food industry – from biscuits to ready meals to shelf stable cream – so cost increases and shortages are impacting .

Vegetable Oil Price Chart

This week, the UK’s biggest bottler of sunflower oil warned that stocks were running out with just a few weeks remaining, and it emerged that makers of products that rely on it, such as crisps and fries in the oven, were forced to change their recipes and use other types of oil.

Home cooks can face higher prices by changing their cooking method or switching to cheaper supermarket brand oils. However, for restaurants and food businesses that use huge amounts of cooking oil, shortages and price increases add to the pressure caused by other rising costs.

Yawar Khan, owner of Akash Tandoori in Wallington, south London, said last month that a 20-litre can of vegetable oil cost around £22 cash-and-carry, but today the price is closer to £40. Buyers were also limited to two barrels each, in a sign of concern over shortages.

So how did the price of this kitchen essential get so high?

War

A sunflower crop near Horishni Plavni, Ukraine: The supply of millions of tons of sunflower oil has been blocked in the country since the start of the war. Photography: Evgeniy Maloletka/Bloomberg/Getty Images

Ukraine and Russia account for around 60% of global sunflower oil production, and the dispute has hit supplies hard. In UK stores, sunflower oil accounts for around a fifth of the market by value and 44% by volume, according to NielsenIQ. It is one of the “big four” vegetable oils, ranked behind palm, soybean, and rapeseed oils in that order (oil sold as “vegetable oil” is a mixture of various seeds).

Sunflower Oil Price Chart

When the supply of one of the big four is interrupted, it triggers a scrabble to buy a substitute. The price of sunflower oil jumped 60% after the invasion of Ukraine, from £1,130 a tonne in February to over £1,800 in March, according to analysts at Mintec. This had repercussions on the prices of palm, rapeseed and soybean oils.

The war has trapped millions of tonnes of sunflower oil destined for foreign buyers in Ukraine, causing a major supply shock. “Overnight we found ourselves in a situation where the market could not supply because the supplies were not coming from Ukraine to the EU and not being processed, or from Ukraine to other countries world,” says Gary Lewis of oil importer KTC Edibles.

Sunflower oil map

“The big impact in the UK and EU has been on rapeseed oil – as you can imagine prices have gone absolutely crazy.”

The next few weeks will be decisive. Volodymyr Zelenskiy, the Ukrainian president, encouraged farmers not directly affected by the war to plant as much as possible, with the best time in several weeks. “If there is a ceasefire, we will be able to assess what stocks remain in the country and when they will be available,” Lewis says. “The uncertainty is what caused the panic buying.”

Covid-19

Plantation workers prepare to unload bunches of freshly harvested oil palm fruits at a collection point
Malaysia’s palm oil harvest was hit when the country closed its borders due to the Covid crisis. Photograph: Melvin Migin/Alamy

The continued pandemic lockdowns have fractured a delicately balanced global supply chain. From farmers and factories to handlers and retailers, the crisis has caused huge upheavals and triggered soaring levels of demand. A great victim was the palm oil harvest in malaysia, the world’s second largest producer. Yields fell to a nearly 40-year low after it closed its doors to the migrant workers who usually bring it.

At the start of the pandemic, palm oil was changing hands for around £500 a tonne, according to Mintec. In one year, it was up 50%. Today it’s heading for £1,300 a tonne, driving up the cost of making everything that uses it, from cakes and biscuits to cosmetics, shampoo and washing powder.

Vito Martielli, senior grains and oilseeds analyst at Rabobank, says the inventory-to-use ratio – an indicator of the health of the global vegetable oil market – has been falling for eight years, from around 16% in 2015, the equivalent of 58 days of supply, at around 12%, or 44 days.

Climate crisis

A farmer sprays his rapeseed field near Roederhof with pesticides
Canadian rapeseed growers had a disastrous growing season last year. Photograph: Peter Foerster/EPA

In the past, the global market experienced large supply shocks every five to seven years, but over the past 10 years these have become much more frequent, with climatic conditions like drought and frost and sometimes diseases affecting crops more often, explains Martielli.

In 2021, farmers in Canada, the largest rapeseed producer and exporter, faced a disastrous growing season after temperatures soared to nearly 50°C. The price of soybean oil is currently rising due to lower harvests expected from producers in Brazil, Argentina and Paraguay – which account for more than 50% of global supply – after a severe drought.

Last year drought in Ukraine and Russia sent sunflower oil prices to a 12-year high of nearly £1,200 a tonne – although that record was erased by the financial shock of the war.

“Over the past two years we have seen many harvesting issues around the world,” adds Lewis. “High temperatures in Canada have had a massive impact on rapeseed production, which has had an impact on EU prices as these ripples spread across the world.”

Biofuels

Signs on gas pumps say biodiesel, or ethanol, diesel and regular gasoline
Biofuels are used to power vehicles and in industry. Photography: Sean Gallup/Getty Images

Biofuels account for about 15% of global vegetable oil demand, according to Rabobank. This use, as countries seek to reduce their reliance on fossil fuels, has previously been blamed for driving up food prices.

Ariel Brunner, European policy manager at BirdLife International, an environmental NGO, recently says New Scientist: “We literally burn a hell of a lot of food.” Governments had the power to change that because the biofuel market was powered entirely by subsidies, he added.

The loss of sunflower oil from Ukraine and Russia could be mitigated by diverting crops from fuel reservoirs. This would help to reduce food prices, a measure that would benefit those with the lowest incomes the most.

Lewis says that 50-60% of rapeseed grown in Europe and 60% of palm oil imported by the region is processed into biodiesel. “Over the past 20 years, increased demand for biodiesel has driven production, but there will always be a tipping point where you get the fuel versus food debate,” he says.

There was an argument for temporarily suspending the use of edible oils in biodiesel due to the current crisis, he said. “It would have a dramatic impact on availability for the food industry and alleviate some of the pressures.”

“The biggest concern is the pricing of our consumers”

curry plates and indian food
Indian restaurants and curry houses can consume 100 liters of cooking oil a week, says Yawar Khan, restaurateur and president of the Asian Restaurant Federation. Photography: Natalia Lisovskaya/Shutterstock

“We haven’t raised our prices yet, but we are considering it,” says Khan, who says increases of 10% to 15% will be needed this month to cover his restaurant’s higher running costs.

Khan, who is also president of the Asian Catering Federation, says his restaurant uses 40 liters of oil a week, but larger venues could consume 100 litres. The group’s biggest concern, he says, is that they are reluctant to raise prices to cover rising overhead for fear of “putting down” potential customers. “If the restaurant bill goes up by £10 or £20, how often are you going to visit your local restaurant or order takeout?”

His restaurant’s economy is also affected by soaring prices for chicken, spices and soaring wages, which have risen 15-20% this year.