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Mumbai, November 22 (Commodities Control):The sunflower oil industry has experienced a tumultuous journey since the onset of the Russia-Ukraine conflict. Initially, the war led to a dramatic scarcity of sunflower oil, catapulting prices to an unprecedented $2,300 per metric ton. This disruption was primarily due to Ukraine's pivotal role in the global sunflower oil supply chain, which was severely impacted by Russia's invasion.
Over the past two years, however, the market has seen a surprising shift. Ukrainian farmers have remarkably produced larger crops during the war, contradicting initial forecasts. This surge in production was influenced by a strategic pivot in agricultural practices, where farmers favored oilseeds over grains due to their higher profitability.
Sergey Feofilov, Director General of UkrAgroConsult, underscores the economic benefits of sunflower seeds, which offer greater margins than wheat and corn. This preference has significantly contributed to Ukraine achieving record sunflower oil production levels. With Ukraine, now the world's second-largest producer, wrapping up its harvest season, the market is witnessing a substantial supply increase.
Despite this abundance and a consequent price reduction to nearly half of its wartime peak, the industry remains hesitant. The initial shortage had compelled food manufacturers to adapt their recipes, substituting sunflower oil with other oils. This adaptation involved extensive modifications, extending beyond mere recipe changes to encompass entire production and packaging processes. Therefore, even with the reduced prices, there is a reluctance to revert to sunflower oil, given the magnitude of these changes.
Hiten Patel from Swedish producer AAK observes that while sunflower oil is currently more affordable, the price differential isn't significant enough to justify a widespread return to its use. The continued conflict and the pursuit of stable supply chains have made alternatives like rapeseed and palm oil more appealing.
Despite logistical challenges, Ukraine has effectively resumed its sunflower oil exports through various routes, including maritime and overland channels. This resilience has contributed to a projected global production of 22 million metric tons in 2023, as estimated by the US Department of Agriculture. This figure is the highest on record since the 1960s.
The decline in vegetable oil prices has had a mitigating effect on food inflation, offering relief to consumers amid economic pressures. However, the caution exercised by industrial buyers is warranted, given the uncertain outlook for 2024. Forecasts suggest a likely price increase due to expected production declines in Ukraine and heightened shipping insurance costs.
The ongoing conflict continues to burden Ukrainian farmers financially, compounded by the risk of Russian attacks on shipping routes, which inflates logistics costs.
In conclusion, while sunflower oil production has recovered impressively, the market dynamics have been permanently altered. The adaptations made by food manufacturers in response to the initial supply crisis have lasting implications, influencing their current hesitancy to switch back to sunflower oil, despite its availability and lower prices.
(By CommoditiesControl Bureau; +91-9820130172)
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