Supply disruptions caused by the Russia-Ukraine conflict would result in supply shortfall of at least 4-6 lakh tonnes of crude sunflower oil for India next fiscal and impact production of domestic edible oil processors.
Refined sunflower oil constitutes 10 per cent of India’s consumption of 230-240 lakh tonne of edible oils (of all types) annually, said Crisil Ratings estimates.
Vulnerable position
The country imports nearly 60 per cent of its edible oil requirement, which makes it extremely vulnerable to adverse developments in global trade.
Incidentally, India imports about 90 per cent of its annual crude sunflower oil requirement of 22-23 lakh tonnes from Ukraine (70 per cent) and Russia (20 per cent) and the rest from Argentina and other countries.
Cumulatively, Ukraine and Russia export 100 lakh tonnes of crude sunflower oil annually, with Argentina at the third place with 7 lakh tonnes.
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, there would be supply shortage and prices would begin to surge if the conflict 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, he added.
Hike in prices
The supply disruption comes on the back of a 25 per cent year-on-year increase in the average price of refined edible oils this fiscal.
Prices of crude edible oils have run up this fiscal due to 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 over 75 per cent of India’s edible oil imports.