Oil Options in the Aftermath of Global Shortages and Bans

Russia’s invasion of Ukraine in February generated a domino effect on the supply chain of the baking industry. Not only because the two countries directly involved in the conflict export a quarter of the world’s wheat, but they are also the primary global source of sunflower oil, one of the most used edible oils in Europe. More disruptions ensued, forcing the industry to look for solutions elsewhere.

Ukraine’s limitations to export and the sanctions imposed on Russia’s trade started to show their impact in the following month. The shortages that followed pushed retailers to restrict shoppers in UK and Germany to a limited number of bottles of oil, increased the global price of edible oils, and forced manufacturers to replace sunflower oil with rapeseed oil so suddenly that some were not able to change their labels accordingly. 

British authorities allowed the mis-labeling as force majeure, but had to issue public assurances that rapeseed oil had a very low risk of allergy, so the consumers would not panic, as photos of empty supermarket shelves in Germany flooded social media.

The shortage came after two years of pandemic-disrupted supply chains, but also, at least in Europe, after several years of working towards eliminating palm oil usage, for environmental reasons. Palm oil, primarily sourced from Indonesia and Malaysia, makes for 37% of the edible oils global market, being preferred especially in Asia Pacific, while în the Western Hemisphere the oil of choice is soybean (31% of the global market), produced mainly in Argentina. 

As the world turned back to palm oil, Indonesia, which provided 58% of the palm oil used globally, according to Statista, ensured the other countries there is enough palm oil in its reserves to cover the gap left by the sunflower shortages. By April, though, as the food prices started to rise globally and palm oil became expensive for Indonesians too – much of their 45 million metric tonnes annual production was exported at record prices – the government decided to ban all exports effective April 28. The aim was to protect its most vulnerable citizens’ access to the staple. The ban has implications way beyond the food industry, as 50% of all packaged foods contain palm oil – including toothpaste and shampoo.

The ban made the food industry look at soybean oil as a replacement and that, together with a drought in Argentina that affected this year’s soybean crops and made the South American country impose higher taxes on exports, led to a price hike of 27% in soybean futures. The other major oil, canola (Canadian hybrid of rapeseed) has also been affected by drought, which caused a 35% decline in production, leading to a 50% fall in exports.

You can read the rest of this article in the Summer Issue of World Bakers Digital magazine, which you can access by clicking here.