The Black Sea Deal Off and Crude Sunflower Oil Import Prices Rise by 10% in 2023

The Black Sea Deal Off and Crude Sunflower Oil Import Prices Rise by 10% in 2023

Last year, Russia permitted the transport of goods from the war-torn Ukraine across the Black Sea, which increased the supply of sunflower and wheat worldwide.

The landing price of crude sunflower oil increased by 10% to $1050/tonne on July 21 compared to $960/tonne a week earlier due to the termination of the Ukraine and Russia Black Sea accord.

Although current sunflower import costs are still 35% below the peak of $ 1413/tonne set last year, which accounts for around 30% of imports of edible oil varieties, might cause prices to rise.

The Department of consumer affairs said that the median retail price of sunflower was Rs 115/litre, the same price that was in effect one month earlier.

Russia and Ukraine each contributed 40% and 30% of the 1.85 million tonnes (MT) total import of crude sunflower oil during the current oil year (Nov. 2022–June 2023).

The shipping of goods from war-torn Ukraine across the Black Sea was permitted by Russia last year, increasing the world’s wheat and sunflower seeds stocks.

Compared to the same time the year before, edible oil imports increased by 12% to 10.36 million tonnes (MT) from November 2022 to June 2023. Palm (44%) and soybean (24%) are significant imports, as are sunflower (18%).

In the upcoming months, palm oil imports may rise due to increased sunflower oil costs, according to BV Mehta, executive director of the Solvent Extractors Association of India, who spoke to FE.

On July 24 of this year, the landing prices of palm oil (at Mumbai port), which receives the majority of edible oil imports, decreased by 13% to $970/tonne from the $1,1120/tonne that was the norm a year earlier.

Currently, crude palm, soybean, and sunflower oil imports are subject to a 5% agricultural infrastructure tax and a 10% education tax, for a total tax incidence of 5.5%.

About 56% of India’s yearly usage of 24–25 MT of edible oil is imported. The yearly import of palm oil from Indonesia and Malaysia is about 8 MT.

In June 2023, the oil and fats category had a decrease in inflation of 18.12%.

Farmers’ associations and edible oil producers have urged the government to increase import taxes to bring international edible oil prices into line with domestic ones.

Regarding domestic edible oils, mustard accounts for 40%, soybeans for 24%, groundnuts for 7% and other oils.

2023 has seen the sunflower oil market undergo significant changes. The catalyst for these changes is the unexpected breakdown of a critical deal in the Black Sea region, resulting in an immediate 10% rise in crude sunflower oil import prices. To fully understand the implications of this development, it’s crucial to examine the underlying dynamics of the sunflower oil market, the specifics of the Black Sea deal, and the ripple effects it has created on the global stage.

Sunflower oil, extracted from sunflower seeds, is a primary source of cooking oil in many countries, particularly in Eastern Europe and Asia. IThe growing popularity of this food in Western markets can be attributed to its health benefits, including its low saturated fat content and high levels of Vitamin E.. As a result, fluctuations in the price of sunflower oil can profoundly impact international food prices and trade dynamics.

The Black Sea region, comprising Ukraine and Russia, is crucial to the sunflower oil market. They represent the two largest producers and exporters of sunflower oil globally. Hence, disruptions in this region can significantly impact the global sunflower oil supply chain, causing price fluctuations and potential shortages.

The Black Sea deal was a significant agreement between Ukraine and Russia that stabilized sunflower oil prices and ensured a reliable supply to the rest of the world. It was primarily intended to regulate production and stabilize export prices to prevent potential market volatility.

However, in 2023, the deal fell apart due to mounting political tensions and disagreements over the terms of the agreement. The reasons behind the deal’s collapse are complex, involving geopolitics, disputes over trade conditions, and rising nationalism in both countries.

The immediate consequence of the deal’s collapse was a significant increase in crude sunflower oil prices. With the agreement to regulate production and pricing, the market was protected from the forces of supply and demand. With the breakdown of the Black Sea deal, the uncertainty around the supply led to a panic in the market, resulting in a 10% rise in prices.

This price rise is no small matter. It directly impacts consumers’ pockets and influences the food industry’s overall operation, including food manufacturers, restaurants, and retailers. Many businesses operate on slim profit margins, meaning increased oil prices can be a substantial blow.

The impact of this price rise extends well beyond the confines of Ukraine and Russia. Given their role as the most significant global suppliers, this sudden price increase has created global shockwaves.

Countries heavily reliant on imported sunflower oil, such as India, China, and countries in the European Union, have been hit hard by these price hikes. This has led to an increase in the cost of food products that use sunflower oil, creating inflationary pressures and straining household budgets.

Moreover, this situation has intensified the search for alternatives, such as palm, soybean, and rapeseed oil. However, switching to these oils is more complex and immediate, given the different taste profiles, nutritional contents, and cooking characteristics. Furthermore, increased demand for these alternatives can lead to a price surge.

The collapse of the Black Sea deal in 2023 and the consequent 10% rise in crude sunflower oil import prices is a stark reminder of the intricacies and vulnerabilities of the global food supply chain. It underscores the need for diversification of sources and robust international agreements to buffer against sudden price shocks and ensure food security.

It will be crucial to watch how Ukraine, Russia, and the broader global community respond to this situation in the coming months and years. Will there be a move to renegotiate a new deal, or will countries start looking for alternative oil sources more seriously? Only time will tell. Regardless of the outcome, one thing is clear: the sunflower oil market will unlikely be the same again.