Ukraine war may result in 25% supply shortage of sunflower oil in India: Report

Around 70% of crude sunflower oil comes to India from Ukraine and about 20% from Russia

The ongoing war in Ukraine, which is the world's largest sunflower grower, is likely to result in at least 25 per cent or 4-6 lakh tonnes shortage of crude sunflower oil supplies in India next fiscal, according to a report.

Around 70 per cent of crude sunflower oil comes to India from Ukraine and about 20 per cent from Russia.

Balance sheets of domestic edible oil processors are healthy enough to withstand supply disruptions caused by the Russian invasion of Ukraine but will have a bearing on the production planning of domestic edible oil processors, rating agency Crisil said on Thursday.

Also Read | More aid needed to resist Russians: Zelenskyy

Refined sunflower oil constitutes 10 per cent of the country's consumption of 230-240 lakh tonnes of edible oils annually and almost 60 per cent of the demand is met through imports.

As much as 90 per cent of the country's annual crude sunflower oil requirement of 22-23 lakh tonnes come from Ukraine (70 per cent), Russia (20 per cent) and the rest from Argentina and other countries.

"Supply disruptions caused by the Russia-Ukraine conflict could lead to a supply shortfall of at least 4-6 lakh tonnes of crude sunflower oil for India next fiscal," Crisil said.

Cumulatively, Ukraine and Russia export 100 lakh tonnes of crude sunflower oil annually, with Argentina at the third place with 7 lakh tonnes in outward shipments, Crisil said in a report.

According to the report, the problem is that Russia's major banks are severed from the SWIFT system after it invaded Ukraine and the resultant 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 disruptions.

Also Read | Ukraine preparing for new Russian offensive in the east, Zelenskyy says

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, supply and prices will start hurting if the conflict, and the attendant trade disruption, prolongs.

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. To reduce the resultant idle capacity, the processors may choose to refine other edible oils, the report said.

The supply disruption also comes against the backdrop of a 25 per cent on-year increase in the average price of refined edible oils this fiscal while prices of crude edible oils have gone up because of supply side factors.

For example, crude soybean oil has soared following a bad crop in Brazil while crude palm oil climbed due to a weak output in Indonesia and Malaysia, the world's top producers.

Soybean oil and crude palm oil constitute more than 75 per cent of the country's edible oil imports and any further price increase of raw material will goad processors to raise additional debt to meet incremental working capital requirements.

Check out the latest videos from DH: