The Influence of Ukraine-Russia Conflict on Sunflower Oil Demand in India

India: Edible oils have experienced significant price volatility over the past few years. The global vegetable oils price index, according to the UN Food and Agriculture Organization, plummeted to a low of 77.8 points in May 2020 during the peak of Covid lockdowns worldwide. However, it rose to a record-breaking high of 251.8 in March 2022 following Russia's invasion of Ukraine.

As of April 2023, the global vegetable oils price index had dropped to a 29-month low of 130 points. Within the vegetable fats complex, Sunflower oil has experienced the greatest price fluctuations over the past year, which is unsurprising given that Ukraine and Russia accounted for roughly 58% of the world's oilseed production in 2021-2022. The war disrupted their supplies through the Black Sea ports, leading to skyrocketing prices. In January 2022, crude Sunflower oil imported into India averaged $1,475 per tonne CIF (cost plus insurance and freight), which was lower than the corresponding prices for crude Soybean oil ($1,506).

In April 2022, the average landed price of Sunflower oil was $2,155/tonne, surpassing Soybean oil's $1,909/tonne. However, the Black Sea Grain Initiative agreement between Russia and Ukraine, brokered by the UN and Turkey on July 22, altered the situation. The agreement enabled the safe transport of vessels carrying grain and foodstuffs from three designated Ukrainian ports, assisting much of the accumulated Sunflower oil, meal, and seed in Ukraine to be shipped out. This led to a decrease in international vegetable oil prices, dropping below pre-war levels. At present, Sunflower oil is being imported at about $950/tonne CIF India, which is less expensive than its closest rival Soybean oil priced at $990.

India's annual consumption of cooking oil stands at 23.5-24 million tonnes (mt), with roughly 13.5-14 mt imported and the remainder produced domestically from cultivated seed. Sunflower oil ranks fourth in consumption, with 2-2.5 mt consumed, trailing behind mustard (3-3.5 mt), Soybean (4.5-5 mt), and Palm (8-8.5 mt) oils. Sunflower and Palm oils are predominantly imported, with domestic production hovering at a mere 50,000 tonnes and 0.3 mt, respectively, in contrast to mustard and Soybean oils, where domestic output accounts for nearly 100% and 30-32%, respectively.

The landed cost of crude Sunflower oil in India at $950 per tonne is about Rs 78.7/kg. After adding a 5.5% import duty and processing costs of Rs 6 (since vegetable oil refineries are primarily located near the ports), it amounts to just over Rs 89/kg. From November to April 2022-23, India's edible oil imports reached 8 mt, a 22.3% increase from the previous year's corresponding six months of 6.5 mt. At the current rate, total imports for this oil year (November-October) may surpass the 2018-19 record of 14.9 mt.

India's monthly imports of Sunflower oil averaged 0.2 mt until 2019-20, which decreased to 0.15-0.16 mt due to the dry weather affecting Ukraine and Russia's crops in 2020-21, followed by war-induced disruptions. In the last 4-5 months, imports have increased to 0.25 mt and, with prices decreasing, consumers are once again showing interest in sunflower oil. Indian imports of Sunflower oil were worth $2.88 billion in 2021-22 (April-March) and $3.12 billion in 2022-23, with import quantities remaining stagnant at 2 mt.

Ukraine's share of Sunflower oil imports decreased from 1.48 mt in 2021-22 to 0.43 mt in 2022-23, while Russia's increased from 0.34 mt to 0.57 mt. Argentina's share rose from 0.19 mt to 0.43 mt, Romania's from 0.02 mt to 0.2 mt, and Bulgaria's from 0.02 mt to 0.16 mt. The southern region of India dominates Sunflower oil consumption with approximately 70%, while Maharashtra (10-15%) and other states cover the remaining share. This geographic imbalance is due in part to Sunflower traditionally being grown in Karnataka, Telangana, and Maharashtra.

Consumer habits take years to develop. Sunflower oil has been a popular choice in states such as Karnataka, Telangana, and Maharashtra for decades, just as Soybean has been well-known in Madhya Pradesh and Rajasthan where it is grown. However, domestic sunflower production has dropped to negligible levels over the last decade or so, unlike Soybean which has expanded considerably. Despite this, multinationals like Cargill ('Gemini') and ConAgra ('Sundrop') are present in the refined Sunflower oil market, though they do not hold a significant share.