The impact of record high vegetable oil prices on global trade

Vegetable oil prices have risen to their highest level on record. 

Between May 2020 and March 2022, the United Nations Food and Agriculture Organization (FAO) Vegetable Oils Index has risen 219.9% from 77.7 to 248.6 (see Figure 1).

Vegetable oil is a global food staple used in food preparation and cooking. The prices of other food staples, including cereals and dairy, have also increased rapidly in recent months.

Figure 1: Monthly FAO Food Price Indices – Nominal (January 2020 to March 2022)

Several factors have contributed to recent price rises:

• The global economic recovery from COVID-19 and high crude oil prices has increased demand for biofuels. Biofuel demand decreased in 2020 due to pandemic-related movement restrictions.
• Drought has reduced soybean production in South America and canola production in Canada.
• The Russia-Ukraine conflict has disrupted sunflower-crushing facilities and exports from the Black Sea region.
• Increased input costs and ongoing high freight costs.

These factors are expected to continue supporting high vegetable oil prices for the rest of 2022.

Implications for Australian exporters

Australian vegetable oil exporters are likely to gain from record high prices. High prices and favourable seasonal conditions are expected to lead to record Australian oilseed exports in 2021–22 (ABARES 2022).

Australia’s reputation as a reliable supplier of high-quality agricultural products is particularly important at a time of increasing uncertainty in global markets.

Exporters should continue to monitor announcements from trading partner governments to adapt to emerging opportunities.

Export restrictions on vegetable oils becoming more common

High vegetable oil prices (Figure 2) have led some major vegetable oil exporting countries to introduce export restrictions.

• Indonesia (27 January 2022) – Introduced a requirement for palm oil exporters to sell 20% of their planned exports to the domestic market. The domestic market requirement was revised up to 30%. On 18 March, the Indonesian Government replaced the domestic market requirement by increasing the export levy on palm oil.
• Argentina (13 March 2022) – Announced an indefinite suspension of soy oil exports. Exports resumed on 21 March 2022.
• Serbia (17 March 2022) – Added refined sunflower oil to a list of commodities which cannot be exported due to food security concerns.

Export restrictions are intended to ensure domestic supply and reduce domestic prices. However, export restrictions also reduce the amount of vegetable oil available for global trade. Reduced global supply may drive further international price increases. It may also create supply gaps for some countries, particularly those highly reliant on vegetable oil imports.

Figure 2: Global vegetable oil prices (1 January 2020 to 7 April 2022)

Impact of the Russia–Ukraine conflict on sunflower oil exports

In 2020–21, Russia and Ukraine exported 76% of the volume of world sunflower oil exports (Figure 3). The Russia–Ukraine conflict has led to the closure of Ukrainian sunflower-crushing facilities and ports. Economic sanctions and uncertainties around Black Sea shipping routes have also reduced Russian exports of sunflower oils.

Disruptions to sunflower oil exports will lead to increased demand for other vegetable oils, such as palm oil, soybean oil and canola oil, as consumers seek to substitute. This will put further upward pressure on already record high prices and, in some cases, create supply shortages.

In 2020, the European Union accounted for 28.7% of global sunflower imports. India accounted for 14.8% and China accounted for 11.1%.

Figure 3: Global sunflower oil exports by country (2019–20 to 2021–22f)