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Cooking oil witnessing price surge post the Ukraine – Russia war
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Friday, 29 April, 2022, 16 : 00 PM [IST]
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Shammi Agarwal
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In Mahatma Gandhi's words, "An eye for an eye only ends up making the whole world blind."
Just after the world was stumbling upon its feet post-pandemic, Russia's invasion of Ukraine shook the world again. The war led to billions of questions and thousands of problems. Not only lakhs of Ukrainian lives were in danger, but this war also had its fair share of impact on the whole world, especially the economy.
It all started when Putin, Russia's President, commanded a "special military operation" to "demilitarise and denazify" Ukraine on February 24, 2022. In a few minutes, thousands of missiles and airstrikes attacked Ukraine.This was followed by a considerable ground invasion from multiple directions.
As a response to this offensive act, 13 countries banned their aviation in Russia. The countries include Bulgaria, Czech Republic, the United Kingdom, Belgium, Latvia, Estonia, Lithuania, Moldova, Ireland, Finland, Poland, Romania, and Slovenia.
While the whole world suffered in the burning flames of this war, US banned the imports and exports of Russian commodities. Since India is also working on building its international relations and is active in trade, the war would also impact us.
The Ukraine – Russia war impacted the Indian economy directly, indirectly, and macroeconomically. The war directly impacts the global trading between India and the two nations. The war indirectly affects India's worldwide commodity and energy market shift. Also, policy implementation and business choices might require adjustments to manage any fallout resulting from the crisis.
Pharmaceutical companies are likely to be impacted significantly as big companies like Sun Pharmaceuticals and Dr Reddy's Laboratories have production facilities in Russia and offices in Ukraine.
Another problem is payments. RBI governor Shaktikanta Das has suggested that banks look for alternative ways of handling charges with Russia. India's trade volumes with these two countries are not very substantial, but the indirect effects may have some different impacts.
The rise in crude oil prices will impact sectors like aviation, tyre, paint, oil marketing companies, etc. India is more dependent on edible oil imports from the Black Sea region and is being impacted significantly. Although India's oilseed production capacities have improved, they are not sufficient to meet the demands. The current consumption of edible oil in India is around 22 million tonne, out of which 13 million tonne, approximately 59% is imported. 90% of India's sunflower oil imports come from Ukraine and Russia.
Impact on the FMCG sector
One of the most significant impacts of the Ukraine – Russia war has been on the price of cooking oil. We get over 90 per cent of our sunflower oil supplies from Ukraine and Russia together. And that is why the war has led to an extensive hike in edible oil for the country.
According to market experts, India imports 150,000-200,000 tonne of sunflower oil each month, reduced by at least 70,000 tonne in February. The oil industry is shifting from sunflower oil to other oils like palm and soybean to combat this hike. Prices of packaged sunflower oil increased by 4% in February in India, while mustard oil witnessed a hike of about 8.7%. The cost of Soybean oil fell by 0.4%, while vanaspati climbed up by 2.7%, and groundnut oil was up by 1%.
The cooking oil prices are rising and has witnessed a gain of up to Rs 25 per litre to date. The cost of edible oils has gone up from Rs 125 to around Rs 170-180 within a short span of a month. The prices are further expected to escalate during May or June. The further price rise will depend upon many factors, and it will not be a small one.
We use edible oils in local snacks, cookies, and shampoo, among other things in India. Lately, the Indian government has attempted to produce more edible oil internally. However, it has not been a fruitful attempt to date as the demand touches the sky in India when it comes to edible oil. Though, in this attempt, the prices of this commodity have increased and doubled since 2017.
As per data shared by the media, our country consumes an estimated 2.5-3 million tonne of sunflower oil per annum. Therefore, this increasing price surge is affecting the buying capacity of the whole country - leading to a fall in consumption and turbulence in the economy.
The leading players in the FMCG industry shared that some of the shipments from Ukraine are stuck because of the war and will be released to reach India shortly after the war ends. Though the country has witnessed a price surge in oil, the oil industry assures no scarcity of this resource due to the ongoing conflict.
According to economists, tea exports are also likely to be severely impacted as Russia and Ukraine are some of the largest tea importers. Russia is one of the biggest importers, holding 18% of India's tea exports.
The Ukraine - Russia war has made things worse by making the prices of many commodities shoot up with the rise in the cost of raw materials. As per Parle products, a hike of 10-15% is expected in the industry. Leading FMCG brands across the globe have witnessed a price surge in their products, leading to chaos among the consumers. Hindustan Unilever has already increased the prices of some of its most bought commodities like Bru coffee, Brook Bond Tea.
On the other hand, Nestle has laid out a price hike of its products like Maggi Noodles by 9-16% and has also increased the price of coffee and milk powder.
Overall price hike and issues in consumption
According to some estimates, the Indian economy will be the worst hit in Asia. Economies like India are net oil importers. A sustained rise in food and oil prices would adversely affect the Indian economy because of higher inflation, weaker current account and fiscal balances, and a negative impact on the overall economic growth. For India, every 10% rise in the price of crude oil will shed off roundly 0.2% point from the GDP growth and widen the current account by 0.3%. Also, the rise in crude oil prices may lead to a 0.3-0.4 pp rise in headline inflation.
The spike in crude oil prices could also lead to a Rs 6-8/ litre hike in auto fuels which would add about 30-40 bps to the CPI.
The rise in prices of some specific commodities may lead people to shift to other options, which might cause an increase in the price of those products, ultimately making them expensive.
India is witnessing a significant loss as far as the edible oil sector is concerned. All the FMCG companies are compelled to spend their savings in an attempt to help their consumers sustain their buying power. The companies that cannot shed their savings are increasing their product prices to maintain the market. No matter how challenging this situation is for the whole world, let us hold the fort and try to come out of this together. It will be a bumpy ride, maybe more price hikes coming our way, but let us - as a nation - try to keep our economy strong just as our beliefs.
(The author is director at Pansari Group)
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