How Supply disruption of edible oil affects the Indian economy.

The edible oil price has a major impact on the Indian economy as India obtains maximum supply from Ukraine and Russia.

How the Russia Ukraine war reminds us of our import dependency

Due to supply disruptions caused by the Russia-Ukraine conflict, India could face a crude sunflower oil shortage of at least 4–6 million tons. This, in turn, will have an impact on the domestic edible oil refineries' production planning.

India's imports of sunflower oil.

The Solvent Extractors' Association of India, a trade association for the vegetable oil industry, said its members are considering importing cooking oil and oilseeds from other countries, especially in southern India, where sunflower oil is widely used. Alternatives, according to the group, include palm oil from Indonesia, canola oil from the United Arab Emirates, and sunflower oil from Russia. India's second-largest source of sunflower oil is Russia. After preliminary data suggest a large harvest of sunflower, soybean, rapeseed, and linseed, Russia may set an oilseed production record this year.

For the record, refined sunflower oil accounts for 10% of India's yearly edible oil consumption of 230–240 lakh tons (all types). The country imports roughly 60% of its edible oil, making it very vulnerable to global trade, oilseed output, and regulatory changes in key import centres.

Worse, Ukraine (70%) and Russia (20%) supply 90% of India's annual crude sunflower oil requirement of 22–23 lakh tonnes, with the balance coming from Argentina and other countries. Ukraine and Russia export 100 million tons of sunflower oil per year, with Argentina coming in third with million tons.

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Exploring other possibilities

"A protracted trade disruption will encourage edible oil manufacturers to source more crude sunflower oil from Argentina," said Crisil Ratings' director. However, this will not be enough to compensate for the volume shortage from Ukraine and Russia. Processors may choose to refine different edible oils to reduce the resulting idle capacity."

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Current Supply disruption scenario.

The supply disruption follows a 25% year-over-year increase in the average price of refined edible oils this fiscal Due to supply-side considerations, crude edible oil prices have risen this fiscal year. For example, crude soybean oil has risen due to a poor harvest in Brazil, while crude palm oil has risen due to low output in the world's biggest producers, Indonesia and Malaysia.

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Conclusion

When businesses pass on high freight and fuel costs to consumers, it has a negative impact on household budgets as well as the Indian economy. The supply disruption has made it clear to India that we must focus on developing a backup plan for such unforeseen events.

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