The Day – Vegetable oil prices soar, far outpacing other food inflation



District Donut, which has made a name for itself with sophisticated flavors like brown butter and dulce de leche, has withstood a number of food price hikes in recent years, flour, sugar and eggs having all become more expensive during the pandemic.

But a new crisis unrelated to the pandemic has raised new concerns for Christine Schaefer, founder and executive pastry chef of the Washington donut company: the rising cost of cooking oil. Extreme weather and war in Ukraine have tightened the global supply of the four most commonly used types of vegetable oil – staple ingredients as ubiquitous in home kitchens as they are in restaurants and packaged foods. In low-income countries, cooking oil is one of the largest weekly expenses for poor families and the source of about 10% of daily calories worldwide, according to the International Food Policy Research Institute. .

But even in rich countries, these higher prices are strongly felt. The blocks of vegetable oil Schaefer uses for frying have doubled in recent months to $70 apiece. “Every week it goes up a dollar,” she said. “At one point it jumped $10 in a single week. »

Schaefer said it raised the price of single donuts for customers at its five stores, but was trying to maintain the price of multiple donuts so as not to lose too many customers.

“We’re holding down the fort, hoping it’s a passing storm,” she said.

Agricultural economists say this particular storm isn’t likely to pass any time soon.

According to the Food and Agriculture Organization of the United Nations, vegetable oil prices around the world hit a record high in February and rose another 23% in March. Oils commonly used by food manufacturers in the United States have jumped 45% since last March and have jumped 152% in the past two years, outpacing overall food inflation, according to Gro Intelligence, a data platform agricultural.

In the United States, vegetable oils are found in everything from ice cream to shampoos and are the fastest growing food category, said John Baffes, senior economist for the World Bank’s Prospects Group. . And demand exceeds supply: Over the past decade, vegetable oil production has increased by an average of 5.7 million metric tons per year, but consumption has increased by an average of 6.2 million tons. metrics per year, according to data from Gro Intelligence.

Thirty-five percent of global vegetable oil production is palm oil, 29% soybeans, 14% canola and 9% sunflower oil, according to data from the US Department of Agriculture. .

Each of these four countries is facing unprecedented new shortages or war-related supply disruptions, issues that will have a ripple effect on the prices of groceries and restaurant meals, said Chris Johnson, analyst for S&P Global Ratings, a credit rating agency. In developing countries, soaring vegetable oil prices can threaten basic livelihoods, but developed countries, where wealthy people are more dependent on restaurant meals (people eat far more fried foods than in home) and prepackaged foods containing vegetable oils, will feel a significant sting as well, Baffes said.

Although these oils are “highly substitutable,” Baffes said, countries around the world are vying for limited supplies of vegetable oils and scrambling to reformulate products if they can find them.

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– Palm oil

Indonesia is the world’s largest producer and exporter of palm oil, the most widely used oil in the world. On April 28, the Indonesian government banned all palm oil exports in a bid to quell domestic unrest over rising food prices. A 40% increase in the domestic price of palm oil, Indonesia’s most common cooking oil, has sparked long queues and protests.

Experts expect the palm oil shortage to eventually ease. Indonesia can only use about a third of the palm oil produced in the country and will struggle to find storage for all the excess: exports of palm oil and oil products Palm oil typically averages 2.3 million metric tons per month, according to data from Gro Intelligence. It is estimated that the country’s liquid storage tanks for palm oil products at ports can only store up to 2 million metric tons in total.

“The ban in Indonesia will be short-lived,” said Wells Fargo agribusiness manager Tim Luginsland. “They have more than they need, they don’t have enough storage and it’s worth a lot. It temporarily pushes prices up, but a rising tide lifts all ships – all oil prices go up.”

But the ban could stay in place for months. And once oil flows again, it will take time to revive exports. Global palm oil prices jumped 7.5% last week and are up 75% year-on-year, according to data from Gro Intelligence.

– Soybean oil

Ed Cinco, purchasing manager at Schwebel’s Baking, a regional Ohio bakery employing 750 people, began seeing the price of soybean oil rise more than a year ago. It went from 50 cents a pound to over a dollar — a huge increase, especially considering that Schwebel uses 30,000 pounds of soybean oil a week.

Cinco said the price had risen another 20 cents in the past two months, and its supplier said it was rising again. In turn, Schwebel’s had to raise wholesale bread prices by more than 10%, with another hike likely in July.

“I can’t get quotes from any other company because no one has supplies,” Cinco said. “And if you substitute another oil, all your nutritional values ​​have to change on the packaging, so you have to order new packaging, and right now there’s a 14-week delay for that due to supply chain issues. ‘supply.”

Soybean oil supplies were put under pressure by a drought in Argentina, the world’s largest exporter. After Russia invaded Ukraine, the South American country raised export taxes on soybean oil and briefly suspended exports to protect its domestic supplies and prices. This, added to the lack of rain in Brazil, another major exporter, and a shortage of supply from South America.

The biggest problem, Luginsland said, is the “push-pull between food and fuel use.”

The use of biofuels accounts for a large portion of the annual increase in vegetable oil demand, according to Gro Intelligence. About 40% of corn is removed from human and animal diets to produce ethanol, and about 30% of soy is used to produce biodiesel.

Experts fear it could go higher, further tightening the supply. In June, the Environmental Protection Agency will announce its updated requirements for blending regular diesel with biodiesel, which uses soybean oil. Food manufacturers will face more competition for this oil if the EPA increases the amount of renewable fuel that must be blended with gasoline and diesel, said Robb MacKie, president of the American Bakers Association.

“The vegetable oil crisis that we have been warning the EPA about since July 2021 is happening. If the EPA does not reduce the proposed 13% increase in biofuel mandates in light of what we are going through, the Grocery store shelves have a real chance of running out of everyday essentials. That’s our frightening reality,” he said.

His association calls on the EPA to allow stocks of soybean oil to return to food instead of being diverted to the production of biodiesel.

The United States has always been a net exporter of soybean oil. But with 26 renewable diesel plants operational or under construction, the majority of which will come online in the next two years, there won’t be enough locally grown soybeans to meet demand, said Steve Nicholson, global strategist for the grains and oilseeds sector for Rabobank.

“Policymakers had admirable goals, but the crops got lost in translation,” he said.

– Canola oil

Canada is the largest producer and exporter of canola, also called rapeseed oil. Last year, the Canadian crop fell 35% due to drought, resulting in a 14-year drop in production, Luginsland said.

“At this point, people are not assuming that this year’s harvest will be significantly better,” he said. “We don’t plant until May, so there’s still a chance of a decent harvest if we get the rains.”

But there are other factors at play that could further tighten supply. Nicholson said that this year growers said they plan to seed 7% fewer acres of canola, opting instead to seed wheat because prices are high and farmers “have a better [profit] margin with this crop.”

A shortage of Canadian canola means some manufacturers will source it from places like Australia, but the added shipping and transportation costs for these substitutions will likely drive up prices for consumers, Baffes said.

– Sunflower oil

Ukraine accounts for two-thirds of global sunflower oil exports, or around 7% of total global edible oil exports, Baffes said. Delivery of last year’s crop was interrupted due to the destruction of storage facilities and the blocking of exports after the Russian invasion of Ukraine, and experts predict that half of the area will not be planted this year.

Sunflower oil as well as the seeds that are processed into oil are sold primarily in Europe, Johnson said. It is a non-GMO product, he said, so European manufacturers have to reformulate with different oils and find it difficult and expensive to find other non-GMO oils so they can sell products in European countries that have banned GMOs.

“There’s no sunflower oil on the grocery store shelves,” Nicholson said.

Industry organization Consumer Brands Association is calling on the federal government for more flexibility so companies don’t have to keep changing their labels as they scramble to find substitutes for their ingredients, often from far more places. away, said the vice-president of the association. communications Katie Denis.

“When a market breaks down, there is no slack in the system. There are ripple effects,” she said.

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