I expect the cost of potatoe chips to dramatically increase this summer fall do to UKR war
Hit to Ukrainian sunflower means US cooking oil price spike
Russia’s
invasion of Ukrainehas sown chaos across the country,
shuttering factoriesand slashing farm production in what has been dubbed the “breadbasket of Europe.” While Ukraine produces millions of tons of wheat, barley, and corn each year, it also accounts for nearly half of the global supply of sunflower oil.
Sunflower oil has become a major cooking oil that is valued for its mild flavor and health benefits. Because of the war-induced shortages, companies have had to turn to other vegetable oils, such as those derived from olives and soybeans.
The price of sunflower oil has skyrocketed 44% over the past year, according to the
Wall Street Journal, which
citeddata from Mintec Ltd. Palm oil has increased by 61%, and soybean oil is up 41%, all hitting record highs. Olive oil has lurched upward by 15%.
INFLATION KILLING OFF FAMOUS NEW YORK CITY $1 PIZZA SLICES
John Sandbakken is the executive director of the National Sunflower Association, which is the trade association for all of the sunflower growers in the United States and the affiliated companies that use those products.
Sandbakken said that most of Ukraine’s sunflower oil flows into the European Union and countries such as India and China, but he noted that anytime the volume of global oil decreases anywhere in the world, an alternative supply is needed.
“It’s something that’s going to affect the vegetable oil market all over the world,” he told the
Washington Examinerafter the outset of the war. “You’re displacing that much oil from the market that people need, so it’s something that will affect all oils … eventually, it will affect everybody in the world to some extent.”
For example, if a French oil buyer can no longer access its usual orders of oil from Ukraine, the buyer will turn to a different supplier, perhaps one in the U.S. That shift in sourcing has had a ripple effect that is driving the higher prices and oil shortages across the globe.
“Everybody is going to be competing to get that oil,” Sandbakken said. “Whether that be palm oil, soy oil, canola, or sun, or whatever type of oil it is, everyone will be competing for vegetable oil.”
Brian Marks, executive director of the University of New Haven's Entrepreneurship and Innovation Program, said that the COVID-19 pandemic drove home just how interconnected the world is.
When the pandemic frayed supply chains and people were left waiting for shipments for weeks, it was proof of just how globalized the world economy has become. He said that the war in Ukraine and how it affects products as diverse as vegetable oil further drives home that point.
“This Ukrainian crisis, the Russian invasion, has further put a stamp on showing how interconnected we are from an economic standpoint,” Marks told the
Washington Examiner. “If we didn’t learn it once, or if we needed reinforcement, this crisis is certainly demonstrating it, and it is having a cascading effect throughout the economy.”
The massive price increases for vegetable oils are further fanning the flames of the
inflationary fire. Consumer prices
increased 7.9%for the 12 months ending in February, the fastest pace in decades, and food prices have risen in tandem. Because oil is an input for so many foods, food prices will inevitably be pushed higher by Ukraine’s absent sunflower oil production.
The effects on oil prices are being felt 5,000 miles away, in the nation’s capital.
Salvador Khadra is the director of operations for Pizza Boli’s, a Maryland-based franchise with locations in several mid-Atlantic states. He said that the price increases for cooking oils have affected the company’s sauces, dressings, dough, and more.
Khadra told the
Washington Examinerthat he doesn’t expect oil prices to tamp back down soon and predicted that it could get even more costly over the coming months.
Nor is production likely to ramp up outside Ukraine fast enough to make up for the shortfalls.
Marks said that there might be some hesitancy to overload production of other oils given that there is no clear sign of when the war could come to a close. If it were to end soon, investing in supercharged production could fall flat.
As a historical example, he pointed out that during the U.S. Civil War, cotton production in the Southern states was broadly hampered. In response, there was a huge push to expand production in Egypt.
The Egyptian government borrowed money to expand that production, and at the end of the Civil War, U.S. production came back online and drove cotton prices down, and the Egyptian government couldn’t meet that debt service, Marks said.
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“I think given the lessons learned, businesses will be hesitant to go all-in and expand production. So, we’ll see a slow movement because, as anything, if the exogenous shock such as the war ends, one would expect to the extent possible that production to come back online rather rapidly,” Marks said.
