An Explainer: What Drives the Cost of Cooking Oil
Have you ever wondered what’s driving the cooking oil prices in South Africa? Understanding these dynamics can provide valuable insights into not only the global economy, but also the cost of a pantry staple we can’t do without!
Let's take a closer look at some of the factors that affect cooking oil prices, with Morne Botes, the Commercial Director of Southern Oil, as our guide.
Global Exporters and Market Dynamics
Cooking oils come from various corners of the globe, with the main exporters being:
- Soya Oil: North and South America
- Palm Oil: Indonesia and Malaysia
- Sunflower Oil: Black Sea region in Europe
- Canola Oil: Europe, Australia, Canada
These oils form a complex network of supply and demand, where any shift in one component can affect others. For instance, changes in the supply of palm oil can impact the prices of soya, sunflower, and canola oils, as they are often used interchangeably.
Key Market Drivers
Several factors influence cooking oil prices on the global stage:
- Ongoing uncertainty surrounding sunflower oil crops in Ukraine and Russia due to the war, despite improved flow and good supply over the past year.
- Increasing biodiesel mandates in the EU and the Americas, leading to a higher demand for vegetable oils and reduced supply.
- Decreased meat supply affecting the demand for vegetable protein, potentially resulting in lower production or increased oil prices to offset costs.
- Shifting EU sustainability mandates on palm oil usage, making palm oil imports more challenging and increasing reliance on canola and sunflower oils.
- Stock levels in large import countries like India and China, which have been inactive buyers but may enter the market soon, influencing demand.
- Additionally, in Malaysia, the average yield of palm trees is declining, with about 30% of trees older than 19 years. Replanting younger trees is crucial to stimulate yield and is a priority in the palm industry.
Why does one oil’s price affect another?
One might wonder why a price increase in one type of oil affects others, but the market for all four variants of cooking oil is closely linked. Take palm oil, for instance. Its supply and demand is driving prices to record highs. Since palm oil is commonly used in products seeking the lowest-cost oil, the surge in prices will either force consumer product prices up or push suppliers to seek alternatives, such as soya oil.
While soya oil supply is ample, with record crops globally, the dominance of palm oil in the market means that any shift away from it will also support increases in soya oil prices in the short to medium term. This pattern holds true for other oils like sunflower and canola. For example, palm olein prices surged by 13% from March to April, illustrating the significant impact on industries where it's used. Ultimately, any disturbance in the world's largest crop (palm) will reverberate throughout the entire oil complex.
But why are we impacted in South Africa?
As a net importer of oils and fats, South Africa is directly affected by global price fluctuations. With palm oil and palm kernel oil accounting for a significant portion of imports (approximately 65-70%), changes in world prices have a direct impact on local consumers.
So what does the future hold for oil pricing?
Looking ahead, Morne predicts a balance in palm oil supply and demand in the short term, potentially by June or July. However, with canola and sunflower prices currently low both locally and internationally, market fundamentals suggest a potential upward movement in prices.
About Southern Oil:
Southern Oil is a modern oil extraction plant and edible oil refinery situated in Swellendam, Western Cape and is committed to the provision of the healthier alternative oils. Every product within their national and international distribution channels maintains the highest quality standards.
Additionally, SOILL has diversified into manufacturing various other edible oils and related products. Its products include B-well, a range of oils, mayonnaises and dips, African Gold, a premium locally-grown extra virgin olive oil blend, Nuts About Cooking coconut oil and Canega animal feed products.
For further information please visit www.soill.co.za
Supplied by: Southern Oil.
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