The oil supply chain needs rethinking, not refining

The price for a tonne of sunflower oil reached $2175 in March 2022 this year, more than triple its pre-pandemic price of $640 in March 2020, according to Trading Economics. These high prices result in large part from the conflict between Russia and Ukraine, two of the world’s largest sunflower oil exporters.  

Sunflower oil is used in thousands of products, from snacks, baked goods and home cooking to cosmetics and horticulture. The EU usually purchases 200,000 metric tonnes of sunflower oil per month from Ukraine but without the necessary supply chain infrastructure in place, producers around the globe have been required to search for substitutes including palm, coconut, rapeseed and soybean oil.

Oil in 2022

Until recently, Indonesia was the world’s largest exporter of crude palm oil, but President Joko Widodo banned all palm oil exports to keep food available for Indonesian people and stabilise rising palm oil costs. The ban has caused prices of neighbouring Malaysia’s palm oil to increase, and other alternatives like soybean oil and coconut oil are predicted to rise, as will their market share. President Joko’s ban was repealed on the 23rd May though commodities analyst Mintec say shipments have been slow due to exporters grappling with new requirements. An export acceleration scheme is in effect until 31st of July, the goal being to export 1 million tonnes of palm oil, either in its crude form or in derivative products.

After leaving Indonesia, both coconut oil and palm oil are exported through China which recently ended a months-long lockdown. The pandemic restrictions resulted in fewer workers being available to verify paperwork, unload ships, and fewer drivers to transport unloaded goods. According to research by Vincent Stamer of the Kiel Institute for the World Economy in Germany, the Shanghai port is the world’s largest. Due to the delays caused by Covid, the port has been operating at a capacity of 30% less than average.

Clearing the port’s backlog and returning to pre-Covid capacity “will take weeks, if not months, predicts Thomas Gronen, head of business unit, Greater China at Fibs Logistics. Generally speaking – and assuming correct handling – coconut and palm oil will not deteriorate noticeably if held up for longer than expected during shipping. The bigger issue is that alternatives may be sought to replenish supplies, opening the door to fraudulent suppliers. Put simply, there is a financial incentive for unscrupulous operators to adulterate a premium product with a cheaper, lower quality substitute.

Along with the problems surrounding coconut and palm oil, both rapeseed and soybean supplies are constrained by historically low predicted crops for 2021/22.This is according to the World Agricultural Supply and Demand Estimates (WASDE) report projections. The prices for rapeseed and soybean commodities experienced significant jumps but are now similar to what they were before the Ukraine war began, however both are approximately double what they were at the beginning of the pandemic. The prices may increase again as a result of poor weather conditions in the Americas and the additional costs of production caused by increasing energy costs.

The knock-on effects

With sunflower oil shortages continuing, food fraud has increased and must be addressed. But this is not a recent change: the European Food Safety Authority (EFSA) estimated that the supply chain upheaval caused by Covid ushered in a 30% rise in deliberate misrepresentations of ingredients. As tumultuous conditions continue, the food industry is obligated to stamp out counterfeit goods and increase transparency to ensure consumer safety.

Where alternatives to sunflower and palm oil are added into a product, audits must be performed to ensure labelling accurately reflects this. Such alterations could also impact nutritional claims. The higher fat content in rapeseed oil, for example, compared to sunflower oil can impact consumers’ health and this should be made clear on the labels of affected foods. With many countries clamping down on obesity and encouraging people to choose healthier food options, this is particularly important.

In response to the sunflower oil shortage, the Food Standards Agency (FSA) did allow for coconut and soybean oil to be used in place of sunflower oil, without requiring a label reflecting the alteration. At a meeting on the 15th of June, the FSA agreed that this measure would likely last until October. However, coconut and soybean are common allergens, and while the risk of a reaction from oil is low, it is not zero. The FSA’s decision does not cater for people with high sensitivities, leading to potentially significant overhauls of people’s lives as they attempt to avoid all oil out of fear for their health. This is at a time when the cost of living is increasing, and people are less likely to have the time and resource to make all their family’s food from scratch. A long-term view of the problem would see appropriate alternatives used, and accurate labels in keeping with legislation such as the UK Food Information Amendment.

A dynamic future

While short-term solutions have been necessary, they solve what we hoped in early 2020 would be a temporary problem. The reality is that supply infrastructure is forever changed and is continuing to be altered by events that could not be anticipated. As a result, attitudes of ‘reverting back to normal’ are no longer appropriate. Rushing to find new suppliers when another is compromised has proven to be untenable as we have recently seen; the global supply of sunflower oil has still not been replaced by a sustainable and cost-effective alternative and the cost to the consumer is climbing ever higher. Establishing a broader supplier portfolio is one way to reinforce supply networks. Each supplier must be assessed and audited against rigorous criteria to mitigate risk, protect consumers and preserve reputation.

Another way to bolster supply could be to opt for pre-sourced and pre-vetted alternative ingredients. In some cases, stockpiling may be worthwhile. Having the capacity to switch from sunflower oil to coconut or safflower or dip into a stockpiled reserve provides producers with an added layer of protection if and when an unfortunate surprise arises. For stockpiling to be a viable way forward, packaging, storage facilities, and tracking must all be carefully considered and frequently re-examined.

For a long-term solution to supply chain interruptions, processes need to be re-examined at every level and greater transparency must become the norm. We have to re-assess how we build resilience. As crises continue and short-term solutions come and go, food supply networks must evolve at a fundamental level to weather the storms of today and provide shelter from the storms of tomorrow.  

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