Perfect international storm lights a rocket under the cost of cooking oil
The rise in the price of cooking oil has consumers reeling, and continued uncertainty in the commodities market is adding to the stress felt by ordinary citizens, fast food entrepreneurs and restaurant owners.
Fuelled by the Russian invasion of Ukraine, droughts in America and Canada and the impact of the Covid-19 pandemic, the price of sunflower oil has risen by a staggering 45-55% and the price of canola oil by 35-40% in the past two months — adding to the woes of already stressed South Africans.
Morne Botes, whose company Southern Oil was the first to manufacture canola oil in South Africa, explained that a perfect storm over the past two years, hitting almost all cooking oils, had caused the extreme price increase.
He warned that the market was likely to stay volatile.
“The price movement has stabilised now, but the market can still be very volatile due to the uncertainty of the war — March and April being the planting period for sunflowers in Ukraine. If there is no sunflower seed being planted, it will affect pricing in 2023.
“The main thing with commodities is that it is all about supply and demand. Anything that affects either of these two sides will affect the price of cooking oil,” he explained.
He said that in the past two months of 2021, America had its worst drought in years. This led to predictions that less soy will be available, thereby causing a price hike.
“On its own, it wasn’t that bad,” Botes said, “but the year before that (2020) Canada had the worst canola crop yet, and canola oil was already at a high price. Then soya also moved up.
“The market then needed to go to an alternative. That alternative was sunflower oil. Under normal circumstances, in the bigger scheme of things, sunflower oil is a small player. It is big in South Africa, but not in the rest of the world,” he said.
Europe is the biggest exporter of sunflower products.
The other alternative is palm oil, but the market is trying to move away from it because of its sustainability issues, Botes said. As palm oil is an industry that uses a lot of manual labour, fewer people were able to harvest it after the global outbreak of the novel coronavirus in 2019.
“Supply was already under pressure,” Botes said. “With all the shortages in soy and canola, the local market in Indonesia said oil exports will be blocked to prevent local oil prices from going up. This created a new shortage.”
By the beginning of 2022, the world was waiting for sunflower oil to be released from Russia and Ukraine. But then war broke out and the oil supply got stuck there.
“As a result, sunflower oil went up astronomically in the short term,” Botes said. “The prices of the rest of the oils were moving even higher.”
He said in the past few weeks they were seeing a “pull away” from sunflower oil globally and prices coming down again, but not to where they were before 2022:
“It wasn’t planned. Our forecast was that it was going to come down because of the European crop being released.
“South Africa is a net importer of edible oil — we do produce sunflower, soya and canola, but the local production is not sufficient for the total demand. If we only look at soft oil, then we import 30% of our demand,” Botes said.
Currently, he added, a good sunflower crop was being harvested in South Africa and there was a positive expectation for the canola crop. “This might relieve some of the deficit,” he said.
“It is, however, important to understand that in a developing country, one of the indicators is increased demand for oils/fats, and South African demand grows by about 2% annually. So, despite the supply pressure, demand is expected to grow.
“The biggest impact on South Africa will be the price. The price impact to the farmer is the input cost — ie seed, fertiliser, implements, diesel — which are all dollar-based.
“The impact on the producer of the oil is the input cost of converting the seed to oil. However, the major driver being the cost of the seed as we compete internationally to obtain this seed. There is also a fair amount of crude oil being imported, with which we also compete internationally to obtain… as such, the pricing locally is directly linked to international prices, for both the input (seed, oil) and output (refined oil).
“The risk is also not just on edible oil for consumption that we purchase in-store… oil is an input in most of your favourite products you buy in-store (ie margarine, sauces, crumbed products and so on), so all these product prices are affected as well,” he said.
Sunflower oil shortage
Botes said that as Ukraine and Russia combined were the major exporter of sunflower oil globally, the war had caused an immediate shortage of sunflower oil worldwide.
“This shortage led to panic buying from countries to secure stock from alternative countries, which significantly affected the demand and led to significant spikes in prices.
“This led to the market looking for alternative oil supplies and moving to canola oil… in a market where supply was already short due to droughts in Canada. The prices of canola shot up.
“Soya oil also already traded at a premium, before the war, due to supply constraints with droughts in North and South America — the largest producing countries. Therefore it is not one oil affected, it is the whole basket — canola, sunflower and soy,” he said.
Despite the massive price increases, Botes said the worst of the price hikes were being managed by producers, manufacturers and retailers by phasing in increases, limiting stock to prevent panic buying and selling available stock which was bought at a fair price for longer, before implementing on-shelf increases.
“However, the increases are coming. You can expect your favourite brand of oil to sell for R99.99 to R119.99 for two litres within the next 30 days. Some pricing might already have changed, but the full change in price is not visible yet.”
He said prices for the next six months at least will remain at these elevated levels, depending on the European canola and sunflower crop in September and October.
Botes said there was “no need for panic buying. We are able to maintain food security on oil for normal demand. If, however, in the short term there is a significant spike, then we cannot produce stock fast enough. Prices will increase, and that is a reality.”
Street vendors who sell fried foods said they were starting to feel the pinch of high cooking oil prices. In Mthatha in the Eastern Cape, some shopkeepers are stocking less cooking oil while others have opted to drastically increase prices to make a profit.
Josepho Cekiso sells chips next to the Mamela taxi rank in Mthatha. He said he had decided to increase his price of cooking oil from R12 to R15 a bottle.
“We do not have enough profit compared to what we made before the price increase,” he said, explaining that in Mthatha, the price of a two-litre bottle has increased by R25. This is too much for us as small businesses,” he said.
Cekiso said he buys cooking oil from shops run by immigrants, but that it is expensive. He said they heard that a two-litre bottle of cooking oil will soon cost R120.
At the spaza shops in Mthatha, shopkeepers said they have stopped selling big bottles of cooking oil as customers are only buying 750ml or 500ml bottles due to the price. Most are selling 750ml for R25 (up from R22).
In bigger shops in Mthatha, such as Shoprite, people are buying two-litre bottles of Sunfoil oil for R99.99.
Fast food vendors who buy their oil in bulk (20 litres at a time) said they now pay about R700 whereas they used to pay less than R500.
“In order to make a profit we also decided to increase our prices, but for us to maintain our customers, we did not increase the prices drastically,” one restaurant owner said.
“Per day we are using 60l of cooking oil and during busy days we use more than that… sometimes the oil is getting dirty, meaning we cannot use it again.”
Andiswa Sokhahleleka owns a caravan in Mthatha from which she sells food. She said the price hike in cooking oil has hit her hard. Sokhahleleka uses the oil to cook samp, chicken and vegetables.
“Since the start of these new prices, I also decided to increase the price of my meals from R20 to R25.”
At another restaurant, Kitchen Brothers, cousins Wandile Mabija and Solwethu Mahlathi said the impact on their business was huge.
“We cannot increase everything at once, so we are taking one step at a time… but it’s not easy because we also have to think about our customers.”
Albertina Ngqeleni, a mother who sells vetkoek around Mthatha, said due to the increase she now doubts she can continue with her business.
“I am thinking of stopping because the cooking oil prices are increasing every day, but I am concerned about my customers,” she said.
Ngqeleni uses 10 litres of cooking oil a day. She said the price for five litres went up from R130 to R180 and was still increasing. She said she had to put up her price per vetkoek from R1 to R4.
Another Mthatha resident, Ntombikayise Ngxukumshe, said they are badly affected because everything has increased, including the cost of transportation.
“Going to town is expensive and the food is also expensive… we are living in difficult times,” Ngxukumshe said.
As cooking oil prices soared, residents in remote areas of the Eastern Cape also said they are feeling the pinch. Once selling for R55, a two-litre can of cooking oil now costs a whopping R80 in most retail stores around the poorest province in South Africa.
In the small rural town of Engcobo, there was pushing and shoving inside a popular store a few days ago as residents embarked on last-minute Easter shopping.
Shaking his head in disbelief at the price of a two-litre can of cooking oil, Lwandile Yontso returned it to the shelf.
“This is insane. I wanted to buy three two-litre bottles. But with this hefty price I just can’t. I would rather settle for one bottle and buy the rest somewhere cheaper.
“In December the prices were not this bad. From now on I will opt for the Somali shops. At least they are still cheaper, despite the fact that the quality is not the same. But that doesn’t matter anymore,” he said.
The 45-year-old unemployed father of three said that just a few months ago, he was spending R55 on a two-litre bottle of cooking oil.
“I was shocked to the core when I first saw how the prices have almost doubled. This is like daylight robbery. How do they (food retailers) expect us to get such a lot of money while we are jobless,” Yontso said.
Yontso depends on the R350 social relief of distress grant to provide food for his family.
“The worst thing is that we depend on cooking oil for a better meal. A meal without cooking oil is incomplete. That’s why we have no choice but to buy it, regardless of our complaints,” he said.
Another shopper, Matshezi Nxele, said she got the shock of her life recently when she saw how the price of cooking oil had soared. As a result, the 38-year-old said she had resorted to replacing cooking oil with sour milk.
“I now cook more pap and sour milk. At least that is much cheaper. I only buy two litres of cooking oil and use it strictly for the Sunday meal. In these trying times I just cannot afford these huge cooking oil prices,” she said.
Nxele said she had decided to downgrade and use cheaper forms of cooking oil.
“I now buy Holsum, which is way cheaper. I am appealing to our government to intervene and find a way of ensuring that the prices return to normal. At least here in the villages we are able to plough and produce some vegetables. Government needs to meet us halfway when it comes to the cooking oil prices,” she said.
Busisiwe Nganga (43) has been selling Russian sausages on the sidewalk for the past 10 years and managed to build a two-roomed flat with the money she made.
“Through all these years I have never seen such a big increase. The first time I came across this huge price I was so shocked I even went to the teller to double-check if they hadn’t made a mistake… I now spend R20 more on two litres of cooking oil.
“Sadly, I have no choice but to keep buying the cooking oil in order for my business to survive. Every day I use about 10 litres of cooking oil and I can’t recycle it because that would be putting my customers’ health at risk.
“I no longer make a good profit, but what can I do? Every day I keep praying that things will change and that the prices will return to normal,” Nganga said.
She sells a Russian sausage for R10 but is now considering raising the price to R12.
“That’s the only way I will see a better profit. But then I also risk scaring customers away. So for now I have no choice but to stick to the normal price.”
Meanwhile, a spokesperson for Pick n Pay said that they were not experiencing any shortages of cooking oil in their stores, but confirmed that there had been an increase in sunflower oil prices globally, as about 50% of the world’s sunflower seed comes from Ukraine and Russia.
The company said it was absorbing as much of the price increase as possible for customers. DM/MC