Why Edible Oils Are Worst Affected By Food Inflation, Pg9

Key Highlights:

• The United Nations’ Food and Agriculture Organization’s (FAO) benchmark food price index reached 136 points in September, the highest since November 2022.
• The FAO index for vegetable oils was even higher at 198.6 points, an 18.3% increase over September 2025, driven by war, El Niño, and national biofuel mandates.
• Global prices of edible oils, including palm, soyabean, and rapeseed, are significantly impacted by their diversion for biofuel production.
• Approximately 25% of global soyabean oil, 28% of palm oil, and 29% of rapeseed oil production is used as feedstock for biodiesel.
• Indonesia has implemented an aggressive biofuel mandate, reaching B50 diesel (50% FAME content) from January 2025, with a transition to B50 in July 2026.
• The ongoing conflict between Russia and Ukraine continues to disrupt sunflower oil logistics, despite increased production.
• India's edible oil imports are projected to rise to a record 17.2 million tonnes in 2026-27 due to lower domestic production and global supply constraints.

FAO Food Price Index.jpg

Detailed Insights:

• The FAO vegetable oil index peaked at 251.8 points in March 2022 following Russia's invasion of Ukraine, before falling and then flaring up again.
• Fatty Acid Methyl Esters (FAME), or biodiesel, is produced from vegetable oils via transesterification and can substitute or blend with regular diesel.
• National biofuel mandates require oil marketing companies to blend specified percentages of biofuels into fossil fuels like petrol, diesel, and aviation turbine fuel.
• Indonesia's B50 mandate alone is expected to absorb an additional 4.7 million tonnes of its palm oil domestically, reducing exports.
• Malaysia has a less ambitious biofuel program, with B10 diesel mandatory since September 2019 and a phased rollout of B15 beginning in June 2026.
• The US is projected to divert 54% of its soyabean oil and the EU 57.2% of its rapeseed oil towards biofuels in 2026-27.
• El Niño, currently in a "very strong" phase, is anticipated to reduce palm oil yields with a lag of 8-12 months due to water stress.
• Logistical constraints, such as strikes on port infrastructure in the Black Sea, hinder the export of sunflower oil from Russia and Ukraine.
• Elevated global petroleum prices incentivize the "food-to-fuel" diversion of vegetable oils, further impacting food inflation.
• India's domestic edible oil production is estimated to dip to 9.2 million tonnes in 2026-27 from 9.7 million tonnes in 2025-26.

Scientific/Technical Concepts Involved:

• Fatty Acid Methyl Esters (FAME): A type of biodiesel produced from vegetable oils, used as a fuel or fuel additive.
• Transesterification: A chemical process that converts triglycerides in vegetable oils into FAME by reacting them with methanol.
• Biofuel Mandates: Government policies requiring a minimum percentage of biofuels to be blended with conventional fossil fuels.
• El Niño: A climate pattern characterized by unusual warming of surface waters in the equatorial Pacific Ocean, affecting global weather.