Missing the key ingredient

Amidst inflationary pressures, Mexico could ration cooking oil.

The price of cooking oil across the world has been rising since the start of the pandemic. In Latin America, this rise has been perniciously exacerbated by virus-related labour shortages and steadily increasing demand from the biofuels industry. This in turn has driven up the price of soy alternatives. The war in Europe is also exerting an impact, pre-conflict Ukraine was a major exporter of sunflower oil, inflationary pressures are unlikely to subside anytime soon.  

A director of ACH Foods – one of Mexico’s leading manufacturers of cooking and baking ingredients explained, “In Mexico, the pact recently signed by the federal government is designed to stabilise the price of the basic food basket as a measure to control inflation. This includes oil, but not sunflower oil (for which there is not a price cap), only corn and canola oil will be protected for 6 months. Even if the inflationary rise slows down, an increase in the prices of consumer products resulting from the war will continue for the foreseeable future.”

“Even if the inflationary rise slows down, an increase in the prices of consumer products resulting from the war will continue for the foreseeable future.”

A director of ACH Foods, Mexico

Naturally, the conflict will exert a direct impact on the price of oil. This is a concern in Latin America where foods that rely on hot vegetable oil are a key component in popular dishes across the region. In Brazil, the price of a litre of cooking oil rose from BRL 6 in March to BRL 13 by April whilst soy alternatives became more expensive because a lack of rain in the south of the country significantly affected crop production. Indeed, S&P – a ratings agency – reported last month that Latin American soybean oil prices had soared to USD 1,900/mt.  

For some years now, Mexico has witnessed a reduction in sunflower oil production, although last year there was a significant rebound. That rebound nonetheless was insufficient to propel Mexico as a leading regional producer of sunflower oil. Important centres of production are in Morelos, Baja California and the State of Mexico – infrastructure however remains poor, limiting production capacity. Right now, the focus is on corn and canola oil, hence their inclusion in the recent pact. 

An executive at Mexico’s Grupo Gigante explained, “The rise in oil prices has been felt on the shelves and it has exerted a significant effect on families and businesses. The price impact has been between 40-50% in Mexico City whilst in other areas of the country, prices have risen by up to 62%. The rises have been especially noticeable in sunflower oil, although in general all oils have gone up in price. It is expected that the market could stabilise until autumn this year, although it will be cushioned with the price protection for certain oils by the federal government.”

“The [oil] price impact has been between 40-50% in Mexico City whilst in other areas of the country, prices have risen by up to 62%.”

An executive at Grupo Gigante, Mexico

One possible solution that has been touted by business and politicians would be to lower import tariffs. Naturally, these would only be effective so long as there is surplus oil in international markets, that logic a gamble given that price rises are driven precisely by an acute lack of supply caused by the war and poor crop harvests. Production could be increased in other countries, but this is unlikely in the short-term. For the time being cooking oil prices, soaring across Latin America, can be little influenced by the region itself.  

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