Why edible oils are worst affected by food inflation

Why in the News

Edible oil prices, once set mainly by harvests, are now set as much by fuel policy. Indonesia has raised its diesel mandate from B40 to B50 (diesel that is half palm oil biodiesel), the world’s first such blend. The Food and Agriculture Organization (FAO) index of world vegetable oil prices reached 198.6 points in September, 18.3% above a year earlier and the highest since June 2022.

What is a biodiesel blending mandate, and why does it lift edible oil prices?

1. Blending mandate: A government rule that fuel sellers must mix a minimum share of biofuel into fossil fuel. Indonesia and Malaysia require palm oil biodiesel in diesel, as India requires at least 20% ethanol in petrol.
2. Biodiesel: Fatty Acid Methyl Esters (FAME) are vegetable oil based biodiesel. Makers react the fats in palm, soyabean or rapeseed oil with methanol (transesterification) to make it.
3. Food to fuel diversion: Oil used as fuel is not available for cooking, so higher blends tighten supply. A quarter or more of world soyabean, palm and rapeseed oil goes to biodiesel.
4. The takeaway: Fuel use and cooking use now compete for the same oil, so each rise in a blend mandate lifts edible oil prices.

How far has Indonesia pushed the mandate?

1. Decade long climb: Indonesia raised its blend step by step over a decade, adding home demand for palm oil and cutting fuel imports. The latest step, B50 in July 2026, has a three month transition.
2. Supply loss: The latest step absorbs an extra 4.7 million tonnes of Indonesian palm oil at home, leaving that much less for export.
3. Export outlook: Indonesia’s palm oil association projects exports to fall by nearly a fifth by 2027 as biodiesel use climbs.
4. Other producers: Malaysia began a phased B15 rollout in June 2026. The United States and European Union divert over half their soyabean and rapeseed oil to biofuels.

What else is tightening supply?

1. El Nino: This Pacific warming, in a “very strong” phase, is expected to peak in October to December. Palm trees shed flowers and young fruit bunches under water stress, so yields fall 8 to 12 months later.
2. Black Sea shipping: Russia and Ukraine have larger sunflower crops, but navigation through the Sea of Azov has stopped since 10 July and Black Sea ports are suspended.
3. Crude oil: Brent (the global crude benchmark) above $100 a barrel, amid the West Asia conflict, raises the incentive to divert food oil to fuel.

What does it mean for India?

1. Import dependence: India imports roughly 8 million tonnes of palm oil in 2025-26, largely from Indonesia and Malaysia, so the mandate hits it directly.
2. Record imports: Lower domestic output is expected to push imports to a new record of 17.2 million tonnes in 2026-27.
3. Costlier cargoes: Landed prices (cost on arrival at port) of crude palm, soyabean and sunflower oil are above their October 2025 averages.

Challenges

1. High import dependence: India imports about 57% of its edible oil and is the world’s largest importer, so global price shocks reach Indian households.
2. Rainfed farming: Over 70% of oilseed cultivation depends on the monsoon, so drought years cut output.
3. Weak price assurance: Oilseeds lack the assured procurement that rice and wheat enjoy, discouraging farmers.

Way Forward

1. Mission scale up: Push the National Mission on Edible Oils, covering oilseeds and oil palm, towards its 2030-31 self reliance target.
2. Assured procurement: Extend assured purchase and price support to oilseeds so farmers sow more.
3. Wider sourcing: Spread imports across more origins to cut reliance on Indonesia and Malaysia.

Conclusion

Fuel security in producing countries now competes with food security in importing ones such as India. The next signals are how deeply the weather pattern cuts palm output and whether other producers follow Indonesia.

Key numbers

1. FAO indices: Overall index 136 in September, highest since November 2022; vegetable oil index peaked at 251.8 (March 2022) and bottomed at 115.8 (June 2023).
2. Share of world oil to biodiesel: Soyabean oil about 25%, palm oil 28%, rapeseed oil 29%.
3. Indonesia’s mandates: B20 (2016), B30 (January 2020), B35 (August 2023), B40 (January 2025).
4. Indonesian palm oil: Biodiesel use rises from 12.7 million tonnes (2025) to 17.4 (2027); exports fall from 32.3 to 26.5.
5. US and EU diversion, 2026-27: 8.07 of 14.94 million tonnes of soyabean oil (US); 6.1 of 10.67 of rapeseed oil (EU).
6. India 2026-27: Domestic oil output is 9.2 million tonnes (9.7 in 2025-26); imports are 8.2 palm, 5 soyabean and 3.5 sunflower.

Matching Previous Year Question

“[2022] In India, which one of the following is responsible for maintaining price stability by controlling inflation ? (a) Department of Consumer Affairs (b) Expenditure Management Commission (c) Financial Stability and Development Council (d) Reserve Bank of India (a) Department of Consumer Affairs (b) Expenditure Management Commission (c) Financial Stability and Development Council (d) Reserve Bank of India ANSWER: (d)”