Biofuel Mandates and El Niño Drive Global Edible Oil Price Surge
Global food inflation is hitting edible oils particularly hard, driven by a combination of war, El Niño weather patterns, and national biofuel mandates. The United Nations’ Food and Agriculture Organization’s (FAO) vegetable oil price index surged to 198.6 points in September, an 18.3% increase from the previous year and the highest level since June 2022. This spike is attributed to the diversion of vegetable oils like palm, soybean, and rapeseed into biodiesel production due to government mandates.
According to estimates from the Solvent Extractors’ Association of India, a significant portion of global vegetable oil production is now used for biodiesel. About 25% of soybean oil, 28% of palm oil, and 29% of rapeseed oil are converted into Fatty Acid Methyl Esters (FAME), a type of biodiesel. Countries like Indonesia and Malaysia have aggressive blending mandates, with Indonesia recently raising its biodiesel blend to 50% (B50) by July 2026. This shift is expected to absorb an additional 4.7 million tonnes of Indonesian palm oil locally, reducing exports and potentially impacting importers like India.
The impact of El Niño, currently in a strong phase, is also expected to affect palm oil production. Eddy Martono, chairman of the Indonesian Palm Oil Association, predicts a decline in Indonesia’s palm oil output from 58.5 million tonnes in 2026 to 56.6 million tonnes in 2027. Higher domestic consumption for biodiesel will further squeeze exports, which are projected to drop from 32.3 million tonnes in 2025 to 26.5 million tonnes in 2027.
Beyond palm oil, the conflict between Russia and Ukraine is disrupting sunflower oil supplies. Despite larger harvests, logistical challenges due to war have made it difficult to transport the oil. For India, El Niño could reduce domestic edible oil production, increasing imports to a record 17.2 million tonnes in 2026-27. This includes 8.2 million tonnes of palm oil, 5 million tonnes of soybean oil, and 3.5 million tonnes of sunflower oil.