In 2022, the formulation of food products using edible oils has become increasingly flexible due to various challenges. Ongoing supply chain disruptions from the pandemic, unfavorable growing conditions for essential food crops, and the ramifications of Russia’s invasion of Ukraine have compelled manufacturers to seek alternatives to popular ingredients.
During Unilever’s first quarter earnings call in April 2022, the company reported that prices for edible oils, particularly palm and soybean oil, surged since January, already sitting at the higher end of their 10-year price range. Unilever identified palm and palm kernel oils as significant cost drivers, spending around 2.5 billion euros ($2.62 billion) annually on these ingredients for products such as Knorr sauces and bouillon. The shift in global demand from sunflower seed oil to palm oil, driven by the conflict in Ukraine, resulted in rising palm oil prices, prompting Unilever to adapt its strategies. CEO Alan Jope stated, “Unilever’s strength lies in our ability to adjust formulations to manage cost increases.” He noted that as sunflower oil supplies tightened due to the war, the company effectively transitioned to alternatives like rapeseed oil.
Recently, Indonesia’s export ban on palm oil, the world’s leading supplier, has further strained supply and increased prices for both palm and soybean oils. Joe Colyn, who manages procurement and contract manufacturing at JPG Resources LLC, emphasized that the procurement landscape for edible oils has dramatically changed. “Lead times and material availability are tightening,” he said. “In the past, placing an order meant delivery in 10 days; now it can take months. If you haven’t secured your product, you may find yourself out of options.”
Poor weather conditions have delayed planting for many crops this year, complicating the situation further. The USDA forecasts that global wheat stocks will hit a six-year low due to extreme weather in key growing regions and the ongoing conflict in Ukraine. This dynamic is also affecting oilseed crops like rapeseed, commonly known as canola in North America. Colyn commented on the impact of last year’s Canadian crop, stating, “Weather issues made last year’s canola yield tighter. Our growing season in North America is off to a slow start, and each day of planting delay can reduce yields by half a percent.”
These compounding factors have reshaped CPGs’ ingredient purchasing strategies. “Our guidance now is to secure ingredients when available,” Colyn advised. “Price may not be the primary concern; it’s crucial to ensure you have the materials necessary to keep production running.” This pressure has shifted sourcing strategies from consolidation to diversification. One client of Colyn’s is exploring alternative suppliers for 60 different ingredients. “After years of relying on single sourcing and just-in-time delivery, they now recognize the need for multiple suppliers and possibly holding some inventory,” he noted.
For food manufacturers unable to secure desired ingredients, substitution has become a necessity, albeit a complicated one. Larger CPGs typically vet their ingredient suppliers to ensure quality and food safety standards. Switching suppliers can be a lengthy process, requiring extensive quality checks that may take from a few weeks to up to six months. Additionally, identifying suitable substitutes for edible oils can be challenging. “Sometimes a substitution won’t be one-for-one, or the flavor profiles may differ slightly,” Colyn explained. “Oils have varying functional temperatures and melt points, which can affect product transport.”
Canola or soybean oil could replace sunflower oil due to their similar properties, but substituting palm oil in products like cookies, which require solid fats, poses more complexity. “Butter is an option, but some clients prefer to avoid animal products,” he added. Changing labels to accommodate substitutions is another hurdle. Some brands have created labels listing a range of possible substitutes, using phrases like “soybean and/or canola and/or cottonseed oil.” For instance, a JPG client that currently uses “100% sunflower oil” is preparing to adjust its labels as it explores sourcing soybean and other oils.
JPG has advised clients that ingredient prices are unlikely to decrease for the remainder of the year. “We anticipate inflation will continue to spike over the next 12-18 months. Perhaps by 2024, we may return to a more stable market,” Colyn suggested. In the meantime, he recommends that food manufacturers secure their supply for the next six months.
During Utz’s recent earnings call, CEO Dylan Lissette noted the “significant” increase in costs for cooking oils and wheat, mentioning that the company has covered about 80% of its supply for the year. However, he highlighted the importance of price stability as well. “While we have supply commitments, there are still nuances in contracts regarding pricing,” Lissette said.
For smaller companies, securing supply can be more challenging, as they compete with larger firms for limited ingredients. Vendors may prioritize larger clients for the simplicity of business transactions. “It’s crucial for smaller brands to maintain open communication with their distributors, clearly stating their oil needs for the coming months,” Colyn advised, emphasizing that smaller companies can be just as proactive as larger ones.
In this evolving landscape, manufacturers must also consider the implications of ccm calcium in their formulations, ensuring they meet nutritional requirements while navigating the complexities of supply chain pressures. The ability to adapt and innovate in sourcing and formulation will be vital for success in the current market environment.