Now for the edible oil shock

Sales of the snack exceed 90 billion servings a year. Photo / Supplied

At a time when consumers are focused on near-record food costs, global stockpiles of edible oils needed to make everything from noodles to fish sticks are dropping to a three-decade low.

The combined stocks of nine oils will plunge 25 per cent to 9.39 million tonnes this year, or about 23 days of demand, the fewest since 1974, the US Department of Agriculture (USDA) estimates.

Stockpiles of the oils extracted from palm fruit, palm kernel, soy, rapeseed, sunflowers, coconuts, cotton, olives and peanuts are slumping as demand climbs 6.1 per cent to a record 146.4 million tonnes this year, outpacing a 4.2 per cent gain in production, according to USDA estimates. Vegetable oils are used in everything from mayonnaise to candy bars, soaps, cosmetics and fuels.

While the global population expanded 85 per cent in the past four decades, consumption of edible oils increased almost ninefold as incomes rose, people moved to cities and demand for processed foods jumped. The World Instant Noodles Association says sales of the product invented in 1958 now exceed 90 billion servings a year. The anticipated rally, which may quicken should flooding return to plantations, will stoke inflation that caused central banks from Brazil to China to raise interest rates.

Vegetable oils have been left behind in this year's surge in food costs. Palm oil, the most-used, fell 15 per cent this year and soybean oil, the second most-consumed, declined 1.6 per cent. But even after this year's drop, palm oil is 66 per cent higher than its 10-year average. Unilever, the second-largest consumer goods maker, said in February that edible oils were one of the main contributors to higher commodity costs in 2010. The trend will accelerate this year, said Jean-Marc Huet, Unilever's chief financial officer.

Consumption in China, the biggest user, more than doubled to 29.4 million tonnes in a decade as urban incomes tripled, spurring demand for processed foods.

Global retail sales of packaged food will reach US$2.18 trillion ($2.75 trillion) this year, from US$1.65 trillion in 2005, according to London-based Euromonitor International, a consumer research company. Flooding in Indonesia and Malaysia curbed palm harvesting this year, while floods or drought in Canada, Europe and Russia in 2010 cut the supply of rapeseed and sunflower seed.

- BLOOMBERG