Record olive oil prices continue to rise after the drought in Spain

Price of Olive Oil

Olive oil prices continue to rise to record levels after a prolonged period of unusually dry weather in Southern Europe damaged harvests. European prices exceeded €4 per kilo for the first time in September, but have now risen to over €7 per kg due to high temperatures and a lack of rain in Spain, the world’s largest producer, as well as in Italy and Portugal.

“We had a very poor harvest, prices have never been higher, and concerns extend beyond the season we just had,” said Kyle Holland, an oilseeds and vegetable oils analyst at Mintec, the commodity data company.

Spanish officials say the devastating impact of heatwaves and water shortages demonstrates the urgency of tackling climate change, but next week’s elections could usher in a new, less convinced government.

The issue has become a hot topic in Spain, where olive oil is a staple product with a major impact on the economic sentiment. Some major investors have warned that climate change could permanently support global inflation, partly because of its impact on food prices and partly because of the huge sums governments must spend to mitigate or reduce inflation.

The EU claims to produce two-thirds of the world’s olive oil, with the US, Brazil, and Japan among the top destinations. According to the Office for National Statistics, the average price of a bottle of olive oil in the UK rose by 47% in the year to May.

According to Mintec, producers in southern Europe had total stocks of around 205,000 tonnes of olive oil at the end of June, up from 265,000 tonnes at the end of May.

“I can’t reiterate how low that is; it’s completely unheard of in the market,” Holland added. “These aren’t just your really high qualities, it’s all olive oil.” Spain produced only 620,000 tonnes of olive oil during the 2022-23 harvest, compared with 1.5 million tonnes the previous year.

Stocks are dwindling by around 80,000 tonnes every four weeks, meaning supplies are likely to be very low in the three months leading up to the start of this harvest year, which usually lasts until February.

Falling production figures mean the outlook for the next quarter is bleak, said Asaja, an agricultural lobby group. “There’s tension in the market, so if prices go anywhere, they will go up,” said Luis Carlos Valero of Asaja in Jaén, the capital of olive oil production in Andalusia.

A third of the country is suffering from a “prolonged drought,” according to the Environment Ministry. Water levels in Spain’s reservoirs fell last week by their largest drop in 10 months.

Scorched parts of Spain received welcome rain in June, easing water stress on olive trees, but farmer groups said it was too late to spur an increase in the fruit they produce.

Juan Vilar, an olive oil analyst and professor at the University of Jaén, said prices also rose because farmers’ costs had risen due to interest rates. Higher prices and inflation in fertilizer prices driven by the energy crisis.

Source: ft.com/content/5f0b2e0b-8100-42d0-9a87-fef4a57addeb

Olive oil prices

Olive oil prices have reached record levels due to the ongoing drought in Spain, the world’s leading producer, and the high prices are expected to persist for some time. “The issues contributing to prices trending near record highs are largely bad weather and a period of extremely dry growing across much of the Mediterranean, but particularly in Spain, a major producer and exporter of olive oil,” said Mintec’s Oilseeds. and vegetable oil analyst Kyle Holland.

When renowned Hispanic-American chef José Andrés tweeted that eggs should be fried in olive oil at a fingertip depth, one user commented: “Olive oil can be finger-deep expensive. What’s an alternative for those of us on a budget?”

According to the International Monetary Fund, global olive oil prices reachedto $5,989.8 per ton, marking a 26-year high. And the high prices could continue “for some time,” said Kyle Holland, oilseeds and vegetable oils analyst at Mintec.

“Extremely bad” weather conditions

Due to the “extremely bad” weather conditions, he said, the recent olive harvest from October to February produced a yield 50% lower than usual, reducing global supply and increasing prices.

“Extremely bad weather conditions resulted in… Spain producing an olive oil harvest of around 630,000 tonnes, below the usual harvest of 1.4 to 1.5 million tonnes,” he said. In addition, the outbreak of war in Ukraine, which led to a global shortage of sunflower oil, further increased demand for olive oil.

Olive trees grow in hot, dry climates, and the optimal temperature is between 60 and 80 degrees F, but Spain experienced “very dry” weather in March, recording only 36% of average monthly rainfall, according to the country’s Ministry of Ecological Transition. The country has experienced below-average rainfall for 36 consecutive months. And if the weather doesn’t improve, the next harvest could see even worse yields.

“There could be a similar or even smaller harvest than the previous season, say market participants, who also say prices could remain at current levels for some time,” Holland said.

“It appears that the ongoing drought in Europe, especially in Spain’s largest olive oil-producing region, has led to a global shortage of olive oil,” David Valmorbida, president of the Australian Olive Oil Association, told CNBC.

Demand Pressure

Demand pressure is increasing pressure on already struggling supply chains. Demand for olive oil has been strong in recent years: Prices have risen since 2020 because consumers ate and cooked at home more often during and after the COVID-19 pandemic, Valmorbida said.

As production declines due to extreme heat waves and subsequent drought, yields in the Spanish region of Andalusia, the world’s largest olive oil-producing region, will fall to half of their usual levels. “Consumers have already begun to significantly reduce olive oil consumption, firstly, by using it less generously, but secondly, by switching to vegetable or seed oils or various oil blends,” one analyst said.

A change in consumer habits could alleviate some of the pressure. However, he emphasized that a basic demand for olive oil as a healthy and natural product “is maintained at almost any price.” “Without an increase in rainfall, we could continue to see historically high prices of €5 per kg and more until the 2023/24 harvest year.”