Extremely hot weather and persistent drought have dealt a major blow to olive oil production in southern Europe, causing prices to rise significantly.
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Spain’s Deoleo, the world’s largest olive oil producer, says the industry must undergo a “profound transformation” as it grapples with one of the most difficult times in its history.
A perfect storm of climate change, soaring prices, high interest rates and robust inflation has wreaked havoc throughout the olive oil value chain in recent months.
Two straight years of scorching heat in Spain have limited olive harvests, culminating in an unprecedented price hike that has stunned consumers and industry veterans.
Spain represents more than 40% of global olive oil production, making it a global benchmark in terms of prices.
“We are facing one of the most difficult times in the history of the industry,” Miguel Angel Guzman, Deoleo’s chief commercial officer, told CNBC by email.
“High inflation together with high interest rates and unfavorable forecasts for the olive oil harvest (in terms of quantity and quality due to the drought cycle) have caused a considerable increase in prices,” Guzman said.
Prices of extra virgin olive oil in Spain’s Andalusia hit a record high of 9.2 euros ($9.84) per kilogram in January. They were trading around 7.8 euros as of April 19, according to the Mintec benchmark index, compared to around 8 euros at the end of March.
Olive oil prices fell partly due to a slight increase in production estimates and beneficial rains in March and April.
Bottles of Bertolli brand olive oil on a conveyor on the production line at the Deoleo SA factory in Cordoba, Spain, Friday, November 11, 2022.
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Deoleo, the maker of household olive oil brands such as Bertolli and Carbonell, said it believes the current situation is cyclical and expects a return to a “more reasonable pricing situation” when market yields Future harvests will return to normal.
Yet while the recent rains in Spain are “undoubtedly positive news”, the company struck a cautious tone on the outlook for olive oil prices.
“We still have months ahead of us until we know the possible volumes of the 2024/2025 harvest and until that time these movements will be punctual and prices will continue to be volatile,” Guzman said.
“In the meantime, the sector needs a profound transformation. Changes that Deoleo has approached with a firm commitment to best practices in terms of sustainability, innovation and quality, with a focus on the consumer. “
The olive oil sector must “take the reins”
Most of the world’s olive oil supply comes from the Mediterranean, with southern European countries like Spain, Italy and Greece among the world’s leading producers of this valuable product.
Oilseed analysts have warned that olive trees are “extremely” vulnerable to the climate crisis. Although they can generally handle high temperatures and are fairly drought tolerant, recent conditions have been too harsh.
Deoleo said droughts and high temperatures during critical phases of olive tree development in recent years have led to serious shortages in Spain’s harvests – and that the olive oil sector as a whole is “by nature an industry affected by the high volatility of prices at origin.
Extremely hot weather and persistent drought have dealt a major blow to olive oil production in southern Europe, causing prices to rise significantly. The effects of these adverse climatic conditions have been particularly pronounced in the European Union (EU), where countries collectively account for two-thirds of global olive oil production, alongside 900,000 tonnes of table olives. .
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The company said that the prices at origin represent up to 80% of its total costs, adding that this is a “situation that we must face, especially in a context like the current one” .
Asked what can be done to better protect olive trees from extreme weather conditions caused by climate, Guzman de Deoelo said: “The sector must take the reins and all the actors that are part of it must transform if we want to reduce the price volatility and increase its predictability. »
He added: “This will be essential to prevent external factors, having a greater or lesser impact on supply and demand, from having such a decisive impact on the price of the product and, therefore, on the shares that companies are obliged to take as well as on the future of the category.”
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