Prolonged drought devastates Spanish olive oil production as prices skyrocket

24 May 2023 --- Severe lack of rains during the flowering months of the Spanish olive oil tree has “burnt” the production, according to industry, which will lead to meager outputs, price increases and low reserve levels at the end of the season. FoodIngredientsFirst speaks with Spanish olive oil companies from the show floor at the Private Label Manufacturers Association (PLMA) trade fair in Amsterdam. 

Spain is the world’s largest olive oil exporter, according to the Observatory of Economic Complexity. The Mediterranean country exported US$230 million of oil in 2021 – followed by Italy’s US$90 million and Greece’s US$70.5 million.

But the country has been suffering from severe drought for some time and it continues to devastate olive oil production. 

No water, no oil
April was the hottest and driest month in Spain ever recorded, according to the State Meteorological Agency.

“If the rain situation does not improve, the olive harvest will be the same or worse than last year, which was already 50% worse than in 2021,” says Mateo Muela, export manager at Mueloliva.

Some rains during the last few days have improved the harvest outlook for the end of the year. However, part of the crop’s flower has already burnt and can’t be recovered, says Mara Romero, export area manager at Migasa Aceites.

“It’s paramount it keeps raining.”

The lower oil production can’t be replaced with olive oil from other countries such as Italy, as they produce much less produce and are also suffering from similar dry conditions.

Olive oil prices might continue surging as some supermarkets and companies locked old contracts with producers expire.Fear buying
Muela explains that the exceedingly dry April made the price of a liter of olive oil surge by €1 (US$1.08) just from April to May, from €5 to €6 (US$5.39 to US$6.47) and are up 50% from a year ago. Nonetheless, some rain during the last weeks has put a brake on the price increases and stabilized the market. 

“When prices surge over €5 (US$5.39), we see consumer demand drop substantially, as buyers look for alternatives,” he notes.

Meanwhile, vegetable oil prices are at their lowest point since November 2020 and have almost halved since April 2022, according to the UN Food and Agriculture Organization vegetable oil price index. 

Moreover, olive oil prices might continue surging as some supermarkets and companies locked old contracts with producers – at lower prices – have to be renovated at higher prices.

“In June or July, we will see a fall in consumption as contracts end,” highlights Muela.

In the same vein, Rocio Losada, area export manager at Migasa, says that the real market prices are lagging, as some producers are still on old contracts. 

“Price increases have not yet been fully reflected on supermarket shelves.”

Short reserves and speculation
Romero explains that the sector reserves were at 607,288 metric tons in April, down from 670,285 metric tons in March and 738,810 metric tons in February. 

She expects the reserves to last until the next harvest in October, with no shortages on the horizon. However, the slim reserves will lead to higher prices.

Meanwhile, the extraordinary lack of rains in April led some producers to hold on to their reserves, waiting for higher prices, as prices were rising daily.Vegetable oil prices are at their lowest point since November 2020 and have almost halved since April 2022.

“Some producers didn’t want to sell, either directly or through a third party” highlights Losada.

“Some Italian providers had to send letters to their clients explaining that their Spanish suppliers weren’t selling them olive oil.”

Difficult problem to solve
Industry notes that rain is the only real solution to the sector issues. Nonetheless, some investments in research and development could improve the sector’s situation.

“The sector should invest in research to find olive varieties that ripen earlier and that adapt better to the new drier conditions – that fare better with Summers that begin earlier and finish later,” says Lorena López, export area manager at Mueloliva. 

Moreover, producers are asking the Spanish government to provide help due to the extreme climatic circumstances. 

By Marc Cervera