Brussels Opens a Third Round of Olive Oil Storage Aid
For the third time in eight months, Brussels is paying to take olive oil off the market: Commission Implementing Regulation (EU) No 430/2012, adopted on May 22, opens a tender for private storage aid on up to 100,000 tons of extra virgin and virgin olive oil for 180 days. Spanish farm-gate prices are still below the level that triggers the aid, and Spain is sitting on a record harvest. Here is how the scheme works, what the prices look like, and why storage alone will not fix the problem.
What happened
An EU management committee voted for the aid on May 16, and the regulation that puts it into effect followed on May 22. Approved operators in the eight producer countries (Cyprus, France, Greece, Italy, Malta, Portugal, Slovenia and Spain) can bid for aid to keep extra virgin or virgin olive oil in store for 180 days. The first tender period runs from May 31 to June 5, and the second closes on June 19. Bidders must lodge a security of €50 per ton, and the aid itself is set through the bids.
The legal basis is simple. EU farm rules allow storage aid when prices signal a serious disturbance of the market, and the regulation notes that average prices in Spain and Greece, which together produce more than two thirds of the EU’s olive oil, have fallen below the trigger levels.
This is the third round. The first, approved last October, offered storage aid for 100,000 tons of virgin oil for up to six months, and the full quota was not taken up. The second, opened in February under Regulation 111/2012, covered extra virgin for the first time and allowed 150 days of storage. According to Olive Oil Times, all the oil accepted in that round came from Spain.
The prices behind it
| Week to May 6 (euros per 100 kg) | Spain | Italy | Greece | Aid trigger |
|---|---|---|---|---|
| Extra virgin | 176.67 | 240.00 | 182.50 | 177.90 |
| Virgin | 169.79 | 178.00 | 160.50 | 171.00 |
Those are the Commission’s representative prices, as reported by Olive Oil Times. Put simply, Spanish extra virgin is changing hands at origin for well under two euros a kilo. The European farm lobby Copa-Cogeca says EU olive oil prices, in real terms, are about half what they were in 2002, and its secretary-general described a market in serious crisis, with producers squeezed between low prices and high costs.
Why the glut is so big
Spain has just milled the biggest crop in its history. Figures to March 31 from Spain’s Olive Oil Agency (AAO) put production at 1.59 million tons, well above the previous record of nearly 1.42 million tons in 2003/04. Exports for October to March look like a record as well, and stocks are the highest yet: 1.38 million tons, against 1.13 million a year earlier. The International Olive Council expects a world surplus of more than 1.1 million tons this year.
Not everyone thinks storage is the answer. Andalusia’s agriculture minister, Luis Planas, and the small farmers’ union UPA both said the real solution lies in concentrating supply, so growers have more bargaining power, and in opening new foreign markets. Copa-Cogeca wants the same themes in the olive oil action plan that the Commission has promised. For an earlier round of the same medicine, see European Union set to support olive oil sector with storage aid, and for how a big crop moves prices, Europe: Large Olive oil crop lowers prices.
What it means for buyers
- Do not expect the shelf price to move much either way. The price of the oil itself is only one part of what you pay; bottles, freight, duty and retail margins make up much of the rest, as explained in Why Imported Olive Oil Costs What It Does.
- Ask for oil from this season’s record 2011/12 harvest, with the harvest date on the label. There is no shortage of it.
- Stored oil is still aging, however carefully it is kept. When it comes back to market in six months, it will be older oil.
Storage aid does not make oil disappear. It moves it in time. Every ton held back this summer comes out of the tanks in the autumn or winter, right when the new harvest arrives. If the next crop is big, the aid will have bought growers a few months and little else. If the next crop is short, the stored oil will be sold at a better price and the scheme will look clever. Either way, what decides the price is the weather over the olive groves, not the paperwork in Brussels.
Sources
- EUR-Lex: Commission Implementing Regulation (EU) No 430/2012 of 22 May 2012 opening the tendering procedure for aid for private storage of olive oil
- Olive Oil Times: More Storage Aid for Virgin Olive Oil
- Olive Oil Times: Spanish Olive Oil Production Sets Record
- EUR-Lex: Commission Implementing Regulation (EU) No 111/2012 of 9 February 2012 opening the tendering procedure for aid for private storage of olive oil