Olive Oil Price Crisis Hits the Front Page, IOC Says It Will Pass
The olive oil price crisis made the front page of the Financial Times this week, and the International Olive Council answered with a rare public statement saying the slump is not structural and will ease as new consumers are won over. Growers in Spain, Italy and Greece are being paid less than €2.40 a kilo for extra virgin. Here is what was said, the numbers behind it, and why the two readings of the same market do not quite fit together.
What happened
On Monday, May 28, the Financial Times ran the olive oil market on its front page. It blamed low producer prices on two things arriving at once: domestic consumption falling in the big three producing countries, because of the economic crisis and competition from cheaper seed oils, and a record Spanish harvest that has left the market flooded. A Greek newspaper summary of the piece put Spanish shelf prices at €1.25 a liter for sunflower oil, €1.99 for olive oil and €3.25 for extra virgin, and quoted International Monetary Fund data putting extra virgin at about $2,900 a ton in May, against roughly $6,000 in 2005.
On Thursday, May 31, the Council’s executive secretariat published “Some thoughts on current olive oil prices”. It agreed that producers are getting a low price for extra virgin, about €1.75 a kilo in Spain, €2.38 in Italy and €1.84 in Greece, but argued that the problem lies in the short-term variables of producing countries, above all Spain: output, stocks and consumption.
| Measure | Figure | Source |
|---|---|---|
| Extra virgin at origin, Spain / Italy / Greece | €1.75 / €2.38 / €1.84 a kilo | IOC |
| World production this season | Up 302,000 tons, about 10 percent | IOC |
| Expected world surplus at season end | About 1 million tons, up 34 percent | IOC |
| Olive oil share of world vegetable oil use | About 2 percent | IOC |
| Extra virgin, May vs 2005 | About $2,900 a ton vs about $6,000 | IMF data, via press reports |
The Council’s case
The argument is about demand. Olive oil is only about 2 percent of the world’s vegetable oil consumption, and that consumption is rising. As middle classes grow in developing countries and become more health conscious, the Council said, it is reasonable to think promotion aimed at people who rarely or never use olive oil will ease the crisis. It is running campaigns in the United States, Brazil and China, and Spain’s interprofessional body is promoting at home and abroad.
The statement also made a pointed remark about Spain. Because Spain has surplus output, and because demand there is concentrated in a few large distributors while supply is split among many producers, any change in Spanish figures moves prices at home and abroad. Its own forecast has consumption falling 6.6 percent in Greece, flat in Italy and rising in Spain, which should drive overall EU consumption up 7 percent.
What it means
- The readings clash. The press reports have home consumption in the producing countries falling; the Council expects it to rise in Spain. Both cannot be the whole picture.
- Brussels is already paying. The Commission has just opened another round of private storage aid to take oil off the market for a while.
- Shoppers see little of it. A price that halves at origin does not halve on the shelf, because bottling, transport and the retailer’s margin do not fall with it.
“Not structural” is what every industry body says in a slump, because the alternative is telling members that some of them will not survive. The cheapest oil in a Spanish supermarket is often sold at or below cost to pull shoppers into the store, and that is how the few big buyers the Council mentions keep the pressure on everyone upstream.
The storage aid round is covered in Brussels Opens a Third Round of Olive Oil Storage Aid. For the long run of below-cost prices, see Spain Sells a Record, Yet Olive Oil Prices Stay Below Cost, and for the Council’s view of an earlier season, IOC Sees a Bigger 2009/10 Crop as Prices Edge Up.