The prices at origin of olive oil are 130% higher than they were two years ago, according to the most recent data from the Ministry of Agriculture, Fisheries and Food. Despite the rains of recent months and the forecast recovery of production, the existing tons to end the current campaign indicate that the product will continue to become more expensive in the coming months, and although the VAT reduction to 0% on this food will ease the pockets of consumers, in the long run only an improvement in harvests will put an end to the escalation of amounts.
Farmers blame the situation on the heat waves of the last two years, with temperatures of more than 35 degrees in spring that prevented the olive trees from having a cold period to flower and produce fruit for the new crops. This caused a decrease in production of half the tonnage and an unprecedented increase in price both locally and in the international market. From January 2021 to May of this year, green gold has become more expensive by almost 199% in Spain, according to data from the National Institute of Statistics; that is, they have tripled. In Europe, its value has not stopped rising in these three years, with year-on-year variations that have exceeded 50% on more than one occasion.
For this new campaign, the original forecast of the Minister of Agriculture, Luis Planas, was that the rains would swell the crops and this would drive a reduction in prices. The weather has improved and the fields have given farmers a break, but the predictions point to a fair production that in no case will allow the stocks —as the remainder of a new harvest is known after the end of its commercial cycle. On the other hand, although the different types of olive oil have moderated their increase in this campaign – the increases do not exceed 2.5%, according to data from the second week of June from the Ministry of Agriculture – we start from a year in which prices had already risen by more than 30%.
As things stand, analysts believe there are still months until consumers notice relief. At Deoleo, the largest company in the sector with brands such as Carbonell or Berolli, they insist on what their CEO, Ignacio Silva, has been repeating for months: “At least until September prices will not relax.” The head of the company has insisted that, although it is logical that the volume returns this year to more normal levels, the weather is unpredictable and everything could change between now and autumn, which is when the olive harvest takes place. .
The scenario seems uncertain and everything will depend on how the following months leading up to the harvest evolve. While waiting for this long-awaited rebalancing, the temporary reduction of VAT to 0% on olive oil scheduled for the month of July seems to be the best solution. This is what Primitivo Fernández, director of the National Association of Industrial Packaging and Refiners of Edible Oils, believes. “It is good news that will have an immediate effect on Spanish homes,” he says. Regarding whether this reduction in the rate will be reflected in supermarkets, remember that the National Competition Market Commission (CNMC) itself has confirmed that the previous rates have been applied — the Ministry of Finance reduced it last year from 10% at 5%—so the increase in price is due to a higher source price.
The ministry led by María Jesús Montero has also defended the measure, ensuring that it is about “protecting and encouraging consumption.” The bet is long-term, as it contemplates permanently applying a super-reduced rate of 4% on olive oil once the anti-crisis measures end. In this way, green gold would be in the group of essential goods, along with bread, cheese or eggs.
Some economists, however, doubt its viability due to the effort that these reductions will mean for public coffers. Raymond Torres, economics director of Funcas, believes that in the second half of the year prices will moderate at a more marked pace both in the general CPI and in the case of olive oil – in May this product already recorded a monthly drop 2.1%, the first drop since January 2023—so the priority is to meet the objective of reducing public deficit levels below 3% of gross domestic product. BBVA Research analysts agree with this analysis and point out that the scenario is very different from that of a year ago thanks to the better harvest levels there are.
Global impact
The European Commission estimates that the total production of olive oil in the EU will reach 1.49 million tons in the current campaign, which represents an increase of 7% compared to the previous season. However, the figure is 28% below the average for the last five years and the product in storage has been reduced to half the usual figure (it used to be around 500,000 tonnes), reflecting the low yields of the last two years.
Spain, which produces around half of the world’s olive oil, with the province of Jaén as the leader, is the country that has seen its production decline the most due to droughts and the increase in agricultural production means, such as fertilizers. The latest data for June from the International Olive Council (IOC) show that refined oil prices stood at 727 euros per 100 kilograms, 32.5% more than in the previous year’s campaign.
As the largest producer globally, Spain’s supply is essential for the industry and affects price setting in the market. That is why the sector believes that there will be great fluctuation in the final cost of the product and drops in demand cannot be ruled out. The latest report on food consumption in Spain already reflects this trend: in 2023, the purchase of extra virgin oil lost 23.8% of the purchase volume compared to the previous year. A sign that for many homes, buying this product has become a luxury.
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