You might have noticed an abrupt change when at the grocery store. If you happened to pick up a bottle of olive oil, the price has skyrocketed in comparison to what it was just a few years ago. According to the IMF which tracks the wholesale price of olive oil globally, the price has more than doubled in comparison to 2021. Below we’ll review what caused this abrupt change in price and what indicators we have today to tell us where it might be going in the future.
Where is US Olive Oil Produced?
The United States does produce olive oil over a few different states, but the production volume only constitutes about 5% of the oil consumed annually. Most of the olive oil consumed in the US is imported from abroad. The United States imported in 2021 approximately 157,000 metric tons of the olive oil which constitutes about 36% of the global market. The primary countries where the oil is sourced from are Italy (50,424 tons), Spain (35,910 tons), and Tunisa (36,151 tons). These core producing regions have been recently impacted by significant weather events creating volatility with the supply of olive oil globally.
Drought in the Western Mediterranean
Southwestern Europe experienced an abnormal heatwave and drought in 2022. Spain concluded its hottest year on record in 2022 and saw one of its driest years on record. A heatwave struck the southern region of Andalusia in Spain which is the largest olive oil producing region in the world. The extreme heat caused blossoms to wilt and not produce fruit which strongly impacted yields. The drought also pressured farmers to conserve water to maintain tree health over production. The extreme weather events lead to a near 40% decline in olive oil production in the European Commission participating countries. Though there were increases in production in other producing regions outside of the European Commission, these gains were insufficient to absorb the drastic declines coming from Spain and Italy.
What is the Future for Production?
The extremes weather events we saw over the last two years in these key producing regions will likely not continue forever, which implies the production shortages should ease. But these last few years are a reminder of the impact that extreme weather events can have on commodity prices. Sadly, based upon a recent paper published in Nature, the frequency of these style of megadrought events in Europe is likely going to increase. Traditionally, the chance of these extreme drought events was approximately 5% using information dating back to the 1950’s. Using the recently compiled models of the Max Planck Institute, in the next 25 years we can anticipate the likelihood of these events between 10% to 15% of the time. If this is the new reality for weather in Europe, this implies that the supply of olive oil will be much more volatile in the future, having significant consequences on prices.
What about the Consumer?
With the recent increase in prices and the potential for this trend to continue long into the future, will the consumer be willing to bear the increased cost now and in the future? McKinsey recently conducted a survey of 8,000 participants in the United States and Europe regarding food preference. Of those surveyed, nearly 70% list being healthier as their number one priority coupled with 50% of respondents saying that food is essential for achieving this goal. Olive oil is aligned with this consumer priority as it has been shown to have many health benefits ranging from the highest concentrations of monounsaturated fats which lowers bad cholesterol as well as many anti-inflammatory and antioxidant compounds. Focusing on Gen Z (Ages 20 to 26) which will be large portion of the targeted consumer over the next decade, after the top emphasis of eating healthy, this consumer group is focused on sustainable and plant-based food sources when considering food options. Olive oil checks all these boxes.
Overall
As we attempt to peer into the crystal ball of the future, there are many reasons to believe we are looking at a new normal for the price of olive oil. The key producing regions servicing the world for olives and olive oil are under threat of a greater variability in rainfall and temperature which implies more volatility with olive production. Coupled with the taste of consumers in the United States and Europe are shifting to a healthy and sustainable focused diet that will likely include olive oil as part of this consumer trend.
What it takes to Grow Olives?
If you are interested in exploring what it takes to grow olives, I would highly recommend a recent publication from UC Davis. The article is focused on the table olive market, it does a great job outlining what the initial startup costs, operating costs, and practices for setting up and maintaining an olive orchard. You can find the document here.
If you’d like to get a cost estimate and evaluation on installing an olive orchard, please contact me at my email address below to get the process started. Get a free Jain Logic system with the complete installation of 40 acres or more.
Sources:
World Trade In Olive Oil and Table Olives, International Olive Council, May 5th – 2020/2021 crop year
Olive Oil Production Expected to Fall Below 1M Tons in Spain, Olive Oil Times, September 28, 2023
American Olive Oil Producers Association
Hungry and confused: The winding road to conscious eating, McKinsey & Company, October 5, 2022
Extreme heat and drought typical of an end-of-century climate could occur over Europe soon and repeatedly, Communications Earth & Environment, November 30, 2023
2022 Food and Health Survey Spotlight: Generation Z, Food Insight, July 27, 2022
Olive Oil Sales Slump in Spain, Production Forecasts Again Revised Downward, Olive Oil Times, March 27, 2023
The benefits of adding a drizzle of olive oil to your diet, American Heart Association News, September 28, 2022
