Drought-Induced Decline in Spain’s Olive Oil Production
In the face of an extended drought, Spain, the world’s topmost producer, and exporter of olive oil, has witnessed a dramatic surge in the prices of its signature commodity. The International Monetary Fund (IMF) reports that global olive oil prices have risen to an unprecedented 26-year high of $5,989.8/t, marking a significant fluctuation in the market. As per the data shared by Mintec, the international commodities experts, Spain has harvested a scanty 50% of its usual olive yield between October 2022 and February 2023. The unfavorable weather conditions have led to a stark reduction in olive oil production, which decreased from a customary 1.4-1.5 million tons to a mere 630,000 tons.
Spain’s Ministry of Ecology further elaborates on the severity of the situation by revealing that the amount of rainfall received in March only amounted to 36% of the average monthly norm. In fact, the country has been grappling with a continuous deficit of precipitation for a staggering 36 months, inflicting a lasting impact on the olive industry and, by extension, the global supply of olive oil.
Effects of the Drought on the Global Olive Oil Market
The relentless drought in Europe, with Spain at the epicenter, has given rise to a formidable global shortage of olive oil. The Olive Oil Association of Australia has noted a marked increase in the demand for this product over recent years, and this trend was further exacerbated by two significant global events.
Firstly, the outbreak of the COVID-19 pandemic in 2020 resulted in more people staying at home and cooking their meals, leading to a rise in olive oil consumption. Secondly, the recent conflict in Ukraine has caused a shortfall in the global supply of sunflower oil, further pushing the demand for olive oil. However, as the prices of olive oil continue to reach unprecedented levels, the market has started to react. Consumers are now becoming more frugal with their use of olive oil or are shifting to other types of vegetable oils in search of a more economical alternative.
Despite the high prices, industry experts maintain that the inherent demand for natural and health-beneficial olive oil will endure. If the rainfall levels do not show significant improvement soon, the market should brace itself for the possibility of prices remaining at the record high of €5/kg or even exceeding it until the 2023/24 marketing year harvest.
Potential Impact on the High-Oleic Sunflower Oil Market
The olive oil market’s turbulence is expected to have a knock-on effect on the high-oleic sunflower oil market, given their similar quality attributes. High-oleic sunflower oil is valued for its high oleic acid content, which can reach up to 90%. Olive oil, on the other hand, contains an average of 71% oleic acid but is priced 3-4 times higher.
As the price of olive oil continues to rise, it is likely that consumers will turn to high-oleic sunflower oil as a more affordable yet similar-quality alternative. This shift could stimulate a surge in demand and, consequently, a rise in price for high-oleic sunflower oil. As such, the ongoing drought in Spain could potentially redefine the global vegetable oil market, underscoring the interconnectedness of global food production systems and the vulnerability of these systems to climate disruptions.