The closing data for the 2022/23 olive oil campaign, still provisional, last September 30 and the initial production estimates for the current 2023/24 campaign already make it crystal clear what the outlook for this key sector of the Spanish agricultural economy will be in the coming months.
In the first place, the fact that we are going to have a second short olive oil production campaign, with barely 765,300 tons, according to the estimate made by the Ministry of Agriculture, leads us to think that the market supply of this product will also continue to be restricted, even if imports increase.
This will result, in turn, in prices at origin and destination of olive oil that, with the logical and slight ups and downs in these cases, will remain at fairly high levels throughout the campaign, that is, at least for almost a year.
If last season was already complex to manage, despite the fact that market outlets were reduced and adapted to the existing supply and demand, taking into account the historical price level, this season will be the same and even more, mainly because, although some 100,000 tons more production is expected, stocks at the end of 2022/23 and the beginning of the current season are almost half (-45.6%) and were below 250,000 tons.
The sector expects that the supply situation may improve a little if the rains expected in October are abundant in the producing areas and if it is possible to import a larger volume than in the previous season (over 200,000 tons), given the slightly better production prospects in some countries, such as neighboring Portugal and awaiting what Tunisia, the main third supplier of olive oil to the European Union, has in store.
The situation of the olive oil market, in any case, will continue to be quite tense and the uncertainty will not be cleared until seeing if the following olive oil campaign recovers its usual production levels, which are around 1.2-1.3 million tons.
All the agents of the sector agree that we are facing a slightly better olive oil campaign than in 2022/23, with a recovery of 15.3% and about 100,000 tons more, but that continues to be quite insufficient to meet all domestic and foreign demand at reasonable prices.
This slight improvement in olive oil production could contribute the most to the fact that prices at origin and destination of this product will observe some containment and will stop continuing to rise, as it has been happening, with intervals of stagnation, in recent months.
In the first weeks of October, extra virgin olive oil (EVOO) reached an average of €9/kg at origin and then dropped to between €8 and €8.50/kg due to the upcoming appearance on the market of new oils from the early harvest or those brought forward by the drought.
Lampante olive oil with 1° acidity for refining averaged between 6.80-7 €/kg and virgin olive oil was around 7.2-7.5 €/kg.
The olive grove has been affected one more year by adverse weather conditions in general, with high temperatures during the flowering phase, which caused losses and a decrease in fruit set, to a greater or lesser extent depending on the producing areas. Although all of them have slightly improved their production estimates compared to last season, they are still well below the average production for the 2019-2022 period. Only Extremadura exceeds the average of the previous four-year period.
The drought, heat and lack of rainfall this past year (especially in spring) mainly affected rainfed olive groves, with yields well below normal, but the lack of available water has also affected the results of irrigated olive groves. The yield and profitability gap between rainfed olive groves and irrigated olive groves that have been able to obtain water has widened even more.
In their analysis of the situation, after knowing the closure of the 2022/23 olive campaign and the provisional gauging of the current 2023/24, the agricultural organizations and cooperatives describe it as "dramatic" and "tremendously negative" for many producers, whose short harvests will not be compensated by the high prices, because, as in other sectors, they have had to face a significant increase in production costs with a significant decrease in the volume produced.
The president of the Oil sector of Agro-food Cooperatives of Spain, Rafael Sanchez de Puerta, said that many olive growers had no olives last year and will not have them again now, and those who had some, are seeing that the price increase does not compensate for the fall in production.
Sánchez de Puerta also showed his concern about the difficult management of the deficit of the olive surplus and the setback due to the lack of sufficient supply and high prices both in the domestic market (although the loyalty of Spanish consumers to the product compared to other vegetable fats has surprised) and in markets where it has been difficult to enter and Spanish olive oil was growing.
From the Union of Small Farmers (UPA), its sectoral spokesman, Cristóbal Cano, points out that thousands of farms are in "technical bankruptcy", because there are olive growers who in many cases have had insignificant productions, to the point that they will not even collect olives, because with the low volume they will not even be able to assume the cost of harvesting.
Low level of stocks
According to the latest data from the Food Information and Control Agency (AICA), during the last month of the 2022/23 campaign, just over 90,000 tons of olive oil came back on the market, a very low volume, the lowest in at least the last ten years, but in line with the available supply.
At the end of this period, according to these provisional figures, the market would have absorbed about 1.1 million tons, of which almost 720,000 tons would have gone to export and 365,000 tons to the apparent domestic market, leaving a stock at September 30 of less than 250,000 tons which, although very short, is sufficient for there to be no supply problems to link with the new campaign.
In short, there is no shortage of olive oil and, therefore, there is no reason to hoard the product. The increase in prices at origin and destination has been mainly and generally due to the existing imbalance between supply and demand in the market, without ruling out some speculative episodes, because as the saying goes, "when the river is troubled, the fishermen profit".
In these cases, it is an advantage that Spain leads by far the world production of this product, because at least in periods of shortage of supply it can transfer an increase in prices along the food chain, although this does not manage to avoid economic losses due to low volume to producers. These losses would be much higher if we depended on the existing supply in other international markets, as is the case in the cereal producing sector, where a very low harvest here, such as this last one of barely 10 million tons due to the drought, is no guarantee of higher prices if there is sufficient and surplus supply outside the rest of the world.
At world level, we have gone from an olive oil production of almost 4 million tons, with a consumption of 3.3 million in the 2021/22 campaign, to this last 2022/23, with a production of just over 2.5 million (around 1.4 million in the EU and 1.1 million in third countries), 26% and about 900,000 tons less. This will also have taken its toll on world demand for this vegetable fat, which will fall again, after four consecutive seasons above 3 million tons, to below this volume (the EC estimates that it will be less than 2.95 million).