Climate Disasters Drive Prices Higher

As much of south­ern Europe endures scorch­ing tem­per­a­tures and flash flood­ing, olive oil prices in the main bench­mark mar­kets con­tinue to rise.

Italian extra vir­gin olive oil has nearly reached the price of €7 per kilo­gram. Greek oil has exceeded €6 per kilo­gram, and Spanish oils are approach­ing the same price.

The main cul­prit for the rise in prices is ongo­ing cli­matic dis­as­ters. Due to droughts and enor­mously high tem­per­a­tures in the 2021/22 crop year, olive oil pro­duc­tion in Spain fell by 55 per­cent year-on-year to 660,000 tons.

Drastically lower yields in the coun­try, usu­ally respon­si­ble for almost half of global pro­duc­tion and annual exports of nearly €3 bil­lion, have resulted in ris­ing prices across the olive oil sec­tor sup­ply chain.

Due to its immense size, prices in Spain largely dic­tate prices in other inter­na­tional mar­kets.

“Compared with €5,300 per ton in January this year, the whole­sale price in mid-April was €5,800 per ton,” said Fanny de Gasquet of Baillon Intercor, a bro­ker­age spe­cial­iz­ing in oils and fats. In January 2022, one ton of olive oil sold for €3,500.

Analysts expect prices to con­tinue ris­ing with the drought con­tin­u­ing unbro­ken across large swaths of south­ern Europe.

“It has hardly rained since January this year, so the land is very dry,” said Cristobal Cano, sec­re­tary gen­eral of the Union of Small Farmers in Andalusia, the cen­ter of Spain’s olive oil indus­try.

Cano, who owns ten hectares of olive trees near Granada, added that he has never expe­ri­enced such wor­ry­ing con­di­tions in the 20 years he has been farm­ing. ​“If some­thing rad­i­cal does­n’t change in the next few weeks, dis­as­ter will fol­low,” he said.

Fear and con­cern are under­stand­able. According to data from the Spanish mete­o­ro­log­i­cal agency, Aemet, since October 1, 2022, Spain has received 25 per­cent less pre­cip­i­ta­tion than usual. Andalusia has received 50 per­cent less, and reser­voir capac­ity is only 25 per­cent.

Compounding the prob­lems cre­ated by the drought, Spain was hit by an early heat wave at the end of April. In the south of the coun­try, the mer­cury rose to 38.8 ºC right at the time of olive blos­som­ing.

“Without flow­ers, there are no fruits. And if there are no fruits, there will be no oil,” said Rafael Pico Lapounete, the exec­u­tive direc­tor of the Spanish Association of Olive Oil Exporters, Industry and Commerce (Asoliva).

A sim­i­lar prob­lem wor­ries Portuguese olive grow­ers. Production in the country’s 150,000 hectares of super-high-den­sity (super-inten­sive) olive groves may be threat­ened due to the drought, with a lack of water in the soil and irri­ga­tion basins.

However, the sit­u­a­tion is bet­ter in Italy. Local media reports indi­cate that olive grow­ers expect a bet­ter year, espe­cially in the coun­try’s south, home to the most pro­duc­tive olive-grow­ing regions.

Given the suit­able cli­matic con­di­tions, which have con­tin­ued into the spring, Italian olive grow­ers hope there will be no sud­den warm­ing dur­ing the flow­er­ing phase. Good flow­er­ing and fer­til­iza­tion are the main pre­con­di­tions for the return of Italian pro­duc­tion to above 300,000 tons.

Still, this would be too lit­tle to com­pen­sate for the deficit cre­ated by poor har­vests in Spain and Portugal.

The result: a new jump in olive oil prices across the Mediterranean basin. They are already very close to the recently-unimag­in­able €7 per kilo­gram, and even that limit could be exceeded by the end of May.

High prices affect pro­duc­ers and con­sumers, who increas­ingly turn to other cook­ing oils. Bottlers across the Mediterranean pre­fer stock­pil­ing to ensure min­i­mum com­mer­cial stocks for the next sea­son.

The Spanish gov­ern­ment reduced the value-added tax on olive oil from 10 to 5 per­cent at the end of 2022 as part of a pack­age of mea­sures to help con­sumers cope with ris­ing infla­tion. To help farm­ers man­age the drought. The gov­ern­ment also reduced the income tax in this sec­tor by 25 per­cent.

But what no sin­gle gov­ern­ment can influ­ence is cli­mate change, which has led to all these prob­lems. As a result, all the coun­tries of the Mediterranean basin are faced with the con­se­quences, tem­per­a­ture and weather extremes.

There are droughts and fires in Spain, Portugal and France; there are floods in Croatia, espe­cially in north­ern Dalmatia.

“For the inhab­i­tants of the Mediterranean basin, this is alarm­ing. In addi­tion to the region being extremely sen­si­tive to cli­mate change, it also has one of the fastest rates of urban­iza­tion in the world,” said Erdal Sabri Ergen, the deputy gen­eral sec­re­tary of the Union for the Mediterranean (UfM) in charge of trans­port and urban devel­op­ment.

The Mediterranean Sea and its coasts are warm­ing 20 per­cent faster than the world aver­age, so it is the sec­ond most threat­ened area after the Arctic, added Ergen on the eve of the third UfM min­is­te­r­ial con­fer­ence in Zagreb, the cap­i­tal of Croatia.

In the mean­time, an unprece­dented amount of pre­cip­i­ta­tion has fallen in Croatia. As a result, four­teen rivers have over­flowed their banks, endan­ger­ing towns and vil­lages. Thousands of hectares of agri­cul­tural land were flooded, par­a­lyz­ing all agri­cul­tural activ­ity. Some olive groves even appear to be grow­ing in lakes.

“The ground can no longer absorb water because it is com­pletely sat­u­rated with mois­ture, and the rain that has been falling for the last two or three days mostly runs off the sur­face,” said mete­o­rol­o­gist Krunoslav Mikec, head of the Croatian Hydrometeorological Institute.

Once again, none of the coun­tries in the west­ern Mediterranean basin will be spared from the impacts of cli­mate change.

Even though the prob­lem will not sim­ply resolve itself, global world lead­ers have not yet begun to coor­di­nate their actions to find a solu­tion to stem the flow of green­house gas emis­sions and pre­vent aver­age global tem­per­a­tures from exceed­ing pre-indus­trial lev­els by 1.5 ºC.