The drought is tearing up plans. What is happening on the world olive oil market this season?

Given the drought that has affected the industry the most in recent years, the production of olive oil in the EU is expecting a significant decline.

At the same time, other market players – Turkey, Tunisia, Morocco and Syria – are aiming to replace the European product, but the quality of the oil from these regions still raises some doubts among consumers.

OleoScope decided to find out what is happening to the premium product now, whether it is worth expecting a drop in interest in several countries and how oil prices have changed over the last year.

Effects of the drought

The global olive oil market is not experiencing the best of times this season. Global production could fall to its lowest level in recent years by the end of the current agricultural year, as the drought in Europe has severely affected the condition of local olive trees.

The 2021/22 season was not bad overall, but the situation has deteriorated rapidly in recent months. Mediterranean countries showed a decline under the “bad scenario” due to the unfavorable weather conditions: A 50% drop in production was recorded in Spain, 39% in Portugal and 27% in Italy.

Greece has become the only EU country to increase the harvest, but it is impossible to compensate for the decrease in volumes from neighboring regions with a small increase of 100 to 150,000 tons.

Turkey has received a bumper crop from countries outside the EU, but it will have virtually no impact on the situation on the global market. Production in other countries (Morocco, Syria, Algeria, Lebanon, etc.), which have a much smaller crop to begin with, can also only partially cover the shortage of European product if weather conditions are good.

In addition, very hot and dry weather has established itself throughout the Mediterranean in April and May: there has been no rain since the beginning of January and the flowering of the trees is worse than last year.

As long as the restoration of production is predicted very early, everything depends on there being rain showers over the next few months. However, if the current weather trend continues, consumption of this type of oil is also expected to fall due to its limited quantity on the world market as prices rise.

“Olive oil differs in that its production is limited to the number of trees. Olives cannot simply be planted more in a country in the event of a poor harvest in a particular location – the tree needs 3 to 8 years before it bears fruit and also needs planting areas with a suitable climate,” a market participant told Oleoscope.

Production declined

According to forecasts by analysts at the US Department of Agriculture (USDA), global olive oil production will fall to a multi-year low this season, practically to 2.6 million tons – that’s 660,000 tons less than 2021/22 and about 545,000 tons less than the average of the last 5 years.

Worldwide production of olive oil, thousand tons

The biggest decline will be in the EU countries: According to the International Olive Council (IOC), a decline is expected if product output falls in Western Europe. Production levels in the three main regions (Spain, Italy, Portugal) will fall significantly due to the drought, while a slight decline is expected in France. A significant increase – around 1.5-fold – is forecast in Greece. A slight increase is possible in Croatia, Slovenia and Cyprus.

At the same time, the USDA assumes that olive oil production in 2022/23 will also fall in Morocco (from 200 to 160,000 tons) and Tunisia (from 240 to 200,000 tons), which are among the world’s top 5 producers of the product.

“It is likely that tensions in the world olive oil market will persist in the medium term, as there are no players capable of making up the shortfall that has been created. Turkey, Iran, Tunisia and some other countries participating in the global olive market do not have production potential to fully replace exports from Europe, said the professor at the fundamental chair of trade policy at Oleoskopu. G.V. Plekhanova Ibrahim Ramazanov. -However, given the global warming processes and frequent droughts in the European olive oil-producing regions, Turkey, Iran, Tunisia and other countries can increase their share of the world market in the long term.ъ

Importantly, given the drought in Europe, the volume of global olive oil trade this season is likely to return to 2018/19 levels – to 1.18 million tons. The EU’s share could therefore fall from around 65% (2021/22) to 50%. At the same time, Turkey will significantly strengthen its position on the global market and end 2022/23 with a share of more than 18% compared to the previous season with 5%. Tunisia, on the other hand, will reduce its product supply in the current agricultural year, but the region will retain a 3% share of global trade.

Worldwide olive oil exports, thousand tons

However, despite the predicted increase in natural exports from several regions, the question of the availability of high-quality olive oil on the market is acute. One of the interviewees of “Oleoskop” in the industry said that many buyers now have certain questions about the product quality of those sellers who are actively replacing European suppliers.

“A separate problem is the quality of the oil, which suffers in this weather, as there are more damaged olives due to the drought, there is less high-quality oil. Accordingly, the demand for high-quality oil is also increasing, which is pushing prices up further,” a source in the market told us.

And prices are rising

At the moment, the value of a tonne of extra virgin olive oil has already increased by 54% compared to May 2022, and the growth is continuing due to increased demand, which has also taken hold this spring in particular.

“If we take into account the European countries and the largest producer of olive oil, Spain, on which prices on the world market depend, we see a significant increase in the value of the product. This is also due to the climatic conditions, comments Regina Gurina, assistant professor at the RUDN agricultural technology institute, to “Oleoskop”. -But it is worth noting that the increase in the price of European olive oil depends not only on the drought, which has been observed in principle in some regions since 2014, but also on other situations: Global economic crisis, energy problems, price jumps, etc.”

And the demand will continue

In the long term, however, the consumption of olive oil is expected to increase in the market, as this category has grown steadily under normal price conditions in almost all countries, while the population strives for a healthy lifestyle.

“This trend in particular has increased during lockdowns – in some countries the category has shown growth of up to 30%. This is because many started to cook more at home, someone learned to do it and make it a habit. Also, against the background of the epidemic, people began to show interest in their own health, vitamins,” one of the interlocutors in the industry told the Oleoscope.

At the same time, the USDA expects a slight decrease in olive oil consumption this season – from 3.15 million tons (2021/22) to 2.82 million tons. At the same time, the decrease in figures from the 2017/18 agricultural year will be only 2%, which indicates a fairly stable demand for this product, especially from the EU, the US, Turkey and Morocco.

The global consumption of olive oil, thousand tons

“Each consumer has his own taste preferences, someone prefers exclusively Greek olive oil, and someone brings oil from Algeria and considers it the best,” explains Regina Gurina, assistant professor of agricultural technology at the RUDN Institute.

The expert also noted that the domestic consumer does not feel significant changes and losses due to the market situation and therefore will not feel it.

“There are no changes on retail shelves, the main producers of olive oil are still Greece, Spain, Italy. Demand will remain exactly at the level of previous years, there should not be a breakout.”

Source: Ukragroconsult (Ukraine)