The demand for oil plummets 30% due to the escalation of prices

The low production of the olive groves and the sharp rise in prices at source during the last campaign —up to 5.20 euros per kilo— have caused an average drop in oil sales of 30% in the domestic market and 20% in exports. This is reflected in the data provided by the Ministry of Agriculture for the first five months of the campaign, that is, between October and February. “If prices did not rise and demand was maintained, when the months of July or August arrived, perhaps there would be no more oil left,” says Rafael Sánchez de Puerta, president of the oil sector of Cooperativas Agroalimentarias de España.

It is the law of the market: the offer is reduced, the prices rise and the final demand also ends up suffering. Throughout Europe the dynamics are similar, in the European Union as a whole oil consumption drops by 11% and the forecasts are that there will be a “low minimum” harvest, according to the agricultural markets report published by the European Commission for spring. 2023. “We would all like to cover a significant production and for all consumption to recover, but we depend a lot on water and in the end we see ourselves with a very low production,” says Sánchez. If last year around an average of 140,000 tons of oil per month went on the market, in this campaign the output rate drops to around 90,000. Despite the increase in prices at source, Agro-Food Cooperatives point out that this situation is also detrimental to producers: “Why does the farmer want very high prices when he has no harvest?” He concludes.

In recent years, under normal conditions, sales of olive oil in the domestic market have been between 500,000 and 550,000 tons. In the case of exports, they have maintained an upward line, until stabilizing at just over one million. But with the lack of water, the increase in production costs and the savings in fertilizers —which multiplied their price last year— the situation changes. From a production of 1.4 million tons in the 2021-2022 campaign, it has gone to one that, at this point, is around 680,000.

Hit the pocket of consumers

Inflation was contained in March to 3.3% but food prices continue to rise. Despite the reduction in VAT from 10% to 5% in January, olive oil increased its cost by 32.1%, driven by a drop in production. If we compare the third week of April in 2022 and 2023, the price of the olive at origin goes from being 333.19 euros per 100 kilos to being 488.84 euros. At the other end of the value chain, supermarket oil shelves become a dilemma for consumers.

In a Supercor establishment, in the Las Ventas neighborhood (Madrid), prices range from 4.95 euros for a liter of basic white-label olive oil, to 16.90 for the extra virgin variety. In a nearby Mercadona the image is similar. Buyers stop, calculate offers and most opt ​​for the white brand, at 6.05 euros per liter. One of the customers who opts for a well-known brand almost excuses himself for the decision: “It’s for the salad”, he comments with a laugh. His choice has been a 250 ml bottle for 2.73 euros.

The current campaign, which began in October 2022, started with stocks of 454,000 tons, to which is added a harvest below minimums of 680,000 tons and imports of 200,000. With these data, and counting on a lower demand, stocks at the end of the campaign would stand at a maximum of 150,000 tons produced, the lowest figure in recent years. In addition, this data complicates the campaign from 2023 to 2024, which would not have a sufficiently strong base for the jointing of crops and would perpetuate the tension in demand.

Spain is the leading producer in the EU and also the leading marketer. Hence, the industry maintains imports at more than 200,000 tons so as not to lose weight in foreign markets that it already has consolidated. Regarding national production, in recent years it has moved around 1.4 and 1.5 million tons. In the 2021-2022 campaign, the Government balance estimates production at just over 1.4 million tons. In the current campaign, production stood at 680,000 tons in February. Thus, the recovery of production remains in the hands of the rains and the possibility of a sufficient supply will depend on how far consumption falls.