Time to start hoarding olive oil? What is your average MasterChef-loving, My Kitchen Rules-obsessed foodie to do?
There’s an olive oil cost crisis gripping the globe. The Spanish economy is partly to blame, but it’s Mother Nature that has frowned on the world’s biggest producer of the golden nectar and produced a nasty supply/demand imbalance only months after seemingly creating a worrying surplus.
Frost, drought, the financial crisis and recession have combined to slash expected Spanish olive oil production by more than 55% in 2012-13. They’re likely to fall upwards of 200,000 tonnes short of the stuff in the coming year. If worse comes to worst, Spain may be forced to import oil from elsewhere in the world to meet its demand, especially of exports. But with global production forecast to be down this year, not even weaker consumption in the two other big producers — Italy and Greece — will be enough to ease the squeeze.
That in turn means prices will rise and continue rising to a point where Spanish consumers in particular cut their already falling consumption even further to allow supply and demand to reach an even keel.
Prices for Spanish oil (a key economic indicator) have jump sharply in recent months. Adding to the squeeze is the developing boom in China where imports of oil from the rest of the world were up 38% in the 2011-12 year (which runs November-October) and 331% since 2007-08, according to figures from the International Olive Oil Council. Imports into Japan jumped 21% and they were up 15% for Russia.
Spain’s outlook is grim for the 2012-13 year: production will be around 635,000 tonnes, according to the latest estimates released late last week. With carryover stocks of 690,000 tonnes, around 1.31 million tonnes will be available for the coming year. That’s less than the domestic and export sales of oil in 2011-12 of 1.45 million tonnes. With the level of carryover stocks well above the levels of 2010-11 (of around 375,000 tonnes), there shouldn’t be a such a massive spike in prices — but they’re up a third in the past six months.
Industry reports say Spain had been looking to further boost exports this year because of rising demand, especially from China, where shipments have soared. Japan and other parts of Europe are also other solidly growing markets for Spanish oils. But Spain is not alone: the International Olive Oil Council has forecast a 19% fall in worldwide production this year, which was based on an estimated Spanish harvest of 900,000 tonnes. Now there’s a smaller harvest in Spain, meaning the global production forecast deficit will more than likely rise. Worldwide consumption (at this stage) is forecast to ease to 3.1 million tonnes from 3.2 million tonnes for 2011-12, according to council data.
Those estimates were issued in early December (before the new Spanish production data) and put Spain’s drop in consumption as a small dip to 55,000 tonnes from 582,000. Italy was forecast to from from 724,500 tonnes to 695,000 and Greece is expected to see a fall to 208,000 from 202,500. US consumption was forecast to remain steady at 294,000 tonnes.
China’s emergence in olive oil echoes its impact on so many other commodity markets, from copper to oil ore, soy beans, and oil and dairy products. The 38% jump in imports in 2011-12 saw 91% of the 45,058 tonnes of oil (and pomace of olive oil, a lower quality, cheaper oil) come from EU. The remaining 9% came from non-EU countries, with Australia and Turkey the joint major suppliers with 2% of the market each. At 954 tonnes, Australia was the largest non-EU supplier into China by volume in 2011-12, followed by Turkey with 833 tonnes. Council data shows that Spanish exports to China have soared 600% from 2007-08. Australian exports have doubled in the same time.
There is a wonderful irony though: a year ago Spain was pressing the EU to create a olive oil storage plan to withhold surplus oil from the market (shades of the wine lake and butter mountains) until prices rose to more economic levels for producers. But then Mother Nature intervened to cripple the 2011-12 crop and send prices soaring, adding to the pressures on consumers from the recession, record levels of unemployment and falling incomes. All of which have seen consumption falling ahead of the impact of the frost and drought on supplies.