Trade Tensions, Market Glut Press Upon Olive-Oil Prices
December 01 2019 - 05:59AM
Dow Jones News
By Joe Wallace and Adria Calatayud
A prolonged slump in olive-oil prices is whipping up discontent
among farmers in southern Europe and North Africa.
After growing steadily higher for several years, wholesale
prices of extra-virgin olive oil -- the purest kind, typically in
demand from high-end restaurants -- have fallen in 2019 by a
quarter in Spain and by almost a third in Italy.
A rich olive harvest in Spain, the world's dominant producer,
has left the market flooded with olive oil. The glut comes just as
demand is set to slow in the U.S., the biggest importer of the
product, after President Trump in October imposed a 25% tariff on
olive oil coming from Spain. The tariff was part of a package of
levies designed to retaliate against the European Union for giving
subsidies to plane-maker Airbus SE.
The decline in olive-oil prices has hit European farmers hard,
prompting a protest in Madrid in October and leading the EU to take
emergency measures to support the market for the first time since
2012. It has also eroded revenues at Deoleo SA, the Spanish
bottling company behind olive-oil brands such as Bertolli and
Carbonell.
"There's a looming crisis in olive oil, not just in the States
but around the world," said Joseph R. Profaci, executive director
of the North American Olive Oil Association. Improvements in
cultivation methods over the past decade have enabled farmers to
produce more from each piece of land, he said, "but demand is not
keeping pace. The tariffs may come and go, but this is a systemic
issue that really needs to be addressed."
Olive oil has been made and traded around the Mediterranean for
several thousand years, and the region still dominates production
despite efforts to grow olives in the U.S., Argentina and
elsewhere. Spain churned out a record 1.79 million metric tons of
olive oil in the 2018-19 season, which ended in September -- or 53%
of all the oil made world-wide. Olive farms in the southern region
of Andalusia are considerably larger and more advanced than the
family-run groves that dot the hills of Puglia in Italy and the
Peloponnese mountains in Greece.
The cost of 100 kilograms (221 pounds) of extra-virgin olive oil
dropped to EUR213.50 ($235.42) in early November in the wholesale
market in Spain. That is 24% cheaper than at the end of 2018, and
33% less than the average for this point in the season, according
to EU data. In Italy, where olive oil tends to be more expensive,
prices dropped 29% this year to EUR412 per 100 kilograms.
The new tariff hasn't yet made olive oil more expensive in the
U.S., Mr. Profaci said. However, he expects importers to start
buying less oil in bottles and more in bulk, because the tariff
applies to containers that weigh less than 18 kilograms.
This would be a blow to Spanish companies that have been
promoting their brands in the U.S., said Teresa PĂ©rez, director of
the Interprofessional Spanish Olive Oil organization.
"There are no longer bad harvests," said Hilari Jaime, a farmer
who manages around 47 hectares of olive-tree fields in Canet lo
Roig, a small village in eastern Spain. "There is a structural
problem of overproduction and the market hasn't swallowed it
up."
The U.S. tariffs are "a big problem for Spain," said Ignacio
Silva, chief executive of Deoleo, which saw a drop in third-quarter
sales because of the falling olive-oil prices. His company will try
to export more oil from Italy, Tunisia and Latin America to avoid
the levy, Mr. Silva said.
Spain is expected to squeeze 30% less olive oil in the 2019-20
season, according to EU forecasters, but oil will remain plentiful
because of a bounce in Italian production and a strong harvest in
Tunisia.
Meanwhile, the outlook for demand has also darkened. The U.S.
Department of Agriculture forecasts that U.S. imports will increase
by just 0.3% this season to 356,000 tons, compared with 10% growth
in the previous season.
To ease the financial strain on producers, Brussels has invited
them to bid for compensation for the cost of storage. Any oil that
the EU pays to store will be taken off the market for at least 180
days, reducing available supplies.
Anna Cane, president of Italy's Assitol Olive Oil Group industry
association, said the aid could bolster prices temporarily. But the
EU's help is "an emergency tool, not a structural measure," she
said.
Still, in the long run, there are reasons for olive-oil makers
to be optimistic, said Vito Martielli of Rabobank, a major lender
to the agri-food industry. The average American consumes one
kilogram of olive oil a year, compared with 10 kilos in Italy and
Spain, leaving plenty of room for further growth.
At the same time, Rabobank's Mr. Martielli said, low prices
create an opportunity to flog European olive oil in untapped
markets such as India.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
December 01, 2019 05:44 ET (10:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.