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)

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