Drought Creates Global Olive Oil Shortage and Increasing Price Expectations

Harsh weather conditions in 2012 have drastically reduced this year’s olive oil crop throughout Southern Europe, especially in Spain, creating a global shortage of olive oil and increasing prices. In Spain, the world’s largest producer of olive oil, it barely rained from late April through October 2012, and desiccated Spanish olive trees are producing less fruit as a result, says Javier Marquez, marketing director of Hojiblanca U.S.A., which comprises 65,000 farmers in the olive oil–producing region of Andalusia, Spain. Due to this drought, olives the trees did produce were smaller in size and less juicy. Two weeks of extreme cold in November, which froze olives on the trees, exacerbated the problem.

Spanish production for 2013 is now expected to be 600 million tons, down 63 percent from 1,614 million tons in 2012, Marquez says. The decreased production has led to a hike in prices in Spain where a liter of extra-virgin olive oil is one euro more than it was last year, he adds. This year’s low output follows three seasons in which Spanish olive oil production was very high, according to the International Olive Council.“Everybody is going to be affected by this drop in production because Spain supplies more than half of the world’s olive oil,” says Marquez. “Countries like Italy and Greece, Morocco and Tunisia, which were also affected by drought conditions, don’t have enough supply to make up for this.”

“The prices will have to rise,” he continues. “Paying the same price as last year is just not possible. We are making sure our customers understand the reason why prices are higher in the industry.”

Demand for olive oil has been on the rise in the U.S., fueled most recently by studies documenting significant health benefits from the olive-oil–heavy Mediterranean diet. During the 2011-2012 season, the U.S. imported 317,095 tons of olive oil, an 8.6 percent increase over the previous year, according to the IOC.

Greg Bernarducci, owner of O Live in Brooklyn, has built his business on this demand for high-quality olive oil. His store carries 50 varieties and balsamic vinegars on tap, many from Spain, Italy, Portugal, Tunisia and Greece. So far, he has not experienced an increase in prices from his distributor, Veronica Foods, Oakland, Calif., which supplies extra-virgin olive oil to 430 stores in the United States, Canada and Mexico.

“My guess is that’s because I don’t do a huge volume,” says Bernarducci.

Veronica Bradley, owner of Veronica Foods, says she was able to secure her needed volume of 50,000 gallons of premium Spanish extra-virgin olive oil by ordering early. “We knew there was a shortage, and we made our contracts early before the prices skyrocketed,” says Bradley. “We’ve gotten calls from some of the big suppliers about the shortage and they are scrambling.”

While Spain’s crop was hit the hardest, shortfalls have been felt across Southern Europe, leading to price hikes, according to the IOC and industry barometer poolred.com. In Greece, the IOC reports, the price for olive oil recently rose 34 percent, and production is down. Tom Doukas, owner of Ariston Specialties, L.L.C., a distributor in New Britain, Conn., says he expects to sell at least 25 percent less Greek olive oil than last year. Ariston distributes Greek Olive oil from the Kalamata region of Messinia, Greece to more than 1,000 stores in 32 states.

So far, the yield of Greek olive oil, the world’s third largest producer, according to IOC data, is expected to produce between 250,000 and 275,000 tons, down from 386,000 tons in 2012, Doukas says. In Europe, a liter of Greek extra-virgin olive oil is running a euro higher, currently costing about 3 to 3.25 euros. But, Doukas says, he does not plan to increase prices in the U.S., due, in part, to the U.S.’s still recovering economy. “We will mostly absorb the increased price. It’s better to make a lot less one year than to lose customers because you raised the price,” Doukas says.