Spain plays a crucial role in the global olive oil market, representing approximately 40% of production worldwide. Recent trends indicate a potential end to a prolonged olive oil shortage in the country, which has seen prices skyrocket due to a combination of poor harvests and persistent food inflation. According to the Spanish Ministry of Agriculture, Fishing and Food, olive oil production is expected to rise significantly in the coming year, with an estimated output of about 1.26 million tons—marking a remarkable 48% increase from 2023. This expected bump in production is seen as a positive development that could help alleviate the severe supply constraints that have plagued the market.
The spike in olive oil prices, often termed “liquid gold,” has primarily been attributed to two years of disappointing harvests across the Mediterranean region. Adverse weather, particularly widespread drought, has severely impacted crop yields, causing prices to reach unprecedented levels. At the beginning of 2024, olive oil prices soared to nearly 9,000 euros per ton. However, signs of improvement in harvest forecasts are beginning to lower prices, with spot prices for Spanish Extra Virgin Olive Oil peaking at 8,835 euros a ton in late January before experiencing a bear market, falling to around 7,000 euros a ton by the fall.
Despite this positive trend, consumers are unlikely to see the benefits of lower olive oil prices in supermarkets right away. This lag is predominantly due to the nature of supply contracts, which are negotiated months in advance. Therefore, even with improved production forecasts, it may take time for these reductions in price to reflect in the grocery aisles. Additionally, the weather remains a crucial factor, as the harvest has just begun, and upcoming conditions could further dictate the overall yield for this season.
The implications of the rising olive oil prices extend beyond just this single commodity; similar weather conditions have affected various other food crops. The repercussions have been seen in cocoa, oranges, and even beef, suggesting a widespread impact across the agricultural sector. The United Nations’ Food and Agriculture Organization’s recent Food Price Index registered its largest increase in 18 months, hinting at persistent apprehensions over escalating supermarket prices and renewed fears of a re-acceleration of global food inflation.
The trajectory of food inflation has garnered significant attention, with experts and markets bracing for its potential return. Sara Menker, CEO of Gro Intelligence, has previously indicated that the scope of the current food crisis exceeds the challenges faced in 2008, emphasizing the urgency for remedial actions. In response to rampant inflation, the only proposed solutions in the U.S., particularly from the Harris-Walz campaign, have centered around implementing “communist price controls.” This situation highlights the complexity of global food systems and the challenges in addressing systemic inflationary pressures without drastic measures.
As the global economy grapples with sticky food inflation, there is increasing debate about the effectiveness of current policies aimed at combating these trends. Critics argue that revisiting and potentially revising climate change policies, which often necessitate de-growth strategies, might be necessary to alleviate inflationary pressures in food prices. With production forecasts improving, the olive oil market could be a bellwether for broader shifts in agricultural markets, informing strategies necessary to navigate economic challenges ahead as stakeholders seek to mitigate the effects of food inflation on consumers.
