China Demand and Supply Shortages Drive Olive Oil Prices to 8-year High
Olive oil prices are on the move higher due to growing demand from China’s rising middle-class, but also due to weather-related crop shortages and the strength of the US dollar. That combination has sent olive oil prices soaring, with room for more to come. As we’ve seen in the beef industry, shortages can be followed by rising supply that can lead to lower prices, but the underlying demand curve that reflects our Rise & Fall of the Middle Class is likely to remain strong. This means olive oil could join the protein complex as well as water to be a Scarce Resource. Italians that enjoy spaghetti con aglio, olio e peperoncini must be up in arms.
Erratic weather in Spain and Italy, the world’s biggest producers, is rippling through global olive oil markets, and it’s about to get worse. Prices for extra virgin olive oil in Italy have soared almost one-third since October to €5.75 ($6.15) a kilogram, while Spanish costs jumped about 10%, according to the International Olive Council in Madrid. The forecasters at Mintec Ltd. in England see room for even further gains.
Nowhere is the surge felt more than Britain. Thanks to the Brexit-induced collapse of the pound, olive oil is the most expensive it’s been in at least seven years. Celebrity chef Jamie Oliver is closing six of his Italian restaurants around the country after the currency’s crash drove up costs.
Hot, muggy weather in Italy attracted olive fruit flies and helped bacteria to flourish, damaging groves. The nation’s production is expected to plunge as much as 50% this season.
In Greece, last spring’s heat waves are poised to cut output by about one-fourth. Floods in Andalusia, Spain’s main growing region, ruined its harvest.
At the same time demand is increasing from China and other emerging markets. Spanish producers have had to drain stockpiles to meet export orders, including to the U.S. The country imports more than 300,000 tons of olive oil a year, more than half of which comes from Italy and Spain.
Source: Olive Oil Prices Surging After Bad Weather in Italy, Spain and Greece – Bloomberg
