High prices have buoyed the sector for much of the past year and a half, but rising production costs and persistent drought mean significant challenges lie ahead.

Rising prices at ori­gin and demand have bol­stered the olive oil sec­tor in Spain for much of the past year. However, the last few weeks have yielded head­lines that may tem­per some of the recent opti­mism.

Earlier this month, Deoleo reported that its prof­its in the first half of the year plum­meted 57 per­cent com­pared to the first half of 2021. The world’s largest olive oil bot­tler recorded a €6 mil­lion profit until June 2022, drop­ping from €14 mil­lion in the first half of the pre­vi­ous year.

“ In the com­plex con­text that exists world­wide, [Deoleo] has not only had to face the nor­mal­iza­tion of con­sump­tion asso­ci­ated with the end of the global health cri­sis but also the increase of the prices of raw mate­ri­als and the ten­sions suf­fered in the sup­ply chain caused by the war in Ukraine or the trans­port strike in Spain,” the com­pany explained in a state­ment to local media.

While Deoleo and its port­fo­lio of brands will be just fine – plenty of other finan­cial indi­ca­tors from EBITDA to net finan­cial debt point to this – some of the under­ly­ing trends that led to the company’s reduc­tion in prof­its should con­cern other pro­duc­ers in Spain.

The nor­mal­iza­tion of con­sump­tion is at the top of this list. During the first two years of the Covid-19 pan­demic, olive oil con­sump­tion boomed in Spain as strict lock­downs led peo­ple to spend more time cook­ing at home.

Lockdowns in Spain started in March 2020 and lasted until May 2021. During this time, Spanish olive oil con­sump­tion jumped to 521,600 tons in the 2019/20 crop year and 537,800 tons dur­ing 2020/21, the high­est totals since 2013/14.

However, con­sump­tion slumped to 510,000 tons in the 2021/22 crop year, the first full crop year with no lock­downs and the resump­tion of nor­mal ser­vice at restau­rants.

Consumer sur­veys in the United States – the sec­ond-largest olive oil con­sumer after the European Union and a sig­nif­i­cant importer of Spanish olive oil – have also indi­cated that after two years of cook­ing at home, con­sumers feel ​“ drained.” More than one-third of respon­dents added that their patience in the kitchen is at an ​“ all-time low.”

Along with signs of slump­ing con­sump­tion, Deoleo high­lighted ris­ing costs as another rea­son prof­its were down. These ris­ing pro­duc­tion costs run the gamut from energy to glass bot­tles.

According to European Union data, fuel and energy costs for busi­nesses have more than dou­bled since the start of 2021, with a sig­nif­i­cant increase in energy prices attrib­uted to the Russian inva­sion of Ukraine.

Olive grow­ers and oil pro­duc­ers use energy for every facet of the olive oil pro­duc­tion process, from the elec­tric­ity or gen­er­a­tor fuel to run their mills to the gas and diesel that power trac­tors, water pumps and other har­vest­ing machines.

Data from the European Central Bank also shows that the price of glass has steadily increased over the past decade, with the increase becom­ing more pro­nounced in the past 12 months.

Since September 2021, the price of glass has risen by 16 per­cent in the European Union. By com­par­i­son, glass prices rose by just 14.6 per­cent between 1995 and 2021.

Similarly, the ris­ing prices of fer­til­izer, pes­ti­cides and replace­ment parts for trac­tors and milling equip­ment have cut into pro­duc­ers’ bot­tom lines, not only in Spain but across the rest of the olive oil-pro­duc­ing world as well.

Dozens of pro­duc­ers inter­viewed by Olive Oil Times since the begin­ning of 2022 said they had so far tried not to pass these prices on to con­sumers. However, they warned that may change if pro­duc­tion costs do not start to decline.

On top of ris­ing pro­duc­tion costs, pro­duc­ers in Spain are also fac­ing a crip­pling drought which has paired back pro­duc­tion expec­ta­tions to just 1 mil­lion tons in the 2022/23 crop year.

If these pre­dic­tions are borne out, the cur­rent crop year would be the worst one expe­ri­enced by Spain since 2014/15 when the coun­try pro­duced just 842,200 tons of olive oil.

While the ear­li­est days of the har­vest are about two months away, and timely rain­fall between now and then could dras­ti­cally change the pic­ture, some dam­age to the cur­rent crop is already irre­versible.

The lack of rain­fall across the Iberian Peninsula – Spain’s mete­o­ro­log­i­cal agency recently announced this sum­mer was the dri­est on record – has led to the des­ic­ca­tion of olive trees across Spain.

While the olive tree is a noto­ri­ously drought-resis­tant crop, it still requires timely rain­fall for the oil con­tent of the dru­pes to form. When the tree does not receive enough water, it drops its olives to con­serve water.

As a result, rain­fed groves – which account for about 68 per­cent of all Spanish olive groves – have seen sig­nif­i­cant fruit drops over the sum­mer. Water rationing has also affected the high-den­sity and super-high-den­sity groves, vir­tu­ally all of which are irri­gated.

In antic­i­pa­tion of a lighter har­vest, offi­cials in the most olive-farm­ing-depen­dant areas are scram­bling to mit­i­gate the poten­tial eco­nomic dev­as­ta­tion.

The provin­cial coun­cil of Jaén, an Andalusian province that pro­duces an aver­age of 600,000 tons of olive oil per annum, recently approved a €10 mil­lion employ­ment plan to off­set wages lost by olive pick­ers dur­ing the upcom­ing har­vest.

According to Spain’s Ministry of Agriculture, Fisheries and Food, 350,000 farm­ers in the coun­try grow olives. These farms sup­port an addi­tional 15,000 jobs in the sec­tor, which pay a com­bined €32 mil­lion in wages each year.

Officials in Jaén and other parts of Andalusia are con­cerned about the rip­ple effects of the loss of income result­ing from the expected poor har­vest. They are work­ing on plans to boost tourism and other sec­tors of the econ­omy to help mit­i­gate the neg­a­tive con­se­quences of a poor har­vest.

While a pos­i­tive 2021 and start to 2022 demon­strated the strength and poten­tial of Spain’s olive oil sec­tor, tough times are fast approach­ing. Growers, pro­duc­ers and con­sumers should be pre­pared.

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