World’s olive oil supply threatened by worst drought ‘in living memory’

Nearly a century ago, Manuel Heredia Jarcon’s grandparents planted olive trees in their 1,200-acre orchard in Andalusia, Spain.

The trees are known for their ability to thrive in even the driest of soils, but this year the scorching temperatures and severe lack of rainfall have taken their toll.

“We are very concerned,” Halkon told CNN Business. “Olive trees cannot be replaced by other trees or products,” he added.

Halcon, like many European farmers, has fought extreme drought This summer — he estimates that the olive oil yield from his farm, Cortijo de Suerte Alta, will be down by about 40% this year due to unusual weather conditions.

What is the temperature in July broke the record Above 40 degrees Celsius (104.5 degrees Fahrenheit) in parts of France, Spain, Italy, and Portugal. According to the European Drought Observatory, by early August, nearly two-thirds of the European Union’s land was in drought conditions due to sweltering heat and lack of rainfall.

Olive oil producers have been hit hard. Kyle Holland, an oilseeds and grains price analyst at commodity data firm Mintech, expects Spain’s olive oil harvest starting in October to fall “dramatically” between 33% and 38%. I’m here.

Spain is the world’s largest producer of olive oil, accounting for more than two-fifths of global supply last year, according to the International Olive Council. Greece, Italy and Portugal are also major producers.

Consumers are already paying more for olive oil. Retail prices across the European Union surged 14% in his year to July. But prices are set to rise further in the coming months, producers and buyers told CNN Business.

“The drought is too severe. It’s simply too dry. Some trees bear very little fruit, some bear no fruit at all. This only happens when the soil moisture level is very low.” Holland told CNN Business.

This is a warning shot for an industry that relies on the predictable life cycle of olive trees. breaking that rhythm.

Olive oil production is all about timing. The trees begin to bud in March before flowering in May. Olives are grown during the summer before being harvested in the fall.

Spain’s southernmost region, Andalusia, supplies about one-third of the world’s olive oil. Accustomed to temperatures that regularly reach 40 degrees Celsius, he is not used to May, when the flowers begin to bloom.

“We may have lost 15% to 20% of our harvest at that moment,” he said.

Halcón will sell this year’s crude at €4 ($3.97) per kilogram to buyers, including importers in Asia and the United States. This is a 30% increase from last year.

Heat wave coincided with 3 consecutive years of heat wave little rainThe water level of the Guadalquivir River, which helps irrigate the surrounding olive groves, is very low.

“It’s going to be even worse next year because the dam will be completely empty,” he said.

Juan Jimenez, CEO of the family-owned Green Gold Olive Oil Company, located about 160 kilometers (100 miles) northeast, faces a similar problem.

“[The issue] Not just how hot it was, but when it was hot,” he told CNN Business.

“The moment when the olive blossoms are in full bloom, and [if it is] It is impossible to bear fruit because it is hot and the flower itself burns, ”he added.

Jimenez’s olive trees cover 740 acres of mountainous and flat terrain. A sharp rise in temperatures in May means that crop yields could be 35% to 60% below their normal year’s yields if there is no rain in the next few weeks.

If so, Jimenez said it would be “the worst crop of the last decade.”

Drought is also a major headache in other parts of Southern Europe. Filippo Berio sells oil in 72 countries, most of it from suppliers in Italy, Spain and Greece.

We also produce our own oil from 25,000 trees in Italy. Walter Zanré, managing director of Filippo Berio’s UK division, described Tuscan orchards as “dry” this summer. wildfire broke out Very close to the company’s only factory, where all oils are blended, refined, bottled and shrouded in smoke and ash.

“We’ve been through drought conditions and in living memory I think this is the worst anyone has ever seen,” Zanré told CNN Business.

It remains to be seen how bad the 2022 harvest will be. The U.S. Department of Agriculture predicted last month that global production will fall by 14%, but Mintec expects it could match his predicted losses of more than 30% in Spain.

Benchmark producer prices for Spanish extra virgin olive oil from Andalusia reached their highest level in more than five years at the end of August. And over the past two years, it has surged by almost 80%, from €2.19 ($2.18) per kilogram in August 2020 to €3.93 ($3.90) for him this month.

Prices surged in early 2021 as buyers worried that bad weather would squeeze supply, according to Mintech data. It surged again in late February after Russia invaded Ukraine. Concerned about declining sunflower oil exports from the region, buyers stocked up on olive oil as an alternative.

Prices rose again from June onwards, with signs of a poor next harvest.

So far, long contracts between suppliers and retailers have shielded consumers from the worst price hikes. But Holland said shoppers can expect significant price increases in his next four months as retailers renew supply contracts.

“Retailers will try to pass on these costs as little as possible,” he said, adding that producer prices could rise by up to 15% from the already inflated levels in August.Mintec data show that even a 10% increase will push producer prices to all-time highs.

Yacine Amor, director of UK wholesaler Artisan Olive Oil Company, told CNN Business that the shelf price of a half-liter bottle (18 fl oz) of his olive oil will increase by 20% over the next period. He said he expects it to rise. Several months. Amor’s customers are primarily supermarkets, delis and restaurants.

Bottle prices have already skyrocketed in some major markets. In Europe, the world’s largest consumer of olive oil, the Netherlands and Greece recorded the biggest gains, with July retail prices up more than a quarter compared to the same period last year.

In the UK, a similarly sized bottle of Filippo Berio extra virgin olive oil (the brand’s largest market outside the US) cost a record £5 ($5.76) in some stores, and at launch of £3.75 ($4.32). Year. That’s one third as high.

Zanre’s biggest concern is how shopper behavior will change as prices inevitably rise.

“Without a doubt, we are facing one of the most difficult times the olive oil industry has ever experienced,” he said.

Olive oil producers have weathered many storms in the past, but this year a combination of extreme weather conditions supply chain bottleneck and soaring energy cost — stimulated by the war in Ukraine — caused unprecedented pressure.

According to Halcón, the cost of electricity required to pump water to his trees has doubled, and glass bottles are 40% more expensive.

Zanre is also “whatever you touch” [the] “Supply chain” prices are rising.

“The pallets that the goods move on have gone up, the bottles have gone up, the labels have gone up, the caps have gone up, the energy to run the factory has gone up. [the] “Crude oil will go up,” he said.

But crises also create opportunities, Harkon says.Rising prices of seed oils, including sunflower oilmade olive oil more competitive.

“A year ago, olive oil would have doubled. [the] The price, or even three times more expensive than some products. [alternatives]today may be only 20% or 30% more expensive than seed oil,” he said.

Jimenez is also optimistic. Olive oil is still only a small part of the global cooking oil market, he said, and he is confident the share will only grow.

“But we should probably be prepared to figure this out. [drought] It happens once in 10 years, 1 time in 5 years, or 1 time in 4 years instead of 1 time in 20 years. And if you want to survive in a competitive market, you have to be prepared to do it,” he said.