Olive Oil Prices in Spain: Situation and Solutions

Olive Oil Prices in Spain: Situation and Solutions

2019/11/06 - Mercacei has sought the opinion of some producers, experts and brokers in the sector in order to address the low prices of olive oil in Spain, the reasons of this situation and possible measures to ease this situation.

To do so, we have asked:

  1. What are the reasons why the prices of olive oil continue to be so low considering that Spain has strongly led world production this campaign?
  2. What measures do you think should be put in place to reverse this situation?
  3. Why is there such a marked price difference between Spain and Italy?

Gonzalo Guillén, CEO of Grupo Acesur
1. For better or worse, the free market of supply and demand is like this. When there was greater shortage, lower available stocks and harvest forecasts, prices have been much higher (2014-18 period). Now, with a record harvest that we just finished and with good prospects for the next season, the situation has turned around and is very different, with an offer that exceeds demand. Today, forecasts place the campaign link at 600,000-700,000 tons and this situation causes that the prices do not improve. In short, this is a logical situation that occurs in a market of supply and demand that actually works.

2. World demand has been stagnant between 2012 and 2018 due, on the one hand, to lower production as a result of inclement weather that caused us to suffer two of the worst harvests in the last 15 years, and on the other hand side, due to high prices that may have been a brake on growth and on the attraction of new consumers.
We also have to be attentive, and we mustn't forget that we are not alone in the world and that little by little other fats are appearing that also start to have a healthy reputation and compete with olive oil. Clear examples are sunflowers and high oleic rape/canola, coconut oils, grape grains, rice bran or recently avocados or oils from nuts.
In my opinion, and this is what I have been saying for many years, the solution to achieve a value chain with more balanced prices that suppose a better position for all its members is promotion, that is to say, investing to increase demand. At this moment, the Interprofessional of Spanish Olive Oil is nourished by a contribution of 6 euros per ton of olive oil, a figure clearly insufficient when the production is in clear process of improvement with very significant increases in efficiency per hectare, as well as a new area of ​​olive groves (high density and hedge row) whose investment has not stopped growing over the last decade attracted by the good prices of olive oil. This production growth will probably continue to register significantly in the next two or three years and is being much faster than the increase in demand. Therefore, it seems that we are heading to a scenario of large productions where the demand in the Mediterranean not only does not increase, but decreases due to sociodemographic changes, customs, eating habits, etc. To grow in countries where there is no consumption habit, a lot of pedagogy is necessary on order to increase communication so that consumers understand the benefits of olive oil, and therefore, a lot of investment in promoting our beloved Spanish olive oil is needed.
Our proposal is to increase and move from the current 6 euros to 30 euros/t. to provide the Interprofessional with the structure and capacity to undertake major investments in communication and promotion of our olive oil that reaches all corners of the planet. We have a historic opportunity because we are the main producer country, and we are the only one that has managed to organize itself throughout an Interprofessional.

3. In Italy there is a control and traceability system that supposedly allows to determine the exact production of Italian olive oil. Being a very scarce production, especially in this last campaign, the availability of Italian oil to be sold and labeled as such is very small. As there is a great local demand in Italy and worldwide of genuine Italian oil, very much superior to the offer, it has caused an incrase in the prices at origin. Maybe next year, with better harvest forecasts, the differences will be lower again.

José María Penco, Director of AEMO
1. I think that the producer sector itself was discounting the harvest that was coming from September-October 2018, before starting the harvest itself and when the equilibrium prices were still more than 3 euros per kg. then everyone said that the price of olive oil would fall to values ​​of 2.30-2.60 euros/kg. Sometimes we are responsible for taking for granted that the market will bend to an "inevitable decline." It is true that after the harvest was confirmed at 1.8 million tons and then everything accelerated precipitously, even the "pathetic 2 euros" that lead the average of all the categories. Therefore, the reason for the decrease is due, on the one hand, to discouragement and to the lack of confidence in the producer sector, which is governed by more psychological factors than other, and on the other hand by a certain high production that has finally been confirmed. In any case we always insist on making the global account of the entire Mediterranean Basin and not only obsess over Spanish production.

2. In the short term, I believe that the main measure has to do with the self-confidence of the producer sector itself. We have to believe that we produce the best fat of all, we have to make our product worth to the buyers, we must not fold to offers that are below the production costs and in no case sell at a loss. And this is a matter of attitude and confidence in ourselves. In a second plane we can manage surpluses and crop variation between campaigns through regulated self-regulation commanded by the Interprofessional, and we must have updated prices for the intervention which is a cheap and efficient mechanism.
In the long term we must work hard to increase the demand, since the new plantations in Spain and the improvement of the yields of the existing ones are going to mark average harvests of 2 million tons of oil produced in Spain in the coming years and we must sell this amount with a decent price. All of this must be complemented with investment in promotion, especially in foreign markets where we have a real capacity for growth.

3. It is related to what I mentioned earlier, it is a matter of trust. Italians love their oil, they know how to sell it with a higher value, they consider it much more than a simple food and they set it up as the flagship of their diet. I must also add that in recent years there is a scarcity of production in his country, which is why the assessment and differential of Made in Italy oil is even still growing.
We have a lot to learn from the Italians and we have to think on whether everything goes through the quantity and concentration of the offer, or rather through the dignification of the product, transmitting the values ​​of the olive juice to the world and selling our extra virgin with dignity, price and maximum quality. In my oppinion, we must bet to produce the maximum percentage of extra virgin possible, spread its healthy and gastronomic values ​​to the consumer and make it stand in front of the buyer, against the unfortunate strategy of "selling everything no matter the price".

Juan Vilar Hernández, International Olive Oil Analyst, CEO of Juan Vilar Consultores Estratégicos and permanent Professor of the University of Jaén
1. There has been a structural mismatch between supply and demand during the last campaigns, while consumption has followed its gradual evolution, with certain losses in mature markets. In addition, the surface destined to olive growing has experienced a growth that has been transferred to production, a circumstance that surprised a large part of the sector. This situation has generated that the majority of the operators of this sector have managed this historical campaign in an improvised manner. Also, it doesn't help at all that, in a circumstantial way, we have these current levels of supply. All of these circumstances have been fully reflected in the evolution of prices.

2. The situation is not dramatic but it does imply some seriousness, although it cen be resolved. It is urgent to establish urgent measures to promote and displace demand so that it fully absorbs the current supply, which is achieved through promotion policies, especially incisive in mature markets, all of them potential competitors of our oils in the international scene. The measures must come from institutions such as ministries, producer associations, interprofessinals, councils, etc. who are in charge of establishing an adequate framework in which all the business categories that make up the sector can be economically profitable.
Once a favorable environment has been created, the different operators of the sector must design, develop and apply optimization strategies, based on the improvement of costs and the positive displacement of prices.

3. First of all, it is not a significant difference, nor does it affect all countries; and secondly, we ara talking about a problem of scarcity. That is to say, in the Italian market in origin, before an unprecedented drop in supply, the original product of the country is appreciated due to the shortage of local EVOO, which means that whoever wants to acquire this original product does it in a more appreciated way, as there is no availability of it. From there, the price difference remains the same as has historically existed between both markets, and even less, due mainly to a greater commercial specialization of the Italian sector, to the detriment of Spanish.

Juan Gadeo, Chairman of the Board of Directors of Grupo Interóleo
1. We make the mistake of believing that by being leaders in production and marketing we will also be leaders in value. And reality has shown us the opposite. We have lost 30% of value when almost 60% of the world stocks in this campaign were in Spain.
Undoubtedly, both the producing sector and the industrial have mismanaged the competitive advantage of owning 60% of the stocks. The producing sector not seems to be able to read the situation and either manages the sales hastily overloading the supply from the beginning of the campaign or either supplying the market and strangling the supply without selling and then in a disorderly manner flooding the markets with the smallest variaton in rainfall or in the forecasts of the next harvest. These two antagonistic behaviors do nothing but damage the price and generate an insecurity of purchase to the demand to which it immobilizes.
As for the industry, it continues gaining market share against the Italian industry and conquering new markets but with a notorious weakness since these new consumptions are obtained via price.

2. In the short term, the only efficient measure is to immobilize or withdraw part of the existing availability (the largest of the historical series so far) so that there is no current imbalance between supply and demand that has caused prices below the threshold of profitability for the farmer; while in the medium and long term the knowledge of our product must be significantly increased worldwide to generate new consumers that can absorb the increase in production. In other words, increase the investment in the promotion of extra virgin olive oil and virgin olive oil (from the producer sector) as well as adapting the product to the new trends of society.

3. We must observe something that goes unnoticed but that significantly influences the price. If we look at the collection dates, according to the last report of the European Commission, Italy obtained 40% of its production in November 2018, while Spain did it during the month of January 2019. These 60 days of difference give give rise to very different oils from a sensorial point of view and this means also a different in price in the global market.
In addition the productive structure is characterized by small frantoios with small quantities to manage and therefore the number of suppliers is much smaller than in Spain, existing a more balanced chain.
Finally, the Italian model is more focused on quality compared to a Spanish model still focused on volume.

Rafael Gutiérrez, Director of Bulk Operations at Dcoop
1. Basically it is due to two reasons: an imbalance between production and marketing, and a fragmentation in the supply chain that causes prices to decrease without operations.

2. In the first place, we need a concentration of the offer that does not get nervous in those times of less demand; and second, the search for new markets to place surpluses that are to come. This is an unavoidable work of the sector. At the same time, we can ask for mechanisms dependent on the Administration, such as the private storage, product withdrawal, standard extension...

3. In Italy the local product is appreciated, not only in the case of olive oil, but in every product. This has caused that there is an increasing control over Italian oil. To this we must add the fact of the scarcity of its harvest, with greater demand than production itself.

Cristóbal Gallego, President of Jaencoop and President of the Olive Sector at Cooperativas Agro-alimentarias de Jaén
1. We have had a record production, around 1.8 million tons, very concentrated in a few months. There is a great imbalance between supply -very atomized- and distribution -much more concentrated-. There is no market measure that we can use with legal guarantee, only private storage with trigger prices of more than 20 years ago, which are below a minimum level of profitability of the sector.

2. In Cooperativas Agro-alimentarias de España, within the current legislation, we have been working for many years in the development of proposals that allow a greater balance between the different operators that make up the food chain and guarantee the economic viability of the sector as a whole. We have requested the Spanish Ministry of Agriculture that, under the current regulations, dictate an internal regulation that allows the sector to manage a private storage or purchase of oil and subsequent sale, complying at all times with the regulations in force. In a complementary manner we are working on a self-regulation by withdrawal of the product by the Interprofessional of Spanish Olive Oil, with the application of an extension of the regulation that would require the withdrawal of all operators, being necessary to obtain the agreement of the Commission.

3. The price indicated to us from Italy is for 100% Italian oil. In this country, its domestic consumption exceeds its production. In the other major producing countries, this doesn't happen and prices are very marked by what happens in Spain, following a similar trend.

Luis Miguel Algar, Purchasing Director of Deoleo
1. Sometimes we make a general assessment of global availabilities when measuring the impact that price should have on the raw material, if so, seeing the amount of this year globally, we could say that equivalent to that of the past year, prices should be similar and on the contrary we are 1 euro below. In a first analysis we might see that the price is linked to the production of the country itself, where in years of good harvest and prospects the price is lower and vice versa. It is a fact that this year the campaign has been very good and that the potential for the coming campaign is there to be noticed – in addition, the entire Mediterranean arch points to very good figures. Obviously this does not help the price rise, and if you add more prudent outputs, according to the figures, which in principle could be expected, still puts more weight to the decreases. Finally, we must add to all of this situation that there is an uninteresting demand for offload the offer, so the markets get stuck and are not dynamic, with the consequent downward impact that all this has on the final price.

2. We must seek equitable regulations for all members of the value chain without provoking speculation, updating the regulation prices that were established 20 years ago and launching a strategic plan for the development of the sector that must go through increasing consumption
The important thing is to have clear rules, know and explain what are the different types of oil, where each one is located in the industry and where they want to position each of them, and swift all of this to the markets, with total transparency and with the same rules of the game.

3. Normally, it does not seem that the Italian raw material market is comparable to the Spanish, since it represents 15-25% of its production. In addition, this year the lack of product makes prices more expensive. Italy's natural market is focused on Greece, Tunisia, Spain and Portugal, more than on its own. And in these markets Spanish operators operate at equal prices.

Jesús Cuervas, CEO of Jesús Cuervas, Aceites y Derivados
1. In my opinion, it is basically the law of supply and demand. Although other countries have had a lower harvest and hence the high level of our exports, the monthly supply in Spain is higher than demand and pressures prices down.

2. At present we are in a process of generalized production increase, both in Spain and in other countries. This is due to the new plantations, as well as to the increase of the irrigated area in the traditional olive grove, without forgetting the new agricultural practices that reduce the vecería and improve the productivity.
In such an environment it is essential to bet decisively on the promotion of olive oil in all its categories (extra, virgin, refined olive and refined pomace) to increase demand as much as possible. However, there will be drought cycles that will help absorb the stocks in years of lower production. An organized and widespread storage, in years of high production, would stabilize prices at reasonable levels and avoid large increases in the future.

3.Once again, it is basically the law of supply and demand, in Italy bottled oils from the Community, mainly from Spain and also from Tunisia, have prices in the linear similar to those of our country. Another different situation is 1OO% Italian oil. The productions in Italy are low to meet the strong demand that these oils have in Italy itself, as well as abroad and hence its high price, the origin is paid because it has a high brand value.

Eduardo Valverde, Manager of the SCA San Sebastián (Conde de Benalúa)
1. We think about paying producers in October and we do not see the market or the consumer. We do not want to adapt the offer to the demand. We are comfortable and bad merchants.

2. In view of the annual increase in harvests, more will have to be invested in consumers, in quality and service. Producing will not be enough to obtain good profitability. The future is export.

3. To the way of understanding the product: some in bulk / volume and others to quality, differentiation and service. Italy thinks of the world client, while Spain thinks of the national stock per campaign.

Francisco Serrano, President of Almazaras de la Subbética
1. To the excellent production of olive oil registered in the current campaign 2018/19.

2. It is necessary to continue betting on the promotion in order to increase consumption.

3. Italian olive oil is better valued by Italian consumers than community-based olive oil.

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