Olive trees at Finca Fuensantilla of Green Gold Olive Oil Company in Beas del Segura, Spain, have suffered from record temperatures and lack of rain this year. (Alfredo Cáliz/Panos/Redux for CNN)
Manuel Heredia Halcón’s grandparents planted olive trees in their 1,200-acre forest in Andalusia, Spain, nearly a century ago.
The plant is famous for its ability to grow even on the driest of soils, but this year, scorching temperatures and a severe lack of rain took its toll.
“We’re very concerned,” Halcón told CNN Business. “You can’t replace the olive tree with any other tree or product,” he added.
Like many European farmers, Halcón fought severe drought this summer — he estimates that the olive oil harvest from his farm, Cortijo de Suerte Alta, will drop by about 40% this year due to unusual weather conditions.
In July, the temperature break record up to 40 degrees Celsius (104.5 degrees Fahrenheit) across parts of France, Spain, Italy and Portugal. In early August, the sweltering heat and lack of rain pushed nearly two-thirds of the land in the European Union into drought, according to the European Drought Observatory.
Olive oil producers have been hit hard. Kyle Holland, oilseeds and grains pricing analyst at Mintec, a commodity data firm, expects a “significant drop” of 33% to 38% in the West’s olive oil harvest. Spain starts in October.
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 paid more for olive oil. Retail prices across the European Union were up 14% in the year to July. But prices will rise further in the coming months, manufacturers and buyers told CNN Business.
“The drought is so severe. It’s simply too dry. Some trees produce very little fruit, some trees don’t bear fruit at all. This only happens when the soil moisture is extremely low,” Holland told CNN. Business.
It’s a warning shot for an industry that depends on the predictable life cycle of the olive tree. Growers are used to big changes in harvest over a 24-month period, but climate change has disrupted that centuries-old rhythm.
Olives fall on dry soil during a drought at Villa Filippo Berio in Vecchiano, Italy. (Noemi Cassanelli/CNN)
Paco Bujalance, factory owner of Cortijo de Suerte Alta, displays olives at the company’s grove in Albendín, Spain. (Alfredo Cáliz/Panos/Redux for CNN)
‘Can’t have fruit’
Olive oil production is all about timing. The plant begins to bud in March before flowers bloom in May. Olives grow during the summer months before being harvested in the fall.
Andalusia, the southernmost region of Spain, supplies about a third of the world’s olive oil. It is used to temperatures regularly reaching 40 degrees Celsius, but not in May, when the flowers begin to bloom.
“In that moment we probably lost 15% to 20% of the harvest,” he said.
Halcón plans to sell its oil this year at 4 euros ($3.97) per kilogram to its buyers, which include importers in Asia and the Americas. That’s a 30% increase from last year.
The heat wave coincides with the third consecutive year of little rainfall. Water levels in the Guadalquivir River, which irrigate the surrounding olive groves, are extremely low. Halcón says he can only provide his plants with about half the usual amount of water this growing season.
“Next year will be even worse because the dams will be completely empty,” he said.
Juan Jímenez, CEO of Green Gold Olive Oil Company, a family business about 160 kilometers (100 miles) northeast, is experiencing similar problems.
“[The issue] It’s not just how hot it is, but when it’s hot,” he told CNN Business.
“In the moment when the olive flower comes to life, and [if it is] hot, the flowers themselves are burned so there can’t be any fruit,” he added.
Jímenez’s olive trees cover 740 acres of hilly and flat terrain. The high temperatures in May will likely reduce his harvest by 35% to 60% of the year’s normal harvest if rain does not fall in the next few weeks.
If so, it would be “the worst harvest in the last 10 years,” said Jímenez.
Elsewhere in southern Europe, drought also caused major headaches. Filippo Berio sells oil in 72 countries and gets most of it from suppliers in Italy, Spain and Greece.
It also produces its own oil from 25,000 trees in Italy. Walter Zanre, managing director of Filippo Berio’s UK division, described the Tuscan forest as “dry” this summer. At the end of July, one forest fire broke out very close to the company’s only plant — where all of the company’s oils are blended, refined, and bottled — engulfing it in smoke and ash.
“We’ve been through a drought, but I think in living memory this is the worst that anyone has ever seen,” Zanre told CNN Business.
Price shock
How bad the 2022 harvest will be remains to be seen. The US Department of Agriculture last month forecast a 14% drop in global output, while Mintec predicted it could be similar to the more than 30% drop expected for Spain.
Producer benchmark prices for extra-virgin Spanish olive oil from Andalusia hit their highest level in more than five years at the end of August. And, over the past two years, they’ve increased by almost 80% — from €2 .19 ($2.18) per kg in August 2020 to €3.93 ($3.90) this month.
Mintec data shows prices spiked in early 2021 as buyers feared bad weather would reduce supply. Prices rebounded in late February after Russia invaded Ukraine, when a worrying drop in sunflower oil exports from the region prompted buyers to stock up on olive oil instead.
Since June, signs that the next harvest will be poor have pushed prices back up.
So far, long-term contracts between suppliers and retailers have protected consumers from some of the worst price spikes. However, shoppers can expect a significant price hike over the next four months, as retailers renew their supply contracts, Holland said.
“Retailers will try not to pass on as much of this cost as possible,” he said, adding that producer prices could rise as much as 15 percent from August highs. According to the data. Mintec’s, even a 10% increase would put producer prices at all-time highs.
Yacine Amor, director of Artisan Olive Oil Company, a UK wholesaler, told CNN Business he expects the sale price for a half-liter (18 liquid ounce) bottle of his olive oil to increase by as much as 20% in next time. months. Amor’s customers are mainly supermarkets, fast food stores and restaurants.
A tractor drives through an olive grove at Villa Filippo Berio in Italy. (Noemi Cassanelli/CNN)
Inside the olive oil grinding room at Villa Filippo Berio. (Noemi Cassanelli/CNN)
The price of a bottle has skyrocketed in several major markets. In Europe, the world’s biggest consumer of olive oil, the biggest increases were seen in the Netherlands and Greece, where retail prices increased by more than a quarter in July compared with the same time last year.
A bottle of Filippo Berio extra virgin olive oil the same size in the UK – the brand’s biggest market outside of the US – is now selling for a record £5 ($5.76) at select stores. row, up from £3.75 ($4.32) at the start of the year. That’s a third more expensive.
Zanre’s biggest concern is how shopper behavior might change as prices inevitably rise.
“There is no doubt we are facing one of the most difficult periods ever in the olive oil industry,” he said.
Costs are rising everywhere
Olive oil producers have faced many storms in the past, but this year, a combination of extreme weather, supply chain bottlenecks and skyrocket Electricity bill – sparked by the war in Ukraine – has caused an unprecedented squeeze.
Halcón says the cost of electricity needed to pump water onto his trees has doubled, while his glass bottles are 40% more expensive.
The same goes for Zanre, “whatever you touch [the] supply chain” has raised prices. He believes some costs, such as shipping fees, are unlikely to come down.
“Shipping shelves go up, bottles go up, labels go up, bottle caps go up, the energy to run the factory go up. Everything. And then, on top of that, we have the prices of [the] oil will rise,” he said.
But crisis creates opportunity, Halcón said. The price of oilseed increased, including sunflower oilhas made olive oil more competitive.
“If a year ago the price of olive oil doubled [the] price, or even three times more expensive than some [alternatives]today we can be only 20%, 30% more expensive than seed oil,” he said.
Jímenez is also optimistic. Olive oil remains only a tiny fraction of the global edible oil market, he said, a share he believes can only grow.
“But we need to be prepared to understand that maybe this [drought] will happen, not once in 20 years, but one in ten, or one in five, or one in four. And we need to be prepared to do that if we want to survive in a competitive market,” he said.
