The olive oil market is set for a shift as weather conditions in Spain improve, leading to increased production.
- Following a severe two-year drought, Spanish olive oil production had sharply declined, affecting global supplies.
- Weather improvements in Spain are expected to enhance the harvest, potentially reducing olive oil prices globally.
- Production costs in the olive oil industry remain a concern due to energy-intensive processes.
- Other sectors like orange juice are also experiencing supply chain issues, adding to FMCG challenges.
The olive oil market is on a path to recovery as favourable weather patterns in Spain signal an end to a prolonged drought period. This development is expected to bolster olive oil production, which had suffered a significant 60% decline, disrupting global supplies and causing prices to surge. The drought had posed a considerable challenge to the industry, driven primarily by the lack of rainfall over the past two and a half years.
As noted by CaixaBank Research economist Pedro Álvarez Ondina, the lack of rain was not the only factor impacting the sector; increased production costs due to the energy-intensive nature of olive oil extraction also played a role. “For the olive industry, the major drag was the lack of rain in the last two-and-a-half years,” Ondina stated.
In recent months, extra virgin olive oil prices have been predicted to exceed £16 per litre, up from £14 earlier in the year. This escalation resulted from the lowest global production levels in over a decade. However, with weather conditions improving in Spain, a major olive oil producer, stakeholders anticipate that stabilisation in production will eventually ease price pressures.
The challenges faced by the olive oil sector are not isolated. Other categories, such as the orange juice market, are grappling with disruptions. Major producers have reported an outbreak of citrus greening disease, which affects both the colour and acidity of oranges. Consequently, prices for orange juice are expected to rise, reflecting broader supply chain concerns within the FMCG sector.
In conclusion, with weather conditions improving in Spain, there are expectations of increased olive oil production and potential price relief, despite ongoing production cost challenges.
