Deoleo: olive oil production is in one of the most difficult times ever

In recent months, a perfect storm of climate change, rising prices, high interest rates and strong inflation have put the entire olive oil value chain to the test.

«We are facing one of the most difficult times in the history of the industry», says Miguel Angel Guzman, sales director of Deoleothe world’s largest olive oil producer cites the data in an email interview with CNBC.

These are the concerns of the Spanish woman Deoleo which states that the sector must undergo a profound transformation as it grapples with one of the most difficult moments in its history. Necessary after a perfect storm of climate change, rising prices, high interest rates and strong inflation have put the entire olive oil value chain to the test in recent months.

Two consecutive years of scorching heat in Spain have limited olive harvests, culminating in an unprecedented price increase that has stunned consumers and industry veterans alike. Spain accounts for more than 40% of global olive oil production, making it a global benchmark for prices.

«Strong inflation together with high interest rates and unfavorable forecasts of the olive oil harvest, in terms of quantity and quality due to the drought cycle, have caused a considerable increase in prices”Guzman said.

Extra virgin olive oil prices in Spanish Andalusia reached a record high of 9.2 euros ($9.84) per kilogram in January. According to Mintec’s benchmark index, they were trading at around 7.8 euros on April 19, down from around 8 euros at the end of March. Olive oil prices have cooled due in part to an increase in production estimates and beneficial rains in March and April.

Deoleo, the producer of domestic olive oil brands such as Bertolli and Carbonell, said it is convinced that the current situation is cyclical and expects a return to a more reasonable pricing situation when future crop yields return to normal. However, while the recent rain in Spain was undoubtedly positive news, the company struck a cautious tone on the outlook for olive oil prices.

«We still have months ahead of us before we know the possible volumes of the 2024/2025 harvest and until then these movements will be timely and prices will continue to be volatile – declared Guzman – In the meantime, the sector needs a profound transformation. Changes that at Deoleo we face with a firm commitment to best practices in terms of sustainability, innovation and quality, with a focus on the consumer».

The majority of the world’s olive oil supply comes from the Mediterranean, with Southern European countries such as Spain, Italy and Greece among the world’s leading producers of this precious commodity.

Oilseed analysts have warned that olive trees are extremely vulnerable to the climate crisis. While they can generally cope with high temperatures and are quite drought tolerant, recent conditions have been excessive.

Deoleo said drought and high temperatures during critical stages of olive fruit development in recent years have led to serious shortages in Spanish crops – and the broader olive oil sector is by its nature a hard-hit sector by the high volatility of prices at origin. The company said that prices at origin represent up to 80% of its total costs, adding that this is a situation we must address, especially in an environment like the current one.

When asked what can be done to better protect olive trees from climate-fueled extreme weather, Deoelo’s Guzman said: «The sector must take the reins and all the players within it must transform if we want to reduce price volatility and increase its predictability – and added – this will be fundamental to prevent external factors, of greater or lesser impact on supply and demand, from having such a decisive impact on the price of the product and, consequently, on the actions that companies are forced to undertake as well as on the future of the category».