The olive oil sector is facing the perfect storm. A harvest of low quality and quantity, and skyrocketing costs, have been pushing up the prices of a key ingredient in Mediterranean cuisine and diet for months. For households it represents one more burden to bear after more than two years of persistent inflation. And the situation has no signs of being solved in the short and medium term. The large Spanish company in the sector is one of the main victims. He accepts it, and on a business scale he is preparing for several more months of instability.
The persistent drought added to the heat waves, which this summer have been more and more intense, have caused an unusually low production campaign. For areas like Jaén it has been dramatic. In figures, a normal harvest involves collecting 1.2 billion tons of olives. In the last one, for the reasons cited, only 664,000 tons were collected. Little more than half. The price in the production process has inevitably skyrocketed.
The entire sector is suffering from the olive crisis, especially the producers, and Deoleo, the largest company in the world, owner of leading brands such as Bertolli, Carapelli, Hojiblanca, Koipe or Carbonell, is no stranger to this delicate situation. Only in the first half of 2023, the Spanish multinational lost 9.7 million.
Ignacio Silva is president and CEO of Deoleo. In conversation with La Vanguardia he explains that the latest results of the company he directs “are a reflection of the sharp drop in volumes in the entire oil category due to the lack of production.” It is unavoidable. But the main producer of the so-called Spanish “liquid gold” is already making decisions to protect itself from what is coming. As? “Increasing the margins per liter sold”, which are already 17%. That is, Deoleo is passing on to customers the increase in prices experienced in the production chain.
Deoleo is also monopolizing production to avoid major surprises. This was communicated last week to the National Securities Market Commission: “This shortage [of oil] has led the group to use its capillarity in the purchase and gather greater volumes of reserves, to ensure both the quality and availability of the products”.
In recent months the price of olive oil in the supermarket has skyrocketed by more than 90%. In fact, a liter of extra virgin already exceeds 10 euros on average in Mercadona, Carrefour, Alcampo, Dia, Eroski and Hipercor, according to the latest studies by consumer organizations. The direct consequence of these prices is that marketing volumes have fallen by 21.9% in the last year. Bottles and jugs are more expensive and the most vulnerable consumers ultimately opt for cheaper products. Inflation is pressing.
The big question not only for the sector but also for consumers is the following: when will prices drop? The top manager of Deoleo is not optimistic, at least today. “It won’t be until next spring that a relaxation could occur, depending on expectations for next season.” That is to say, olive oil will continue to be paid dearly in Spain and Italy, the countries that consume the most volume. And relaxation does not mean reduction. It means moderation.
In order for more and better oil to be produced, the field has to receive water. In this sense, the recent rains have contributed to somewhat improving the olive grove, especially the Andalusian one, although not enough. Therefore, facing next year’s harvest, which begins at the end of October, Deoleo estimates that 850,000 tons will be collected, a figure still far from concluding that a normalization of production is taking place. In the coming months, therefore, the availability of the product will be limited and, in this way, the large national producing company does not expect a decrease in the final price at origin and, therefore, not in supermarkets.
Deoleo, with 650 employees, has been immersed in recent months in a business process in which its main shareholder, the British investment fund CVC, also present in Naturgy or LaLiga, among others, has probed the market in search of possible interested parties in investing in the oil company. The situation has cooled any possible operation. Ignacio Silva affirms that the reference shareholders of Deoleo, CVC and Alchemy, “are calm and satisfied with the evolution of the company and trust that the work carried out will revert to results once the market returns to its usual normality.”
