Report Reveals Winners, Losers in Spanish Olive Oil Market

Summary

A new report from the Ministry of Agriculture, Fisheries and Food found that Spanish olive oil dis­trib­u­tors lost an aver­age of €0.231 per kilo­gram of extra vir­gin olive oil sold in the 2020/21 crop year, while olive farm­ers, mills, and bot­tlers all saw pos­i­tive net profit mar­gins along the value chain. The study aimed to con­tribute to mar­ket trans­parency and iden­tify inef­fi­cien­cies in the sup­ply chain in order to improve the prof­itabil­ity of the pro­duc­tion chain and ben­e­fit con­sumers.

Spanish olive oil dis­trib­u­tors lost an aver­age of €0.231 per kilo­gram of extra vir­gin olive oil sold in the 2020/21 crop year, a new report from the Ministry of Agriculture, Fisheries and Food found.

This starkly con­trasts with the pos­i­tive net profit mar­gins of olive farm­ers, mills and bot­tlers.

The study found that olive farm­ers earned an aver­age of €0.062 per kilo­gram of extra vir­gin olive oil pro­duced, while mills earned €0.001 per kilo­gram. However, the biggest win­ners in the value chain were bot­tlers, who earned €0.206 per kilo­gram.

While find­ing net mar­gins obtained at each stage of the extra vir­gin olive oil value chain was one of the main goals of the inves­ti­ga­tion, the min­istry said the research was not intended to be a sta­tis­ti­cal study of dif­fer­ent ele­ments of the sup­ply chain.

Instead, the research is meant to con­tribute to mar­ket trans­parency and iden­tify inef­fi­cien­cies in the sup­ply chain. The min­istry added that it hopes stake­hold­ers will use the study to improve the prof­itabil­ity of the pro­duc­tion chain and ben­e­fit con­sumers.

To deter­mine the prof­itabil­ity along each step of the chain, the min­istry iden­ti­fied the three main com­po­nents: olive pro­duc­tion; the indus­trial stage, includ­ing mills and bot­tlers; and the dis­tri­b­u­tion stage.

The min­istry cited staff, machin­ery, phy­tosan­i­tary prod­ucts, fer­til­iz­ers and costs asso­ci­ated with grove main­te­nance, har­vest­ing and trans­porta­tion as the main pro­duc­tion costs fac­ing olive farm­ers.

However, costs var­ied sig­nif­i­cantly between dif­fer­ent types of groves, rang­ing from €1.443 per kilo­gram of extra vir­gin olive oil pro­duced in super-high-den­sity (super-inten­sive) groves to €4.332 per kilo­gram in non-mech­a­niz­able tra­di­tional groves.

The min­istry found that pro­duc­tion costs for tra­di­tional farm­ers were highly influ­enced by vol­umes pro­duced, with costs ris­ing dur­ing poor har­vests. On aver­age, grow­ers spent €2.520 per kilo­gram while earn­ing €2.582 per kilo­gram.

At the next stage of the value chain, staff, equip­ment, debt pay­ments, waste man­age­ment, insur­ance and input costs were iden­ti­fied as the main expenses fac­ing Spain’s olive mills.

The min­istry found the aver­age extrac­tion cost to be €0.312 per kilo­gram, rang­ing from €0.153 per kilo­gram to €0.406 per kilo­gram.

Extraction costs were highly influ­enced by the size of the mill, pro­duc­tion vol­umes and indus­trial per­for­mance, mea­sured as kilo­grams of olives ground per liter of extra vir­gin olive oil obtained.

The min­istry, which con­ducted sim­i­lar stud­ies in 2018/19 and 2019/20, found that indus­trial per­for­mance fell sig­nif­i­cantly in 2020/21 com­pared to the pre­vi­ous crop year, with mills grind­ing 12.4 per­cent more olives to obtain the same amount of extra vir­gin olive oil, which led to an increase in costs.

“The influ­ence of the vol­ume of pro­duc­tion on the cost of extrac­tion should make those respon­si­ble for the mills think about whether or not to grind in a short cam­paign or seek strate­gic alliances for milling or agree­ments with other mills in the area,” the min­istry wrote.

Further along the chain, the main expenses iden­ti­fied for bot­tlers were fil­ter­ing, trans­port, pack­ag­ing and ship­ping mate­ri­als, staff, insur­ance, debt pay­ments and admin­is­tra­tive costs.

Extra vir­gin olive oil pack­ag­ing costs reached an aver­age of €0.514 per kilo­gram, rang­ing from €0.293 per kilo­gram to €1.589 per kilo­gram.

The type of pack­ag­ing used greatly influ­enced the cost, with sin­gle-liter PET pack­ages cost­ing any­where between €0.259 per kilo­gram and €1.332 per kilo­gram. On the other hand, 750-mil­li­liter bot­tle pack­ag­ing costs ranged from €0.731 per kilo­gram to €3.299 per kilo­gram.

“These results should make those respon­si­ble for small pack­ag­ing com­pa­nies think about whether or not to out­source the pack­ag­ing process and or seek alliances or inte­gra­tion for­mu­las for this process,” the min­istry wrote.

Finally, the main costs iden­ti­fied for dis­trib­u­tors are ware­house logis­tics, stor­age, deliv­ery logis­tics, shelf space and mar­ket­ing.

The min­istry found the aver­age dis­tri­b­u­tion cost to be €0.282 per kilo­gram, rang­ing from €0.144 per kilo­gram to €0.419 per kilo­gram. However, costs were higher for dis­trib­ut­ing olive oil pack­aged in glass bot­tles (€0.177 to €0.419 per kilo­gram) than PET pack­ages (€0.142 to €0.419 per kilo­gram).

The aver­age retail price received by dis­trib­u­tors, not includ­ing VAT, was €3.666 per kilo­gram, with dis­count stores sell­ing for an aver­age of €3.394 per kilo­gram and hyper­mar­kets receiv­ing €3.835 per kilo­gram.

Despite dis­trib­u­tors earn­ing an aver­age gross mar­gin of €0.051 per kilo­gram, mean­ing they sold extra vir­gin olive oil at a profit com­pared to its pro­duc­tion costs, other oper­at­ing and non-oper­at­ing expenses resulted in dis­trib­u­tors’ over­all loss of €0.231 per kilo­gram.