Reports Find Olive Oil Companies Struggling in Spain and Italy

Two independent reports highlight some of the economic challenges facing the olive oil sectors of the world's two largest olive oil producers.

Apr. 24, 2018
By Daniel Dawson

Recent News

After a year of drought, decreas­ing pro­duc­tion and an ebbing appetite for olive oil at home, pro­duc­ers are wor­ried about the finan­cial well-being of some com­pa­nies in Spain and Italy.

Two reports — one from each coun­try — high­light the trou­ble that some of these com­pa­nies had last year mak­ing and main­tain­ing ade­quate lev­els of prof­itabil­ity.

A deep change of men­tal­ity is needed, along­side a change in the con­sumers’ atti­tudes.- Anna Cane, Assitol

One of the reports, which was released by the finan­cial con­sul­tancy Insight View in Spain, found that more than 12 per­cent of olive oil pro­duc­ing com­pa­nies there are at high or very high risk of default. Small and micro-com­pa­nies, which account for about 36 per­cent of the Spanish olive oil sec­tor, were found to be at the great­est risk.

High prices have dri­ven down domes­tic and inter­na­tional con­sump­tion. These price hikes come at a time when pro­duc­tion costs have con­tin­ued to rise and com­pe­ti­tion from abroad has grown. Net finan­cial debt among many com­pa­nies within the sec­tor also has increased, slowly but steadily. These fac­tors have become a source of con­cern for many in the indus­try.

Deoleo, which is con­sid­ered a bell­wether com­pany for the pro­duc­tion and export of olive oil, expe­ri­enced a 32-per­cent decrease in their Ebitda last year; a loss of €31.3 mil­lion ($38.7 mil­lion). Ebitda is a met­ric used to eval­u­ate a company’s per­for­mance that takes oper­at­ing profit, depre­ci­a­tion and amor­ti­za­tion expenses into account.

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A spokesper­son for the com­pany said that the company’s finan­cial per­for­mance had notably improved in spite of the con­trac­tion of their Ebitda. The group’s losses were reduced at the end of 2017 to €18.4 mil­lion ($22.7 mil­lion), which is 90 per­cent lower than the €179.4 mil­lion ($220.9 mil­lion) they posted in the red one year ear­lier.

Juan Vilar, a lead­ing expert on the olive oil econ­omy at the University of Jaén, said this report was not cat­a­strophic”, but the sec­tor needs to adapt as the inter­na­tional olive oil indus­try is becom­ing increas­ingly mod­ern and com­pet­i­tive.

This [grow­ing com­pe­ti­tion] is due to the increas­ing inten­si­fi­ca­tion that is being applied to olive plan­ta­tions, which means higher pro­duc­tion with lower pro­cess­ing costs,” he said. That is, the greater the degree of inten­si­fi­ca­tion of exploita­tion, the greater the mar­gin to alter prices and the greater the capac­ity to adapt to the mar­ket.”

Smaller pro­duc­ers — many of whom use more tra­di­tional, non-inten­sive meth­ods of har­vest­ing olives and pro­duc­ing oil — are increas­ingly less capa­ble of adapt­ing due to their high pro­duc­tion costs, which leads to their increased risk of default.

Some investors believe that the trou­bles for the sec­tor will likely get worse before they get bet­ter. They point to the bad har­vest of last year, which could com­pound costs for pro­duc­ers, lead­ing to more expenses with­out an increase in sales.

However, pro­duc­ers are also con­fi­dent that their efforts to con­trol expenses will con­tinue to lower their oper­at­ing costs, and they believe that olive oil con­sump­tion will grow again both domes­ti­cally and inter­na­tion­ally. They cite a report from the International Olive Council, which pre­dicts a five-per­cent growth in global con­sump­tion for the com­ing year.

The same issues men­tioned by Vilar are also affect­ing the finan­cial for­tunes of Italian pro­duc­ers. An Italian con­sult­ing firm found that fewer than 20 olive oil pro­duc­ing com­pa­nies are prof­itable. Of these com­pa­nies, only eight were solely ded­i­cated to olive oil pro­duc­tion and their over­all prof­its had shrunk by about five-per­cent since 2016.

Assitol, the asso­ci­a­tion of Italian olive oil pro­duc­ers, blame Italy’s con­ser­v­a­tive approach to olive oil for shrink­ing prof­its. Anna Cane, the Assitol olive oil group pres­i­dent, said that some pro­duc­ers are stuck in the more tra­di­tional approach and there­fore are unable to expand in order to meet domes­tic and global demand.

Olive grow­ing on the typ­i­cal Italian, hilly land­scape bears too high costs and is still based on a frag­mented pro­duc­tion model, and on old and still not mech­a­nized processes,” she said. In this frame­work, national pro­duc­tion, yet strongly insuf­fi­cient to meet the over­all demand, is not able to grow fur­ther.”

Italian pro­duc­ers’ treat­ment of olive oil may also be part of the prob­lem. Cane said com­pa­nies treat olive oil as a com­mod­ity when it should be treated as a prod­uct of great value.

By empha­siz­ing the oil’s qual­ity and asso­ci­ated health ben­e­fits, Cane believes that pro­duc­ers will more suc­cess­fully mar­ket to coun­tries in which demand for more expen­sive, higher qual­ity olive oil is rapidly grow­ing.

Another core issue is cer­tainly the approach to the mar­ket,” she said. “[Olive oil] has become an undif­fer­en­ti­ated prod­uct’, whose only rel­e­vant indi­ca­tor is its price, ignor­ing the qual­ity offered or the sen­so­r­ial char­ac­ter­is­tics of the many vari­eties pro­duced in Italy.”

As Cane points out, these chal­lenges will not be over­come by indi­vid­ual pro­duc­ers. She believes it will take a larger cul­ture shift in order to mod­ern­ize the sec­tor and adapt to the chang­ing inter­na­tional mar­kets. The same is widely true in Spain.

An Italian entre­pre­neur, alone, can­not do very much,” Cane said. A deep change of men­tal­ity is needed, along­side a change in the con­sumers’ atti­tudes.”



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