Reports Find Olive Oil Companies Struggling in Spain and Italy

Summary

Producers in Spain and Italy are fac­ing finan­cial con­cerns due to a year of drought, decreas­ing pro­duc­tion, and falling demand for olive oil. Reports from both coun­tries show that many com­pa­nies are at risk of default, with high pro­duc­tion costs, ris­ing com­pe­ti­tion, and a need for a shift in men­tal­ity and con­sumer atti­tudes in order to adapt to the chang­ing inter­na­tional mar­ket.

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.

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.

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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