Rising Prices, New Technology Attract Private Equity Interest in Olive Oil

Summary

Private equity firms are show­ing inter­est in south­ern Europe’s olive oil sec­tor due to favor­able con­di­tions in Spain and Portugal, includ­ing the rise of super-high-den­sity groves and improved tech­nolo­gies. Investments in mod­ern olive groves and mills in Portugal, spurred by the 2008 finan­cial cri­sis, are lead­ing the coun­try to become one of the world’s largest olive oil pro­duc­ers, with fund man­agers con­fi­dent in higher prices and endur­ing con­sumer demand.

Despite the heat and drought, south­ern Europe’s olive oil pro­duc­ers have sparked inter­est from pri­vate equity firms.

While olive farm­ing and oil pro­duc­tion are not usu­ally seen as high-return invest­ments, cur­rent con­di­tions in Spain and Portugal and new agri­cul­tural tech­nolo­gies and prac­tices have spot­lighted the olive oil sec­tor.

Due to con­tin­ued macro­eco­nomic uncer­tainty and ris­ing inter­est rates, pri­vate equity firms ​“remain focused on act­ing oppor­tunis­ti­cally to invest in high-qual­ity assets in spaces with clear long-term sec­u­lar tail­winds,” accord­ing to research by Pete Witte, lead pri­vate equity ana­lyst at Ernst & Young.

Among the deals is the recently con­cluded acqui­si­tion of Spanish olive oil pro­ducer Innoliva by Canadian-based Fiera Comox Partners. Innoliva is one of Europe’s largest pro­duc­ers. It was sold to Fiera Comox by London-based Cibus Capital, which acquired the com­pany in 2018.

According to media reports, Fiera Comox’s agri­cul­ture invest­ment team fore­casts promis­ing finan­cial returns in the olive oil mar­ket, par­tic­u­larly in Spain and Portugal.

This opti­mistic fore­cast mainly relates to the increase in super-high-den­sity (super-inten­sive) olive groves in Spain and improved milling tech­nolo­gies.

“Spain has devel­oped a huge mar­ket and clus­ter for the prod­uct, and this has spilled over to Portugal,” Alexis Martineau, head of European pri­vate equity at Brazilian Warrant Co. and the found­ing part­ner of Alentejo-based olive oil pro­ducer Quinta Solana, told Olive Oil Times.

“In the early 2000s, there was a gold rush by a lot of Spanish olive oil pro­duc­ers into south­ern Alentejo, specif­i­cally,” he added.

According to Gonçalo Moreira, man­ager of the Alentejo Olive Oil Sustainability Program, the Portuguese region com­pris­ing about one-fourth of the country’s land area was respon­si­ble for 92 per­cent of Portuguese olive oil pro­duc­tion in the 2022/23 crop year.

Martineau attrib­utes the region’s rise in olive oil pro­duc­tion to new farm­ing tech­niques exported from Spain.

“Investments are being made to cre­ate mod­ern, super-inten­sive olive groves in a coun­try where most farms are made up of small arti­sanal pro­duc­ers who har­vest man­u­ally and work col­lec­tively to pro­duce olive oil,” he said.

While south­ern Portugal has devel­oped inten­sive tech­niques, in other olive oil-pro­duc­ing regions of the coun­try, espe­cially those in the north, tra­di­tional meth­ods are still in place, with some using presses dat­ing from the 12^th and 13^th cen­turies.

However, invest­ments in super-high-den­sity groves have put Portugal on the path to becom­ing one of the world’s largest olive oil pro­duc­ers.

“In the future, we will be able to sur­pass the record reached in the 2021 har­vest due to the increase in the area of mod­ern olive groves in hedgerows and because we have many new olive groves that are only now com­ing into pro­duc­tion, allow­ing us to increase the amount of olive oil pro­duced in Portugal,” Moreira told Olive Oil Times in a sep­a­rate inter­view.

Along with an increase in super-high-den­sity groves, a 2020 study from Juan Vilar Strategic Consultants and Consulai said invest­ments in tech­nol­ogy were also paving the way for Portugal to become the world’s third-largest olive oil pro­ducer.

According to Martineau, the cat­a­lyst for this rapid invest­ment in Portugal stemmed from the 2008 finan­cial cri­sis.

“After the 2008 finan­cial cri­sis, when Portugal was strug­gling eco­nom­i­cally, Spanish olive pro­duc­ers found that the cli­mate and soil speci­ficity in Portugal was sim­i­lar to that of olive grow­ing areas of Spain, but the land was much cheaper,” Martineau said.

“As a result, sev­eral banks sold land,” he added. ​“The Spanish invested in thou­sands of hectares of land, val­ued at tens of mil­lions of Euros.”

Martineau said the com­bi­na­tion of ​“low cost of land, gen­er­ous water sup­ply, pro­duc­tion effi­ciency, avail­abil­ity of highly skilled labor and prof­itabil­ity of the sec­tor, trig­gered mas­sive invest­ment.”

He added that Alentejo’s advan­tage com­pared to other parts of Portugal is access to water. The Aqueva dam, con­structed in the early 2000s on the Guadiana River, one of the longest in the Iberian penin­sula, has been the source of irri­ga­tion for farms in the region, chang­ing the face of its agri­cul­tural land­scape.

Experts pre­dict that inter­est in Alentejo will per­sist as fur­ther invest­ments are made in high-den­sity orchards and cut­ting-edge mills.

Fund man­agers are con­fi­dent enough in higher olive oil prices to make longer-term com­mit­ments to the sec­tor.

For exam­ple, Spanish invest­ment com­pany Beka Finance has launched its first fund with Portuguese indus­trial part­ner Bolschare to invest in super-high-den­sity olive and almond farm­ing.

Beka expects returns of up to 20 per­cent from the new fund in the next ten years, com­pared with its ini­tial fore­cast of 11 per­cent, due to prices ris­ing far higher than the fund ini­tially esti­mates.

“There is more and more inter­est in invest­ing in this sec­tor,” Beka’s man­ag­ing direc­tor Fernando de la Vega told Reuters. ​“A well-man­aged farm is good busi­ness.”

Along with his­tor­i­cally high prices, fund man­agers also see endur­ing value in olive oil demand as increas­ingly health-con­scious con­sumers seek the prod­uct out. Olive oil con­sump­tion is again expected to out­pace demand in the 2023/24 crop year.

However, Martineau does not expect the next few years to be smooth sail­ing for pri­vate equity invest­ments. Moving for­ward, he expects access to water to be a stick­ing point, ​“but sim­i­lar to wine regions, some olive oil regions will increase their pro­duc­tion out­side the E.U., includ­ing Chile, California, Argentina, South Africa, maybe China and parts of Australia.”

He added that though the sec­tor remains prof­itable, the cost of debt has increased, mak­ing land pur­chases more expen­sive.

Martineau noted that, gen­er­ally, olive oil pro­duc­ers diver­sify into almonds to hedge their bets, as both crops are grown on the same kind of soil, although almonds require more water.

Soon, pri­vate equity investors in the olive oil sec­tor ​“must adjust their return to reflect new world con­di­tions,” he said.

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