Ahead of the Harvest, Olive Oil Production Costs Keep Rising

Summary

The 2022 olive har­vest in Italy will face chal­lenges due to reduced yields and ris­ing pro­duc­tion costs, includ­ing sky­rock­et­ing energy prices. Producer asso­ci­a­tions are seek­ing gov­ern­ment inter­ven­tion to limit energy costs and ensure that olive oil prices remain afford­able for con­sumers, as millers may bear the finan­cial bur­den of the increas­ing costs.

The 2022 olive har­vest in Italy will begin in the next few weeks but will be shrouded by uncer­tainty, with pro­duc­ers fac­ing reduced yields and ris­ing pro­duc­tion costs.

Rising costs for raw mate­ri­als, fer­til­izer, glass, paper and logis­tics are putting the sec­tor’s resilience to the test, while sky­rock­et­ing energy and elec­tric­ity prices are affect­ing the whole pro­duc­tion chain.

On top of this, the first esti­mates for the next sea­son show a 20 to 30 per­cent drop in over­all olive oil yield in the coun­try.

Given the tur­moil in the European energy mar­ket caused by the Russian inva­sion of Ukraine, the elec­tric­ity prices have exceeded €400 per megawatt hour in all sig­nif­i­cant mar­kets. Italy is fac­ing prices of €450 per megawatt hour.

By com­par­i­son, the aver­age price of the pre­vi­ous decades was between €20 to €30 per megawatt hour.

While grow­ers have to face the con­se­quences of the worst drought in decades, millers will also have to cope with these unheard-of energy prices, which are expected to reach new record highs in the com­ing weeks when the har­vest sea­son starts, and elec­tric­ity con­sump­tion reaches its max­i­mum.

“At the moment, we are see­ing costs ris­ing between 200 and 250 per­cent,” Elia Pellegrino, pres­i­dent of the Italian olive oil millers asso­ci­a­tion (AIFO), told Olive Oil Times. ​“Of course, that can have sig­nif­i­cant con­se­quences for the sec­tor, even more con­sid­er­ing the esti­mates of the low yield for very impor­tant regions such as Puglia.”

Puglia, located in south­east­ern Italy, is by far the most rel­e­vant olive-pro­duc­ing region in the coun­try, account­ing for 40 to 50 per­cent of the over­all national pro­duc­tion.

As a result of ris­ing pro­duc­tion costs, some millers expect extra vir­gin olive oil prices to increase sig­nif­i­cantly for con­sumers.

“I do not think we can avoid rais­ing the final price of the prod­uct,” Silvano Pasquinoni, a large miller in the north­ern Emilia-Romagna region, told Il Resto del Carlino. ​“There is not only the costs of energy to be con­sid­ered but also the reduced pro­duc­tion in many regions.”

“And all the other expenses to con­sider, such as pack­ag­ing or glass,” he added. ​“Everything now costs twice what it used to cost.”

In response to ris­ing costs, pro­ducer asso­ci­a­tions, includ­ing Assitol and Italia Olivicola, have asked the gov­ern­ment to enact extra­or­di­nary mea­sures to limit energy costs.

“Our indus­try, which has always been char­ac­ter­ized by low-profit mar­gins, has been work­ing for a long time to lower fixed costs,” said Anna Cane, pres­i­dent of the olive oil group of Assitol. ​“But now com­pa­nies can­not stop this wave of ris­ing costs. It is almost impos­si­ble to leave the final price of the prod­uct on the mar­ket exempt from such increases in energy and raw mate­ri­als.”

Assitol added that author­i­ties would need to work closely with large food retail­ers – who are respon­si­ble for 70 per­cent of olive oil sales in Italy – to keep olive oil prices within reach of reg­u­lar con­sumers.

The high vari­abil­ity of extra vir­gin olive oil prices on the shelf has sig­nif­i­cantly impacted the whole sec­tor. The largest retail­ers saw their over­all sales boosted by con­sumers’ inter­est in their low-priced olive oil offers. Such offers tra­di­tion­ally tar­get extra vir­gin olive oil because of the spe­cial place it holds in the shop­ping cart of the Italian fam­ily.

Therefore, higher extra vir­gin olive oil prices might not trans­late into larger pay­ments for pro­duc­ers and millers.

“Should extra vir­gin olive oil be sold at €6.00 or €6.50 per liter, that could prob­a­bly help pro­duc­ers a bit,” Pellegrino said. ​“Still, expe­ri­ence tells us that when bulk olive oil prices rise sig­nif­i­cantly, most of that prod­uct risks not being sold. A higher price could greatly affect sales.”

He added that the ris­ing cost of liv­ing in Italy likely meant con­sumers could not pay higher prices for olive oil.

As a result of the har­vest out­look and Italy’s cur­rent macro­eco­nomic sit­u­a­tion, millers are likely to bear most of the finan­cial bur­den. ​“They will have to buy olives [from grow­ers] based on a hypo­thet­i­cal mar­ket price which will not fuel a rel­e­vant sales vol­ume,” Pellegrino said.

“The dis­pro­por­tion­ate rise of the energy costs risks mak­ing olive oil pro­duc­tion and trans­for­ma­tion activ­i­ties eco­nom­i­cally unsus­tain­able, as they affect com­pa­nies which have already been impacted by a pro­longed cri­sis, from the cli­mate emer­gency to the water scarcity,” said Gennaro Sicolo, pres­i­dent of Italia Olivicola.

“The energy bill in some cases has grown five times, mak­ing com­pa­nies con­sider two ter­ri­fy­ing hypo­thet­i­cals, tak­ing on new debt or clos­ing down,” he added.

AIFO, Assitol and other stake­hold­ers in the pro­duc­tion chain will meet reg­u­larly in the weeks ahead of har­vest to try to coun­ter­act such chal­lenges.

“We need to rethink the prod­uct chain in terms of the grow­ing inte­gra­tion of its spe­cific sec­tors,” Pellegrino said. ​“Olive oil millers, pro­duc­ers, bot­tlers and retail­ers should take a step for­ward and cre­ate mutu­al­ity and sol­i­dar­ity both when the chal­lenges are tough and when things go well.”

“We all under­stand that when only one of the pro­duc­tion chain sec­tors is penal­ized, there is no ben­e­fit for any­one, and imbal­ances grow in the sys­tem,” he added.

Given the rain­fall scarcity, which severely affected the var­i­ous phases of olive devel­op­ment, sev­eral Italian millers are plan­ning to open their facil­i­ties with some delay in the usual sched­ul­ing.

There is hope that some rain­fall will spread in the coun­try between September and October. Waiting could trans­late into larger yields, as more time is given to the olives to accu­mu­late oil.

“Talking as an entre­pre­neur, I would wait a bit wher­ever pos­si­ble,” Pellegrino said. ​“If there is no spe­cial urgency, such as an early har­vest caused by the attack of the olive fruit fly, it could be advis­able to wait, given the very low yields to be expected if olives are har­vested very early.”

“This year might appear extra­or­di­nar­ily com­plex, but we started to exper­i­ment with more inte­gra­tion among the dif­fer­ent actors of the pro­duc­tion chain a long time ago,” he con­cluded. ​“We are now sit­ting at the table to dis­cuss solu­tions to such chal­leng­ing times. We have hope that things will soon start improv­ing.”

• Assitol
• Italia Olivicola
• Il Resto del Carlino