Ahead of the Harvest, Olive Oil Production Costs Keep Rising

The energy crisis will dramatically raise the cost of doing business for millers. However, they will not be able to pass those increases along to consumers.

Sep. 13, 2022
By Paolo DeAndreis

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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.

The energy bill in some cases has grown five times, mak­ing com­pa­nies con­sider two ter­ri­fy­ing hypo­thet­i­cals, tak­ing on new debt or clos­ing down.- Gennaro Sicolo, pres­i­dent, Italia Olivicola

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.

See Also:Bulk Exports from Greece Help Fuel the Italian Olive Oil Industry

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.

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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.”



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