European Olive Oil Exports Expected to Recover as Costs Rise

Summary

The E.U. Short Term Outlook for agri­cul­tural mar­kets pre­dicts sta­ble olive oil pro­duc­tion and exports in the 2020/21 crop year, but warns of ris­ing oper­at­ing costs due to infla­tion­ary pres­sures in the E.U. Exports to the U.S. have increased slightly, but chal­lenges remain due to higher freight costs and trade uncer­tain­ties, while opti­mism remains for growth in exports to other coun­tries.

Olive oil pro­duc­ers in the European Union should pre­pare for some ups and downs in the newly-minted 2020/21 crop year, accord­ing to the E.U. Short Term Outlook for agri­cul­tural mar­kets.

Production in the bloc is expected to reach 2.1 mil­lion tons in the cur­rent crop year, com­pa­ra­ble to the yields of the pre­vi­ous sea­son. Exports are also likely to be sim­i­lar to last crop year’s vol­umes.

However, the report warned that farm­ers should be pre­pared for ris­ing oper­at­ing costs. Growing infla­tion­ary pres­sures in the E.U. have resulted in a sharp increase in energy, raw mate­r­ial and ship­ping costs. One stark exam­ple is that of fer­til­izer, prices of which increased by 77 per­cent in the past year.

In terms of exports, the E.U. expects to see ​“mod­est but above aver­age” growth from the cur­rent crop year, largely fueled by increas­ing trade with China and the United States.

From October 2020 to June 2021, exports increased three per­cent com­pared to the same period in the pre­vi­ous year. Exports to the U.S. rose by four per­cent, which is lower than orig­i­nally expected, with traded vol­umes slow­ing down in the last three months.

“This could be due to higher freight costs, some uncer­tainty on when retal­ia­tory tar­iffs would be lifted, as well as the mar­ket oppor­tu­ni­ties lost by some exporters due to those tar­iffs,” said the report, refer­ring to the long dis­agree­ment between the U.S. and E.U. over sub­si­dies pro­vided to their respec­tive air­craft man­u­fac­tur­ers, Boeing and Airbus.

However, there is opti­mism that exports to the world’s third-largest olive oil con­sumer will rebound, and over­all exports will con­tinue to grow.

“Restocking in some export des­ti­na­tion and reopen­ing of food­ser­vice should con­tribute to higher exports, while E.U. con­sump­tion could decline due to lower avail­abil­i­ties and above-aver­age prices,” the report said.

Other export des­ti­na­tions have seen rel­e­vant decreases due to large olive oil stocks, the food­ser­vice sector’s slow recov­ery, and increas­ing olive oil prices.

“Therefore, 2020/21 E.U. olive oil exports could remain the same as in the pre­vi­ous cam­paign [820,000 tons],” the report stated.

Should trade rela­tions improve, 2021/22 exports could reach 860,000 tons and European pro­duc­ers could regain some mar­ket share. Reaching those lev­els, though, will also depend on the abil­ity of olive oil pro­duc­ers to make inroads in Asia, where the olive oil mar­ket is grow­ing.

The E.U. Short Term Outlook pro­jec­tions also showed that extra vir­gin olive oil prices in the bloc grew by four per­cent in the past year. This could affect con­sump­tion within the main E.U. pro­duc­ing coun­tries.

“Imports are strongly decreas­ing with lower avail­abil­i­ties in non‑E.U. coun­tries toward the end of the cam­paign,” the report said. ​“Imports could reach 160,000 tons,” which would be 40 per­cent less than in the pre­vi­ous sea­son.

Still, given a pos­i­tive price envi­ron­ment and a bumper crop expected in Tunisia – up to 240,000 tons – E.U. experts hint that olive oil imports in 2021/22 could rise to 200,000 tons.

Given the data on exports and the three per­cent growth in E.U. olive oil con­sump­tion esti­mated by the report, end­ing stocks could be slightly above the expected total of 470,000 tons, still 13 per­cent below the rolling five-year aver­age.

The report also focused on the dam­age caused to pro­duc­tion by the unpre­dictable weather, which affected the largest olive oil-pro­duc­ing coun­tries in the bloc, and high­lighted the increas­ing impor­tance of irri­ga­tion,

“An ini­tially expected on-year har­vest in Italy and Greece was ham­pered by a hot and dry sum­mer,” the report said. ​“Many grow­ers suf­fered from water stress, which proved to be crit­i­cal espe­cially in non-irri­gated pro­duc­tion sys­tems. This could result in lower yields.”

“In Spain, aver­age pro­duc­tion is expected, while in Portugal pro­duc­tion could increase by 50 per­cent,” the report added. ​“E.U. ini­tial avail­abil­i­ties would then be four per­cent below last cam­paign.”

While pre­sent­ing the report, Tassos Haniotis, the European Commission’s direc­tor of agri­cul­tural strat­egy, sim­pli­fi­ca­tion and pol­icy analy­sis, warned that ​“we enter another phase of mar­ket tur­bu­lence, includ­ing fac­tors linked to increased weather volatil­ity [and] to cli­mate change.”