Soaring Expenses Strain Producers in Southern Europe

Summary

Rising pro­duc­tion costs due to a poor har­vest in south­ern Europe have dou­bled in Spain and remain high in Italy and Greece, impact­ing the entire olive oil pro­duc­tion chain. The increase in costs is attrib­uted to a pro­duc­tion slump, ris­ing input costs, and energy prices, lead­ing to uncer­tain­ties and chal­lenges for pro­duc­ers, importers, and exporters in the olive oil sec­tor.

Rising pro­duc­tion costs are strain­ing the olive oil sec­tor in south­ern Europe amid a sec­ond-con­sec­u­tive poor har­vest for coun­tries across the Mediterranean basin.

A recent sur­vey showed olive oil pro­duc­tion costs dou­bled in Spain between 2020 and 2023. The sit­u­a­tion is not much bet­ter in Italy, Greece and beyond.

“Olive farm­ing has faced chal­lenges and dif­fi­cult con­di­tions in the last two years at a global level,” Stella Theodosiou, deputy direc­tor of Sevitel, the asso­ci­a­tion of Greek olive oil bot­tlers, told Olive Oil Times. ​“These chal­lenges have been trans­ferred to all nodes of the pro­duc­tion chain.”

“In the post-Covid era, we have all been called to face the con­se­quences of the war in Ukraine, with energy costs sky­rock­et­ing,” she added. ​“They remain at very high lev­els these days.”

In its lat­est update to the olive pro­duc­tion costs, the Spanish Association of Olive Municipalities (Aemo) warned of the pro­found impact of the sig­nif­i­cantly reduced olive oil pro­duc­tion on the sector’s income.

The Aemo sur­vey shows that between 2020 and 2023, the costs of pro­duc­ing one kilo­gram of olive oil nearly dou­bled, ris­ing from €3.20 to €6.22.

According to the asso­ci­a­tion, ris­ing costs are due to slump­ing pro­duc­tion slump and increas­ing input costs. For exam­ple, fer­til­iz­ers and phy­tosan­i­tary prod­ucts cost 70 per­cent more than three years ago. Meanwhile, energy prices have risen 40 per­cent, while salaries are up 9 per­cent.

Not all costs weigh equally on olive farms. Production costs for high-den­sity (inten­sive) or super-high-den­sity (super-inten­sive) groves remain sig­nif­i­cantly lower than those reported in tra­di­tional or steep-slope olive groves, partly due to mech­a­niza­tion. Still, costs have increased con­sid­er­ably through­out the sec­tor in the last few years.

According to the Italian Institute of Services for the Agricultural and Food Market (Ismea), olive oil pro­duc­tion costs in Italy also remain high in the cur­rent year.

Still, they have slightly decreased in the first nine months of 2023 com­pared to the pre­vi­ous year, when sub­stan­tial increases were reported.

In its lat­est report, Ismea noted how extra vir­gin olive oil imports, cru­cial to the Italian sec­tor, dimin­ished in vol­umes by 25 per­cent com­pared to the pre­vi­ous year. Still, their value grew 19 per­cent, high­light­ing the ris­ing olive trade prices and their impact on pro­duc­ers’ and bot­tlers’ oper­at­ing costs.

The pro­duc­tion slump reported in sev­eral coun­tries has pushed up the prices of raw mate­ri­als since the pre­vi­ous sea­son, caus­ing fur­ther uncer­tain­ties for pro­duc­ers, importers and exporters alike.

In Italy, where olive oil pro­duc­tion vol­umes in the cur­rent sea­son are expected to exceed those of the pre­vi­ous one, mar­gins for Italian olive oil pro­duc­ers are still likely to be rel­a­tively mod­est.

“With the cur­rent price [of the prod­uct], dur­ing this cam­paign, we will recover the pro­duc­tion costs, more than what is hap­pen­ing to oth­ers,” Gennaro Sicolo, pres­i­dent of the pro­ducer asso­ci­a­tion Italia Olivicola, told local media.

According to Sicolo, the pro­duc­tion drop fac­ing the entire Mediterranean basin – espe­cially in Spain, Portugal, Morocco and Tunisia – is the main rea­son for such low returns. ​“That means that Italian pro­duc­ers can­not turn to those coun­tries to buy the prod­uct,” he said.

“On top of that, we also need to con­sider the milling oper­a­tions, which, as we know, require large quan­ti­ties of elec­tric­ity,” Sicolo added. ​“Speaking of num­bers, we had prices of €25 per quin­tal (100 kilo­grams) last year. Today, it eas­ily climbs to between €27 and €30.”

Theodosiou agreed. ​“The costs of trans­porta­tion, pack­ag­ing, the oper­a­tion of the olive mills, and olive oil pro­cess­ing indus­tries have all increased,” she said.

Thedodosiou added that the sec­tor has also been hit by ris­ing inter­est rates and labor costs.

While Greece enjoyed a good har­vest in the pre­vi­ous sea­son, pro­duc­tion in the 2023/24 crop year is expected to decline sig­nif­i­cantly.

“Greece had to cope with the effects of cli­mate change,” Theodosiou said. ​“Therefore, Greek olive groves are expected to report a decrease of around 170,000 tons.”

According to Theodosiou, Greece is now fac­ing an upside-down domino risk in the olive oil mar­ket, as con­sumers tend to spend less on highly-priced prod­ucts at exactly the moment when olive oil pro­duc­ers need more sales to cover oper­a­tional costs.

“The enter­prises of stan­dard­iza­tion and branded olive oil export com­pa­nies man­age their raw mate­r­ial pur­chases grad­u­ally accord­ing to the demand, from the start of every crop year, November, until the begin­ning of the next one, October,” Theodosiou said.

“The indus­try oper­ates accord­ing to the strict frame­work of national and European leg­is­la­tion,” she added. ​“Consequently, the final price of every branded olive oil directly depends on raw mate­r­ial cost.”

“The biggest chal­lenge of the olive oil stan­dard­iza­tion com­pa­nies is main­tain­ing their quo­tas in the domes­tic and inter­na­tional mar­ket,” Theodosiou con­cluded. ​“Any fur­ther reduc­tion in olive oil con­sump­tion will be dys­func­tional for all the chain links.”

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