World Olive Oil Supply Threatened by Worst Drought ‘in Living Memory’

Olive groves at the Green Gold Olive Oil Company’s Finca Fuensantilla in Beas del Segura, Spain have suffered record high temperatures and a lack of rainfall this year. (Alfredo Caliz/Panos/Redux for CNN)

Manuel Heredia Halcón’s grandparents planted the olive trees in his 1,200-acre grove in Andalusia, Spain, nearly a century ago.

The trees are renowned for their ability to grow in even the driest soils, but this year the scorching temperatures and severe lack of rainfall have taken their toll.

“We are very concerned,” Halcón told CNN Business. “You cannot replace the olive tree with another tree or product,” he added.

Like many European farmers, Halcón has struggled with extreme drought this summer – he estimates that the olive oil harvest from his farm, Cortijo de Suerte Alta, will drop by around 40% this year due to the extraordinary weather conditions. .

In July, temperatures broke records at 40 degrees Celsius (104.5 degrees Fahrenheit) in parts of France, Spain, Italy and Portugal. By early August, sweltering heat and a lack of rainfall had pushed nearly two-thirds of the land in the European Union into drought conditions, according to the European Drought Observatory.

Olive oil producers have been hit hard. Kyle Holland, an oilseed and grain price analyst at Mintec, a commodity data firm, expects a “dramatic reduction” of between 33% and 38% in the olive oil harvest in Spain which starts in October.

Spain is the world’s largest producer of olive oil, accounting for more than two-fifths of global supply last year, according to the International Olive Council. Greece, Italy and Portugal are also major producers.

Consumers are already paying more for olive oil. Retail prices across the European Union jumped 14% in the year to July. But prices are expected to rise further in the coming months, growers and buyers told CNN Business.

“The drought is too much. It’s just too dry. Some trees produce very little fruit, others produce no fruit at all. This only happens when soil moisture levels are extremely low,” said Holland told CNN Business.

It is a wake-up call for an industry that depends on a predictable olive tree life cycle. Growers are used to big swings in the harvest over a 24-month period, but climate change is already disrupting that age-old rhythm.

Daniel Marin, the land manager of Green Gold Olive Oil Company, checks a tree in the Finca Carlota grove of Sorihuela del Guadalimar. This year the trees at Finca Carlota have very few, if any, olives. (Alfredo Caliz/Panos/Redux for CNN)

Fallen olives are seen in dry ground during the drought at Villa Filippo Berio in Vecchiano, Italy. (Noémi Cassanelli/CNN)

Paco Bujalance, the mill master of Cortijo de Suerte Alta, shows off olives in the company’s grove in Albendín, Spain. (Alfredo Caliz/Panos/Redux for CNN)

“Impossible to have fruit”

Olive oil production is all about timing. The trees begin to bud in March before the flowers open in May. The olives grow in the summer months before harvesting in the fall.

Andalusia, the southernmost region of Spain, provides about a third of the world’s olive oil. It is used to temperatures regularly reaching 40 degrees Celsius, but not in May when the flowers start to bloom.

“At that time we lost maybe 15-20% of the crop,” he said.

Halcón plans to sell this year’s oil at €4 ($3.97) a kilo to its buyers, including importers in Asia and America. This is a 30% increase over last year.

The heat wave coincided with a third consecutive year of low rainfall. Water levels in the Guadalquivir River, which helps irrigate the surrounding olive groves, are extremely low. Halcón said he can only give his trees about half the usual amount of water this growing season.

“Next year will be even worse because the dams will be completely empty,” he said.

Juan Jímenez, CEO of the Green Gold Olive Oil Company, a family business about 160 kilometers (100 miles) to the northeast, faces similar issues.

“[The issue] it’s not just about how hot it was, but when it was hot,” he told CNN Business.

“When the flower of the olive tree comes to life, and [if it is] hot, the flower itself, it burns, so it’s impossible to have a fruit,” he added.

The Jímenez olive groves cover 740 acres of flat, mountainous terrain. May’s soaring temperatures will likely cut his crop by 35-60% of a normal year’s harvest if rain does not fall in the coming weeks.

If so, it would be the “worst harvest in the last 10 years,” Jímenez said.

Daniel Marin of the Green Gold Olive Oil Company speaks with rural guards from the Guadalmena Irrigation Community in front of the Guadalimar River, which provides water to irrigate the estate. (Alfredo Caliz/Panos/Redux for CNN)

Cortijo de Suerte Alta in Albendín, near the Vadomojón dam. (Alfredo Caliz/Panos/Redux for CNN)

Elsewhere in southern Europe, drought conditions have also caused huge headaches. Filippo Berio sells oil in 72 countries and sources its supplies mainly from suppliers in Italy, Spain and Greece.

It also produces its own oil from 25,000 trees in Italy. Walter Zanre, managing director of Filippo Berio’s UK division, described the Tuscan grove as “dry” this summer. At the end of July, a forest fire broke out very close to the company’s only factory – where all of its oils are blended, refined and bottled – engulfing it in smoke and ash.

“We’ve been through drought situations, but I think in living memory this is the worst anyone’s ever seen,” Zanre told CNN Business.

Price shock

It remains to be seen how bad the 2022 harvest will be. The United States Department of Agriculture last month forecast a 14% drop in global production, while Mintec expects it to be similar to the more than 30% loss forecast for the Spain.

Benchmark producer prices for Spanish extra virgin olive oil from Andalusia reached their highest level in more than five years at the end of August. And, over the past two years, they have climbed almost 80%, from €2.19 ($2.18) per kilogram in August 2020 to €3.93 ($3.90) this month. .

Prices soared at the start of 2021 as buyers feared bad weather would reduce supply, according to data from Mintec. They rose again in late February after Russia invaded Ukraine, when a feared drop in sunflower oil exports from the region led buyers to stock up on olive oil as a substitute.

Since June, signs that the next harvest will be poor have pushed prices up again.

Until now, long contracts between suppliers and retailers have shielded consumers from some of the worst price hikes. But shoppers can expect a significant increase over the next four months as retailers renew their supply deals, Holland said.

“Retailers will try not to pass on as many of these costs as possible,” he said, adding that producer prices could rise by up to 15% from already inflated August levels. Even a 10% rise would put producer prices at their highest level on record, according to Mintec data.

Yacine Amor, director of the Artisan Olive Oil Company, a British wholesaler, told CNN Business that he expects the selling price for a half-liter (18 fluid ounce) bottle of its olive oil increases by 20% over the next few months. Amor’s customers are mainly supermarkets, delicatessens and restaurants.

Paco Bujalance pours olive oil at the Cortijo de Suerte Alta in Albendín. (Alfredo Caliz/Panos/Redux for CNN)

A tractor drives through an olive grove in Villa Filippo Berio in Italy. (Noémi Cassanelli/CNN)

Inside the olive oil mill room of Villa Filippo Berio. (Noémi Cassanelli/CNN)

The price of a bottle has already skyrocketed in some major markets. In Europe, the world’s largest consumer of olive oil, the biggest increases were in the Netherlands and Greece, where retail prices jumped by more than a quarter in July compared to the same period l ‘last year.

The same size bottle of Filippo Berio extra virgin olive oil in the UK – the brand’s biggest market outside the US – now costs a record £5 ($5.76) in some stores , down from £3.75 ($4.32) at the start of the year. It’s a third more expensive.

Zanre’s biggest concern is how buyer behavior may change as prices inevitably rise.

“Without a doubt, we are facing one of the toughest times ever in the olive oil industry,” he said.

Costs are rising everywhere

Olive oil producers have weathered many storms in the past, but this year a combination of extreme weather, supply chain bottlenecks and soaring energy costs – fueled by the war in Ukraine – has caused unprecedented pressure.

Halcón said the cost of electricity needed to pump water to its trees has doubled, while its glass bottles are 40% more expensive.

Paco Bujalance sits in the drought-stricken olive groves in Cortijo de Suerte Alta in Albendín. Record temperatures and a lack of rainfall this growing season are expected to reduce the harvest by 40% this year. (Alfredo Caliz/Panos/Redux for CNN)

Olives are seen on a tree at Molino de Suerte Alta in Albendín. (Alfredo Caliz/Panos/Redux for CNN)

For Zanre too, “everything you touch in [the] supply chain” has increased in price. He believes that some costs, such as shipping, should never go down.

“The pallet on which the goods circulate has increased, the bottles have increased, the labels have increased, the corks have increased, the energy to run the factory has increased. Everything. And then, on top of that, we have the price of [the] oil is going up,” he said.

But crisis breeds opportunity, Halcón said. Rising prices for seed oils, including sunflower oil, have made olive oil more competitive.

“If a year ago, olive oil was double [the] price, even three times more expensive than some [alternatives]today we are maybe only 20%, 30% more expensive than seed oils,” he said.

Jímenez is also optimistic. Olive oil still represents only a tiny fraction of the global edible oil market, he said, a share he is confident can only grow.

“But we have to be prepared to understand that maybe this [drought] is going to happen, not once in 20 years, but once in ten, or once in five, or once in four. And we have to be ready to do that if we want to survive in a competitive market,” he said.

We see dry and scorched earth under the olive trees in the grove of Cortijo de Suerte Alta. Only half the usual amount of water was available to irrigate the trees this growing season. (Alfredo Caliz/Panos/Redux for CNN)