World Olive Oil Supply Threatened by Worst Drought ‘Remembering’

Almost a century ago, Manuel Heredia Halcón’s grandparents planted olive trees on his 1,200-acre orchard in Andalusia, Spain.

The trees are known to thrive in even the driest soils, but this year, scorching temperatures and severe rainfall deficits took their toll.

“We’re very concerned,” Halcón told CNN Business. “You cannot replace the olive tree with any other tree or product,” he added.

Like many European farmers, Halcón has struggled with extreme drought this summer—he estimates that his farm, Cortijo de Suerte Alta, will see its olive oil harvest drop by about 40 percent this year due to unusual weather conditions.

In July, temperatures in parts of France, Spain, Italy and Portugal broke records, hitting 40 degrees Celsius (104.5 degrees Fahrenheit). Severe heat and lack of rainfall had pushed nearly two-thirds of the EU into drought by early August, according to the European Drought Observatory.

Olive oil producers have been hit hard. Kyle Holland, oilseed and grain pricing analyst at commodity data firm Mintec, expects Spain’s olive oil harvest, which began in October, to be “substantially reduced” by 33% to 38%.

Spain is the world’s largest producer of olive oil, accounting for more than two-fifths of the 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 EU surged 14% in the year to July. But producers and buyers told CNN Business that prices will rise further in the coming months.

“The drought is so bad. It’s just too dry. Some trees bear little fruit, some don’t bear fruit at all. This only happens when the soil moisture levels are extremely low,” Holland told CNN commercial channel.

This is a warning for an industry that relies on the predictable life cycle of olive trees. Growers are used to wildly fluctuating harvests over a 24-month period, but climate change has disrupted this centuries-old rhythm.

Producing olive oil is all about timing. The trees start to bud in March and then bloom in May. Olives are grown in the summer before harvest in the fall.

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

“At that moment, we lost maybe 15 to 20 percent of the harvest,” he said.

Halcón expects this year’s oil to sell to buyers at 4 euros ($3.97) a kilogram, including importers in Asia and the Americas. This is a 30% increase over last year.

The heat wave coincided with the third year in a row of scant rainfall. The Guadalquivir River, which helps irrigate the surrounding olive groves, is extremely low. Halcó said he can only water his trees this growing season, about half the usual amount.

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

Juan Jímenez, chief executive of family-owned Green Gold Olive Oil Company, about 160 kilometers (100 miles) to the northeast, faces a similar problem.

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

“At the moment when the olive blossoms, [if it is] The flower itself is so hot that it burns, so it’s impossible to bear fruit,” he added.

Jimenez’s olive trees cover 740 acres of mountainous and flat terrain. Soaring temperatures in May could reduce his harvest by 35% to 60% compared to a normal year if there is no rain in the next few weeks.

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

Elsewhere in southern Europe, dry conditions have also caused enormous trouble. Filippo Berio sells oil in 72 countries, mostly 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 UK, described the Tuscan woods as “very dry” this summer. In late July, a wildfire broke out near the company’s only factory — where all its oils are blended, refined and bottled — engulfing it in smoke and ash.

“We’ve had drought conditions, but I think this is the worst that anyone has seen in living memory,” Zanray told CNN Business.

How bad the 2022 harvest will be remains to be seen. The USDA last month forecast a 14% drop in global production, while Mintec expects that could be similar to Spain’s forecast loss of more than 30%.

Benchmark producer prices for Spanish extra virgin olive oil from Andalusia reached their highest level in more than five years in late August. And, over the past two years, prices have soared nearly 80% — from 2.19 euros ($2.18) per kilogram in August 2020 to 3.93 euros ($3.90) this month.

Prices surged in early 2021 as buyers worried that bad weather would curb supply, Mintec data showed. Prices surged again in late February following Russia’s invasion of Ukraine, when concerns over declining sunflower oil exports from the region led buyers to stockpile olive oil as a substitute.

Signs that the next crop will be poor have pushed prices up again since June.

Long-term contracts between suppliers and retailers have shielded consumers from some of the worst price increases so far. But Holland said shoppers can expect big price increases over the next four months when retailers renew supply agreements.

“Retailers will try not to pass on these costs as much as possible,” he said, adding that producer prices were likely to be 15 percent higher than they had already risen in August. According to Mintec, even a 10% increase would bring producer prices to record highs.

Yacine Amor, director of British wholesaler Artisan Olive Oil Company, told CNN Business that he expects shelf prices for half-liter bottles (18 fluid ounces) of olive oil to rise 20 percent in the next few months. Amor’s customers are mainly supermarkets, delicatessens and restaurants.

In some major markets, the price of a bottle has skyrocketed. In Europe, the world’s largest consumer of olive oil, the Netherlands and Greece saw the biggest increases, with retail prices up by more than a quarter in July compared with a year earlier.

In the UK – the brand’s biggest market outside the US – a similarly sized bottle of Filippo Berio extra virgin olive oil is now fetching a record £5 ($5.76) in some stores, up from £3.75 ($5.76) at the start of the year. $4.32) that year. That’s a third more expensive.

Zanre’s biggest concern is how shopper behavior might change as prices inevitably rise.

“There is no doubt that we are facing one of the most difficult times the olive oil industry has ever seen,” he said.

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 (triggered by the war in Ukraine) has created an unprecedented crunch.

Halcón says the cost of the electricity needed to pump water to his trees has doubled, while his glass bottles are 40 percent more expensive.

For Zanre, “Anything you touch [the] “Supply chain” prices have risen. Some costs, such as shipping, are unlikely to fall, he said.

“The pallets that ship the goods are up, the bottles are up, the labels are up, the caps are up, the energy to run the factory is up. Everything. And then, most importantly, the prices we have [the] Oil prices are up,” he said.

But with crisis comes opportunity, Halcón said. Seed oil prices, including sunflower oil, have risen, making olive oil more competitive.

​“If a year ago, olive oil was twice [the] Price, even three times more expensive than some [alternatives]today we may only be 20%, 30% more expensive than seed oil,” he said.

Jimenez is also optimistic. Olive oil still makes up only a small portion of the global edible oil market, a share he believes will only grow, he said.

“But we need to be prepared to understand that maybe this [drought] It will happen, not once in 20 years, but one in ten, or one in five, or one in four. If we want to survive in a highly competitive market, we need to be prepared,” he said.