Spend Matters welcomes this guest post from Avneet Deol, market analyst at Mintec.
The U.S. consumes approximately 300,000 tons of olive oil a year, with per capita consumption around 1 liter. With domestic production only around 5,000 tons per year, however, the U.S. relies on imports to meet requirements, more than half of which come from Italy and Spain. U.S. imports for 2016/17 are forecast at 304,000 tons, down 3% from the record high last season. In this article, we look at what olive oil prices are currently doing in Italy and Spain, as well as at the factors influencing the market.
In Italy, prices for extra virgin olive oil were up 57% in February 2017 from October 2016. This is mainly due to expectations that production in Italy will drop nearly 50% year-over-year to 243,000 tons in 2016/17, due to wet weather conditions in the summer that knocked buds off the trees. In addition, concerns that the hot and muggy weather could attract olive fruit flies forced Italian growers to start the harvest earlier than usual, further reducing yields. Italian olive oil is more vulnerable to climate shifts than other major producing countries, due to the country's varied landscape, from hills in the north to large groves in the south.
Prices for extra virgin olive oil in Spain, on the other hand, have risen more modestly, up 21% during the same period. Production in Spain is also expected to decline in 2016/17, down 6% year-over-year to 1.31 million tons, due to floods in the major growing region, Andalusia. However, prices have mainly been pressured by strong export demand. At the start of the season in October, Spain produced 9,000 tons of olive oil. In the following month, 72,000 tons of Spanish olives were exported, which also suggests that exporters are drawing down stocks to meet demand. The increase in demand for Spanish olive oil is largely due to competitive pricing (especially compared with Italy) and strong commercialization campaigns. Last season, the U.S. imported more olive oil from Spain than Italy for the first time.
In the domestic market, the bulk of olive oil is from California, while small amounts are also produced in Texas, Florida, Georgia and Arizona. This year, production in California is expected to benefit from recent heavy rains that ended a five-year-long drought. Although olive oil trees are usually resistant to droughts, irrigation can help increase output later in the season.
So far, consumers in the U.S. have enjoyed lower prices thanks to a stronger dollar. The increase in import prices, however, will gradually filter through to consumers. As a result, consumption in the U.S. is forecast to decline slightly in 2016/17, down 1% year-over-year to 306, 000 tons. For now, consumers are likely to consider substituting lower quality olive oil for extra virgin in cooking, but not on the table, where olive oil is almost essential for dipping your bread with or as a dressing on salads.