What Future for Extra Virgin Olive Oil in the 2023/2024 Season?

The 2022/2023 season has witnessed one of the lowest global productions in recent years. With less than 2.5 million tonnes produced worldwide, the extra virgin olive oil sector is facing one of the greatest challenges of recent decades. In reality, EU production is the lowest in the decade, with 1.37 million tonnes, driven by Spain which did not exceed 700 thousand tonnes and which marked a -56% compared to the previous campaign. On the other hand, non-EU production confirmed 1.1 million tonnes, reducing the gap with community production to a minimum. Trade in the first quarter of 2023 is also down and the IOC estimates on world consumption are leaning towards a reduction compared to 2022. What is worrying, however, are the production forecasts for the next campaign which still record great difficulties for Spain due to the ongoing drought.

Italy in the Vortex of Crisis: How is it Adapting to the Downtrend?

In Italy, the situation is not better. ISMEA estimates the 2022/23 volumes at 241 thousand tons with a 27% decrease compared to the previous campaign, and an upward revision of the November 2022 figure elaborated in collaboration with Italia Olivicola and Unaprol. For the next campaign, although remaining in a situation of total uncertainty, at the moment there is cautious optimism especially because this should be a strong year in the most suitable areas of Puglia. In the meantime, however, there are problems with fruit setting caused by the rains of May and June in Sicily and Calabria making any forecast risky at the moment.

Prices Are Constantly Rising: Why Are We Seeing an Unprecedented Increase?

2023 will probably be remembered as the year of records in olive oil price lists. To a certain extent, the phenomenon of high prices for this campaign is not a surprise. The Iberian production, lower than the most pessimistic forecasts, had already immediately placed prices at high levels. What was difficult to predict and that

has somewhat disoriented the market has been the fact that, as the weeks have passed, the bullish trend has not weakened but has actually strengthened, triggering an inflationary spiral in the spring that has no precedent in the sector, at least analyzing the historical series of the last decades. In fact, the few availability of the current campaign has been replaced

added to the pessimistic expectations for the next harvest campaign in Spain where the drought of last year and the first part of 2023 suggests a poor harvest. The alarm has also come from the bottlers who have expressed their apprehension for the sourcing of the raw material to which have been added the increases in energy prices

and packaging. Even the use of stocks may not fully satisfy demand because, according to the Commission's estimates, for the EU, at the end of the campaign stocks could remain well below 300 thousand tons (only in 2015 did they fall lower). In short, a complex situation that is entirely reflected in the production prices of olive oils in Italy and more generally in all producing countries.

in Italy, according to ISMEA surveys, the average price of extra virgin olive oil in June exceeded 7 euros per kilo for the first time, never so high and above all never seen average price lists above 6 euros for so many consecutive months. Obviously, it is the Apulian markets that determine, for the most part, these levels: in June all exceeded 7 euros thanks also to the last week of the month that saw prices touch 8 euros per kilo to even reach 9 euros in some negotiations in early July.

Going north, as always, the price lists are higher with Abruzzo which has been stable at 9 euros for months. In the first six months of the year, the price lists for the production of bulk Italian EVO have grown by 49% in line, moreover, with what is happening in Spain.

International Scenario: How Does Italy Compare to Competitor Countries?

This phenomenon does not only concern Italy but involves the entire international market. The Iberian market, in fact, is also recording record prices. On average, extra virgin olive oil in June exceeded 6 euros per kilo, a level never reached before. Increases exceed 50% in Greece and Tunisia where in June, like in Spain, the average price lists exceeded 6 euros per kilo with the first quotations in July confirming the upward trend.

The uptrend shows no signs of abating, creating an atmosphere of uncertainty in the global market.

The Complex Picture of Manufacturing Costs: How Do Operators Address This Challenge?

Another element that is always at the centre of operators' concerns is that relating to production costs, the dynamics of which take on uncertain connotations that do not help production planning either in the agricultural phase or in the downstream phases.

For the aggregate of vegetable crops, in the first half of 2023, an increase in costs borne by farmers of 6% on an annual basis was recorded (after + 24% in 2022 compared to 2021). The increases affected all sectors, albeit with different intensity. Going into detail in the oil sector, taking into account the agricultural phase, increases in line with the average of crops are highlighted for both corn and the threshold, while remaining on oilseeds, +10% is recorded for corn production. The olive growing cost index also exceeds the average of the overall crops (+8%). To the increase in costs in the agricultural phase, all those in the further downstream phases must be added, starting from packaging which has seen further significant increases in the price of glass, for example, in addition to the difficulty of finding it.

Operators’ Expectations and Concerns: What’s Next for the Industry?

Market uncertainty is fueling intense discussions among industry players. Bottlers fear a reduction in availability, leading to a forecast of falling sales. This uncertainty is reflected in the Ismea confidence climate index, which shows concerns about both overall production and decreasing stocks. In the agricultural sector, uncertainty is still high, with the summer just begun bringing hopes of a strong year in some regions of Puglia, despite the fluctuating weather conditions.

What are the forecasts for the 2023 Campaign?

As the start of the olive oil campaign approaches, a clearer picture of the olive growing season that awaits us is emerging. The situation appears to be rather heterogeneous at the Italian level. In general, this will be an average year, with a production of 50-60% compared to a peak year.

• Fruit set was severely reduced by rainfall and cool, humid weather during flowering in many regions such as Puglia, Calabria, Sicily and Tuscany.
• On the other hand, the abundant spring rains allowed a better development of the drupe.
• The increase in temperatures in August was instead fundamental for the control of many pathogens including the fly, even if with the lowering of temperatures in September it could cause further damage.

To date, the situation is patchy in most of the Italian regions.

• The North and Centre record production drops of between 20% and 50%,
• while for Puglia there is an increase of 30-40%,
• no changes for Sicily and Calabria.

According to Unaprol, production should be around 270 thousand tons of extra virgin olive oil compared to 241 last year.

Lower production is also recorded for Spain, Tunisia and Turkey always due to drought and production drops. We will see what the price trend will be after the start of the harvest in October.

Conclusions: Strategies for Addressing an Uncertain Future

In conclusion, the extra virgin olive oil sector is facing one of the most complex challenges in its history. Global production is declining, prices are skyrocketing and production costs are rising. Operators are facing an unprecedented set of challenges, requiring innovative strategies to survive in such a volatile market.

Source: https://www.ismeamercati.it/ , report n.1/2023 - July 2023