The 2022/2023 season witnessed one of the lowest global productions in recent years. With less than 2.5 million tonnes produced globally, the extra virgin olive oil sector is facing one of the biggest challenges of recent decades. In reality, it is EU production that is the lowest of the decade, with 1.37 million tonnes, dragged by Spain which did not exceed 700 thousand tonnes and which marked -56% compared to the previous campaign. On the other hand, non-EU production confirms 1.1 million tonnes, minimizing the gap with community production. Trade in the first quarter of 2023 is also decreasing and the IOC estimates on world consumption lean towards a reduction compared to 2022. What is worrying, however, are the production forecasts for the next campaign which still show great difficulties for Spain due to the continuation of the drought.
Italy in the Vortex of the Crisis: How is it Adapting to the Downward Trend?
In Italy, the situation is no better. ISMEA estimates the 2022/23 volumes at 241 thousand tonnes with a decrease of 27% compared to the previous campaign, and an upward revision of the November 2022 figure developed in collaboration with Italia Olivicola and Unaprol. For the next campaign, despite remaining in a situation of total uncertainty, at the moment there is cautious optimism especially because this should be a year of energy in the most suitable areas of Puglia. In the meantime, however, there are problems with fruit setting caused by the rains in May and June in Sicily and Calabria, making any forecast risky at the moment.
Constantly Rising Prices: Why Are We Seeing an Unprecedented Increase?
2023 will probably be remembered as the year of records in the olive oil price lists. To some extent the phenomenon of high prices for this campaign is not a surprise. Iberian production, poorer than the most pessimistic forecasts, had already immediately positioned prices at high levels. What was difficult to predict is that
What disoriented the market a bit was the fact that, as the weeks went by, the bullish trend did not weaken but rather strengthened, triggering an inflationary spiral in the spring that is unprecedented in the sector, at least by analyzing the historical series of the last decades. In fact, there are limited availability of the current campaign
add 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 also came from the bottlers who expressed their apprehension about finding the raw material to which the energy increases were added
and those of packaging. Even the use of stocks may not fully satisfy demand because, according to Commission estimates, for the EU, at the end of the campaign stocks could remain well below 300 thousand tonnes (only in 2015 they fell lower). In short, a complex situation which 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 average price lists above 6 euros had never been seen for so many consecutive months. Obviously, it is the Apulian markets that mostly determine these levels: in June they all exceeded 7 euros thanks also to the last week of the month which saw prices reach 8 euros per kilo and even reach 9 euros in some trading 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 loose Italian EVO grew by 49%, in line, moreover, with what is happening in Spain.
International Scenario: How does Italy compare with competing countries?
This phenomenon does not only concern Italy but involves the entire international market. In fact, the Iberian market is also recording record prices. On average, extra virgin olive oil exceeded 6 euros per kilo in June, a level never reached before. The increases in Greece and Tunisia exceed 50% where in June, like Spain, the average price lists exceeded 6 euros per kilo with the first prices in July confirming the upward trend.
The upward trend shows no signs of abating, creating an atmosphere of uncertainty in the global market.
The Complex Production Cost Framework: How Do Operators Address This Challenge?
Another element always at the center of operators' concerns is that relating to production costs, the dynamics of which take on connotations of uncertainty which do not help planning either in the agricultural phase or in the further downstream phases.
For the aggregate of vegetable crops, in the first half of 2023 there was an increase in costs incurred by farmers of 6% on an annual basis (after + 24% in 2022 compared to 2021). The increases affected all sectors albeit with different intensity. Going into the detail of the oil sector, taking into account the agricultural phase, increases are highlighted in line with the average of the crops both for corn and for the threshold, while remaining on oilseeds there is +10% for the production of corn. The olive growing cost index also exceeds the average for the cultivation complex (+8%). To the increase in costs in the agricultural phase must then be added all those in the further downstream phases, 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 Are the Next Steps for the Sector?
Market uncertainty is fueling intense discussions among industry operators. Bottlers fear a reduction in availability, leading to a forecast of declining sales. This uncertainty is reflected in the Ismea confidence climate index, which shows concerns both for overall production and for the decrease in inventories. In the agricultural sector, uncertainty is still widespread, with the summer that has 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. There appears to be a rather uneven situation at the Italian level. In general, this will be an average year, with a production of 50-60% compared to a bulk year.
- Fruit set was greatly reduced by rain 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 better development of the drupe.
- The rise in temperatures in August was instead fundamental for the control of many pathogens including the fly, although the lower temperatures in September could cause further damage.
To date, there is a patchy situation in most Italian regions.
- North and center record production drops of between 20% and 50%,
- while for Puglia there is an increase of 30-40%,
- no change 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 was also recorded for Spain, Tunisia and Turkey again due to drought and drops in production. We will see what the price trend will be after the start of the harvest in October.
Conclusions: Strategies for Facing 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 faced with 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