The energy crisis will dramatically raise the cost of doing business for millers. However, they will not be able to pass those increases along to consumers.
The 2022 olive harvest in Italy will begin in the next few weeks but will be shrouded by uncertainty, with producers facing reduced yields and rising production costs.
Rising costs for raw materials, fertilizer, glass, paper and logistics are putting the sector’s resilience to the test, while skyrocketing energy and electricity prices are affecting the whole production chain.
On top of this, the first estimates for the next season show a 20% to 30% drop in overall olive oil yield in the country.
Given the turmoil in the European energy market caused by the Russian invasion of Ukraine, the electricity prices have exceeded €400 (AU$590.13) per megawatt hour in all significant markets. Italy is facing prices of €450 (AU$663.90) per megawatt hour.
By comparison, the average price of the previous decades was between €20 (AU$29.50) to €30 (AU$44.26) per megawatt hour.
While growers have to face the consequences of the worst drought in decades, millers will also have to cope with these unheard-of energy prices, which are expected to reach new record highs in the coming weeks when the harvest season starts, and electricity consumption reaches its maximum.
“At the moment, we are seeing costs rising between 200 and 250 percent,” Elia Pellegrino, president of the Italian olive oil millers association (AIFO), told Olive Oil Times. “Of course, that can have significant consequences for the sector, even more considering the estimates of the low yield for very important regions such as Puglia.”
Puglia, located in southeastern Italy, is by far the most relevant olive-producing region in the country, accounting for 40% to 50% of the overall national production.
As a result of rising production costs, some millers expect extra virgin olive oil prices to increase significantly for consumers.
“I do not think we can avoid raising the final price of the product,” Silvano Pasquinoni, a large miller in the northern Emilia-Romagna region, told Il Resto del Carlino. “There is not only the costs of energy to be considered but also the reduced production in many regions.”
“And all the other expenses to consider, such as packaging or glass,” he added. “Everything now costs twice what it used to cost.”
In response to rising costs, producer associations, including Assitol and Italia Olivicola, have asked the government to enact extraordinary measures to limit energy costs.
“Our industry, which has always been characterized by low-profit margins, has been working for a long time to lower fixed costs,” said Anna Cane, president of the olive oil group of Assitol. “But now companies cannot stop this wave of rising costs. It is almost impossible to leave the final price of the product on the market exempt from such increases in energy and raw materials.”
Assitol added that authorities would need to work closely with large food retailers – who are responsible for 70% of olive oil sales in Italy – to keep olive oil prices within reach of regular consumers.
The high variability of extra virgin olive oil prices on the shelf has significantly impacted the whole sector. The largest retailers saw their overall sales boosted by consumer’s interest in their low-priced olive oil offers. Such offers traditionally target extra virgin olive oil because of the special place it holds in the shopping cart of the Italian family.
Therefore, higher extra virgin olive oil prices might not translate into larger payments for producers and millers. More