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Olive Oil Prices Reach Unprecedented Highs in 2023 Amidst Spanish Drought Crisis

 

In 2023, the global olive oil market experienced an unprecedented spike in prices, driven by a perfect storm of factors centred around a severe drought in Spain which is a major global olive oil producer. This scarcity has led to a substantial reduction in olive oil supply, which in turn has caused a significant decrease in consumer demand. The repercussions of this situation are rippling across the market, impacting both producers and consumers worldwide. Australian olive oil producers, however, are finding themselves in a fortuitous position, reaping record prices that have not been witnessed before. This article delves into the causes, effects, historical context, and potential implications of this extraordinary and unprecedented olive oil price surge.


The Spanish Drought and Reduced Supply

A pivotal contributor to the current olive oil price surge is the drought that has afflicted Spain. Renowned for its substantial olive oil production, the country’s diminished harvest due to severe drought has led to a stark reduction in the availability of olive oil in Europe and on the global market. As a result, consumers are facing higher prices for this essential culinary commodity, a trend that has been exacerbated by the law of supply and demand.

Impact on Consumer Demand

The scarcity-driven spike in olive oil prices has had a cascading effect on consumer demand who are naturally inclined to cut back on their olive oil consumption due to lack of supply, which has contributed to a reported 35% reduction in overall demand in Spain alone. This reduction reflects the reality that olive oil is no longer as accessible to many households as it once was. It is unfortunate that consumers are seeking alternatives and making adjustments to their cooking habits, leading to a shifting landscape in consumption.

Australian Olive Oil Producers’ Windfall

Amidst this global olive oil crisis, Australian olive oil producers have found themselves in a remarkably favorable position. Reports indicate that they are fetching record prices of over AUD$8 per litre, which is an all-time high for the industry Down Under. This windfall has provided Australian producers with a unique opportunity to capitalise on the supply shortage and reap significant financial gains with export demand ironically coming from Spain and Europe.

Historical Context: The Road to 2023

This is not the first time the olive oil market has witnessed price spikes due to supply shortages. During the years 1996, 2006, and 2015 are noteworthy instances when the market experienced similar phenomena. However, the current price surge surpasses all previous price spikes, with the increase of over 40% higher than any previous price top being twice as substantial as those observed in the past spikes. This substantial escalation is indicative of a pronounced bubble in olive oil pricing, which echoes the cyclical nature of the market.


Cyclical Trends and Correlations

The olive oil market has historically demonstrated a cyclical pricing pattern, with alternating periods of lows and highs occurring roughly every 10 years. The current unprecedented price surge is currently occurring about three years into the anticipated start of this 10-year cycle which fits this pattern. Moreover, a correlation between the Australian Food Inflation Index and the Global Price of Olive Oil, as reported by the International Monetary Fund, reinforces the interconnectedness of food prices and the broader economy. Even though this pricing is set in AUD it is important to note the price tracking trend. (The IMF’s Global Price of Olive Oil represents benchmark prices that are representative of the global market. They are determined by the largest exporter of a given commodity. Prices are period averages in USD but converted to AUD for the purpose of this article). More