Spain, Italy and Greece, already fighting a financial and economic crisis, are now facing an oil crisis. Olive oil, that is.

The price of the Mediterranean diet staple has plunged to a 10-year low as domestic consumption in the top producing southern European countries has fallen because of the economic crisis. That fall has coincided with a bumper olive crop in Spain, the biggest grower, creating a glut that has forced the EU to intervene to reduce the surplus amid worries about rural incomes.

“The market is in serious crisis,” said Pekka Pesonen, head of the Copa-Cogeca farming union in Brussels. “This crop is vital for the main producing countries in terms of maintaining employment in their rural areas.”

Spain, Italy and Greece are by far the largest producers of the commodity, accounting for 70 per cent of the world’s olive oil output. The crop is critical for some of the poorest areas of Spain, including top producing region Andalucia, where the unemployment rate last quarter surged to 33 per cent.

Jean-Louis Barjol, executive director of Madrid-based International Olive Oil Council, said olive oil “supply was ahead of demand”. He estimated stocks would surge by the end of the current season to an all-time high of 1.1m tonnes, equal to roughly a third of annual global consumption of the commodity.

The EU has tried to deal with the surplus by paying companies to stockpile oil – the commodities market version of the European Central Bank buying sovereign bonds of Spain, Italy and Greece. Farming trade union officials and other policy makers believe the EU’s move has put a floor under prices.

The price of premium-quality extra virgin olive oil in the wholesale market fell this month to $2,900 a tonne, the lowest since 2002 and down more than half from nearly $6,000 a tonne in 2005, according to the International Monetary Fund.

Olive oil is suffering from strong competition from cheaper varieties of vegetable oil. Eroski, a popular supermarket chain in Spain, sells sunflower oil at €1.25 a litre, against average-quality olive oil at €1.99 and premium extra-virgin olive oil at €3.25.

Oil World, the Hamburg-based consultancy, said in a recent report that domestic consumption of olive oil in the big Mediterranean producing countries “apparently declined so far this season as a result of the economic crisis”.

Spain will consume as much olive oil this year as it did in 2002, according to the International Olive Oil Council, and Greece and Italy will see their domestic demand falling back to 1995 levels. The drop in Spanish, Italian and Greek demand has been only partially offset by higher consumption elsewhere. China, the major force behind the rise in commodities prices during the past decade, consumes almost no olive oil, with households opting instead for much cheaper palm oil and soya oil.

The cost of vegetable oil from soya has surged recently due to strong demand in China and weaker than expected crops in Argentina and Brazil due to bad weather. In Chicago, the wholesale price of soya oil recently hit 57 cents per pound, roughly double the 20-30 cents levels seen in most of the 1990s.

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