Does the supply and demand law rule the olive oil market?

Spain: First producer of the world

Spain is by far the main producer of oilve oil in the world. Our country leads the ranking of producing nations with around 55% of the worldwide olive harvest.

 

Nevertheless, since the southern Spain went through a drought, last crop here went down to 825.000 tn, meaning only almost 50% of the Spanish harvest we had last year (2013).

Everyone who is familiar with this sector knows that olive oil market is subject to enormous competition. Yet, the supply and demand law could temp the Spanish olive growers to increase their prices. 

 

Spain: aspiring to the title of ´first exporter of the world´

But, in the end,  they operate in a global scene so the said policy will surely bring them undesirable consequences.

With an eye on its eternal rival, Italy, in the last years Spanish olive oil packers have been struggling to conquer and strengthen markets abroad. And it is crucial a smart decision-making when you want to preserve a leading position, even if a poor crop comes -as it is the case lately-.

For instance, Spain is trying to be a leader in the United States olive oil market, which is the first importer of the world for this product (38% of the imports).

Evolution of total U.S. Olive Oil imports per country

Source: International Olive Council -http://www.internationaloliveoil.org/-

 

The 2012/13 season was not good and, as can be seen in the table above, Spain lost near to 10% of its market share in the United States. Reducing the supply and not keeping competitive prices has a price to pay too: a client thrown away. Playing in a such a competitive game simply means that customers have the upper hand.

Needless to say the effort and high costs of getting new customers, the broad consensus within the olive oil Spanish experts is that sacrifices must be done. In order to assure our competitive position in the world, the major packers/exporters are led to buy somewhere else around the Meditteranean sea at the expense of the  trade margins –mainly of the local growers-.