Olive oil price surge gains momentum as supplies dwindle

Olive oil prices continued surging this week as concerns about supplies remained. Data by the IMF shows that the price has soared to $9,000, the highest level on record. It has soared by more than 595% from the lowest level in 2022.

Olive prices and other agricultural commodities have been in a strong upward trend this year as the impact of climate change continued. As I wrote here, key commodities like cocoa, orange juice, Palm oil, and live cattle have surged this year. 

Climate change is the main reason why olive oil prices have surged this year. European countries in the Mediterranean like Spain, Greece, and Italy have gone through some of their biggest droughts on record.

This drought, together with the accompanying heat wave, has led to major devastation as key rivers dry up. Some of the top rivers that have seen low water levels like River Rhine and Tagus rivers dry.

Mediterranean countries like Spain and Italy are important parts of the olive industry. For example, Spain is the biggest olive oil producer in the world with a huge market share. As a result, the crop yield has crashed to the lowest level on record.

Other large olive oil producers in the world are Italy, Morocco, and Portugal. All these countries have seen substantial droughts in the past few months.

Olive oil price has also soared as demand continues rising. Demand jumped to 3.1 million metric tons in 2021/22. It then retreated to 2022/23 and analysts expect demand to continue rising in the coming years.

The challenge for olive oil is that the surging price will not be met with more production. For one, the key producers are going through a major drought. Also, unlike key commodities like corn and soybeans, olives take many years to grow.

At the same time, we could see the role of diminishing returns as the olive oil price surges. Higher prices could lead to low demand in the coming months.

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