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Why is olive oil cheaper overseas when Spain is the world’s top producer?

It's a staple of the Mediterranean diet most Spaniards can't live without, so how is it possible that olive oil is cheaper abroad when Spain is the world's biggest producer?

Why is olive oil cheaper overseas when Spain is the world's top producer?
Bottles of olive oil produced by the "Cooperativa Almazara de Ronda" factory in Ronda. Photo: Jorge Guerrero/AFP.

If you live in Spain you’ve probably noticed that the price of olive oil has skyrocketed over the last year or so.

According to the latest CPI data released this week by Spain’s National Statistics Institute (INE), the price of this staple Spanish product was a whopping 52.5 percent more expensive in August compared to the same month in 2022, which is the highest year-on-year increase in over twenty years.

Looking back a little further, from March 2021 to August, the price of olive oil has risen by an eye watering 114.8 percent. As such, the so-called Spanish ‘liquid gold’ is becoming increasingly unaffordable for many Spaniards, and in a country that uses it for everything from dressing salads to making tortilla de patatas, for many olive oil has gone from a staple ingredient to a luxury.

This pressure has been further highlighted (and enraged many Spanish shoppers) because olive oil prices are significantly lower abroad, despite the fact that Spain is the world’s biggest olive oil producer.

READ ALSO: People in Spain are driving to Portugal for cheaper grocery shopping

In fact, Spain produces more than half of the world’s entire olive oil supply.

The sector is very export-oriented, with a little under 80 percent of the oil made in Spain sold to foreign markets — in 2020/21 this was more than one million tonnes of oil, according to a report by Caixa Bank

So how can olive oil cost so much more in Spain (in some shops it is now €10 per litre) than, for example, in Ireland, where consumers recently reported prices of €4.70 per litre?

Why are Spaniards paying so much for olive oil?

Teresa Pérez, manager of Interprofesional de Aceite de Oliva Español recently attempted to provide an answer to this question to Spanish TV station Cuatro. Pérez said that in essence the problem is in the amount of olive oil Spaniards consume (around 11 litres per person per year) and the pressure this puts on product ‘rotation’ for sellers.

“Nowadays in Spain we have a much higher product turnover and therefore prices at the source are passed on to the consumer earlier,” Pérez explained. This means that in Spain, where olive oil consumption is much higher than most countries, larger stocks of olive oil are required, which means they are more vulnerable to price volatility.

READ ALSO: The food products in Spain that will rise in price due to drought

That is to say, if supermarkets and other sellers have to buy olive oil more regularly, they will be more exposed to price rises and likely to pass them onto consumers.

Pérez says that in Spain each person consumes 700 millilitres of olive oil every three weeks: “This means that in three weeks they will have to go back and buy another bottle. Whereas it will probably take an Irish person 10 months to go back to the point of sale for a bottle.”

The lower price on the shelves of Irish supermarkets means that the bottle was probably not purchased recently by the supermarket, as is the case here in Spain due to the high demand, but could have been purchased more than a year ago and therefore at a lower price than it is today. Supermarkets therefore do not need to recoup such stark price rises from suppliers and can therefore continue to sell it at a lower price.

Equally, the export contracts producers sign with the main oil importers abroad are usually signed on a long-term basis, so the contractual terms and prices are set according to the economic situation at the time.

In short: foreign consumers are better insulated from the volatility of price changes, something Spaniards and Spanish supermarkets, who are forced buy olive oil much more regularly, are not.

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FOOD AND DRINK

The foods that will increase in price in Spain in July 2024

The Spanish government's VAT freeze on certain food products is set to finish at the end of June, meaning several basic and essential items will get more expensive.

The foods that will increase in price in Spain in July 2024

On June 30th the Spanish government will end its VAT rebate on certain food products, making several basic foodstuffs more expensive overnight. The measure was first approved by the government as part of a package of measures aimed at alleviating the economic consequences of the war in Ukraine and supporting low-income families amid high inflation.

In January 2023 VAT was cut on certain products that were already at the reduced rate of 4 percent, and in addition, VAT on oils (including olive oil, which was later reduced to 0 percent) and pasta were lowered from 10 percent to 5 percent.

However, after the policy was extended through the entire first half of 2024, the normal VAT rates are set to come back into force from July 1st if the government doesn’t further extend it, something that now seems unlikely.

READ ALSO: Why is olive oil cheaper overseas when Spain is the world’s top producer?

Foods that will get more expensive 

The foods that were included in the VAT reduction and will therefore now get more expensive from July include:

  • Plain bread, as well as frozen plain bread dough.
  • Flours
  • Milk: natural, certified, pasteurised, concentrated, skimmed, sterilised, UHT, evaporated and powdered
  • Cheeses
  • Eggs
  • Fruits and vegetables
  • Cereals
  • Olive oil and seed oils.
  • Pasta

This comes amid shocking consumer watchdog findings that show the price of food in Spain is, in extreme cases, up to 875 percent more expensive when sold on supermarket shelves than it is at source. This is according to a Facua-Consumers in Action press release on Tuesday.

According to the study, a kilo of lemons at source was priced at €0.20, yet the price per kilo in supermarkets is, on average, €1.79 — 695 percent more expensive. A kilo of lentils was found to cost on average 369 percent more in supermarkets than what the farmer is paid for the same product (€0.76/kg). 

Some Spanish economists argue that grocery shopping has become more expensive for Spaniards than for other Europeans because they tend to consume products that are increasing in price the most, particularly olive oil. 

The Bank of Spain has also pointed out that a preference for fresh produce in Spanish households has forced many to decide between eating healthily and cutting costs.

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