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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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COST OF LIVING

Spain to eliminate tax on olive oil to ease price jump

Spain's leftist government said Friday it will remove the value-added tax on olive oil, a staple of Spanish cuisine which has soared in price due to a severe drought that has caused a sharp drop in the country's olive harvest.

Spain to eliminate tax on olive oil to ease price jump

Socialist Prime Minister Pedro Sánchez’s government will from July “permanently” include olive oil in the list of “basic necessities” which are exempt from the tax, the budget ministry said in a statement.

This is “wonderful news for all Spaniards,” government spokeswoman Pilar Alegria said during an interview with private television station Antena 3.

The measure which will be approved at a weekly cabinet meeting on Tuesday will “ease the burden on Spaniards’ wallets” as well as “support the olive sector and stimulate consumption of a product that is so important for our country,” she added.

Supermarkets have reported a spike in thefts of olive oil bottles since their price has soared, prompting some retailers to fit them with security tags normally seen on pricey items like alcohol while sales of cheaper alternatives such as sunflower seed oil have increased.

Basic necessities such as bread, fruits and vegetables usually carry a reduced VAT rate of 4.0 percent but during times of high inflation as is currently the case the rate is reduced to zero.

The government already lowered the VAT rate slapped on olive oil to 5.0 percent from 10 percent in 2023 to help fight rising food prices but that has not stopped its price from continuing to rise.

Spain, which supplies almost half of the world’s olive oil, is along with Greece the globe’s leading consumer of the product, with each person consuming nearly 14 litres per year, according to the International Olive Oil Council.

The cost of olive oil in Spain in May was 63 percent higher than during the same month last year, and three times more expensive than in January 2021.

The sharp rise is due to a drop in production in Spain during the 2022-23 and 2023-24 seasons as a result of a series of extreme heat waves and a lack of rainfall in the country, especially in the southern region of Andalusia, the main olive producing region.

During the 2022-23 season, Spain produced 660,000 tonnes of olives, down from 1.48 million tonnes during the 2021-22 season. The agriculture ministry predicts production will not exceed 850,000 tonnes in 2023-24.

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