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The Journal Gazette

Tuesday, November 14, 2017 1:00 am

Larger supply will lead to cheaper olive oil

Thomas Gualtieri and Rudy Ruitenberg | Bloomberg

Olive oil lovers may finally get a break on their grocery bills, following three years of elevated prices for the staple of Mediterranean cooking.

Deoleo, the world's largest olive oil supplier, expects rising global output in the 2017-18 season will cut prices for consumers. That may help sales at the company, according to Chief Executive Officer Pierluigi Tosato, who is completing a financial restructuring.

Bigger harvests of the fruit across much of the Mediterranean region will lift oil output by an estimated 12 percent, even as top producer Spain deals with a third year of drought, Tosato said in an interview. “That will push oil prices downwards, giving new breath to the market,” he said in an interview.

In Jaen, a city in southern Spain that's a trading hub for the oil used in salads and cooking, prices for the finest extra-virgin quality have held above 3 euros ($3.50) a kilogram (35 ounces) for most of the past three years, after climbing from less than 2 euros in 2014, according to prices tracked by the European Commission.

Higher prices have pushed homemakers and restaurants to seek cheaper alternatives such as sunflower-seed oil, which trades at about 80 cents a kilogram in Rotterdam. “Many consumers in mature markets such as Spain and Italy have started buying cheaper seed oil. Once they shift, it's really unlikely they'll go back” at current prices, Tosato said.

Spain's annual olive oil consumption fell by about 90,000 metric tons in the past five years, while sunflower-seed oil rose by 140,000 tons, according to Vito Martielli, a grains and oilseeds analyst at Rabobank in the Netherlands. Italians now use around 160,000 tons less olive oil than in 2011, while sunflower-seed oil rose by about 200,000 tons, he said.

“If olive oil is not on the market, consumers have to find alternatives,” Martielli said. “We have some substitution in effect, and the oil that's been winning, by far, is sunflower.”

Revived demand would help Madrid-based Deoleo. The producer of the Carapelli and Bertolli brands is forecasting a return to growth as it completes a restructuring. Its shares have dropped 24 percent this year, the worst performance on the 26-member BI Europe Packaged Food Valuation Peer Group index. Its market value is about one-tenth the 2 billion euros it had in 2007.

The company, which considers itself the largest marketer with a 10.4 percent world value share, is completing a financial restructuring plan and forecasts growth returning.