Insiders Perspective: Should You Invest in Olive Oil?

THE olive oil market has been experiencing significant changes and challenges in recent times. From soaring prices to theft and fraud, the industry is dealing with various issues that have implications for consumers and producers alike. In this article, we will look into the current state of the olive oil market, explore the reasons behind the price increase, and discuss whether it is a viable investment option.

The Rise in Olive Oil Prices

Over the past few months, olive oil prices have been on the rise, leaving consumers and producers alike concerned. The main reason behind this increase can be attributed to two years of drought in Spain, which typically accounts for approximately 40% of the world’s olive oil supply. As a result of warmer winters, major flooding, and forest fires, Spanish farmers have struggled to maintain their olive oil production, leading to a decrease in supply and subsequently driving up prices. In 2022 a bottle of olive oil was €4, in January 2023 it rose to €6 and now it will cost you around €9 for a litre of olive oil!

The Impact of Climate Change

The olive oil market’s vulnerability to climate change cannot be overstated. Spain’s olive crisis serves as a stark reminder of how extreme weather conditions can devastate olive oil production. In the 2022-23 season, a severe drought in Spain led to a 50 per cent reduction in olive oil output. Italy, another key player in the industry, has also faced production challenges, further exacerbating the global supply shortage. Furthermore, the current year’s dryness and heat waves have threatened Spain’s upcoming harvest, with farmer groups predicting another poor crop.

The Increase in Olive Oil Crime

The increase in olive oil prices has unfortunately led to an increase in theft and fraud within the industry. Thieves across the Mediterranean have resorted to using chainsaws to steal olive branches and even entire trees, some of which are centuries old. These thefts have resulted in warehouse break-ins, dilution of premium oil with inferior products, and falsification of shipping data. While most thefts involve branches, farmers have also experienced the theft of expensive equipment and olive oil itself. One Spanish farmer had 56,000 litres of olive oil stolen. For context that is worth around a half a million euro.

Global Demand and Consumption Trends

Despite the challenges facing the olive oil market, global demand for olive oil continues to steadily increase especially in North America. This growth can be attributed to the rising awareness of the health benefits and sustainability advantages associated with olive oil consumption. A 2021 report by Fortune Business Insights predicts an annual growth rate of 3.2 per cent in the olive oil industry. As consumers become more conscious of their dietary choices, olive oil remains a popular choice for its perceived health benefits.

Although in countries like Spain and Italy as the cost increases the consumption decreases. You may even notice that in some restaurants where they once left the bottle of olive oil on the table, you now have to request it and then they pour a little onto a plate. Some supermarkets have taken to chaining up their olive oil in a similar fashion to alcohol!

Investing in Olive Oil

Given the current state of the olive oil market, some may wonder if it is a viable investment option. While the market is facing challenges, it is important to consider the long-term potential of olive oil as a commodity. As global demand for olive oil continues to grow, investing in olive oil production or related industries could present opportunities for those looking to diversify their investment portfolio. However, it is essential to thoroughly research the market, consider the risks involved, and seek expert advice before making any investment decisions.

Ensuring Quality and Authenticity

With the increase in olive oil crime, ensuring the quality and authenticity of the product has become a pressing issue. Producers and consumers alike must be vigilant in identifying fraudulent olive oils. In some instances, inferior oils are being mixed with genuine olive oil, leading to a diluted and potentially harmful product. Authorities have taken measures to crack down on fraudulent products, but it is crucial for consumers to purchase olive oil from reputable sources and look for certifications and quality seals.

The olive oil market presents an intriguing but complex landscape for potential investors. Previous efforts to establish a futures market failed due to the market’s high volatility and low trading volumes. The primary player in the olive oil sector on the stock market, recently reported dismal financial figures, attributing the downturn to soaring prices and a dearth of products, resulting in plummeting sales and a negative net profit. This downturn indicates that even industry giants are struggling with the market’s challenges.

Consequently, entering the market as an investor at present appears risky due to the unstable and unpredictable nature of pricing and market conditions. It may be prudent to await more favourable circumstances before investing in olive oil. Meanwhile, optimism is pinned on potential weather changes in Spain to alleviate prices.

Despite these complexities, if investment discussions interest you, an invitation is extended to meet for coffee at Hugo Investing’s office in Marbella, offering an opportunity for further dialogue. Additionally, for more insights into this topic, Hugo Investing’s YouTube channel hosts a weekly vlog under the name Hugo Investing, providing deeper analysis and information.

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