Mind the gap

 International olive oil packers face a very real threat of gaps in stocks of olive oil before this year’s harvest comes onstream. There is reason to believe that without any carry-in stocks, the scenario will be repeated next year. Prices have been high for months, as dwindling tonnages have been shipped from emptying tanks. Costs are not expected to ease before May 2024. This is an unprecedented situation, even to the industry veterans who remember the 1990s.

The Turkish government has banned bulk shipments of olive oil until November 1, as Italian and Spanish packers scoured the markets for available tonnages. The 2021-22 crop year came close to 230,000 tonnes of olive oil in Turkey, while official sources are predicting a record 400,000 tonne crop for the current crop year. The country has a large table olive sector, which is also expecting a bumper crop of 700,000 tonnes. The way the two harvests are managed reflect the different product requirements, but variables such as oil content and moisture content have a degree of wriggle room. Table olives are fragile and demand very careful handling to remain visually perfect, while olives bound for the pressing mill need to be intact but not necessarily pristine.

Turkey also produces three quarters of the world’s hazelnuts, with average crops of around half a million tonnes inshell equivalent in recent years. There are lingering memories among olive oil traders of instances when consignments were topped up with hazelnut oil, which is very hard to detect when mixed with olive oil in small quantities. Such adulteration introduces a nut allergy risk, proportional to the percentage added. It requires specialist laboratories using either chromatography or spectroscopy to detect it. The confident predictions of record olive oil tonnages in Turkey’s current crop year may not be completely fortuitous.

In June, Portugal’s producers were predicting a trend-busting crop topping 100,000 tonnes, maybe even a record 126,000 tonnes. Whether it turns out to be a record harvest or not, it will all sell through in very short order. There is reason to suppose that the country is benefiting from its extensive Atlantic facade, even though Portugal is not a major producer.

Normally a net importer of olive oil, the southern hemisphere olive oil producer Ecuador is preparing to empty both its harvest and its reserves into a transient seller’s market. In terms of tonnages, this is unlikely to top 3,000 tonnes The southern hemisphere crop is in its final stages this month and every tonne harvested has a number of potential buyers in Europe.

The growing concerns over olive oil supplies are surfacing in many different ways across southern Europe. Croatian olive oil producers are critical of the restaurant trade’s insistence on putting cheaper imported olive oils on tables, while local specialities are promoted on the menu. Award-winning olive grower Ivica Vlatkovic put the cat among the pigeons by urging restaurateurs should sell 100 millilitre bottles of good quality olive oil as part of the cost of a cover.

Burning question

Wildfires across huge areas of southern Europe mean even more bad news for olive oil and table olive packers. It is impossible to predict the full effect on this winter’s prices for olive oil or table olives, but there will be direct consequences. This is not a complete wipe-put story, since established olive trees with deep root systems can recover from fires, although this will take time. Young olive trees are more susceptible to fire damage.

Click image for latest information

The immediate impact will be on packers and blenders of olive oil, particularly in Italy: these skilled folk have a network of suppliers for very specific oils with relatively rare qualities. The suppliers of such rarities are spread over the continent, from Gibraltar and north Africa down to the middle east. The trading network is complex and known to a handful of olive oil blending experts.

In a year when the mainstream crop is already looking patchy and fraught, this will mean higher costs for the retailers. In the UK, the multiples are reluctant to let their double digit margins take a hit and will do their level best to make sure that suppliers carry the burden. The situation is, however, beyond horse trading. Bulk olive oil prices will be non-negotiable, where there is product to be had. Looking at the Mediterranean over the next few weeks, the following impacts can be expected. Industrial tomatoes for peeled plum tomato canning lines can be expected to be short, since crop irrigation is being used for firefighting. Chopped tomatoes, passata and tomato paste can be made from almost any variety of tomato and production is not limited to southern Italy. Table olives are under a shadow, with a high risk of localised damage: a lot of olives will have been burnt off the trees. Durum wheat, essential for pasta manufacture, may have escaped the worst of the heat waves, but export tonnages will probably be restricted.

For the latest information on the European forest fires, click here.

Canned goods coming a cropper?

We have been used to seeing cheap canned foods on supermarket shelves all the year round for decades. With southern Europe just one of the many regions suffering record temperatures and drought around the world, it is timely to look at the possible impact on food products that we have relied on for centuries. It is necessary to distinguish canned foods that have an underlying seasonality, in other words, a point in the season at which the given food is plentiful.

Foods such as canned peeled plum tomatoes, canned salmon, or canned green beans, are packed during the peak cropping weeks of the season. Dedicated canning and cooking lines operate 24/7, with a scaled up version of a process that Nicolas Appert would recognise instantly. In the case of wild salmon, the canneries are located next to the rivers and are stocked up with empty cans ahead of the season. When the salmon return to spawn, fishing crews join the serried ranks of predators that are attracted by thousands of fish in breeding condition.

The standard cooking unit on such lines are a large tank of water, similar to a swimming pool, but kept at a rolling boil for the duration of the pack, which can last weeks. As the fish are caught and brought to a salmon cannery, they are prepared and the cans are filled before cooking. The duration of the cooking time is regulated by a crawler belt that covers the floor of the cooker. Small 100 gram cans are shifted through the cooker during the day at relatively rapid speeds, since they need less cooking than larger cans.

In the case of peeled plum tomato canneries, can sizes go up to 3kg. Lorryloads of raw tomatoes are delivered during the day, some of which will be kept for the night shift. When they clock in, they start filling 3kg cans while the crawler belt is slowed down to its slowest setting. By the time the day shift returns, there will be large stacks of packed and cooked 3kg cans. There will also be a steady stream of lorries laden with tomatoes for the day shift as the belt at the bottom of the cooking tank returns to its daytime setting.

This kind of production line depends on high volume intakes during a clearly-delimited number of weeks (salmon canneries generally pack more than one kind of salmon). It is vulnerable to seasonal variations and crop failures. A bit like us, really. There is an important distinction to make for peeled plum tomatoes, which is that these are mainly grown and packed in Italy. Unlike chopped tomatoes or tomato paste or passata, the cannery can only pack intact tomatoes. These are an industrial variety that are not useful for any other product.

Growing demand

Source: Intrastat

Total imports of Spanish olive oil to the UK topped 92,000 tonnes in 2021. That includes retail products, industrial, pharmaceutical, food manufacturing and UK-bottled own label product. The only tonnage it leaves out is olive oil sold by Lidl and Aldi. That represents a lot of demand for physical stock. Over the past decade it has climbed from 70,000 tonnes, with a wobble caused by high fuel prices in 2018.

Olive oil by numbers

The UK has been a strong market for olive oil in recent years, in a world where consumers are spending more than 14 and a half billion pounds a year on the Mediterranean’s most important crop. UK consumers will be paying rather more than their European neighbours in the coming months. They already pay over the odds, as it is.

The UK market caters for small introductory purchases: 250ml bottles currently retail for GBP 2.45p for olive oil, GBP 2.55p for EV (Sainsbury on June 1), while a Tesco 250ml bottle of bland mild and light olive oil has risen by 18% over the past year to GBP 2.83p. Tesco pricing for a litre of leading brand EV has risen steadily over the past 18 months by 50% from GBP 6.95p to GBP 10.40p, while ASDA increased the shelf edge price for the same branded litre of EV from GBP 6.50p to GBP 8 on June 1.

As of June 1, the ASDA shelfedge price for a one litre bottle of Filipo Berio EV went up to GBP 8, while Tesco was asking GBP 10.40 for the same product. It is safe to suppose that ASDA was not selling this line at a loss. So “every little helps” Tesco is charging 30% more than its rival. The day before, the differential was 60% for the same stock on the same shelves in their respective stores.

At a nearby town centre branch of Iceland during the same store check, the olive oil category was a one liner in every sense of the phrase. It comprised a single SKU, 500ml of ordinary olive oil for £4 in a tertiary brand, packed in a tidy plastic bottle. A no-frills distress purchase.

UK grocers selling olive oil have been milking the category. Spanish consumers get through a per capita average of 10 litres a year. They know what it’s worth and expect to get value for money. At the moment, headline olive oil prices are rising and are close to EUR 5,500 a tonne for EV grades. UK retailers will have to rethink their margin expectations if they are going to secure product and continue selling it. The party’s over, guys.

Rules Of Origin (ROO)

Goods that combine components from more than one trading bloc are subject to the Rules Of Origin procedure. Goods made in the EU are zero-rated on arrival in the UK, while the status of duty payable on third country components or ingredients used in EU goods is determined by applying Rules Of Origin. These establish whether or not the third country component has been transformed sufficiently for it to be considered an integral part of a new product. If it is a fellow traveller in a blended product, for instance, it is liable for duty.

The first target is to ascertain whether or not the component concerned has been absorbed into the finished EU product. If so, it can usually be covered by the duty payable on the finished product. If, on the other hand, it can be recovered from or identified within the EU product, the third country component may be liable for third country duty pro rata. The key marker is whether or not the third country component qualifies for a change of customs code. This will be decided by the UK customs staff on a case by case basis.

In the case of third country extra virgin olive oil (1509 2000), it is considered a fellow traveller in a blended product. This currently stands at 104 gbp per 100kg, according to the UK government online tariff service, https://www.trade-tariff.service.gov.uk/subheadings/1509200000-80 (as of check made on May 29).

Olive oil stocks under pressure

Spain, the world’s largest producer of olive oil, faces the prospect of running out of extra virgin olive oil in the coming months. According to industry figures seen by Urban Food Chains, forecasts for worldwide consumption of olive oil are expected to drop from 3.1 million tonnes to 2.9 million tonnes in the current campaign. There is a potential shortfall of 745,000 tonnes worldwide.

The Spanish industry invested heavily in extensive tree plantings around the turn of the century, with enough trees and crushing capacity to produce one and a half million tonnes of olive oil in a season. But the 2022-3 crop was a poor crop and down by over 50 percent against the previous campaign. This year a lot of flowers set on the trees, but like last year, the trees are stressed and are shedding the fruit.

With total olive oil stocks  across the Spanish industry hovering at just over 607,000 tonnes, the sector faces empty tanks later this year. Domestic consumer demand is strong and April sales in Spain topped 63,000 tonnes. With at least six months to go before the next harvest comes onstream, Spanish consumers will be competing with exporters for physical stocks of olive oil.

Demand is strong and prices are high but expected to go up even further. Assuming that Spanish consumers ease up on their purchases of olive oil, which is not a given, a 5% drop in month on month sales volumes would represent a requirement of just over 277,000 tonnes between now and the next crop. The Spanish industry delivers shiploads of olive oil around the world and all over Europe by tanker truck. Exports as of around 50,000 tonnes a month would empty the country’s remaining stocks by November.

data source: International Olive Oil Coouncil

Like any other crop-driven commodity, there is a numbers game in play and prices will rise steeply to head off strong demand. Retail margins will come under pressure as physical product becomes harder to obtain. The EU has trade deals with north African producers, who can ship quota  tonnages that member states can draw down with zero duty. Should any of this third country olive oil be packed for the UK market, even in a blended product, Rules Of Origin (ROO) would apply on arrival at the UK frontier, where duty would be charged on the non-EU content.

But the underlying concern has to be the drying out of water tables across a huge swathe of southern Europe and the Mediterranean basin. Olive trees have deep roots, but not deep enough, it might seem. In Spain, the planting of thousands of trees has propped up crop yields most years, but not all. This year’s forecast being a case in point.

Background notes about olive oil.

Looking ahead

Gaps in supply chains are set to become a regular feature of the UK economy. In April, supermarket chain Morrisons started limiting customers to two sweet peppers per shopping trip because of procurement difficulties for salad ingredients. Cold weather in southern Europe has led to shortages across the continent, while high energy costs have deterred UK growers from planting early greenhouse salad crops. Supplies of early season tomatoes and cucumbers have also been affected.

Traditional sources for these crops are Spain, Morocco and neighbouring north African countries. The combination of higher fuel costs for imported salad crops and the cold snap has wreaked havoc.

In March, the UK recorded headline Consumer Price Index (CPI) inflation of 10% https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/march2023 But take a closer look at the Office of National Statistics data and consumers will learn that food inflation is running at around 19% (CPIH 12-month rate for March 2023). Climate disruption is just one of many factors that will have a generalised effect on future developments in many sectors. Animal products of all kinds have already been heavily impacted in recent months and the sector can be expected to see further upward pressure on prices if producers are going to stay in business.

What “by numbers” is about

Across this website, readers will have seen posts such as butter by numbers or cheese by numbers. The purpose is not spelt out in these posts, so here is the thinking behind the “by numbers” coverage.

First, most of the figures cited go back to the end of the 20th century and are volume measurements. The choice of tonnages over the more usual measurement of currency is intended to give an idea of the additional capacity that imports generate for their economies.

In its simplest terms, importing food occupies production capacity the exporting country cannot use for the local economy. For countries like New Zealand, rural populations are so sparse and urban populations are so far apart that this is  not a problem.

Market gardeners close to urban centres in countries such as Kenya, on the other hand, can find themselves left with crops of green beans for which they have no local outlet. Having promised to grow premium vegetables for affluent industrial economies, there is no wriggle room for producers if  retail customers change their minds.

By looking at tonnages, it becomes possible to calculate the agricultural resources that are occupied by export production.

The use of data going back to the late 1990s is a reflection of the fact that multiple retailers invested heavily in electronic point of sale and data management for food sales during the early 1990s. The later years of the 1990s mark the moment that the results started to become visible.

Selling directly

“Today, we have come to sell our produce for a fair price,” declares Gérard Ricardi. The secretary general of radical farmers’ union MODEF (MOuvement pour la Défence des Exploitants Familiaux) has plenty of takers for tomatoes at EUR 1.50/kilo outside the mairie [town hall] of Ivry sur Seine on a blazing hot morning in late August.

The supermarkets pay around 45 centimes/kilo for tomatoes that cost 70 centimes/kilo to grow, Ricardi explains. There is 20 centimes/kilo to find for transport and packaging, before the same tomatoes are sold in Paris for EUR 2.50/kilo.

“Prices like that are a racket,” he grumbles. “Here, the growers are earning 70 centimes/kilo, there’s 20 centimes/kilo freight and packing, with 60 centimes for the distributor.” Total EUR 1.50/kg.

“We want to make it clear that there is scope for everyone to earn a living. The state should face up to its responsibilities and support consumers and growers alike.”

Sixty years ago, the French state imposed a maximum retail margin on agricultural products. “The state recognised then that retailers were overcharging and took action to stop the abuse.”

Known as the coefficient multiplicateur, retailers were able to multiply their cost prices by a factor of between 1.5 and 1.7, but no more. “The grocers were just lining their pockets, but it was not acceptable then in the way it is now.”

In fact, this policy had two important benefits: “Consumer prices were lower, because prices were linked to growers’ production costs and growers received a fair return for their work,” Ricardi observes.

“There was even a shared interest for retailers to pay more to the producer, so that the retail price could be higher. It was a virtuous circle that worked for consumers and producers, too.”

The coefficient multiplicateur lasted until 1986, when the retail lobby finally managed to kill it off. In recent years, a watered-down form of the coefficient multiplicateur returned to the Code de l’Agriculture as an emergency measure, but it has never been implemented because there is simply no political will to question the integrity of multiple retailers.

MODEF is celebrating its 50th birthday this year. MODEF was founded to stand up for small family farmers at a time when the mainstream farming unions would have cheerfully excluded six million peasants from the political process. Today, the largest union FNSEA uses the word paysan (peasant) to pluck the heartstrings of a nation that has very varied notions of a time before industrial farming, which should somehow have been better than today but probably was not.

Against all the odds, MODEF is still fighting the same assumptions in harder times. There are fewer peasants – just under half a million – but the growing power of a handful of multiple retailers has become a stranglehold on the nation’s food supply.

“We are disappearing and the head of state takes us for a bunch of idiots,” growls Girardi. Around him are crates of nectarines, plums and melons, fruit on which supermarkets earn similar margins to the tomato bonanza he described above.

“They’re buying my potatoes for 5 centimes a kilo,” another producer chips in. “They cost me 20 centimes a kilo to grow.”

As he speaks, just 100 metres away a French-owned discount grocery chain is selling 2.5 kilos of potatoes in a net for EUR 2.99. At 13 locations around Paris, there are queues to buy MODEF-produced potatoes priced at EUR 4 for a 5 kilo net.

The previous night, the growers had loaded an articulated lorry with tonnes of potatoes, melons, tomatoes, nectarines, plums and salad grown in Lot-et-Garonne before driving to the French capital to sell directly to Parisian consumers. Not that the public needed a lot of convincing.

The prices speak for themselves: two lettuces for EUR 1, compared to EUR 0.99 for a single lettuce in the same French discounter, while MODEF nectarines were priced at EUR 2/kilo against the retailer’s EUR 2.29/kilo.

At a local shopping centre a bit further away, Spanish grade II tomatoes are being sold in a larger supermarket for EUR 1.09/kilo. MODEF growers are not alone in resenting the kind of market distortion that arises from a European directive that has allowed countries such as Germany and Spain to exploit cheap foreign labour and undercut growers elsewhere in the European Union.

“The Bolkenstein directive must be revoked as a matter of urgency,” says MEP Patrick Le Hyaric, who was present at Ivry sur Seine. “This directive has allowed Spanish growers to take on Moroccan farm labourers and pay them less than the minimum European salaries,” he declared.

As a member of the European parliamentary commission for agriculture, he had just returned from Lot-et-Garonne where he had met a delegation of fresh produce growers, some of whom were on the same improvised market square at Ivry sur Seine. “I knew the situation was difficult, but now I have a better idea of the scale of the crisis that is gripping the small and medium-sized holdings in this sector.”

Over the past 20 years, Lot-et-Garonne has already seen a lot of growers go out of business. “Today, those that remain do not know if they will still be standing in six months’ time,” warns Le Hyaric.

He is organising an urgent meeting with the French minister for food, farming and fisheries, Bruno Le Maire, to demand emergency aid packages for growers and the urgent implementation of the coefficient multiplicateur. This is available as a crisis measure but has been studiously avoided by the French government.

“In its present form, the Common Agricultural Policy has a number of negative effects. But in its original form, it was a sound piece of policy. The préférence communautaire was not a bad idea, it just did not fit in with ultra-liberal ideas or the so-called ‘free market’, that is all.

“So Europe gave in to US demands. And now, for instance, France is completely dependent on imported soya to feed its livestock, most of it from Brazil.”

As long as cheap food imports can be procured around the world, consumers in the industrial world can get by without small, local food producers. But abandoning an entire sector of the economy has a cost that should be neither underestimated nor trivialised.

It is neither a secret nor is it difficult to understand. Talk to anyone who sells food direct: just don’t leave it too long.