MedOlives Olive Oil Market Comments & Observations (Summer 2014)

Last week while quoting various requests from U.S. clients, we seemed to be fighting against a force greater than us: a rise in the price of olive oil coming from the law of supply and demand.

Two factors came into effect:

[1] – An adjustment for the possibility of a relatively smaller olive oil harvest for fall 2014*

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[2] – The large seasonal forward purchases from Italian companies that re-sell Spanish olive oil to the American market (under Italian brands)

Although most olive oil brands seen on American supermarket shelves appear to be Italian and Greek, a lot of the olive oil in the bottles is actually sourced from Spain where 40% of the world’s olive oil is produced. Of the three largest consuming olive oil markets – Italy, Spain, the United States (in that order), only Spain is capable of producing olive oil quantities greater than domestic demand. In fact, at least 300,000 tons of Spanish olive oil are shipped from Spain to Italy every year.

Today, 97% of the olive oil consumed in the United States is imported. We think that over time American olive oil supplies will grow and achieve a very solid price/quality level akin to what happened with American wine over the past 30 to 40 years. Nonetheless, the majority of olive oil will continue to be sourced and imported from Mediterranean countries.

The American olive oil market is very interesting for its growth potential because it has a per capita consumption level that is still quite low. According to some market surveys, only 40% of U.S. households buy any olive oil at all as of year 2014. Compare that to a 100% figure in per capita consumption in the countries of Spain and Italy.

American olive oil consumption is projected to grow at an annual rate of 5% for the coming years. We at MedOlives hope to see with this growth that the American olive oil user becomes more discerning in the quality of olive oil which would hopefully be the catalyst for two occurences:

[A] – Greater support of American olive oil producers with quality product

[B] – Greater support of quality Spanish olive oil sourced directly from Spain rather than from intermediaries and bottling companies in Italy and Greece (who are at present possibly not delivering the end product in its original form)

The above scenario is the win-win scenario for us at MedOlives. Afterall, the MedOlives owners are American and Spanish and we are perhaps a bit patriotic.

* Note: Spanish olive oil production is maintaining expected levels, but other Mediterranean country producers are behind expected production levels. This speculation is based on the flora of olive trees as of May 2014 which is utilized to predict harvest quantities for Fall 2014.

Data for this blog were collected from our e-mail conversations with our olive oil partners and various articles from the Spanish newspaper “El Pais”

An American Soap Maker in search of a better Olive Oil source

olive oil soapWe found an enquiry from this week particularly interesting because it had to do with the application of olive oil as a manufacturing ingredient rather than as a food ingredient.  Included below in this blog entry is an outline of the various olive oil grades and acidity ratios which proved to be helpful as we advised the company on the best-fit olive oil for their soap making business.

An American all-natural soap maker from the east coast contacted us in their search for better sourcing of their olive oil, which is a key ingredient for their product.  The company is looking for a more efficient sourcing of olive oil now that they have storage space available onsite.

With onsite storage the company can now purchase larger volumes and achieve better pricing via direct sourcing rather than the retail/wholesale outlet they are currently using.  As well, they will further benefit from having their pallets delivered directly to their facilities saving on man hours and “buying runs” to get their olive oil.

Up until now this soap making company has been sourcing their oil from a local Greek market and purchasing hundreds of gallon containers by the case per month.  I can just imagine the operations director’s station wagon filled to the gills with olive oil containers from the local market.

What is interesting here is that the Soap Maker may have been purchasing a less than ideal grade of olive oil in terms of acidity and cost because they were purchasing from a Mediterranean food market and not directly from an olive oil provider.

Here is a chart of olive oil grades, with the most expensive at top / least expensive at bottom:

1. [EVOO] Premium extra-virgin olive oil (as low as 0.225% acidity)
2. [EVOO] Extra-virgin olive oil (up to 0.8% acidity)
3. Fine virgin olive oil (up to 1.5% acidity)
4. [Regular] Virgin olive oil (up to 2.0% acidity)
5. [Regular] Semi fine virgin olive oil (up to 3.3% acidity)
6. Lampant olive oil (greater than 3.3% acidity – for industrial use / not edible)

Higher acidity is usually sought for in the production of soap, and many soap makers actually opt for Lampant Olive Oil, which is at least one grade lower than what this soap manufacturer has been purchasing at their local market.  Lampant oil cannot be used as a food ingredient, but it has acidity greater than 3.3% and comes in at a better price than Regular Virgin olive oil.

QUESTION:  If you were the olive oil buyer for this soap company, which olive oil grade would you choose?  (There is more than one correct answer)

ANSWER:  In this case, the Soap Maker has asked us to quote them two options for them to consider – one option being Regular virgin olive oil and the other option being Lampant olive oil.  Their decision will come down to two factors: the relative difference in price (aka cost saving) versus the greater marketing appeal of using Virgin olive oil within their ingredients.

Olive Oil Prices Rise with Reduction in Supply

Olive oil prices have risen 80 eurocents when compared to last year. On average, a kilo of olive oil is selling for €2.51 at olive oil mills. Supply in Spain (the largest olive oil producer) is much lower than in previous years. At present, Spain has about 398,000 tons of olive oil juice in storage, whereas at this time last year there was 819,700 tons of olive oil juice in storage.

The IOC XIII Quality Awards

The International Olive Council (IOC), headed by Jean-Louis Barjol, celebrated its XIII edition of Quality awards. 110 distinct extra virgin olive oils were presented, ranging from many countries: Spain (43), Portugal (41), Greece (15), France (4), Tunisia (4), Italy (1), Israel (1), and Uruguay (1).