Searching for the good oil

What is it about food price spikes and Easter in 2024?

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A few weeks ago around the time of “Western” Easter (largely celebrated by the Catholic and Protestant churches), the surge in the price of cocoa was causing consumers concern about the price of chocolate eggs.

"While Australians consume roughly 2.5 kilograms per year, this is a long way behind the Greeks who each consume almost ten times as much at about 24 kilograms annually.”

This coming weekend will see Orthodox Easter celebrations where many communities in Australia celebrate with major family banquets. One factor which may play a role in the feast preparation will be the recent surge in the price of olive oil.

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Source: St Louis Federal Reserve

The hike in olive oil prices, as well as a growing scarcity on some retail shelves, will impact a wide range of Australians, particularly the large populations from a Mediterranean background.

Possibly as a result of Australia’s multicultural society and its diverse range communities, Australians are the largest consumers of olive oil per capita outside Europe and the Mediterranean region (which includes Israel, Jordan, Lebanon and Tunisia).

While Australians consume roughly 2.5 kilograms per year, this is a long way behind the Greeks who each consume almost ten times as much at about 24 kilograms annually.

While olive oil prices have shown some volatility over the decades, they have normally traded in a range between US$3,000 to US$5,000 per tonne. In recent years however, olive oil prices have hit both their record lows and record highs.

In 2021 prices plummeted to around US$1,300 a tonne due to a combination of factors including an oversupply of olives and competing oils combined with plummeting demand, as restaurants and shops were impacted by COVID-related closures.

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Source: International Olive Oil Council

In contrast over the past year, global olive oil prices have surged to record highs, peaking at more than US$10,200 a tonne. The spike was driven by damage to crops by drought, fire and more recently rain in some of the world’s biggest olive-producing nations including Spain, Italy, Portugal and Greece.

The impact of the fall in European supply has made its way to supermarket shelves in Australia. As consumers in Europe secure supply, olive oil imports to Australia have dropped sharply.

Australia imports more olive oil than it produces domestically, with imports over the past decade making up between 60 and 80 per cent of domestic consumption.

As a result, reduced imports inevitably lead to price rises.

Closer to home, Australia’s domestic production of olives also dipped in the past year as crops experienced sub-optimal growing conditions, further adding to the scarcity.

The domestic olive oil industry is relatively new. Earlier this century most olive oil was imported. In the past two decades growth in olive plantations now means Australia produces about 20,000 tonnes of olive oil a year. This output can be volatility due to factors such as drought.

The current high prices and scarcity will be felt by different parts of the community in different ways. For example, restaurants which use olive oil in their dishes – such as Greek and Italian restaurants – will factor this further increased cost alongside other rising inputs including labour, energy and supply costs. Many also face reduced patronage due to the higher price of living squeeze.

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Source: USDA

Retail consumers are increasingly watching their household budgets in the wake of higher mortgages. This may cause some to shift to other oils including avocado, macadamia or sunflower oils.

Sustained high prices and ongoing challenges to the European olive crop may spur some investors to increase production of olives and olive oil in Australia – to provide a more reliable supply into domestic and global markets in the years ahead.

The good news is the current shortage is likely to be temporary and while there may be gaps on supermarket shelves for now, in coming months supplies are likely to return to normal.

Michael Whitehead is Executive Director for Agribusiness Industry Insights at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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