Home > Supply & Demand > Oil drought but of the “Olive” variety – Simple Supply and Demand

Oil drought but of the “Olive” variety – Simple Supply and Demand

The drought in Spain this summer has had a significant impact on the Olive oil market worldwide. Approximately 50% of world production comes from the World Cup and European Champions but The Economist estimate that the lack of rain might cause a drop in global production of around 20% – supply curve to the left. In 2011 the market was awash with around 3 million tonnes of olive oil. Because of this prices hit nine year lows – July 2012 $2,745 but over the last few months they have risen approximately 40% – $3,787 a tonne. Stocks are being put onto the market from last year’s crop (supply curve to the right) have helped to keep the price below $4,000 a tonne – a bit like a buffer stock system. See graph below

Olive Oil – US$ per Tonne

High prices have helped some other economies that border the Mediterranean Sea like Italy and Greece as they are the next biggest producers of olive oil and between them provide 20% of the world market.

Demand on the increase

Demand for olive oil has increased as it becomes more fashionable – maybe from all those cooking shows that they have on TV these days. Germany are using 5 x more olive oil and the British x 10. Demand in the US has been growing 6% for the last 20 years.

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