Why Is Good Olive Oil So Expensive?by Berk Bahceci
It's no secret that olive oil has always been a pricey commodity, but it's about to become even more expensive. Recent increases in olive oil prices (see this interactive graph from FRED) are not solely due to global inflation affecting all grocery categories. Rather, they are largely due to a drought that has affected Europe and other olive-producing regions. While some may argue that this is a typical occurrence in olive cultivation, it doesn't tell the whole story. The drought is a persistent issue, and it's exacerbated by the olive oil industry's exploitation of natural water resources, which are already scarce in the producing regions. In this article, we’ll explore why the drought is likely to persist, how it will affect olive oil prices, and how this will impact consumers.
The Prolonging Drought and Its Implications
The media has been covering this drought for a while, but for those of us who are hearing it for the first time, Spain (the world's biggest olive oil producer) is experiencing a drought that has "parched olive groves and scorched blooms," as Amudalat Ajasa from WaPo puts it.
The drought we witness today didn’t appear out of thin air. Its seeds were sown around 2021, if not earlier in 2020. But the broader implications of drought on agriculture are immense; it jeopardizes food security, livelihoods, and drives up commodity prices. By August 2023, the global price of olive oil had skyrocketed from a humble $1,313.4 per metric ton in December 2020 to an alarming $9,034.50. Given this trajectory, it wouldn't be surprising to see prices touch the $10,000 mark in the foreseeable future. Set against the backdrop of the lowest dip in prices in the last two decades, a period plagued by COVID, we see that prices have almost tripled!
This isn't a short-lived predicament. Spain, responsible for a staggering 45% of the world’s olive oil supply in the 2020/21 crop year, has been embattled with drought since 2022. At the heart of this crisis is Super High Olive Farming (SHD). As I've echoed previously, the dense plantation per hectare combined with an over-reliance on agrochemicals and artificial irrigation is both draining and contaminating our invaluable water reservoirs.
The Looming Shadows of Adulterated Olive Oil
With skyrocketing prices comes the unfortunate surge in the shadows of the market: adulteration. History has shown, whether it's the mafia ring scandal in Italy or the recent ban in Spain due to health concerns, that the higher the price, the higher the deception.
Consider the tragic episode of 1981 where 1,200 innocent lives were lost in Spain and a staggering 25,000 individuals were hospitalized, all because of toxic additives in so-called olive oil. While this is an extreme case, it's a somber testament to the dire consequences of adulterated oil.
A Genuine Note To My Fellow Consumers
Deciphering the authenticity of olive oil has never been more vital. As prices climb, unscrupulous entities seek greater profits, but you have the tools to outsmart them.
Let's break down the math behind the current olive oil prices:
- Current olive oil price: $0.26 per fluid ounce.
- Packaging: $0.06 per fluid ounce.
- Logistics: $0.06 per fluid ounce.
- 40% brand margin, 18% distributor margin, %40 retailer markup applied: $21.69 per 16.9 fl oz. bottle.
- Price, 10% standard error: $19.5-$23.85 or $1.2-1.4/fl oz.
So, a range of $19.5-23.5 per 16.9 fl. oz. (averaging $1.2-$1.4/fl oz) is our benchmark for genuine extra virgin olive oil. The oil is going to be pretty standard, but decent and real. Generally speaking, this should be the price of olive oil coming from a super high-density olive farm. However, traditional olive groves like Heraclea will command higher prices. This is because we do not use artificial irrigation and agrochemicals to optimize our production and maximize our yields. When olive cultivation embraces nature, it naturally carries a higher price tag.
This doesn't suggest surrendering to exorbitant prices. Drawing from my vantage point as the head of an olive oil brand, genuine olive oil shouldn't exceed $2/fl oz. For context, our bestseller duo, featuring early harvest and mature harvest olive oils, currently retails at $1.65/fl oz, while our new gem Everything Oil sells at $1.47/fl oz.
It's more than crunching numbers; it's about cherishing authenticity and prioritizing your health. Stand informed, stay vigilant, and let's savor the genuine essence of olive oil, undiluted and unadulterated.
In a world where authenticity is rapidly becoming a luxury, let’s champion the truth, not just in the realm of olive oil, but in every facet of our lives.
Image Credit: Alfredo Cáliz/Panos/Redux for CNN