Last week, we looked at how rising sugar costs will contribute to higher candy prices this Halloween. Of course, sweets aren’t the only product affected by global supply issues. Due to poor weather conditions in Europe, olive oil prices have more than doubled over the past year. The situation is worst in Spain, the world’s largest producer of olive oil and victim of a drought that has devastated recent harvests. Bad weather across the continent has also led to lower production levels for other major growers in Greece, Italy, and Portugal.

As a result, businesses are paying significantly more for olive oil that is then marked up further for customers. In Dallas, for instance, Michelle Spangler owns a shop that infuses olive oil with flavors like basil and blood orange. Although she has an agreement with her suppliers that protects her from rapid price increases, Spangler still estimates that she will pay 20 percent more for olive oil over the next year. This will likely lead to price increases of 10 to 15 percent at her store, Infused Oils & Vinegars. “It’s not a cheap product,” said Spangler, “and so that will probably price some of my customers out of that product line in my store.”

Matters aren’t much better at supermarkets, where a bottle of Bertolli’s olive oil that sold for $9 last October now runs for $11, a price increase of nearly 22 percent. Even worse, experts predict that supply issues will continue to be a persistent problem in the future. According to the European Commission, olive oil production will only slightly recover from last season’s 40 percent decline, further squeezing supplies and pushing up prices. In fact, olive oil is becoming so precious in Europe that thieves have started targeting farms and factories for the valuable commodity. Given this instability, companies may start looking towards South American suppliers if European olive oil becomes too expensive. “Relying on one hemisphere or one country or one region is not sustainable,” said Leah Bradley, CFO of the olive oil supplier Veronica Foods. 

Questions:

1. Why has the price of olive oil more than doubled over the past year?
2. Should more companies start buying olive oil from South America if European prices continue to rise? What do you think are the advantages and disadvantages of this approach? 

Source: Santul Nerkar, “Why Olive Oil Is So Expensive Right Now,” The New York Times, October 22, 2023.