Olive oil giant Deoleo sees next harvest pushing down price

OLIVE oil lovers may finally get a break on their grocery bills, after three years of elevated prices for the staple of Mediterranean cooking.

Deoleo, the world’s largest olive oil supplier, expects rising global output in the 2017 to 2018 season will cut prices for consumers. That may help sales at the company, according to Chief Executive Officer Pierluigi Tosato, who is completing a financial restructuring.

Bigger harvests of the fruit across much of the Mediterranean region will lift oil output by an estimated 12 per cent, even as top producer Spain deals with a third year of drought, Tosato said in an interview. “That will push oil prices downwards, giving new breath to the market,” he said in an interview.

In Jaen, a city in southern Spain that’s a trading hub for the oil used in salads and cooking, prices for the finest extra-virgin quality have held above three euros (RM15) a kilogramme (35 ounces) for most of the past three years, after climbing from less than two euros in 2014, according to prices tracked by the European Commission.

Higher prices have pushed home makers and restaurants to seek cheaper alternatives such as sunflower-seed oil, which trades at about 80 cents a kilogramme in Rotterdam. “Many consumers in mature markets such as Spain and Italy have started buying cheaper seed oil. Once they shift, it’s really unlikely they’ll go back” at current prices, Tosato said.

Spain’s annual olive oil consumption fell by about 90,000 metric tons in the past five years, while sunflower-seed oil rose by 140,000 tons, according to Vito Martielli, a grains and oilseeds analyst at Rabobank in the Netherlands. Italians now use around 160,000 tons less olive oil than in 2011, while sunflower-seed oil rose by about 200,000 tons, he said.

“If olive oil is not on the market, consumers have to find alternatives,” Martielli said. “We have some substitution in effect, and the oil that’s been winning, by far, is sunflower.”

Revived demand would help Madrid-based Deoleo. The producer of the Carapelli and Bertolli brands is forecasting a return to growth as it completes a restructuring. Its shares have dropped 24 per cent this year, the worst performance on the 26-member BI Europe Packaged Food Valuation Peer Group index. Its market value is about one-tenth the two billion euros it had in 2007.

The company, which considers itself the largest marketer with a 10.4 per cent world value share, is completing a financial restructuring plan and forecasts growth returning.

The outlook for a bigger crop may bring relief, with the International Olive Oil Council forecasting 2017 to 2018 global output will rise by about 300,000 metric tons to 2.85 million tons. Spanish benchmark prices for intermediate quality virgin oil fell to about 3.50 euros last Thursday, down from about 3.70 euros a month ago, according to industry price tracker POOLred.

“The Spanish, Italians and Greeks like to consume olive oil – it’s the preferred oil,” said Martielli. “If it’s more affordable, they’ll switch back.”

Higher sales induced by lower prices would constitute only one pillar of the plan Deoleo has set in motion for a business rebound. The other will be a 15 million-euro investment mainly focused on expanding in international markets such as the US and India.

In the US and northwest Europe, as well as in emerging markets including Brazil and India, where olive oil is a niche product that’s appreciated for its health benefits, demand is still good despite high prices, according to Rabobank’s Martielli. —WP-Bloomberg