Olive Oil Prices Surge, Putting Europe on a Slippery Slope

Severe weather conditions have caused a surge in the prices of olive oil, making it the latest commodity to reach new highs. According to the United States Department of Agriculture (USDA), global olive oil prices reached a peak of $8,900 per ton in September due to exceptionally dry weather in the Mediterranean, which raised concerns about potential supply disruptions.

The USDA reported that the average price in August was 130 percent higher than the previous year, with prices quickly surpassing the previous record of $6,242 per ton set in 1996, and there are no indications of a decrease in sight. Despite these rising prices, consumer and cultural preferences for olive oil have made it challenging to find substitutes, even though there is an abundance of other vegetable oils available.

This increase in the cost of olive oil, a beloved ingredient in cooking and salad dressings, mirrors similar price hikes seen in various other food commodities such as cocoa, orange juice, wheat, and soybeans. These escalating costs pose a potential setback to the Federal Reserve's efforts to control inflation in the United States. In August, the annual rate of consumer price increases stood at 3.7%, significantly lower than the previous year's peak of over 9%, following the central bank's decision to raise benchmark interest rates by more than 500 basis points since early 2022.

The USDA also expressed concerns about the continuation of high prices, especially in the European Union (the largest producer, consumer, and exporter of olive oil). While the current price surge may lead to reduced demand in the short term, the availability of olive oil is expected to remain scarce into the 2023/24 season, especially if poor weather conditions continue to impact the next harvest.