Oily olive oil prices

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The weather is crazy in Spain. Temperatures of up to 40 degrees in April are driving people to beaches and deep lines of anxiety on farmers’ foreheads. They are threatened with low yields for the second year already after 2022.

Spain is the world’s largest olive oil producer. The country’s farmers produce half of the world’s olive oil. In the last twelve months, their production has halved to 780,000 tons. This has ramifications for prices: It has risen almost 60 percent since last June. On commodity markets, a ton currently trades for the equivalent of about 5,400 francs – more than ever before.

The reason for this is the absence of rainfall in Spain, which has been going on for three years and may not end this year. April is expected to be the driest since records began. According to the Spanish weather service, March was the second warmest month and the second driest month of this century. Occasional rains may not be enough in Andalusia and other regions.

Analysts warn that a particularly dry summer could mean even lower crop yields this year. And so to more rising prices, which pushes the overall price level upwards.

Climate change increases inflation

Nicolai Tangen, 56, heads Norges Bank Investment Management, the world’s largest sovereign wealth fund, which manages the massive revenues from Norway’s oil business. Overall, the former hedge fund manager is responsible for a $1,300 billion investment volume.

He said in the Financial Times this week that inflation is hard to get under control. Rising labor costs are already reflected in inflation. However, we also see the impact of climate change on inflation. For example, rising prices of potatoes and coffee, as well as olive oil, are clear signs that inflation will continue to rise for Tangen in the coming years.

Is climate change fueling inflation? Economist Klaus Abberger (55) from the Center for Economic Research (KOF) at ETH confirms this in principle. “Overall, climate change is more likely to drive prices higher,” says Abberger, head of the business survey department at the research center.

“Climate researchers predict that extreme weather phases will become more frequent,” he says. This is true not only in Spain but also in Italy: “Last year the drought in the Po Valley had a significant impact on the availability and prices of durum wheat semolina.” 2022 was the driest year for Italy since 1800.

“Depending on where the weather events occur, different foods can be affected,” says the Economist. The situation with wheat is still tense because of the Ukraine war. “Potential crop failures could have a direct impact here.”

Migros and Coop increased prices

Olive oil prices have already been increased in Swiss stores. “When it comes to olive oil, price adjustments had to be made due to rising prices for packaging, shipping and above all raw materials,” a Coop spokesperson said on request. His colleague at Migros says the situation is tense: “Unfortunately, this is also reflected in the prices.”

The spokesperson says that the olive oil stock at Migros is now guaranteed. A bottle of Monini Classico currently costs 14.95 francs per litre. Don Pablo olive oil from Spain is sold at 9.50 francs per liter.

Nicolai Tangen of the Norwegian sovereign wealth fund warns of another phenomenon. He calls it “greed inflation” – which means manufacturers, processors or retailers take advantage of the situation and raise prices excessively.

“I think greed is a pretty strong word,” replies economist Abberger. But what you can actually see from a macroeconomic point of view is that the corporate sector can “keep their margins pretty well” despite higher costs for primary products or energy. According to Abberger, this means that many companies not only pass on higher production service costs to their customers, but also charge a surcharge for their own services. “It’s not a natural issue in situations like this.”

Another possibility may be that companies are smoothing out higher input costs with their own margins. But this buffering function of the corporate sector is “not so obvious,” says Abberger. “On the contrary, companies have sometimes even managed to increase margin.”

Do Swiss retailers do this too? Logically, even if they did, no one would accept it. “Coop is committed to fair and market-driven prices,” the spokesperson says. The company examines any price request from suppliers very carefully. “If we don’t agree to a manufacturer’s pricing policy, we will eventually take products out of the range.” Olive oil is still on the sales shelves.

*Journalist Beat Schmid (54) writes on financial matters on Sunday. Tippinpoint.ch is the publisher of the online media.

Source :Blick