Report Highlights:

After plummeting in MY2014/15, Spain's olive oil production is anticipated to return to average levels in MY2015/16. The smaller MY2014/15 crop combined with the steady pace of exports through MY2014/15, lead to the depletion of the olive oil stocks. Hence, should the steady pace of exports continues, the anticipated increased domestic supply will not be sufficient for stock recovery.

Abbreviations used in this report

EC European Commission

EU European Union

FAS Foreign Agricultural Service

IOC: International Olive Council

GTA Global Trade Atlas

CAP: Common Agricultural Policy

AAO: Spanish Agency for Olive Oil (since January 2014 it has merged with AICA)

AICA: Spanish Agency for Food Information and Control

ANIERAC: Association of Edible Oil Manufacturers, Packers and Refiners

HRI Hotels, Restaurants and Institutions ESYRCE: Annual Survey on Crop Area and Yields

MAGRAMA: Ministry of Agriculture, Food and Environment

MS: EU Member State(s)

WMO: World Meteorological Organization

MT Metric ton (1,000 kg)

TMT Thousand Metric Tons

MMT Million Metric Tons

MY Marketing year (November/October)

SPS Single Payment Scheme

CAP Common Agricultural Policy

PS&D Production, Supply and Demand

USD U.S. Dollar

Ha Hectares (One hectare = 2,471 acres)

N/A Not Available

HS Codes: Harmonized System codes for commodity classification used to calculate trade data.

150910: Vegetable oils; olive oil and its fractions, virgin, whether or not refined, but not chemically modified.

150990: Vegetable oils; olive oil and its fractions, other than virgin, whether or not refined, but not chemically modified.

Executive Summary

Total area planted to olive trees in Spain continues to increase driven by the growth in olive groves intended for olive oil production. In MY2014/15 yields plummeted and production went down to 836,000 MT. While it is still too early to forecast total olive oil production, early estimates for MY2015/16 indicate that production will reach 1.2 million MT. Normally, higher production levels should follow a lower off-year production in the previous Marketing Year. However, dry and high temperatures prevailing during spring, the heat wave of summer and late autumn with little rains did not allowed for a full recovery of yields.

Olive oil consumption in Spain is fairly stable and represents nearly 70 percent of the country's total household oil consumption; however, statistical data available show how domestic consumption has constrained again in MY2014/15 as a response to the consumers' prices hike.

Spain is the world largest exporter of olive oil with exports largely exceeding imports. Despite the poor domestic crop in MY2014/15, Spanish olive oil exports remained strong. Olive oil exporters have managed use up stocks throughout the marketing year, and to some extent, increase imports originated in the usual trading partners in order to continue to be present in export markets, and supply internal demand.

Intra EU trade has declined at a higher rate than exports outside the EU. While import duties are high enough to disincentive out-of-quota imports to the EU, Inward Processing Relief (IPR) may have played a key role.

As a result of the low MY2014/15 harvest, combined with the steady pace of exports through MY2014/15, MY2015/16 begins with historically low stocks level.

As of 2015, the Single Payment Scheme will be replaced by the Basic Payment as agreed in the recent CAP reform. Permanent crops, such as olive oil groves, will automatically comply with greening and no additional requirements will be needed to be eligible for green payments. No specific coupled payments are foreseen for the olive sector under the new CAP. It is yet to be defined how private storage of olive oil or producer organizations will be incorporated.

At the moment, a Commission Regulation to open an additional annual quota of 35,000 MT of olive oil duty free to the EU until the end of 2017, in addition to the existent 56,700 MT quota, is pending from final approval and publication in the European Union Official Gazette.

Acreage and Production

Olive groves (including table olives and oil production) are a strategic crop as, in many areas, alternatives to this crop are limited. Total area planted to olive trees in Spain continues to increase driven by the growth in olive groves intended for olive oil production. Olive grove area intended to table olive production continues to decline. Over 45% percent of the olive groves intended for table olive production are irrigated, whereas according to ESYRCE, in olive groves solely intended for olive oil production this percentage amounts just to 30 percent.

Andalusia, Spain's southernmost peninsular olive oil producing region, represents about 80 percent of Spain's total olive oil production, followed by Castile-La Mancha with a 6 percent share of domestic production.

Olive Oil Production in Spain (1,000 MT)

Marketing Year

2011/12

2012/13

2013/14

2014/15

2015/16e

Andalusia

1,326

471

1,470

667

1,030

Castile-La Mancha

109

40

153

50

67

Extremadura

53

26

60

36

48

Catalonia

28

27

26

37

29

Other

99

47

62

46

76

Total Olive Oil

1,615

611

1,771

836

1,250

After hitting record production levels in MY2011/12, when olive oil production amounted to over 1.6 million MT, olive oil production hit bottom in MY2012/13, when a severe drought halved yields. Spain's olive oil production hit new record levels in MY2013/14, when official statistics peg olive oil production at 1.7 million MT. In MY2014/15 yields plummeted again and production went down to 836,000 MT. This decline is explained by a delayed harvest combined with unfavorable conditions at the end of April and May, which resulted in a poor blooming and fruit setting. Additionally, the fruit fly infestation provoked fruit fall and negatively impacted the olive crop.

While it is still too early to forecast total olive oil production, early estimates for MY2015/16 indicate that production could reach 1.2 million MT.

Normally, higher production levels should follow a lower off-year production in the previous Marketing Year. However, dry and high temperatures in spring impacted the negatively the flowering stage by reducing to some extent the number of flowers. Additionally, the heat wave of summer and late autumn with little rains did not allowed for a full recovery of yields. Hence, MY2015/16 production levels are seen as just average by most of the industry actors.

According to AICA statistics, harvest of milling olives began in October. Normally harvesting and oil production operations continue through early May. Nevertheless, over 90 percent of olive oil is produced by the end of February. To date, no official data of olive crushing output has been published.

Olive Oil Industry and Value Chain

Spain is the world's largest producer of olive oil and represents on average about 40 percent of the world's total production and over 50 percent of the EU's olive oil production.

Spain's olive milling industry is fairly fragmented. According to AICA data, there are over 1,700 olive mills in Spain in distributed among 13 of the 17 autonomous regions that comprise Spain.

A large percentage of olive oil production (nearly 70 percent) is managed by farmers' cooperatives; as a result, prices of olives intended for oil production are virtually nonexistent as farmers who deliver their olive production to a cooperative get paid in oil basis.

The agro-food chain in Spain is dominated by big supermarket chains, which results in inefficiencies in price formation. Producers' prices are not necessarily transmitted to the retail level. For instance, according to industry sources, the nearly 50 percent of increase in olive oil prices in origin is not lineally transmitted to retail prices. Reportedly, consumer prices, with three months of delay, only grew by about 25 percent.

Consumption

Olive oil consumption in Spain is fairly stable and represents nearly 70 percent of the country's total household oil consumption. According to the MAGRAMA1 Consumption Panel and ANIERAC (Spanish Association of Edible Oil Manufacturers, Packers and Refiners) members' sales) consumption of olive oil in MY2012/13 went down.

In MY2013/14 olive oil consumption bounced back most likely due to the ample supplies available. Statistical data available show how domestic consumption has constrained again in MY2014/15 as a response to the consumers' prices hike by 12 percent.

Spain Household Olive Oil Consumption (million liters)

Marketing Year

MY2010/11

MY2011/12

MY2012/13

MY2013/14

MY2014/15e

MAGRAMA

436

436

415

419

367*

ANIERAC

356

373

342

371

322

Source: MAGRAMA Consumption Panel and ANIERAC

*FAS Madrid estimate based on MAGRAMA data.

Trade

Spain is the world largest exporter of olive oil with exports largely exceeding imports. The large majority of the olive oil exports (70 percent) are directed to other EU MS such as Italy, Portugal, France and the United Kingdom. Despite the poor domestic crop in MY2014/15, exports Spanish olive oil exports remained strong. Exports to other European Member States have declined in MY2014/15 at a higher rate (-25 percent) than exports outside the EU (-15percent).

Spain's Exports of Olive Oil by Destination in MT (MT)

Country of Destination

MY2010/11

MY2011/12

MY2012/13

MY2013/14

MY2014/15e

EU-28

650,087

632,232

451,437

827,681

611,100

Italy

422,021

387,953

203,504

510,987

348,000

Portugal

81,182

91,989

90,017

119,432

92,400

France

71,193

75,434

76,651

92,070

78,400

United Kingdom

35,749

35,486

37,282

47,660

40,100

Extra EU-28

197,888

248,066

197,802

290,938

246,300

United States

50,307

78,157

43,083

106,334

80,600

Japan

15,029

19,831

19,825

25,759

27,300

China

18,636

26,569

23,909

22,337

25,800

Australia

18,929

22,549

14,793

18,009

12,800

Brazil

14,385

16,771

18,267

13,935

13,200

Others

532,801

468,355

331,560

641,307

451,400

World Total

847,975

880,298

649,239

1,118,619

857,400

The poor domestic crop in MY2014/15 resulted in soaring imports. Olive oil traders have managed use up stocks throughout the marketing year, and to some extent, increase imports from the usual trading partners in order to continue to be present in to markets, especially outside the EU, and supply internal demand.

In particular, imports from non-EU countries such as Tunisia registered significant increases in MY2014/15 to contribute to partially make up for the domestic production decline and meet export commitments. While import duties are high enough to disincentive out-of-quota imports to the EU, Inward Processing Relief (IPR) may have played a key role.

Spain's Imports of Olive Oil by Origin in MT (1,000 MT)

Country of Origin

MY2010/11

MY2011/12

MY2012/13

MY2013/14

MY2014/15e

EU-28

29,327

49,349

71,443

47,269

56,500

Portugal

20,184

27,797

31,656

41,656

39,200

France

804

17,404

6,598

1,003

1,300

Italy

3,965

2,894

17,657

3,508

10,600

Extra EU-28

14,727

14,214

54,692

14,392

105,200

Tunisia

11,118

10,752

30,393

6,894

88,900

Morocco

2,472

113

5,257

801

11,500

Turkey

-

11

13,008

1,574

120

Argentina

-

980

1,881

1,855

600

Egypt

8

962

2,095

-

1,600

Chile

205

790

719

1,010

-

Australia

847

390

390

251

1,200

Syria

-

2

251

1,740

180

Others

-

214

698

267

1,100

World Total

44,054

63,563

126,135

61,661

161,700

Stocks

High beginning stocks in MY2012/13 were used up throughout the marketing year, which contributed to offset the lower olive oil output obtained. MY2013/14 began with which at that time industry actors were historically low levels. Those low beginning stocks contributed to countervail the impact in prices of record production registered in MY2014/15. As a result of the small production obtained in MY2014/15 combined with the steady pace of exports through MY2014/15, MY2015/16 begins with historically low stocks level. Data published by AICA indicate that MY2015/16 beginning stocks are 64 percent below previous season's levels and 47% smaller than the previous ten-year average.

Production, Supply and Demand

Spain's olive oil production is anticipated to recover to average levels in MY2015/16. However, should the steady pace of exports continues, the higher supply will not be sufficient for the depleted stocks recovery. Despite the opening of additional of tariff quota for olive oil originating in Tunisia, industry actors do not think that the high imports registered in MY2014/15 would be repeated given the reportedly lower olive oil availability in exporting countries.

The AICA publishes marketing year balance sheets that run October-September and are updated monthly.

Market Balance (1,000 MT)*

Marketing Year

MY2011/12

MY2012/13

MY2013/14

MY2014/15

MY2015/16e

Beginning Stocks

474

692

301

501

180

Production

1,615

616

1,782

842

1,250

Imports

60

118

58

158

80

Total Supply

2,149

1,426

2,141

1,501

1,510

Dom. Consumption

581

571

537

494

490

Exports

876

554

1103

826

830

Ending Stocks

692

301

501

181

190

Total Demand

2,149

1,426

2,141

1,501

1,510

Source: FAS Madrid based on AICA data and FAS Madrid estimates.

*AICA MY year runs Oct/Sep

Policy

Prior to the 2003 CAP reform olive oil producers in Spain received payments based on the amount of olive oil produced. After the 2003 CAP reform (Regulation (EC) 1782/2003) payments linked to production started to be progressively eliminated and replaced by the so-called Single Payment and were thus disconnected from production.

In the 2003 reform, Spain opted for a historical model as opposed to a regional model to allocate Single Payment Rights. The Single Payment Scheme (SPS), which will be applicable up to 2014, pays farmers for the land that they manage or own, regardless the crop they grow to the limit of the Single Payment Entitlements they own. Farmers need to present a hectare of eligible land to claim the payment of each Single Payment entitlement they own.

Since 2006 the calculation of the amount paid to each farmer, is based on the total agricultural subsidies received in the reference period (2000-2003 for olive groves, 2000-2002 for the large majority of crops). This aid is received regardless the actual type of crop grown, as long as the farmer can justify a sufficient amount of eligible cultivated land and provided that Statutory Management Requirements (SMR) or Good Agricultural and Environmental Conditions (GAEC) are met.

In the case of olive oil, only olive groves planted before May 1st, 1998 had access to the single payment scheme (or those planted to replace existing olive groves). That is, new plantations after 1998 are not necessarily subject to public support.

Olive farms smaller than 0.3 ha saw their payments completely decoupled after 2006, whereas larger holdings had 95% of the support decoupled at that time. The remaining aid paid (5%) was retained and allocated depending on the olive grove category. In January 2010, support to olive oil was fully decoupled also for larger farmers, so they would receive directly the full Single Payment support. As support is not linked anymore to the type of crop grown, a farmer could have obtained Single Payment Scheme entitlements in one productive sector (e.g. grains) and switch to other production (e.g. olive oil) and still receive the same amount of money.

In Spain, the value of the Single Payment was linked to amounts received under the previously existing coupled schemes. As a result, the amount received varies tremendously among the different autonomous regions and different farmers depending on the type of their agricultural activity they carried out throughout the reference period considered. The only information available regarding the support received by farmers is Single Payment Scheme Average data (Euros per Hectare).

As of 2015, the Single Payment Scheme will be replaced by the Basic Payment as agreed in the recent CAP reform. Olive oil is one of Spain's most sensitive sectors in regards to the CAP reform as area payments received by olive oil farmers under the Single Payment Scheme were normally above the national average. A flat rate payment would have resulted in an erosion of the support granted to the olive oil sector.

A total of 316 counties in Spain were considered. The Basic Payment calculation for these counties takes into account four different land uses: irrigated land, non-irrigated land permanent crops and pasture land. Other factors such as the amount of support previously received have been considered. As a result, a total of 50 regions have been defined. These regions will be granted with different levels of support, which will only be determined once the 2015 applications are submitted.

Broadly speaking, the amount of the Basic Payment allocated to each region defined will represent the support granted to the type of land use. The amount of support received will be calculated based on the subsidies received in 2014.

Permanent crops, as olive oil groves, will automatically comply with greening and no additional requirements will be needed to be eligible for green payments. No specific coupled payments are foreseen for the olive sector under the new CAP.

Private Storage Aid and Producers Organizations

Under the CAP reform, in order to respond to periods of severe market imbalance, storage by private operators may be appropriate, as exceptional measures, in order to stabilize the olive oil sector. Under the new Single CMO, some changes have been introduced to the PSA scheme. For instance, the so-called "reference threshold levels" can be revised based on production, market conditions and production costs to respond to adverse market situations.

Additionally, in order to strengthen olive oil producers bargaining power with downstream operators which would ultimately contribute to a fairer distribution of added value along the supply chain, under the new single CMO (Regulation (EU) 1308/2013) recognized producers organizations are allowed to negotiate, subject to quantitative limits, the terms of delivery contracts, including prices, for some or all of their members' production, provided that certain conditions are met. However, it is yet to be defined how private storage of olive oil or producer organizations will be articulated.

Trade Agreements

At the moment, a Commission implementing regulation amending Regulation (EC) 1918/2006 is pending from final approval and publication in the European Union Official Gazette. This piece of regulation would open and additional of tariff quota for olive oil originating in Tunisia. In particular, the EC will grant Tunisia with an annual quota of 35,000 MT of olive oil duty free to the EU until the end of 2017, in addition to the 56,700 MT as referred to in the Association Agreement between the two parties.