05/31/2012 16:58
European oil giants dumping stocks below costs could prove catastrophic. ‘

The price for olive oil has dropped to its lowest level in a decade and farmers in the Middle East are bearing the brunt as Spain and Italy dump their government-subsidized stocks at below cost.

“The international market prices are going below sustainable levels,” Nasser Abu Farha, the director of Canaan Fair Trade that works with some 1,500 Palestinian farmers, told The Media Line.

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The price of olive oil fell to about $2,920 per ton this month, about half of the peak price of $5,850 in 2006, according to IMF data. While the plunging olive oil prices are hitting the ailing economies of Spain, Italy and Greece, the world’s largest producers of olive oil, they are ricocheting across the Levant, too.

“There is a great deal of consolidation of the olive oil market in Spain and Italy so that the bulk of the olive oil industry is controlled by very few hands,” Abu Farha said. “These giant companies pool most of the Mediterranean olive oil and this gives them a lot of leverage on the price.”

Adi Naali, olive oil division manager of Israel’s Plant Council, said that the dumping was threatening to destroy the local olive industry.

“There is a catastrophic flood of cheap oil from Europe which is threatening the future of the olive farmers in Israel,” Naali told The Media Line. “A farmer can sustain a loss for a year or so, but over time they can’t and we fear they will start uprooting their groves.”

About 95% of the world’s olive trees are in the Mediterranean region. Olive oil is so well liked and is such an integral part of the cuisine that according to the United Nations Conference on Trade and Development (UNCTAD) Mediterranean basin countries also account for 77% of the world’s consumption.

But elsewhere around the world, olive oil consumption has dramatically risen over the past decade – largely due to the popularity of the “Mediterranean diet.” World olive oil consumption reached 2.98 million tons last year, a 3.7 % increase from 2009.

Olive oil producers have also started focusing their exports on non-traditional markets, particularly China, India and Japan. China increased its import of olive oil by 62% in 2011, but most of the imports came from European countries.

“There was the expectation that every Chinaman would start drinking a spoon of olive oil a day, and the Indians too. That’s a lot of oil, and it is happening, but at a lower pace than expected,” Na’ali said.

The Europeans are now overstocked with olive oil and are trying to clear out their stocks by lowering prices.

“It’s harming us greatly,” Ayala Noymeir, who owns a mill producing organic olive oil in northern Israel, told The Media Line. “The major food chains [in Israel] are importing cheap oil from abroad and are selling it at rock bottom prices. They’re forcing us to get rid of our stocks at below cost.”

Noymeir said that the Europeans were able to dump their products cheaply because they were buffered by a subsidy from the European Union. Israeli customs aimed at protecting local farmers were not high enough to prevent the market from being flooded by the cheap oils from abroad.

“The problem is that when a housewife comes to the supermarket and compares prices, they are inclined to take the lower one, even if it’s lesser quality,” said Micha Noymeir, head of the family business of Rish Lekish, an organic olive mill in Tzippori.

But Abu Farha of Canaan Fair Trade said he believes there was room for prosperity in the olive oil specialty markets. They work with 1,500 Palestinian farmers from over 40 villages in the northern West Bank to produce olive oil, herbs and tahini. They supply major international retailers including Whole Foods in the U.S. and Sainsbury in Britain.

“The farmers who are escaping the impact of this are farmers who producing connoisseur-type specialty oils, like the farmers that we are working with, or farmers who are organized into fair trade and organic production.”

“We give the farmer a sustainable minimum regardless of the fluctuating of market prices. We give them a safety net of a minimum sustainable price, but we sell to like-minded companies in the West in Europe and North America who are willing to pay a premium on the olive oil prices when market prices are going low,” he said.

He said that olive oil production is a $200 million business in the Palestinian Authority and that it supports some 200,000 families. He said a lot of farmers who are outside their network were suffering since they have been sitting on their supplies waiting for the price to go up and a new harvest season was fast approaching.

“I see the price is going to stay low for the next couple of years, but one thing we are happy about is that we are able to sustain the $6 per-liter for our farmers at the time that it is below $3 in the market place,” Abu Farha said.

In Israel, efforts are underway to increase consumption in order to boost sales. According to the Plants Council, annual Israeli olive oil consumption is about two kilos per capita, substantially less than the 24 kilos the average Greek consumes annually.

“There was a sense that competition would be good and bring cheaper prices for the consumer but what is happening is that they are forcing the local olive farmer out of business and after that happens the importers will raise the prices,” Na’ali said.

“The Europeans are dumping their stocks and the whole market is flooded which is putting people like the Noymeirs and other farmers on the kibbutzim and in the Arab villages out of business.”

The Plant Council recently issued a quality-control sticker for Israeli olive oil which they hope will bring public confidence to the locally-made, high-quality extra virgin oils and boost sales.