Against a background of soaring crop, fuel and packaging cost inflation, a few foodstuffs – notably olive oil – are getting cheaper. Why, asks Alex Beckett

The headlines have been dominated by depressing food inflation stories over the past couple of weeks.

But while commodity cost hikes have pushed up the retail prices of a whole host of food and drink items not all commodities are soaring in price. In fact, some are actually falling.

The latest EU farmgate pricing data from Mintec reveals that the commodity price of eggs is down a whopping 35%, while cocoa butter is 8% cheaper, fishmeal 6% and olive oil 5%. Retail prices haven’t necessarily followed suit. Eggs have actually risen 1p in price, while the cost of a standard 1kg pack of own-label basmati has remained static at £1.50 [BrandView 52w/e 17 February 2011].

But mirroring its commodity price, the shelf price of olive oil has fallen, by 6% to £4.27 a litre in the past year [Nielsen 52w/e 22 January 2011], making it one of the few foodstuffs to buck the inflationary trend. So, how has it managed it, particularly when other edible oils are moving in the opposite direction price-wise?

Global olive oil production and exports have hit an all-time high this season, according to the International Olive Council (IOC). Three weeks ago, the Chinese government purchased $9m worth of olive oil stock from leading exporter, Spain.

This underscores its importance on the global commodity market, believes Mintec analyst Robert Miles, especially at a time when palm oil (+62%) and soyabean oil (+54%) are only getting more expensive.

Rising global demand has prompted the world’s third-largest producer, Greece, to up production by 5%. With other key growers also increasing output Syria by 29%, Algeria by 126% and Turkey by 9%, it has compounded the oversupply situation. Only Spain, which produces 50% of the world’s olive oil, has kept production relatively ­static over the past six months in reaction to the oversupply.

Mother Nature has also played a key role in keeping prices down. Olive crops escaped the destructive rain storms and droughts that wrecked the world’s wheat crops last year and sent prices soaring throughout the entire food chain. Spain boasted a particularly good crop in 2010 as did the other key growing regions along the Mediterranean, according to number-one brand Filippo Berio.

Another factor putting downward pressure on prices has been the number of promotions in the category. The relative stability of farmgate olive oil prices over the past year has encouraged manufacturers to sell more on promotion, according to Filippo Berio MD Walter Zanré. “I can’t remember such a period of stability,” he says. “It allows us to plan more effectively for the future, and introduce longer-term promotional strategies that will end up benefiting the consumer.”

The fact UK olive oil sales have risen 2.6% in value to £152m on ­volume growth of 4.7% last year [Nielsen 52w/e 22 January 2011], shows how significant the promtional activity has been, he adds. Indeed, heavier promotions enabled Filippo Berio sell more than one million litres in the month to 22 January 2011 a first for an olive oil brand in the UK, he claims.

The cost of transporting olive oil around the world has also been cheaper over the past few months, adds Bill Lines, spokesman for The Baltic Exchange, the international market for shipping and freight.

According to Mintec, shipping rates on giant capesize freighters are down 61% on last year with the slightly smaller sized panamax vessels down 58% despite rising fuel costs. “There is an oversupply of vessels around the world at the moment,” says Lines. “Companies are starting to operate below costs. Yet oils remain a big business area for them.”

However, Zanré warns that the situation is fragile. “Any hiccup in supply and olive oil prices will go up,” he says, pointing to the civil unrest in Egypt and Tunisia as an example. “North Africa is a relatively small player but the turbulence in the region could well affect ­pricing.”

For olive farmers, the sense of unrest traversed the Mediterranean earlier this week. Spanish farmers protested their olive oil was priced less than it cost to produce and demanded their political leaders put pressure on the EU to change legislation and allow oil to be bulk stored until prices recover.

If the pressure continues to mount, that could happen sooner than people think and the days of cheap olive oil could be short-lived.

Other commodities that cost less….
British lamb -1%
Rice (Thailand) -2%
Eggs (UK) -35%