Spanish Olive Oil: Anatomy of a Price Shock

The olive oil cycle of 2022 to 2026 is the clearest recent demonstration of what happens when climate volatility meets an inelastic agricultural supply chain. Trees cannot respond to price within a season, consumers reduced purchases sharply, retailers rationed shelf space, and the entire value chain repriced twice in three years. This analysis explains the mechanics and what changes structurally. It is part of the Spain Company Stories hub.

Why did prices rise so violently?

Because olive supply cannot respond to price and demand barely responds either. Consecutive drought years in Andalusia, which produces the large majority of Spanish output, cut harvests sharply. Trees stressed by heat during flowering set less fruit, and no amount of price signal changes that within a season.

At the same time, olive oil demand is relatively inelastic in its core markets. Southern European households treat it as a staple rather than a discretionary purchase, so consumption falls less than proportionally when prices double, which pushes the adjustment onto price rather than volume.

The combination produces exactly what occurred: a supply shortfall of perhaps 40% translating into a price increase of well over 100%. Agricultural markets with fixed short-run supply and inelastic demand always behave this way; olive oil simply did it in front of consumers who noticed.

What happened when supply recovered?

Prices fell almost as fast as they had risen. Spanish production for 2024/25 reached roughly 1.38 to 1.42 million tonnes, an increase of over 60% on the previous season, and average wholesale prices dropped from $7.61 in 2024 to around $4.18 in 2025.

Exports absorbed much of the additional volume. Spanish exports were expected around 990,000 tonnes for the season, roughly a third higher than the previous year, and domestic consumption recovered to around 495,000 tonnes as prices became affordable again.

The speed of the correction is the important detail. Producers who had experienced two years of exceptional revenue faced a halving of prices within a single season, which is the recurring problem of agricultural cycles: the good years fund the investment that deepens the following collapse.

Where does the 2025/26 season stand?

Normalised at a higher level than before the crisis. Global production for 2025/26 is estimated at around 3.44 million tonnes, down 4% but historically high, with European Union output around 2.06 million tonnes and Spain leading at approximately 1.37 million tonnes despite a marginal decline.

Spanish harvesting was disrupted by heavy rainfall, particularly in Jaén, reducing effective harvesting days and producing lower collected volumes than initially expected. December 2025 production of 416,471 tonnes was 30% below December 2024.

Prices have stabilised rather than collapsing further. Spanish conventional extra virgin olive oil has traded around €4.50 to €5.00 per kilo with certified organic near €5.50, and industry expectation is that prices settle above pre-crisis levels because production costs, irrigation needs and climate risk have all increased structurally.

How does Spain compete with Tunisia and Morocco?

On scale, quality infrastructure and market access, not on price. Tunisian conventional olive oil has traded around €3.95 per kilo against Spanish prices near €4.60, and Morocco has been expanding rapidly, which places continuous downward pressure on Mediterranean bulk pricing.

Spain’s advantages are structural rather than agricultural. It has the world’s largest milling and bottling infrastructure, established export channels, quality certification systems, brand presence in supermarkets worldwide and the ability to buy, blend and re-export oil from other origins.

That last capability is commercially significant and reputationally delicate. A substantial trade exists in bulk oil imported into Spain, bottled there and exported, which creates value and periodically produces disputes about origin labelling and consumer expectation.

What are the structural challenges?

Climate, water and cost. Rising temperatures and declining rainfall in Andalusia stress trees, reduce yields and increase irrigation requirements in a region where water is already contested between agriculture, tourism and urban use.

Production economics have shifted toward super-intensive plantations, which produce far higher yields per hectare using mechanical harvesting and irrigation, and away from traditional groves on slopes that cannot be mechanised. That transition raises national output and threatens the viability of the traditional sector.

Government targets have pointed toward substantially higher production by 2040 through productivity, diversification and farmer profitability. Whether that is achievable in a warming, drying region is the central agronomic question facing the industry, and the answer will determine whether Spain retains its dominant position.

What is happening to traditional groves?

They are being squeezed out by intensive plantations. Traditional olive groves on slopes with widely spaced old trees cannot be mechanically harvested, which makes their labour cost per kilo several times higher than a super-intensive hedgerow plantation harvested by machine.

The economics only work for traditional groves when prices are high or when the oil commands a quality premium that intensive production cannot match. During the price spike they were profitable; at normalised prices many are marginal.

This matters beyond agriculture. Traditional groves occupy landscapes with high biodiversity and cultural value, frequently in areas with few economic alternatives, and their abandonment carries the same fire, erosion and depopulation consequences seen across Mediterranean rural regions.

Who buys Spanish olive oil?

Italy above all, alongside the United States, Portugal, France and a growing set of non-traditional markets. Italian bottlers have historically been among the largest buyers of Spanish bulk oil, blending and bottling it for global distribution under Italian brands.

That relationship is commercially rational and reputationally awkward for Spain. It means Spanish oil reaches consumers worldwide with someone else’s name on the label, capturing production margin but not brand margin.

Growth in non-traditional markets is where the sector’s optimism sits. Consumption in North America, northern Europe and parts of Asia has been rising as olive oil is adopted for health reasons in cuisines that never used it, and those consumers have no prior attachment to Italian branding.

What is the outlook?

Higher structural prices with continued volatility. Industry expectation is that prices settle above pre-crisis levels because production costs, irrigation requirements and climate risk have all increased permanently, even though the acute spike has passed.

Volume is likely to keep growing through super-intensive planting, in Spain and increasingly in Portugal, Morocco and elsewhere, which puts downward pressure on bulk prices while premium and organic segments hold value.

The strategic direction for Spain is the same as in its other agrifood sectors: move up the value chain, build consumer brands in growth markets, and defend quality designations, because competing on cost against expanding low-cost production is a race the country cannot win indefinitely.

How do the harvest cycles work?

Olive trees alternate between heavier and lighter years, a biennial bearing pattern in which a large crop depletes the tree’s reserves and reduces the following year’s yield. Superimposed on that is weather, which can amplify or offset the cycle entirely.

This is why a single season’s production tells you very little. The 61.5% increase in 2024/25 followed two drought-hit years, and the marginal decline in 2025/26 reflects both the cycle and rainfall that disrupted harvesting rather than a structural change.

For anyone modelling the sector, the useful approach is a multi-year average with explicit scenarios for drought, because point estimates from any single campaign will mislead in both directions.

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