Olive oil 2022
Heat in Europe Is Driving Up Olive Oil Prices Heatwaves and drought in Spain, the world’s largest olive oil producer, are expected to hit the coming harvest, WSJ, Aug. 20, 2022. By Sarah Ruberg Soaring temperatures in Spain this summer are expected to hit the country’s olive oil production, pushing up prices and threatening to further stoke food inflation. Nearly half of the world’s olive oil is produced in Spain, with the U.S. one of the country’s largest export markets. Prices of most edible oils are already high after the war in Ukraine led to shortages of sunflower oil, prompting buyers to seek alternatives for use in cooking and as an ingredient in food products. Now olive oil prices are now being driven higher again by concerns that hot and dry conditions in Spain will hit the coming olive harvest.“The crop looks pretty dire as it sits right now,” Mr. Holland said, adding that he expects a nearly 30% reduction in olive oil yields unless conditions improve quickly in the coming weeks. The olive harvest typically starts in October. Mr. Holland said a bad harvest could see prices—currently at about 3.80 euros a kilogram, equivalent to $3.87—hit as high as €4 to €4.25 a kilogram, which would be the highest level for the commodity since Mintec started keeping records 20 years ago. Expectations of a bad harvest in other large olive oil producing countries such as Italy, Tunisia and Portugal are exacerbating concerns about low supplies globally. The Cooperativas Agro-alimentarias, a co-op that represents Spanish farmers, is predicting a significant decrease in olive oil production this year. Output could slip to below a million metric tons this year, according to its early forecasts, down from the roughly 1.5 million tons that the country has produced in recent years. The weak harvest is set to further boost already high olive oil prices for consumers around the world, analysts and industry executives say. Consumer prices for olive oil rose 23.6% in the U.K. last month, according to official inflation data published Wednesday, contributing to a 12.8% rise in overall food prices. Olive oil producers, also grappling with higher production and transport costs, say prices are set to rise further because of the bad harvest. Miguel Colmenero, export manager for Acesur, a large producer based in Seville, Spain, that sells under the La Española brand in the U.S., predicts a possible jump in the cost of raw materials of 20% to 25%. Those increases would ripple out to store shelves in a few months, he said. 1) Why have olive oil price are on the rise this year? What demand and/or supply shifters are responsible for this change? Use demand and supply graph to illustrate a change in the equilibrium price of olive oil. 2) Can you make an argument that the market for olive oil is close to perfectly competitive? Use criteria for classifying market structure to answer this question. Is there any evidence in the article suggesting that the olive oil market might not be perfectly competitive? 3) How, do you think, declining yields to olive production (~ lower harvests) affect costs per kilogram of olive oil (that is, its ATC)? 4) According to the article, “Olive oil producers, also grappling with higher production and transport costs, say prices are set to rise further because of the bad harvest”. What type of costs, variable or fixed, do “production and transport costs” represent? 5) Examine the graph below that presents costs for a typical olive oil producer and answer questions: a) What is the ATC, AVC and AFC at q=12? (approximate to one decimal) ATC = AVC = AFC = What is TC, VC and FC at q=12? Show your calculations. b) If the price of olive oil is $3.50, how much oil would a price-taking firm be willing to produce and sell? Would the firm be able to make a profit at this price? If not, would there be a loss? Calculate & indicate profit/loss box on the graph above. c) According to the graph, what is the break-even price/cost of a pound of olive oil? _________ d) If the olive oil prices rise to $6 per kilogram, would the firm make a profit? How much it would be willing to sell at this price?
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