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Wednesday, 27 June, 2001, 09:29 GMT 10:29 UK
Olive oil market faces glut
The olive oil market is facing glut after a bumper harvest
Too many olives, too few customers

By BBC News Online's James Arnold

A bumper harvest is set to send the price of olive oil tumbling - to the delight of the growing numbers of consumers switching to the Mediterranean diet.

The Hamburg-based forecasting service Oil World, says olive oil output is set to reach an all-time high of 2.8m tons in the 2000-2001 growing season.

Oil World revised its estimate upwards after Spain, the world's biggest olive oil producer, hiked its production forecast for the year to more than 1m tons, 350,000 tons greater than in 2000.

Demand for olive oil is rising too, Oil World said, but probably not enough to support prices, which have slid sharply in the last couple of years.

Olive oil is now barely more expensive than sunflower oil, traditionally seen as a far more basic product.

In June 1999, Spanish olive oil was selling at 401 pesetas (1.5; $2.1) per kilo on the wholesale market; now, the price has slipped to just 275 pesetas.

"This year's harvest will keep the pressure on prices," said Siegfried Falk, analyst at co-editor at Oil World.

Essential oil

Over the last few years, olive oil has been a boom business, as consumers have become convinced of the health benefits of the Mediterranean diet.

Olive oil is low in saturated fats, and a series of studies have found that it can also help reduce the risk of contracting various forms of cancer.

During the last five years, global demand for olive oil has grown by an average of 170,000 tons annually.

This demand, said Mr Falk, has persuaded many olive farmers to opt for ever more intensive methods.

Although the slow growth of olive trees means that farmers cannot react quickly to changes in consumption, they can pick the trees more often in a season in order to raise output - often at the expense of quality.

But this year's bumper crop could tip the balance, with supply exceeding demand for the first time in recent years.

Support withdrawn

So far, European olive farmers have been relatively immune from swings in the market.

Under its Common Agricultural Policy, the European Union gives out especially generous subsidies for olive production, on the basis that olives are cultivated in some of the union's poorest countries.

The EU may revise its subsidy system for olive producers
Now going cheap

Almost all the EU's 1.4bn annual olive budget is spent on production subsidies.

But this has caused complaints from environmentalists, who worry that intensive olive farming leads to water shortages and the destruction of animal habitats.

At a meeting on 19 June, EU agriculture ministers discussed changing subsidy policy to encourage sustainable production.

This will make olive farming much less lucrative, said Mr Falk, and may eventually lead to cuts in output.

But even if the EU is able to agree a change, subsidies will probably not be cut before 2004.

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