The Rain in Spain is not Falling

Spain is one of the world’s leading producers of olive oil and wine.  However, a severe drought this year has caused considerable harm to its olive crop. That will lead to worldwide repercussions as the markets are forced to adjust to a reduced supply of olive oil.

The International Olive Council said earlier this year that global demand for olive oil is up, in part, because of increased demand from newer markets such as China and India. The drought was particularly damaging to the olive crop in Spain during May and June when conditions were exceptionally dry across the olive growing regions of Andalusia.  When a similar heat wave and dry period occurred in 2012, the price of olive oil increased by roughly 8%.

Conditions have also been rough in neighboring Portugal due to ongoing drought.  Portugal is prone to periodic drought because of a semi-permanent area of high pressure over the North Atlantic Ocean which can block storms from bringing rainfall to the country.  Like Spain, Portugal has significant olive and grape crops.

Although farmers could see higher profits in the short-term by charging more for the lower volume of olives and grapes they are able to harvest this year, the reduced yield is not good long term.  Like farmers in California where the wine industry is also at risk due to an ongoing drought, increased prices are only a short-term solution.  Not until the weather pattern shifts and the drought ends will agricultural production improve.

This post was filed from Madrid, Spain.