Olive oil heartlands battle over the industry’s future

The cradle of global olive oil production is a sun-beaten range of hills in southern Spain, each plot studded with fruit-bearing trees as far as the eye can see. It is also the setting for a commercial battle over the €14bn industry’s future.

Manuel Adamuz Comino, a farmer in Montefrío, marches along one gravelly slope inspecting his olives for wrinkles. When they shrivel it means the trees — among nature’s hardiest survivors — are parched and diverting water to their core, he explains. A brutal drought last year resulted in dead olives and a meagre autumn-winter harvest.

“It all depends on the weather,” he said, rolling an immature green olive, 15mm in length and wrinkled, between his fingers. “If it rains, then two months from now this could be triple the size. If there’s no rain, there’s no yield. This will become skin and stone.”

But as climate change makes droughts increasingly likely across southern Europe, Adamuz Comino and thousands of smallholders like him in Andalusia are also facing a threat from a new and rapidly expanding source: a wave of mega farm rivals.

The “super intensive” operations are trying to capitalise on olive oil prices that remain close to record highs hit earlier this year. They boast rows of trees in tightly packed lines on flat land close to rivers or reservoirs. This allows for irrigation — critical during a drought and something that most smallholders can only dream of — and machine harvesting. That means lower costs, higher productivity and bigger profits.

The amount of land devoted to super intensive olive farms is growing. In the past two decades they have expanded from nowhere to account for 7 per cent of Spain’s olive terrain and 11 per cent of production, according to industry figures. They are also spreading north beyond Andalusia and attracting capital from big olive oil groups such as Innoliva and De Prado.

Such mega farms have done better than traditional olive groves during droughts, suffering less drastic falls in output. While the authorities that regulate irrigation reduced their water quotas, they did not cut them off entirely.

“The economic logic of high-mountain olive oil is declining because productivity is declining, mainly because of the water issue,” said Ignacio Silva, chair of Deoleo, which buys from farmers big and small as the world’s largest olive oil merchant.

Mega olive farms have also proliferated as landowners, concerned about climate change, switch from citrus fruits, cereals and root vegetables to olives, which can handle water stress better than most other crops.

The rush to get into olive farming has been accelerated by high prices and the promise of new markets. Industry executives are courting millions of potential new consumers outside Spain and Italy, mainly in the US and northern Europe where many households still rely on other cooking fats.

Super high-density olive farms are also attractive to investors in Italy, the world’s second-biggest olive oil producer after Spain. Capital is flowing in from private equity firms such as Milan-based DeA Capital, historic winemaking families and bottling companies.

Land devoted to high-tech olive cultivation in Italy is still tiny, accounting for just 15,000 hectares out of 1mn hectares of olive trees. But Michele Buccelletti, scion of a family that has cultivated olives in Tuscany since the 17th century, predicts Italy will follow the super farm trail blazed by Spain.

“Sooner or later, super high-density is coming,” said Buccelletti, now chief executive of Atena, a DeA Capital-backed olive venture. “There is no profit any more in cultivating olives the traditional way.”

Workforce was “the number one problem”, he added. “You can have as many olives as you want on your trees, but if there is no one to harvest them, it’s going to remain there.”

The super farms offer far superior metrics. While traditional olive growers in Spain have 80 to 120 trees per hectare on average, the mega farms have anywhere from 800 to 2,000 smaller trees. Traditional farms on average produce between 500kg and 850kg of olive oil per hectare, compared with a yield of 1,200kg in the bigger irrigated operations, according to industry figures.

Super farms use tractor-like harvesters 4 metres high, which suck the trees into a tunnel of spinning parts that guzzle the olives. In the hills, however, the steep terrain makes their use impossible. The closest traditional farmers get to mechanisation is handheld vibrating rods that shake olives off branches.

Consequently, production costs for a typical traditional farmer are €3.80 per kg of olive oil, whereas costs at a typical super farm are half that.

Rafael Rioboo Cabello de Alba, a mega farmer near Córdoba, is preparing to start harvesting one of his 100 hectare plots in late October. “With five machines I can do the whole estate in five days,” he said. To harvest the same expanse of mountain olives, it could take a team of 10 people 70 to 100 days.

Speed brings another advantage. The fruit for extra virgin oil has to come from the first harvest of the year, but if it stays on the tree too long it deteriorates. On a mega farm “you can select the exact moment to harvest”, said Rioboo Cabello de Alba. But a mountain farmer, he added, could not collect everything at the time of optimum ripeness.

While they cannot compete on speed or yields, smallholders such as Adamuz Comino argue they offer a superior product.

“We’ve been so obsessed with the mucho, mucho, mucho that they produce that we lost sight of the fact it is lower quality,” he said.

Smallholder co-operatives and boards that certify regional denominations of oil are fighting back with initiatives such as backing university studies on oil quality and focusing more clearly on health in marketing.

“The only way forward is quality and differentiation,” said José Juan Jiménez López of the board for Poniente de Granada, a denomination from Montefrío, Adamuz Comino’s municipality.

They are pinning their hopes on the olive’s complex relationship with water. Being too hydrated is not good for the fruit. A top-end olive needs to suffer because thirst makes it generate natural preservatives called polyphenols, which mountain olives have in abundance.

The polyphenols give extra virgin olive oil the spice and bitterness prized in the Mediterranean. They also provide, along with oleic acid, the antioxidants and anti-inflammatory benefits that a number of scientific studies have shown. “People need to know that a spoonful of our olive oil can take away your headache or joint pain,” said Jiménez López.

High-density farms, meanwhile, use just a few olive varieties that tend to produce fewer polyphenols. “Then irrigated olives lose their flavour intensity because the water acts as a softener,” said Manuel Parras Rosa, professor of marketing at the University of Jaén.

For some new markets, however, that is not necessarily a problem. Deoleo found that US consumers, for example, do not like the light burning sensation that a southern European would expect from a top-quality extra virgin oil.

Nevertheless, traditional farmers could gain traction overseas by pitching their oil as a product that does not consume precious surface water, protects biodiversity and anchors people in depopulating rural communities, said Parras Rosa.

For now, many such smallholders survive thanks to subsidies from the EU’s Common Agricultural Policy, though most are still dependent on the climate.

Adamuz Comino said his own land was “profitable enough to live off, though not make a fortune”, but subject to one crucial condition: “If we get 18 months of decent weather.”

Additional reporting by Carmen Muela in Madrid and Susannah Savage in London