Repercussions of the tariff rate applied by the United States on olive oil

The United States imports 50% of the olive oil consumed outside the European Union, and that is why a tariff rate of 25% on all exports of olive oil coming from Spain, will have a devastating impact on the sector that goes far beyond an impact on employment. Some of the WOOE collaborators evaluate the situation. 

Madrid, 18^th of October 2019. With a consumption of 320,000 tonnes per year, the United States ranks as the world’s third consumer of olive oil. If we take into consideration that the US only produces 5% of what they consume, there’s no doubt that it is a market that is based on importation, and Spain is the country from where half of the olive oil imported comes from (160,000 tonnes), followed by Italy with 43%. “Out of these exports, 100,000 tonnes correspond to olive oils in bulk and 60,000 are already shipped and bottled. Therefore, the latter would be the exports that will be mostly affected by the effect of Trump’s tariff taxation”, comments Juan Vilar, strategic consultant and speaker at the World Olive Oil Exhibition.

However, as Rafael Pico, Director of Asoliva, declares, the problem goes beyond that: “Spain also exports to other countries, such as for example to Italy, which sells olive oil to the United States, hence that olive oil will also be affected”. Accordingly, Aniceto Gómez Martínez, CEO of Aceites Malagón added: “If Italian importers indicate on their bottles the percentage of Spanish olive oil, the tariff rate will correspond to that percentage, which means that, to a certain extent, the impact will be slighter”. However, “all those companies that operate from Spain and that represent 25% of the overall bottled olive oil which is exported to the US are the ones that are going to suffer the tariff rate the most since it will directly impact the positive net income of those small and medium-sized enterprises”, assures Juan Vilar.

Nevertheless, Trump’s tariff will not only affect those SMEs, “the entire olive oil sector will be impacted because the olive oil that the United States cannot buy will remain in Spain”, comments Rafael Pico. And he adds: “This surplus, which at the moment cannot be sold to other countries, will lead to a drop in olive oil prices”. Furthermore: “if the United States shifts Spanish olive oils for those that come from Greece, Tunisia, Italy or Portugal, Spanish olive oils will lose the discretionary power and will hand over some of their margin, that is to say that those olive oils will be more appreciated than the Spanish olive oils and, therefore, the prices of Spanish olive oils will drop”, points out Juan Vilar.

Obviously, the drop in prices is not the sole consequence of the tariff rate of 25% on olive oil. “Without a doubt, there will be an important impact on employment, since all industries related to olive oil (refining and bottling enterprises, stoppers, etc.) will have to lay people off”. Aniceto Gómez adds: “Spanish packers that depend on the American market will be compelled to buy olive oils from other countries, and that has a direct impact on small and medium-sized Spanish companies. To bring a little ray of light, I don’t believe that there will be companies forced to close down: we will have to wait and see how all this unfolds.”

The 100,000 tonnes of olive oil in bulk exported by Spain to the United States, will not be affected by the tariff rate and that’s why “in this aspect, we will continue to lead in terms of exports, but in order to avoid indirect taxation to Spanish importers, the added value will remain in the US”, declares Juan Vilar. “An American company will be able to profit from a cheap raw material, without tariffs, and the jobs that Spain might lose, will go to the American industry that will be able to bottle and commercialize a Spanish product with an American label”, ratifies Rafael Pico.

Moreover, Asoliva (the Spanish Association of Industry and Exporting Commerce for Olive oil) highlights the loss concerning investment. “We have been leading this market for five years, we have carried out a great deal of investments and, right now, we cannot face a 25% tariff rate”. When asking Rafael Pico for the solution, he did not hesitate: “This is a political problem and thus the solution must be political. Obviously, a solution from the United States and the European Union, but among Europe there’s no union.” And he added: “The United States has developed a very important strategy regarding these tariffs, but I believe that certain pressure groups with particular interests have been set in motion. Regarding the institutional side, we have fallen short compared to other countries with very emblematic products, such as champagne in France or olive oil in Italy, which have not been affected by the aforementioned tariff. It seems clear that other countries have done it better in order to avoid any harm regarding their sectors.”