Olive oil prices set to rise after drought hits supply

Here is an excellent example of how adverse weather conditions can impact on the market price of a staple item in millions of people's supermarket trolleys.

A drought in Spain has hit production yields for olive oil and lower than expected supply has forced wholesale prices up by over 10%. The Guardian reports on this supply shock here - it is well worth reading through to test your understanding of a major cause of price volatility.

According to the Guardian

"Spain produces 50% of the world's olive oil, with 73% of that coming from the province of Andalusia in the south and 16% from Catalonia in the north-east. In 2013 olive oil exports from Andalusia were worth €1.5bn (£1.1bn)."

Supply of olives in Europe has also been affected by blight hitting Italian producers. Italy is the second biggest producer in olive oil and is currently facing difficulties as a bacteria Xyella fastidiosa has shrivelled olive branches in the region.

Globally, 2.3 million tonnes of olives are bought each year with China and India two key sources of growing demand.