Olives, The Next Tariff Victim
Spanish olive oils facing new tariffs, possible impacts for American dinners
Americans eat 90 million gallons of olive oil per year. It even has a cool acronym- EVOO, popularized by TV cooking shows. Since 1990, the demand for olive oil has grown by 250%. Much of this demand comes from American’s quest for healthy diets. In this search, many found the Mediterranean diet, possibly the healthiest diet in history. This diet includes a lot of olive oil, which is made from pressing ripe olives.
Olive oil production in the United States is relatively small, only five million gallons. To make up this demand the United States imports olives from major olive producing countries like Spain and Italy. Ripe olives are easier and cheaper to transport than oil. So, the olives are brought to the United States and then pressed into olive oil.
Like many international market places, this worked as long as there are no trade barriers like tariffs. Spanish and Italian growers produced more olives and the United States happily purchased them. The markets grew together.
In 2018, the United States put a 27% anti-dumping tariff on Spanish olive oil, on behalf of the California olive producers. The California producers claimed that the Spanish producers were selling their olives to American importers at below the cost of production, which is illegal under international trade rule that the United States and the European Union agreed to. The U.S. government launched a formal investigation and determined that the California growers were correct and responded with anti-dumping tariffs.
Spain created by “dumping” excess olives into the U.S. market. To prevent Spain from dumping olives, the United States is allowed to place an anti-dumping tariff on imported olives to raise the price and make them competitive in the market place. By raising the price of Spanish tariffs by 27%, the California olives look a lot cheaper. The European Union filed an appeal with the World Trade Organization (WTO) who will arbitrate this disagreement. Until a settlement is reached the tariff stays in place. These cases take years to settle.
In 2017, before the tariffs were imposed, the United States imported $67 million worth of ripe olives from Spain. The Spanish Association of Olive Exporters reported that olive exports fell 72% the first two months the tariffs were in-place. Since then, the situation has not improved for Spanish growers. In 2018, the European Parliament released a report saying that the 27% tariff rate could “potentially lead to the end of Spanish ripe olive exports.”
Olive oil consumption hasn’t declined in the United States, meaning that Americans are getting olives from other countries. USDA export data show that Greece, Morocco, Italy, Egypt, and Portugal are all exported more olives to the United States in 2018 compared to 2017.
In October 2019, the situation got a lot worse for the Spanish growers. The World Trade Organization ruled that Airbus received unfair subsidies from the European Union and Member State governments. These subsidies harmed Boeing. As a result, the United States is allowed to put $7.5 billion on any European goods it wants. The United States put a 10% tariff on airplanes and a 25% tariff on other goods including Spanish olives.
In addition to tariffs, the Spanish producers were already struggling with low olive prices. Farmers are protesting in Madrid. The situation looks grave. The best hope for Spanish farmers is that the United States and the European Union quickly sign the free trade agreement they are negotiating (TTIP). Unfortunately, this could be years away.
For Americans, they have a few options. First, eat less olive oil. That doesn’t seem particularly likely. What is more likely is that production in countries besides Spain will increase and those growers will sell to the United States. Another option is that Spanish growers sell their olives to a third-party — like Canada. The olives are transformed into olive oil. Since they changed the form, they will not be subject to the U.S. tariff. Then the olive oil is trucked over the border to the United States. These options show how supply chains are dramatically changing because of new tariffs and the supply chain disruptions that they cause.
Originally published at https://gns.pub on November 14, 2019.