Spain cuts olive oil sales tax as droughts cause price surge

• The Spanish government has temporarily cut sales tax on olive oil
• Olive oil prices have increased 272% since September 2020
• Spanish households consumed an average of 6 litres of olive oil per person in 2023

Spanish households consumed an average of 6 litres of olive oil per person in 2023

The Spanish government has removed sales tax on olive oil to protect consumers and producers after droughts caused prices to grow by 272% in just four years. 

Weak harvests have meant global olive oil output is 28% down on the five-year rolling average projected by the EU commission.

Spain is the world’s biggest olive oil producer and its output is taken as a sign of how healthy the global market is.

Madrid-based Deoleo, the largest olive oil producer in the world, has reported a net loss of €34 million for 2023, citing poor olive harvests for the surge in prices. 

To protect the sector, Spain has also cut VAT to 0% as it tries to fight back against the Europe-wide cost increase.

Currently, a 5 litre bottle of olive oil can cost €50 in Spanish supermarkets. As a result, Greece and Spain have both had olive oil sales plummet by one-third over the last year. Furthermore, one-third of Italians have reportedly reduced consumption of extra virgin olive oil due to prices.

According to a survey by the Piepoli independent research institute, consumers have cut back consumption of extra virgin olive oil by 30% – 50% as average supermarket prices have more than doubled from €4 to €9 per 1 litre bottle. 

As part of an anti-inflation initiative, Spain originally slashed sales tax on olive oil from 10% to 5%. But following failed attempts to reduce price, it has now been reduced further.

No sales tax will be levied until September and then at 2% until the end of the year. From 2025 it will be considered a basic foodstuff and taxed at the standard 4% super reduced VAT rather than 10%.

Staple foods such as milk, bread, eggs, cheese, cereals, and fruit are also included in the 0% sales tax. 

Spain’s Finance minister María Jesús Montero said the government expects inflation to stabilise in the last quarter of the year. As a result, tax reduction measures will be phased out next year. 

In addition to the extension of the inflation-relief measure, the Spanish government has also approved an increase in the personal income tax threshold from €15,000 – €15,876.

Spanish households consumed an average of 6 litres per person in 2023 compared to international consumers who used a mere 0.4 litres.

Montero also said the decision to permanently lower sales tax reflects “the importance of olive oil in the Mediterranean diet and a healthy lifestyle.”

Minister of agriculture Luis Planas said: “We want to be consistent with our policy of supporting all citizens, their ability to consume, families and also, obviously, a product that is a basic necessity and also of obvious health, such as olive oil.”

However, an increase in rainfall in early 2024 in olive producing regions of Spain, particularly Andalusia, and the actions taken by the state have raised hopes that output will increase and prices will fall in 2025.