Tariffs for Spanish Olive Oil

Listen to this article

At ESAO we want to get closer to the tariffs in the US and the problem it caused in 2020 for Spanish olive oil.

First of all, we have to know that the World Trade Organization (WTO) is an association of all the countries of the world, created to regulate international trade policies.

On October 18, 2019, the US tariffs on EU agricultural products came into effect. We saw that a 25% tariff was applied to bottled olive oil, which means that 25% more of the price must be paid to the US Treasury. Spanish olive oil would be loaded with 25% more price than American, for example.

But you have to understand and go back to the beginning of this dispute, since otherwise, you cannot understand the situation that has been created, and that we as an olive oil sector have to know.

The beginnings come from the dispute between two airlines, one from the US, such as Boeing, and another from Europe, which is Airbus.

The European company, Airbus, has been and is receiving a series of subsidies from the countries of the European Union, and it is also financed with very low interest rates. These two things, both subsidies and very low interest rates, make Airbus cheaper than Boeing, therefore airline buyers, even American buyers, are buying the European brand Airbus, and are not buying the brand. American Boeing.

Faced with this situation, Donald Trump, has gone to the WTO, which we wrote before, with this argument of subsidies and interest rates, and they have given him every reason.

The organization recognizes that Europe is subsidizing Airbus and for this reason the US has the right to impose a tariff of up to 7.5 billion dollars. With this it is achieved that the Airbus, are sold more expensive in the US, than they are being sold in the market, through the tariff.

Why is this affecting Agriculture and Olive Oil?

The US buys out much more than it sells, that is, it imports more than it exports. This trade deficit, that is, buying a lot and not selling, they have first with China and second with Europe. To correct this situation, they use what are the Tariffs.

But what is a tariff?

Let's imagine any agricultural product, in this case we will use olive oil, we will see what it costs to produce it in the US and in Europe.

For example, in the US it costs 3.50 to produce olive oil. And in Europe, the same product costs 2.50. What American consumers do is, see that EU products are cheaper, with which they buy the European product and stop buying the American. The US farmers do not accept this situation, and they are angry, however the American consumer is happy, because he is buying many cheap products.

In order to alleviate this situation, what Donald Trump does is record a 25% tax on European products, in order to make the European product rise in price and be more expensive than the American one.

In this way, it is achieved that the American consumer buys American products, and with this formula the farmer has gone to a better situation and is happier, despite the fact that the end consumer is not so happy or benefits so much.

With this situation, products, in this case Spanish, such as olive oil, will cost more to sell. Europe will probably go to the International Trade Organization to request to put tariffs on American products, which will make it more expensive for us to buy them.

What trade does is that there are more and cheaper products, but the producers, what they want is to sell their products, not to be inundated with cheap products.

In terms of olive oil export, Spain exports 23,000 million euros a year. Of those 23,000 million, only 1,000 million are to the US. So the tariffs are going to affect in principle only those 1,000 million. Of the 23,000, 15,000 are exported to the rest of the EU, where there is an agreement where tariffs cannot be raised.

Why does the World Trade Organization agree with the United States?

American olive growers are like Spanish olive growers.

From the point of view of agriculture, which is what interests us for olive oil, what the ICO says is that the production costs and the value of EU agricultural products, for example oil olive, are actually higher, and do not relate to the price for which they are selling it.

The product is actually more expensive than the value given to it in Europe. This happens because the EU has subsidized oil and is subsidizing, as well as subsidizing agriculture in general.

The real cost of producing would be higher than it actually is, it is lower than the US (before tariffs), but because it has a subsidy, and that is why without tariffs the Spanish product remains lower than in USA.

This is what the World Trade Organization has agreed to. The EU subsidizes its agricultural products because it has an agricultural policy, just as it subsidizes Airbus, they have it as a policy. With this policy, what the US says is that we are breaking the market.

A priori, what the US is doing is negotiating, and it turns to agriculture because that is where there is repercussion and there may be political pressure, given that farmers do take to the streets and can pressure.

It is true that in the end, those who pay, in this case farmers and consumers, are not responsible for the political tensions, and it is true that olive oil is suffering, since whether the oil is American or Spanish, it has price risen. But this rise, instead of having an effect on the increase in income for the farmer, translates into an increase in the price for the final consumer who buys oil and a decrease in demand for the producer, with which the recorded producer will sell less oil from olive.

It was a past stage and finally resolved with the withdrawal of this tariff for Spanish olive oil, however we must remember it to try not to repeat it.