Olive Oil and Spanish Economy

How might a fall in production of olive oil affect Spanish economy. (8)

Olive oil is an important commodity, therefore farmers are likely to see a fall in revenue because they have less to sell. Therefore, this also results in lower exports and less export revenue for the economy.

However, the fall in production has increased price. Because demand is inelastic, this could actually increase the incomes of farmers, even though they have less to sell. (the % increase in price is bigger than than the % fall in quantity – therefore revenue increases)

It is unclear how significant olive oil production is for the Spanish economy. It is likely to be quite a small sector and therefore the fall in output maybe insignificant.

Farmers also get subsidies from the European Union. This may protect them from falling production, especially now subsidies are not targetted to production.

See also: Common Agricultural Policy of EU 

By on October 30th, 2007

2 thoughts on “Olive Oil and Spanish Economy

  1. For those who aren’t familiar with the statistics, Spain is the world’s largest producer of Olive Oil and Olives… They have nearly 50 million trees, many of which have been producing olives for centuries. In relation to your comment about how it would effect the Spanish economy, I’m not familiar with what percentage of the economy it makes up…

    Thanks for the article,

    Edward

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