Spain lifts VAT on olive oil to cushion price hikes

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Spain's leftist government said on Friday it would abolish value-added tax (VAT) on olive oil, a key product in Spanish cuisine, the price of which has soared due to the country's dry, severely reduced olive harvest.

Socialist Prime Minister Pedro Sanchez's government will, from July, „permanently“ add olive oil to the list of „essential goods“ that are exempt from the tax, according to a statement by the Budget Ministry.

This is „wonderful news for all Spaniards“, government spokeswoman Pilar Alegria said in an interview with the private TV station „Antena 3“.

The measure, which will be approved at a government meeting scheduled for Tuesday, will „ease the spanish spending burden“ as well as „supporting the olive sector and boosting the consumption of a product that is important for our country“, she added.

Supermarkets have reported that the rise in the price of olive oil has led to an increase in theft, and some retailers have started to label bottles of olive oil with security labels, which are usually placed on more expensive items such as alcoholic drinks. On the other hand, sales of cheaper alternatives such as sunflower oil have increased.

In Spain, staple foods such as bread, fruit and vegetables are normally subject to a reduced VAT rate of 4%, but in times of high inflation, as is currently the case, the rate has been reduced to zero.

As of 2023, the government cut VAT on olive oil from 10 per cent to 5 per cent in order to curb price rises, but this was not enough.

According to the International Olive Oil Council, Spain, which accounts for almost half of global olive oil production, is the world's largest consumer of olive oil, along with Greece, with each of its residents consuming almost 14 litres per year.

Last month, olive oil in Spain was 63% more expensive than a year ago, and three times more expensive than it will be at the start of 2021.

The sharp rise in price is due to the collapse of the country's production of the oil during the previous two seasons, due to extreme heatwaves and lack of rainfall, especially in the southern region of Andalusia, which is the main olive-growing region.

Olive oil production in Spain has fallen from 1.48 million tonnes in the 2021-2022 season to 660,000 tonnes in the last season, and the Ministry of Agriculture forecasts production this season will not exceed 850,000 tonnes.