Supply and Demand When we look at supply and demand there are many factors that can sway both the supply of the product and the demand of a product. As we look into the article “Olive Oil Prices: Drizzle and Drought” we will examine what is driving up the cost of olive oil here in the U.S. and how it could benefit the production and sales of olive oil here in the U.S. Nearly half of the global production of olive oil comes from Spain because of their ideal climate for olive groves. High levels of production (increase in supply)or a surplus had pushed prices over the last nine years to an all-time low. Over the last three months an absence of rain has created a shortage that could possibly reduce the global output (supply) by nearly 20%. Prices of extra virgin olive oil have already increased dramatically over the last three months. Stocks leftover from last year are helping to keep prices lower, but last years over production is adding to the problem because olive tree were weakened by the strain and are not able to produce as much fruit this year. The demand of olive oil globally has increased tremendously. For example America is the third largest market with demand growing almost 6% a year for nearly two decades. The increasing demand globally with the shortage of supply will continue to drive the price of olive oils up. This increase in demand could help California’s olive growers capture more of the market. So in conclusion there are many factors that can drive the cost of a product up or down. Factors such as cost of materials, worker’s wages, and in this case mother nature with the shortage of rain. Any time you have a change in either the demand or the supply of a product the cost will also increase or decrease based on the change.

References
(2012 September, 22). Olive Oil Prices: Drizzle and Drought. Retrieved from http://www.economist.com/node/21563304