Spain produces 1 million tonnes of olive oil a year

The exchange, set up in March by Andalusia-based firm MFAO, is currently used by olive growers to protect themselves against price swings.

But MFAO is also keen to attract speculative investment by major financial institutions.

"That is the objective," MFAO's Lamberto Samper told Reuters.

"The day that an American fund puts olive oil futures into its portfolio, the job will be done, we can retire."

Obstacles

Whether the giants of Wall Street are ready to start trading in olive oil futures remains to be seen.

While they occasionally trade in agricultural derivatives such as wheat, soybeans and tropical vegetable oils, the market for European olive oil futures is untested.

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Just 10,000 one-tonne olive oil contracts have changed hands on the MFAO exchange in the six months since it was established, well below the company's full-year target of 200,000.

There are fears that the new exchange may go the same way as Spain's citrus fruits futures market, which was abandoned a few years after being set up in 1995.

But MFAO is hoping that trading in olive oil will pick up when the 2004 harvest starts.

Olive oil prices are also highly volatile, which means that growers and producers have a strong incentive to buy futures as a means of hedging against price fluctuations.

Spain is the world's biggest olive oil producer, accounting for 40% of the 2.5 million tonnes produced worldwide every year.