Parts of Italy, Greece, Spain and Portugal are turning into deserts and suffering water shortages because of the intense olive farming that has developed in the area, according to The Ecologist magazine.
The magazine says trees are densely packed, planted in massive irrigated lowland plains and harvested by machines that shake the trunks, which uses more water and chemicals than traditional farms on upland terraces.
It says: "To meet this new appetite mass-market brands are produced intensively, so supermarkets can sell it in high volumes at lower prices.
"Demand for cheap, mass-produced oil is making it a struggle for the smaller, traditional farms to be economically viable."
Between 2000 and 2005, UK olive oil sales have risen by 39 per cent and more money is spent on it than all other cooking oils.
A World Wildlife Fund report from 2001 said the more intensive plantations are of "little or no conservation value, and create environmental problems - desertification, pollution from agrichemicals, depletion of water resources."
Guy Beaufoy, a consultant on agricultural and environmental policies in Europe said the situation was "an environmental catastrophe".
He claimed despite Spain suffering its fourth consecutive year of drought, more than 80 per cent of the country's water is devoted to irrigated crops.
He said: "Water shortage is a huge issue in Spain, yet the country is expanding irrigation where it can because irrigation transforms production.
"People are drilling water resources not touched for thousands of years - all for a few more olives."
An EU study on the industry added: "Soil erosion is probably the most serious environmental problem associated with olive farming.
"Inappropriate weed-control and soil control, combined with the inherently high risk of erosion in many olive-farming areas, is leading to desertification on a wide scale in some of the main producing regions."
The growth in the olive industry - about 2.5 million producers now make up roughly a third of all EU farmers - has been encouraged by the EU's Common Agricultural Policy, which until 2007 encouraged industrial farms to produce more olives, the Ecologist report said.
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