China’s Olive Oil Sector Alleviates Poverty but Struggles to Compete

Summary

China’s olive oil indus­try has evolved sig­nif­i­cantly since the plant­ing of the coun­try’s first olive trees in 1964, with tens of thou­sands of hectares of olive groves now span­ning sev­eral provinces. However, the indus­try remains largely unvi­able with­out sub­stan­tial state sup­port, as gov­ern­ment poli­cies pri­or­i­tize cre­at­ing rural jobs and alle­vi­at­ing poverty over prof­itabil­ity and pro­duc­tiv­ity.

This is the sixth in a series of reports on the evo­lu­tion of China’s olive oil indus­try.

China’s olive oil sec­tor has come a long way since the country’s first olive trees were planted in 1964, when com­mu­nist regimes in Albania and China sought to strengthen ties while rebuk­ing the Soviet Union, with which both coun­tries were in polit­i­cal and ide­o­log­i­cal con­flict.

While the death of Enver Hoxha ush­ered in a new era of democ­racy in Albania and allowed mar­ket forces to reshape its olive oil indus­try, all lev­els of the Chinese gov­ern­ment have tight­ened their grip on the sec­tor over the past five decades.

Today, tens of thou­sands of hectares of olive groves sprawl across roughly half a dozen Chinese provinces. However, China’s com­mand econ­omy has dis­torted the olive oil mar­ket, leav­ing the indus­try largely unvi­able with­out sub­stan­tial state sup­port.

A for­mer finance min­istry offi­cial told Olive Oil Times that cre­at­ing rural jobs in mar­ginal areas to alle­vi­ate poverty is the pri­mary objec­tive of olive farm­ing, with pro­duc­tiv­ity and prof­itabil­ity rank­ing lower among pol­icy pri­or­i­ties.

Government data illus­trate this approach. In the Longnan dis­trict of Gansu province, China’s answer to Jaén, the olive oil indus­try is esti­mated to gen­er­ate 4 bil­lion Renminbi (€485 mil­lion) in value, directly ben­e­fit­ing about 400,000 res­i­dents.

In Hubei province’s Shiyan dis­trict, olive grow­ing was a life­line for res­i­dents of Yunyang after the city was relo­cated to make way for dams and water infra­struc­ture sup­ply­ing Beijing.

Despite these achieve­ments, inter­na­tional experts broadly agree that China’s olive oil sec­tor remains inef­fi­cient and unprof­itable, with many groves poorly man­aged.

The most ​“suc­cess­ful” com­pa­nies sell nearly all of their olive oil to the gov­ern­ment or state-con­trolled enter­prises. They also receive gen­er­ous sub­si­dies, includ­ing pay­ments of 1,000 Renminbi per mu (€1,830 per hectare) for plant­ing trees and guar­an­teed prices for olives pur­chased from local farm­ers.

Some well-con­nected pro­duc­ers addi­tion­ally ben­e­fit from pub­lic grants to build state-of-the-art mills and cut­ting-edge, though often under­used, research facil­i­ties.

Producers with fewer gov­ern­ment ties — acknowl­edg­ing that vir­tu­ally all busi­nesses in China main­tain some con­nec­tion to the state — often sub­si­dize olive oil oper­a­tions through other ven­tures, such as con­struc­tion or man­u­fac­tur­ing.

“The more fruit we buy from farm­ers, the more pay­ment we get from the gov­ern­ment,” one pro­ducer said.

The pro­ducer esti­mated that author­i­ties refund about seven per­cent of olive pur­chases. ​“If we buy 1 mil­lion Renminbi (€121,000) of olives, we get 70,000 Renminbi (€8,500) back,” the pro­ducer added.

As a result, olive prices rang­ing from €3 to €9 per kilo­gram — depend­ing on the region — would leave many farm­ers in Italy, Greece or Spain envi­ous.

Most Chinese olive oil is then sold directly to the gov­ern­ment and state-owned enter­prises at prices far exceed­ing bench­mark lev­els in Jaén, Bari or Chania.

One pro­ducer told Olive Oil Times that these state-backed enter­prises receive annual bud­gets for employ­ees to pur­chase selected goods, includ­ing olive oil.

This pro­ducer relies on such pro­grams for roughly 90 per­cent of sales, not­ing that some com­pa­nies depend on them entirely.

Consequently, there is lit­tle incen­tive to improve effi­ciency or cut costs, regard­less of offi­cial rhetoric at olive oil con­fer­ences.

This sys­tem con­tributes to the high retail price of Chinese olive oil com­pared with imports from major Spanish and Italian bot­tlers, mak­ing mar­ket pen­e­tra­tion dif­fi­cult even in afflu­ent coastal cities.

International experts who recently vis­ited China also observed that the exten­sive safety net damp­ens moti­va­tion to improve agro­nomic and milling prac­tices.

They cited wide­spread plant­ing of uncer­ti­fied olive vari­eties, which hin­ders efforts to iden­tify trees best suited to China’s gen­er­ally wet­ter, more humid and less sunny cli­mate than the Mediterranean.

Experts also noted that trees are often planted too closely together, encour­ag­ing fun­gal dis­eases. Inadequate prun­ing fur­ther reduces yields, with trees capa­ble of pro­duc­ing 20 kilo­grams annu­ally yield­ing closer to five to ten.

Milling knowl­edge is sim­i­larly uneven. While China pro­duces some of the best extra vir­gin olive oils in the world, some mills exceed 30 °C dur­ing malax­a­tion and decant­ing, almost cer­tainly dis­qual­i­fy­ing the oil from the extra vir­gin cat­e­gory.

Despite these head­winds, pub­lic-sec­tor invest­ment remains abun­dant.

Many mills — often sup­ported by gov­ern­ment fund­ing — are equipped with the lat­est tech­nol­ogy from man­u­fac­tur­ers such as Pieralisi and Haus. Tank rooms and bot­tling lines are equally mod­ern, under­scor­ing that cap­i­tal is rarely a con­straint.

Yet not all invest­ments suc­ceed. About 20 min­utes north of Longnan stands an empty olive pomace oil refin­ery.

The mas­sive facil­ity houses advanced equip­ment that appears barely used.

Officials said the refin­ery was shut­tered because its out­put failed to meet national stan­dards. Observers expect the machin­ery to remain idle indef­i­nitely, ren­der­ing equip­ment worth hun­dreds of thou­sands — if not mil­lions — of Euros unus­able.

China’s strat­egy of using olive farm­ing to alle­vi­ate poverty is widely rec­og­nized, and few enter­ing the sec­tor are unaware of the trade-offs inher­ent in its state-con­trolled model.

This approach is unlikely to posi­tion China as a major olive oil exporter, despite some pro­duc­ers man­ag­ing to sell to neigh­bor­ing coun­tries and even to Spain.

Still, fol­low­ing an October gath­er­ing in Yunyang, Hubei, where more than 200 offi­cials, researchers and pro­duc­ers dis­cussed ways to improve the sec­tor, ques­tions about the con­se­quences of state con­trol are increas­ingly being con­fronted.

International experts argue that adopt­ing cer­ti­fied olive vari­eties, improv­ing prun­ing tech­niques and refin­ing milling prac­tices — along­side selec­tive mech­a­niza­tion and robot­ics — could raise qual­ity and com­pet­i­tive­ness with­out under­min­ing the sector’s poverty-alle­vi­a­tion goals.