`Olive Oil Industry Megatrends

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Olive Oil Industry Megatrends

Jun. 26, 2013
Simon Field

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The global olive indus­try is a com­plex matrix of pro­duc­tion, dis­tri­b­u­tion and con­sumer behav­iour which changes daily with cli­matic con­di­tions, polit­i­cal activ­ity and the deci­sions of busi­nesses, large and small. The indus­try does not oper­ate in iso­la­tion, it is affected by the trends in com­pet­ing veg­etable oil indus­tries, the global finan­cial sit­u­a­tion, social imper­a­tives and the emer­gence of new tech­nol­ogy. Olive oil con­sump­tion has a very long his­tory and an assured future. The future will be shaped by the global industry’s recog­ni­tion and strate­gic response to the many chal­lenges it will face. An impor­tant step in respond­ing effec­tively at local, regional and inter­na­tional lev­els is the recog­ni­tion of the most impor­tant trends which will influ­ence the indus­try over the next ten years. The fol­low­ing mega­trends’ are iden­ti­fied as the most sig­nif­i­cant fac­tors which should be con­sid­ered when plan­ning to sus­tain and grow all small, medium and large olive oil enter­prises.

Glob­al­i­sa­tion

His­tor­i­cally the olive indus­try has been con­cen­trated in, and con­trolled by, Mediter­ranean coun­tries. Over the past two decades there has been an expan­sion of the pro­duc­tion base to coun­tries which pre­vi­ously were net importers, namely the USA, Aus­tralia, Chile and more recently China and India. While pro­duc­tion in these coun­tries is less than 2% of world pro­duc­tion, their pres­ence has had an impact on the global pol­i­tics of olive oil as the new entrants strive to dis­place imports with domes­tic prod­ucts and expand into the export mar­ket.

Tra­di­tional pro­duc­ing coun­tries, espe­cially Spain, have expanded their pro­duc­tion base into neigh­bour­ing coun­tries such as Por­tu­gal and Morocco, as well as estab­lish­ing joint ven­tures in South Amer­ica, China and India.

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The aggres­sive growth of the indus­try in Spain has resulted in the acqui­si­tion of brands which tra­di­tion­ally were asso­ci­ated with Italy. This trend has resulted in a blur­ring of the asso­ci­a­tion of brands with par­tic­u­lar pro­duc­ing coun­tries and seen the growth of large cor­po­ra­tions oper­at­ing with­out the con­straints of bor­ders.

The recent polit­i­cal activ­ity in the Euro­pean Union is evi­dence that olive oil has become a polit­i­cal tool and the regional inter­ests in Europe will be super­seded by leg­is­la­tion which favours those that have the lob­by­ing power to fur­ther their own inter­ests. Inevitably this will lead to laws which favour the larger more con­cen­trated enter­prises at the expense of smaller local and regional pro­duc­ers. The recent enact­ment and with­drawal of reg­u­la­tions con­trol­ling the pre­sen­ta­tion of olive oil on restau­rant tables in non-refill­able branded bot­tles is a prime exam­ple of this.

Another aspect of the glob­al­i­sa­tion is the spread of vari­eties from spe­cific regions across new regions and coun­tries. Koroneiki which is the back­bone of the Greek olive oil pro­duc­tion is now pro­duced in at least Spain and Aus­tralia, Ital­ian vari­eties are grown in Spain, Chile and the USA. This will mean that those coun­tries that have a range of vari­eties will be able to mimic and mar­ket styles of olive oil which will com­pete with those hith­erto described as Ital­ian’, Greek’ or Span­ish’.

World­wide, the aggre­ga­tion of large pro­duc­tion and export olive oil enter­prises has widened the gap between local small pro­duc­ers and these con­glom­er­ates. This has resulted in small to medium pro­duc­ers form­ing asso­ci­a­tions to pro­mote high qual­ity extra vir­gin olive oil, an exam­ple is the recently-launched Span­ish Extra Vir­gin Olive Oil Asso­ci­a­tion involv­ing 150 to 200 Span­ish mills.

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Another pre­dictable trend is the acqui­si­tion by Euro­pean pro­duc­ers of larger enter­prises in the South­ern Hemi­sphere to neu­tralise com­pe­ti­tion in the region and to acquire pro­duc­tion that will pro­vide fresh extra vir­gin olive oil for sale and blend­ing six months after the North­ern Hemi­sphere pro­duc­tion.

High den­sity groves and mech­a­ni­sa­tion

A mega­trend in pro­duc­tion is the estab­lish­ment of medium- to high-den­sity groves with mech­a­nised har­vest­ing. Many Mediter­ranean coun­tries which tra­di­tion­ally relied on the sup­ply of olives from small groves aggre­gated into coop­er­a­tives are increas­ingly get­ting the bulk of their olives from new high-den­sity groves. This is plac­ing con­sid­er­able pres­sure on the more labour-inten­sive small pro­duc­tion, and caus­ing asso­ci­ated social prob­lems in coun­tries such as Spain, Italy and Greece. These coun­tries already have very high unem­ploy­ment and are faced with many small pro­duc­ers los­ing their tra­di­tional income and join­ing the unem­ployed.

This trend is affect­ing the pol­icy on the grad­ual removal of sub­si­dies for olive oil pro­duc­tion. Euro­pean gov­ern­ments are faced with the dilemma of either con­tin­u­ing with sub­si­dies and keep­ing work­ers in the groves, or remov­ing sub­si­dies and increas­ing the num­ber of unem­ployed in rural areas. For this rea­son it can be expected that removal of sub­si­dies will be resisted and slowed down.

A pos­i­tive result of the inten­si­fi­ca­tion and mech­a­ni­sa­tion is the reduced pro­duc­tion cost which will keep olive oil rel­a­tively com­pet­i­tive with other veg­etable oils such as rice bran, canola/rapeseed, soya, corn and peanut oils which are pro­duced on a broad­acre scale.

Com­pe­ti­tion from veg­etable oils

The Inter­na­tional Olive Council’s recent assess­ment that world pro­duc­tion in 2013 has dropped by 26% with con­sump­tion falling by 5% opens the mar­kets to increased sales from com­pet­ing veg­etable oils. The price of extra vir­gin olive oil in Spain has risen to €2.74 from a low of €1.77. The com­bi­na­tion of reduced pro­duc­tion and higher prices will put fur­ther pres­sure on the reten­tion of mar­ket share.

An analy­sis by the North Amer­i­can Olive Oil Asso­ci­a­tion (NAOOA) pre­sented to the Savantes pro­gramme in New York in Sep­tem­ber, 2012 showed that, despite the low price and abun­dant sup­ply of olive oil in the pre­vi­ous year in the USA, and a decline of 20.8% in veg­etable oils includ­ing corn, canola and peanut oils, olive oil sales increased by 5.1% while other oils increased by 31.8%. This inabil­ity to take advan­tage of a short­age of com­pet­ing veg­etable oils loss should be a warn­ing to the olive oil indus­try that there needs to be a con­certed effort to retain and increase mar­ket share.

This is rein­forced by updated data from the USDA which shows that olive oil pro­duced glob­ally con­tin­ues to decline as a per­cent­age of total veg­etable oil. In six years since 2007 the per­cent­age has dropped from 2.4% to 2.0%

One of the major char­ac­ter­is­tics of extra vir­gin olive oil that makes it vul­ner­a­ble to pro­mo­tion of com­pet­ing oils is smoke point. While high qual­ity extra vir­gin olive oil has a smoke point of around 405ºF (191ºC), refined olive oil has a higher smoke point of around 465ºF (242ºC). The lat­ter pro­vides the olive indus­try with the means of com­pet­ing with veg­etable oils with higher smoke point, and at the same time pro­mot­ing extra vir­gin olive oil as ideal for lower tem­per­a­ture cook­ing. If con­sumers can be per­suaded to use dif­fer­ent clas­si­fi­ca­tions of olive oil for all cook­ing they are less likely to turn to other veg­etable oils with fewer health ben­e­fits.

In an attempt to neu­tralise the advan­tage that olive oil has in its well-doc­u­mented health ben­e­fits, pro­duc­ers of com­pet­ing oils are using genetic engi­neer­ing and new pro­cess­ing tech­niques, such as cold press­ing, to mimic the chem­i­cal pro­file and taste of olive oil. Exam­ples of this are high-oleic-acid canola oil, cold-pressed canola oil and cold-pressed avo­cado oil. The increased pro­duc­tion in South Amer­ica of avo­cado oil with its high smoke point, com­pa­ra­ble fatty acid pro­file and lower price should be seen as a real threat to the olive oil mar­ket in the USA.

Hav­ing set the stan­dard for high qual­ity veg­etable oils, olive oil must defend its posi­tion more effec­tively. One dif­fer­en­ti­a­tion that is dif­fi­cult to mimic is taste. How­ever, a recent UC Davis Con­sumer Sur­vey showed that in the USA, the world’s largest importer out­side the EU, con­sumers did not agree that words often used to describe fresh olive oil sounded tasty (fruity, pep­pery. and grassy).” A coor­di­nated and con­certed effort to sell’ the taste of extra vir­gin olive oil is required.

One oppor­tu­nity that will help main­tain the mar­gins for extra vir­gin olive oil as the price dif­fer­en­tial between olive oil and veg­etable oils increases, is to use it as a high value com­po­nent of veg­etable oil blends for food­ser­vice. This will add flavour and health com­po­nents to the blend, amor­tise the higher cost and take advan­tage of the imper­a­tive for higher smoke points in com­mer­cial kitchens.

Increased pro­por­tion of extra vir­gin pro­duced

There is evi­dence that a greater pro­por­tion of extra vir­gin olive oil is being pro­duced in the Mediter­ranean coun­tries. This is a con­se­quence of improved pro­duc­tion tech­niques and pur­suit of higher returns.

In coun­tries such as Greece, Turkey, Tunisia, and Morocco, pro­duc­ers that have gen­er­ally sup­plied into bulk mar­kets are now shift­ing to bot­tled branded prod­ucts. This will both increase the com­pe­ti­tion for retail shelf-space and deprive coun­tries such as Italy who have pur­chased bulk undif­fer­en­ti­ated extra vir­gin olive oil to blend with their higher grade pro­duc­tion. The aggres­sive brand mar­ket­ing under­taken by Spain, which has been the largest sup­plier of bulk oils to Italy, will fur­ther exac­er­bate this short­age of bulk oil.

The shift to more pro­pri­etary brands of extra vir­gin olive is occur­ring while the large super­mar­ket chains are intro­duc­ing more house’ and pri­vate label’ brands and reduc­ing the num­ber of pro­pri­etary brands on their shelves. Super­mar­kets which move up to 80% of the world’s pack­aged olive oil can exer­cise their mar­ket power to obtain olive oil at reduced prices and impose greater con­trol over the qual­ity spec­i­fi­ca­tions of the oil bot­tled in their pri­vate labels prod­ucts.

The ascen­dancy of super­mar­ket brands will favour the largest pro­duc­ers who can sup­ply large vol­umes at low prices and meet the strin­gent qual­ity assur­ance spec­i­fi­ca­tions imposed by buy­ers. This will increase the pres­sure on the bur­geon­ing extra vir­gin olive oil brands and fur­ther con­tribute to the con­cen­tra­tion of power by the con­glom­er­ates. A con­cen­tra­tion which will force medium size pro­duc­ers to aggre­gate their mar­ket­ing effort or con­cen­trate on the smaller vol­ume of olive oil prod­ucts moved through local mar­kets, spe­cialty stores and high end food­ser­vice.

Qual­ity in the fore­front

The entry of new pro­duc­ing coun­tries from the South­ern Hemi­sphere and the increase in branded bot­tled extra vir­gin olive oil has increased the impor­tance of qual­ity and cer­ti­fi­ca­tion.

The Inter­na­tional Olive Coun­cil has had pri­macy in the set­ting of olive oil clas­si­fi­ca­tion stan­dards and the polic­ing of com­pli­ance. The EU has taken an increas­ing role in assur­ing com­pli­ance and new pro­duc­ing coun­tries, espe­cially Aus­tralia, have become very active in expos­ing non-com­pli­ance.

The activ­ity of Aus­tralian, New Zealand, South African and USA asso­ci­a­tions has brought a new dimen­sion to the pub­lic expo­sure of adul­ter­ation and the dete­ri­o­ra­tion of olive oil. Under the thin guise of improv­ing qual­ity for con­sumers and timed with the pub­li­ca­tion of the book Extra Vir­gin­ity: The Sub­lime and Scan­dalous World of Olive Oil’ these coun­tries have strate­gi­cally used the test­ing of prod­ucts, espe­cially imports, as a mar­ket­ing tool to sell local fresher extra vir­gin olive oil. At the same time the devel­op­ment of the Aus­tralian Stan­dard’ has attempted to increase the tol­er­ance lev­els of mark­ers such as campes­terol to accom­mo­date the higher lev­els exhib­ited by new vari­eties and vari­a­tions under dif­fer­ent grow­ing con­di­tions.

Asso­ci­ated with this new stan­dard has been the push to include two new tests, pyropheo­phytin (PPP) and 1,2‑diacylglycerol (DAGs) which it is claimed detect dete­ri­o­ra­tion and adul­ter­ation with more accu­racy and objec­tiv­ity than the sub­jec­tive panel organolep­tic’ taste test­ing. Some Euro­pean pro­duc­ers have advo­cated more strin­gent appli­ca­tion of exist­ing spec­i­fi­ca­tions. All this activ­ity has forced the IOC to launch an inter­na­tional research project on olive oil authen­ti­ca­tion with the aid of EU Horizon2020 fund­ing.

Along with the clas­si­fi­ca­tion spec­i­fi­ca­tions, labelling has been under increased scrutiny. Descrip­tions such as lite’, extra light’ and pure’ olive oil, which have been used to mar­ket refined oils and blends, will be replaced with the more pro­saic descrip­tion refined’ if the advo­cates are suc­cess­ful. This move is intended to put refined olive oil at a dis­ad­van­tage with extra vir­gin olive oil, but may at the same time put refined olive oil at dis­ad­van­tage with other veg­etable oils which are not only refined, but also sol­vent extracted. The den­i­gra­tion of refined olive oil will also remove a prod­uct used by those who either do not like the taste of, or can­not afford, the higher priced extra vir­gin olive oil.

The argu­ment that those who dis­like the intense flavours of extra vir­gin olive oil can use the more del­i­cate oils is under­mined if the PPP test is adopted inter­na­tion­ally. The test will favour more robust oils high in polyphe­nols which have longer shelf-life and are less likely to become ran­cid dur­ing over­seas ship­ment.

The courts are increas­ingly being used to pur­sue com­mer­cial inter­ests against com­pet­ing brands, and con­versely by com­mer­cial inter­ests to chal­lenge con­sumer pub­li­ca­tion of reports on retail brands. In Spain, Hoji­blanca, Arte­O­liva and Acesur threat­ened to sue the Orga­ni­za­tion of Con­sumers and Users for not observ­ing proper prac­tice in test­ing their brands (Olive Oil Times June 23rd , 2013). The North Amer­i­can Olive Oil Asso­ci­a­tion (NAOOA) is pur­su­ing a brand in the courts for mis­lead­ing con­sumers. Fol­low­ing adverse reports from UC Davis on the qual­ity of some olive oil brands retailed in Cal­i­for­nia, a law firm launched then dropped a class action against retail­ers when the chem­i­cal and taste test­ing in the report could not be dupli­cated. In Aus­tralia there have been numer­ous actions by the Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion against mis­la­belled olive oil prod­ucts.

Many estab­lished par­tic­i­pants in the indus­try have com­mented that all this pub­lic­ity given to legal inter­ac­tion and non-com­pli­ance has adversely affected con­sumer per­cep­tion of the integrity of olive oil. The UC Davis report on Con­sumer Atti­tudes on Olive Oil’ pub­lished in May 2013 has con­firmed that con­sumers are con­fused or have poor knowl­edge of the clas­si­fi­ca­tions of olive oil and the descrip­tions used for taste.

The giant olive oil com­pany Deoleo has stated that cur­rent terms such as extra vir­gin, vir­gin’ and refined’ olive oil should be replaced with words mean­ing more to con­sumers.’ (Olive Oil Times May 6th 2013). The USA court deal­ing with the NAOOA case found that there is no extrin­sic evi­dence that the per­cep­tions of ordi­nary con­sumers align with these var­i­ous (olive oil) labelling stan­dards‘.

There has also been push back against the attempts by the domes­tic pro­duc­ers to include in the Farm Bill clauses paving the way for a mar­ket order to be intro­duced in the USA. The move was over­whelm­ingly defeated in the House of Rep­re­sen­ta­tives (Olive Oil Times June 23rd, 2013). The inter­na­tional Olive Coun­cil has also flagged that there could be a chal­lenge, through The World Trade Organ­i­sa­tion, to any attempt by import­ing coun­tries such as Aus­tralia to intro­duce stan­dards which could be bar­ri­ers to trade.

This con­sumer con­fu­sion can only be exac­er­bated by increas­ing lay­ers of cer­ti­fi­ca­tion and the intro­duc­tion of even more clas­si­fi­ca­tions, such as ultra pre­mium, by enter­prises that are striv­ing to increase mar­ket share.

Com­pet­ing veg­etable oils such as rice bran and cold pressed canola are increas­ing pro­mo­tion to take advan­tage of this frag­men­ta­tion of the inter­na­tional con­trol of olive oil qual­ity, asso­ci­ated bad pub­lic­ity and the world­wide short­age of olive oil.

The internecine legal activ­ity and den­i­gra­tion of com­pet­ing brands can only con­tribute to fur­ther con­sumer con­fu­sion and loss of con­fi­dence in olive oil. Per­cep­tively fewer media arti­cles and reports on non-com­pli­ance in 2013 is evi­dence that the very pub­lic and indul­gent pur­suit of com­mer­cial advan­tage by new olive oil brands is on the wane and the inter­na­tional indus­try is mov­ing back to more cen­tralised con­trol of qual­ity and generic pro­mo­tion of olive oil. This in time will divert energy and money from inter­nal con­flict to a con­certed effort to once again estab­lish olive oil as the lead­ing, most healthy and tasti­est veg­etable oil.

Online for sales and news

The inter­net has rev­o­lu­tionised com­mu­ni­ca­tion and enabled more direct inter­ac­tion with the con­sumer, by-pass­ing the insti­tu­tions which have in the past con­trolled the flow of infor­ma­tion.

The strate­gic use of the inter­net has facil­i­tated the cam­paign on com­pli­ance con­ducted by asso­ci­a­tions, aca­d­e­mic insti­tu­tions and ana­lyt­i­cal lab­o­ra­to­ries. The cam­paign has given promi­nence to new pro­duc­ing coun­tries which are not mem­bers of the Inter­na­tional Olive Coun­cil and there­fore not bound by its pro­to­cols. The cam­paign has been suc­cess­ful in its per­ceived aim of high­light­ing non-com­pli­ance, espe­cially of imported brands, pro­mot­ing new pro­ce­dures for authen­ti­ca­tion, dis­plac­ing imported brands with local pro­duc­tion and rais­ing the debate on fraud in the olive indus­try.

This online tac­tic will play out and the ini­tia­tive of the IOC in tack­ling the authen­ti­ca­tion and com­pli­ance issues will go some way to neu­tralise the pub­lic dis­quiet over the authen­tic­ity and qual­ity of olive oil. The inter­net can then be used to gain mar­ket share by pro­mot­ing the pos­i­tive attrib­utes of olive oil.

The inter­net will be increas­ingly used to sell direct to con­sumers, break­ing the stran­gle­hold of estab­lished dis­tri­b­u­tion chan­nels. This will come about with the increas­ing avail­abil­ity of appli­ca­tions for smart­phones which can read bar­codes and QR-codes giv­ing the con­sumer direct access to qual­ity infor­ma­tion, price com­par­i­son and online pur­chas­ing.

The break­down of the many stages of the estab­lished sup­ply-chain will give con­sumers direct access to authen­tic fresher extra vir­gin olive oil and the result­ing move away from dis­tri­b­u­tion and retail focal points will make the task of reg­u­la­tors in polic­ing stan­dards more dif­fi­cult.

Online sales will also have an impact on the bur­geon­ing bou­tique olive oil stores in new pro­duc­ing coun­tries such as the USA unless they adapt effec­tively to this new sales par­a­digm.

Sum­mary of mega­trends

To sum­marise, the mega­trends which will dic­tate the busi­ness deci­sions of all involved in the olive oil indus­try, from pro­duc­tion to retail, are:

  • Increased glob­al­i­sa­tion blur­ring the regional advan­tages of olive oil pro­duc­tion and result­ing in the con­cen­tra­tion in power and mar­ket share.
  • Widen­ing of the gap between small and medium enter­prises and inter­na­tional olive oil con­glom­er­ates.
  • Increased pro­duc­tion effi­ciency and mech­a­ni­sa­tion in larger groves mar­gin­al­is­ing tra­di­tional pro­duc­tion and again increas­ing the gap between small and medium pro­duc­ers and con­glom­er­ates.
  • Increased com­pe­ti­tion for the veg­etable oil global mar­ket from genet­i­cally mod­i­fied oilseeds, new crops such as avo­cado oil and new pro­cess­ing tech­niques such as cold press­ing of oilseeds.
  • The pro­por­tion of extra vir­gin olive oil pro­duced will con­tinue to increase at the expense of refined olive oil. This will increase com­pe­ti­tion for retail shelf space for branded prod­ucts and tend to put down­ward pres­sure on extra vir­gin olive prices.
  • Qual­ity and price will con­tinue to be the main dif­fer­en­ti­a­tions for extra vir­gin olive oil.
  • The wave of pub­lic pros­e­cu­tions and pub­lic­ity over non-com­pli­ant oils will decline as the Inter­na­tional Olive Coun­cil reasserts its lead­er­ship in elim­i­nat­ing fraud, new pro­duc­ing coun­tries gain ade­quate mar­ket share and the global indus­try switches to pro­mo­tion of the pos­i­tive attrib­utes of olive oil.
  • Online sales will increase and con­sumers will have avail­able appli­ca­tions for smart phones to scan bar­codes and QR-codes to deter­mine the qual­ity, health pro­file, authen­tic­ity and com­par­a­tive value of extra vir­gin olive oil brands.
  • Direct sales online from pro­duc­ers to con­sumers will shorten the sup­ply-chain and make it more dif­fi­cult for reg­u­la­tors to police qual­ity and labelling stan­dards with the more dis­persed retail mar­ket­place.

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