` Worldwide Study of Olive Oil Growers’ Production Costs

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Worldwide Study of Olive Oil Growers’ Production Costs

Mar. 29, 2014
By Julie Butler

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How much does it really cost to grow olives for olive oil pro­duc­tion and how much does the cost vary around the world? The answers are often not known by olive grow­ers them­selves, accord­ing to Dr. Juan Vilar Hernán­dez, a sub-coor­di­na­tor of a 25-strong Inter­na­tional Olive Coun­cil-appointed expert group study­ing pro­duc­tion costs.

Since Decem­ber, the group has con­ducted an inter­na­tional sur­vey of olive oil pro­duc­ers and is now prepar­ing to deliver its analy­sis to the IOC by May 19. Their study focuses on the field costs of pro­duc­ing olives – up to when they have been har­vested and are ready to be taken to the mill – over the last four sea­sons. The project aims at shar­ing infor­ma­tion on the true range of costs in the sec­tor and aid­ing deci­sion-mak­ing on mat­ters such as changes to farm­ing inputs and processes, and busi­ness strat­egy design.

Juan Vilar Hernán­dez

Why the study is needed

Grow­ers using tra­di­tional cul­ti­va­tion meth­ods – which account for about three quar­ters of the total world area ded­i­cated to olive oil pro­duc­tion – stand to gain most from the study because they often lack thor­ough account­ing sys­tems and analy­sis of their results, said Vilar, CEO of GEA West­falia Sep­a­ra­tor Ibérica. (In 2012 Vilar wrote The Inter­na­tional Olive Oil Pro­duc­tion Sec­tor” — a com­pre­hen­sive book on the sec­tor.)

The study will serve as a strate­gic busi­ness tool, espe­cially for the dis­ad­van­taged and more tra­di­tional olive groves, help­ing with their opti­miza­tion, and thus the effec­tive­ness and effi­ciency of this social farm­ing which is immersed in the vor­tex of glob­al­iza­tion and faces very tight eco­nomic mar­gins. After all, inter­na­tion­ally, more than 30 mil­lion peo­ple make their liv­ing directly from this sec­tor, which has an annual turnover of €7 – 11 bil­lion,” he said.

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Assess­ing global com­pet­i­tive­ness

An illus­tra­tion of the impor­tance of being com­pet­i­tive glob­ally was pro­vided in Novem­ber by Jaime Carbó, CEO of the world’s biggest olive oil bot­tler, Deoleo, who said that in the last year Deoleo had bought Aus­tralian olive oil, pack­aged it in Europe, and later sold it to Amer­ica. It sounds strange but the num­bers added up,” he said. In such a global mar­ket, grow­ers can’t know if they are com­pet­i­tive with­out know­ing their true costs of pro­duc­tion.

Vilar said that as a very gen­eral rule, to be prof­itable, the pro­duc­tion cost for 1kg of olives at the farm gate should not exceed €0.33-€0.45 – includ­ing all applic­a­ble expenses, such as self-employ­ment, depre­ci­a­tion of assets, and oppor­tu­nity cost. How­ever, it’s hard to pin­point such a value accu­rately, stressed Vilar, because prices in the olive oil mar­ket fluc­tu­ate and other vari­ables include the coun­try, olive vari­ety, farm­ing method, oil yield, time of har­vest, and ter­rain.

Study spans nearly 50 coun­tries, seven farm­ing sys­tems

The ambi­tious study has seen detailed ques­tion­naires sent to more than 400 con­tacts around the world, among them pro­duc­ers, pro­ducer asso­ci­a­tions, olive oil mills, tech­ni­cal staff and research cen­ters.

The study spans the now 47 coun­tries where olive oil is pro­duced, includ­ing new­com­ers Namibia and Arme­nia, ” said Vilar, who also men­tioned that Mada­gas­car and South Korea have field tri­als under­way with a view to join­ing them.

Grow­ers have been divided into seven cat­e­gories accord­ing to whether they use tra­di­tional (<180 trees/ha), inten­sive (180 – 800 trees/ha) or super-inten­sive (>800 trees/ha) farm­ing meth­ods, with the first two also divided accord­ing to whether the trees are rain­fed or irri­gated. The tra­di­tional farm­ing cat­e­gory is fur­ther divided accord­ing to whether the land has slopes of more or less than 20 per­cent.

Results to be made pub­lic, study could extend to milling costs

Vilar said once final­ized, the results of the study will be made pub­lic by the IOC.

It will be the most com­plete, in terms of con­tent and inter­na­tional rep­re­sen­ta­tion, ever car­ried out. It rep­re­sents an impor­tant man­age­ment and deci­sion-mak­ing tool for olive grow­ers,” he said,

The IOC said last year the study would also help, iden­tify what coun­tries need in terms of sup­port and tech­ni­cal assis­tance to allow olive grow­ers to weigh up and com­pare their pro­duc­tion costs and to iden­tify poten­tial room for reduc­tions in order to increase their earn­ings.”

A sec­ond stage cov­er­ing milling costs and ex-mill prices has not been ruled out but is a deci­sion for the IOC to make, Vilar said.

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