Sectoral Report: Olive Oil (May 2015)
Greece is the third largest producer of olive oil in the world (11 per cent of total volume production), following Spain (40 per cent) and Italy (14 per cent). Indeed, Greek olive oil is of superior quality, since 80 per cent of production is extra virgin olive oil (compared with 65 per cent in Italy and 30 per cent in Spain).
The increasing popularity of the healthy Mediterranean diet, and especially olive oil, has more than doubled demand for olive oil in other countries (apart from the 3 main producers) during the past 20 years.
Despite the comparative advantages of Greek olive oil:
- Only 27 per cent of Greek production reaches the stage of labeling/branding, compared with 50 per cent in Spain and 80 per cent in Italy, with the remainder sold in bulk form, including 70 per cent of exports (mainly to Italy for re-export).
- Greece’s market share in the world market of branded olive oil decreased from 6 per cent during the 1990s to 4 per cent during the past 5 years.
Greek producers have failed to benefit from the global growth in olive oil demand, mainly due to structural problems:
- The cost of olive production is relatively high in Greece (about €1/kg of olives, compared with €0.6/kg in Spain), mainly because of the small size and low labor productivity of olive farms.
- Most olive mills in Greece are smaller and less advanced (in terms of technology) than those in Spain, leading to higher milling costs (€0.19/kg of olive oil for Greek mills, compared with €0.16/kg of olive oil for Spanish mills). In Italy, even though the mills are also small, they are vertically integrated with the olive farming stage, as well as the distribution stage.
- The fragmented nature of Greek olive oil cooperatives does not facilitate the standardization of quality control, which is necessary for the promotion of premium olive oil.
- The small size of bottling and labeling companies does not allow for the successful promotion of branded products.
Despite the expected further increase in olive oil demand (mainly in other countries, i.e. apart from the main producers), the gradual decrease in CAP subsidies for Greek olive oil is expected to make small producers, with low productivity, unprofitable. As a result, Greek olive oil production is expected to decline to 280,000 tons in 2020 compared with an annual average of 310,000 tons during the past 5 years.
In the medium term, provided that certain structural changes are undertaken, increasing global demand and the superior quality of Greek olive oil should result in more value added for the Greek sector. In particular, a shift from bulk to branded olive oil and a more efficient marketing strategy could increase the value of Greek exports by approximately €250 million (about 80 per cent higher than 2014). Indeed, a more vertically integrated production structure would increase the efficiency of the sector, strengthen its marketing strategy, and consequently prove favorable for a successful branding of Greek olive oil.