Do Bad Politics Thwart Good Olive Oil?

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in: Agriculture

Olive oil collected in a tub will be stored in to a fusto, or stainless steel container. Credit: Nancy Harmon Jenkins

There’s a problem with Spanish olive oil, and it’s not just in Spain. In recent days, international media have been full of news about over-supply, dropping prices and an economic squeeze. When even China Daily reports on the situation, you know that olive oil has truly gone global.

The problem begins with the European Union, or the EU, in Brussels and its Common Agricultural Policy (CAP). The complex piece of legislation has been revised and reformed several times over the years, and it’s in dire need of new reform right now, as anyone who’s not in big-farm agriculture will tell you.

Big olive oil producers get the subsidies

CAP’s major goal, according to its website, is to move European agriculture from intensive farming to more sustainable methods. But in the olive oil sector the policy has had the reverse effect, thanks to fat subsidies paid to the largest olive oil producers and concomitantly very little paid to smaller, more sustainable farmers.

An estimated 70% of CAP’s budget (almost half the EU’s entire cost) goes to subsidies and price supports. Of that sum, 80%  is paid to the largest holdings, including expansive olive oil farms in Spain’s southern region of Andalucia, where 40% to 50 % of the world’s olive oil is produced in any given year. The largest chunk of CAP money is paid to farmers in Jaén province: 465 million euros or about $590,000,000 annually, according to an Olive Oil Times quote taken from El Diario Jaén newspaper. Almost all the farmers involved are in the olive oil sector.

The result? Any economist worth her salt could predict it. Generous subsidies lead to over-production on a massive scale.  More and more land has been brought into cultivation with intensive orchard systems called “super high-density.” These systems, developed in Spain, have been exported to California, Chile, Australia and other countries in recent years.

Trees, planted so closely they look from a distance like vineyards, are pruned and harvested by machine, cutting down on labor costs and increasing yield enormously. The record-breaking 2011-12 harvest in Andalucia added another 285 million liters to what was already a glut of 95 million liters, confirming Spain’s position as the world’s leading olive oil producer by far.

Over-production can mean lesser quality olive oil

But this isn’t fine extra virgin fare in a fancy dark-glass bottle costing upward of $40 a liter. Think instead of the bottles stacked on your local supermarket shelves, bottles that often bear what looks like an Italian name on the label. Many are produced by Spanish multinationals and filled with cheap, undated oil from the huge plantations of Andalucia.

This is olive oil as a commodity; produced in quantity, priced cheaply, supported by government subsidies and intended for a global market as competition to canola and other vegetable oils. This is olive oil as kitchen grease, pure and simple. It’s not surprising that subsidies produce gluts, which in turn create lower prices and the need for more supports in a continuing cycle. We witnessed the same scenario with corn in the U.S. when Nixon’s Secretary of Agriculture, the infamous Earl Butz, promoted the HFCS, high fructose corn syrup, with the resulting unhappy outcomes for U.S. agriculture and the U.S. diet. “Get big or get out” is what Butz told U.S. farmers. A similar message is being heard all across Andalucia. Industrialized commodity producers are all that can survive, one producer told a British reporter.

The ripple effect

While the problem is most acute in Spain, the reverberations are felt across the Mediterranean, even in Palestine where farmers are squeezed by the Spanish drop in prices and by EU subsidies that give European producers unfair advantages. “The only ones who can escape,” said Nasser Abufarha, who heads up Canaan Fair Trade, an important cooperative in the north of the country, “are those producing specialist, connoisseur-type oils,” his own company’s specialty.

The latest proposed CAP reforms have been categorically rejected by Spain’s olive oil producers. They would allocate subsidies at a flat rate per hectare of trees rather than on the quantity of oil produced and reward farmers who practice more sustainable methods. The reforms would also limit the amount an individual farm can receive to 300,000 euros (about $381,000 according to the current exchange rate). Another EU proposal is to suspend payments entirely when a country’s deficit exceeds 3% of national output — a violation of EU budgeting rules that most member states ignore.

So what’s the answer?

Pushed by Spanish producers, the EU’s solution is to pay to stock a reserve of some 100,000 tons of Spanish oil to take it off the market. Olive oil doesn’t improve with time, and oil from 2010 and possibly earlier harvests isn’t much good by now except for rectifying into refined olive oil. A commentator on the Financial Times website suggested going back to ancient Roman customs and bathing in olive oil, while another, more reasonably proposed converting it into bio-fuel. An alternate solution is for farmers to focus on production of high-quality premium extra virgin oils which command a higher price in the marketplace and for which there is growing demand — especially as consumers become more aware of what exactly is in those bottles of pseudo-extra virgin. There are a number of Spanish producers, in Andalucia and elsewhere, who produce high-quality extra virgin olive oils and sell them at a premium — proof, if such is necessary, that there is a smart way out of the conundrum.

Top photo: Fresh olive oil running from the separator into a pan connected to a fusto, the stainless container in which it will be stored. Credit: Nancy Harmon Jenkins

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Paul Miller
on: 6/25/12
Despite its general theme that olive oil quality is important which I wholeheartedly support, there are a number of all too common misconceptions contained in this article regarding why there is so much olive oil on the world market right now, olive oil pricing and the industry situations in Spain and elsewhere. I have been involved in the olive industry initially in Australia, and recently globally, since the 1990s. I have been in Spain this year speaking with researchers, farmers large and small and also some traders. I also drove through the olive regions of Andalucia as well as parts of Catalunya. My impressions are: The abundance of Spanish olive oil right now is because of 3 'on' harvest years in a row from Spain's mostly traditional olive groves. It has nothing to do with so called 'super-high-density' groves in Spain which in fact are not easy to find amongst the seemingly endless conventional groves in Andalucia - one of the horticultural wonders of the world. It also has little to do with the EU subsidies although these do affect pricing and quality as I will explain later. 3 years in a row of such above average crops have not been seen in Spain at least for the previous 15 years. Usually the mostly rain-fed olive trees of Spain suffer weather effects and vary much more in their production - varying around an ongoing average. Usually one year is 'on' and the next is 'off'. Over the last three years however unusually benign weather has meant that production has consistently been 17-20%+ above average. The prospects for 2012/2013 are, fortunataly, for a well below average crop following recent frost damage to olive flowers and widespread drought in much of southern Spain. Spain produces of the order of 40% or more of the world's olive oil so what happens in Spain affects all markets and all other producers. Spain has been the major world producer of olive oil for at least the last 20 years and production has increased as the result of mostly conventional olive orchards planted in the decade from 1988 to 1998 when production subsidies were offered for new trees planted during this time. These subsidies are being reviewed in 2013/14. Trees planted since 1998 don't attract these direct subsidies with some minor exceptions notably in Portugal. It is the case that in recent years the subsidies to all EU olive growers have been paid on a per hectare basis - not related to production. It is also not fair to say that most subsidies are paid to 'big-farm' agriculture. The direct subsidies are nearly all paid to the hectares planted pre-1998 and most of these are in fact in small holdings. What the subsidies do is keep many of these trees under cultivation when they would otherwise not be farmed without them. The often absentee owners of these fragmented holdings usually commit the production to the numerous Spanish cooperatives many of whom crush the olives and extract the oil as cheaply as possible. Most of this oil needs refining to make it edible. The really big olive oil companies in Spain are traders and merchants, not farmers. I agree that storage subsidies are a mistake. It is true that most of the world's olive oil production is of lower quality than extra virgin and most of the lower grade olive oil needs to be refined before it can be sold and eaten. This is a structural imbalance for a market that increasingly demands extra virgin olive oil. Substitution of lower grade products for extra virgin products, often illegally, has dumbed down the market and reduced the much needed premium that should reward quality producers. In my view the EU government money spent on supporting olive oil production, storage, packaging and marketing has by and large supported this structural imbalance but that could change. The other obvious factor in current low prices for olive oil is the poor economic status of the major producing countries. For example in Spain, most of its olive oil production is consumed in Spain and all the Spanish producers I spoke with lamented the fact that Spanish people were eating less olive oil because they had cut back on their food purchases - some now using other vegetable oil instead. This in turn puts downward pressure on prices and in years of abundant supply the results are dramatic including for exports. In my view there is not actually an ongoing glut brought on by over production. I think that with some attention to marketing, consumer education and quality control the global olive oil market could easily take what is being produced and pay reasonable prices for the higher grades of olive oil particularly fresh extra virgin olive oil. Note that olive oil is only about 2.2% of the vegetable oil consumed in the world and markets for olive oil are opening up globally including in populous countries such as China and India. In addition if the next 3 years in Spain were at below average production overall supply would rapidly dwindle but that is in the hands of the weather. The statements in this article about 'super-high-density' olive growing and its implied relationship to subsidies and poor quality olive oil production are not supportable. Our best estimates of the current world olive plantings are about 9 million hectares in total. Spain has over 25% of these hectares followed by Tunisia (16%), Italy (15%) and Greece (11%). We further estimate that about 30 thousand of the world's ha of olive trees are so called 'super-high-density' - about 1/3 of 1 % of the world's olive trees. Even if these were say 5 times as productive as conventional groves this would still only amount to about 1.5% of the world's olive oil. The so called 'medium to high density' plantings, some of which occurred in Europe and elsewhere pre-1998 but most of which happened since then, account for about 10% of world plantings. The rest - about 88% -are 'conventional' and mostly rain fed (not irrigated). See also AOCS Inform magazine May 2012. Thus the majority of the world's olive oil and logically therefore most of the high and low grade olive oil comes from 'conventional' or traditional olive farms and then from medium to high density farms, not the so called 'super-high-density' farms. It is also worth noting that the production in Europe and elsewhere from the higher density newer plantings of olive trees is generally of a much greater percentage of extra virgin olive oil than the average quality from 'conventional' groves. This is because of efficiencies in harvesting in the newer plantings that allow for a greater proportion of higher quality olives to be delivered on time to the mills for oil extraction. There is no doubt that olive oil quality varies from producer to producer and it is also true that great olive oils are made from nearly all varieties in the whole range of styles of orchards from ancient low density in north Africa to super-high-density in Chile. The key factor is the attention to detail by the producers and in my experience the producers of great olive oil in Spain from a range of orchard types are as good as any. It is also worth noting that most of the direct subsidies to olive trees in Europe only apply to trees planted before 1998. So the new groves in Europe at higher densities planted in mostly Spain and Portugal don't attract these subsidies. On a positive note I am encouraged by advances in production techniques on many farms in Spain particularly in organic farming. I don't think it would take much for numerous growers in Spain to improve their practices and make much better olive oil. A proper grading and payment system for quality would help and that is already in evidence in some places. Harvesting technology is also improving. Those that will find this the hardest are in fact the small holders of the dominant traditionally planted groves that struggle to deliver olives of sufficient quality to make edible olive oil and who are locked into subsidized arrangements of production and collective olive sales. That great olive oil can be made in Spain is proved again and again by the many excellent producers throughout the country. I agree with the author that quality is the answer to the current market problems but the key issue is that there is a lot of work to be done to make sure that consumers have access to, understand, appreciate and will pay for such quality. Paul Miller President Australian Olive Association
Ann Larson
on: 6/27/12
Paul, we have a small olive farm in the mountains of Andalucia (850 trees), and sell our own single estate, extra virgin olive oil. I certainly agree with you for the most part - and, in fact, it is widely predicted that this year's harvest will be very poor, due to the worst drought for 70 years in Spain. Speaking as small farmers, who take no subsidies, it is difficult to make a profit from olive oil here. Many of the small producers in our area have simply abandoned their land, as selling either the olives or the oil is just not profitable. We feel that the big agribusiness producers have squeezed the life out of us - and I anticipate that in 10 years time, the small farmer will be no more. See the US example - big agribusinesses do not mean better quality food!
Dear Ann
on: 6/30/12
Please could you pm me at: dr.robert.ryan at g m a i l dot com I am looking to buy an olive farm in Andalucia and would like to ask you some questions if you have the time. Please conntact me at the email given. Regards, Robert ps you can write in Swedish if that is your first language
JB
on: 7/1/12
Treating extra virgin olive oil like a commodity in the same way that the US government buys up certain commodities scares the hell out of me (ever taste USDA "comodity cheese"??? I have.) And the idea of Brussels having a say in any of it is absolutely ridiculous.....want a clue? The current handling of the financial crisis in Europe. And we expect them to get it together on olive oil? HA! I would have thought Europeans would be a little more "enlightened" and not follow the bad agra-politics of the U.S., but based on what I've seen, they are as bad if not worse. I live in Greece and used to lament that Greece wasn't more of an export country like Spain or Italy when it comes to olive oil. Now, I am glad for it. Reason? Extra Virgin olive oil doesn't have a shelf life like processed vegetable oils (or processed olive oil). It degrades with time, even with the greatest of care with temperature, and no exposure to light. It's supposed to. It's a natural product. I receive about 20 kilos of extra virgin olive oil from a family friend's grove in Lesvos after the annual pressing. As I refill my bottle over time I watch it change in flavor and color....as it should. It never goes rancid on me because I use it up before that ever happpens. My point it that extra virgin olive oil is a fine and precious cooking ingredient that should be treated as such. When it's done it's done. Try to extend the shelf live of something and you ruin the flavor and the beauty of the thing. Milk, etc, you name it. All in the name of big business making big money. Treat olive oil like big production granny smith apples in the U.S. and you will get a product that looks like olive oil and tastes like nothing. I am glad that Greece hasn't become a big player like Spain or Italy with olive oil, though it easily could. To my knowing, for the most part, what is produced here, is mostly consumed here (with excess sold to Italy who then blends it with their own along with oil from other countries like Tunisia and still has the audacity to market in emerging markets like India as Italian or EVO.) Sure, large multi nationals like Unilever, etc are labeling their own brand of EVO here in Greece and exporting it to other EU countries....but, now they arepushing more processed olive oil over EVO on local markets in Greece (a crime in my opinion). Processed olive oil is now taking up more space than EVO on the super market shelves. Unfortunately, you can't stop them, they've got too much money, too much marketing wizardry and too much lobbying power. Brussels? Don't look to politicians for any help on this matter. At the rate they are going, there won't be any EU left to have petty eurocrats make ridiculous agricultural regulations for. And that just might be a good thing in the long run. It's a tricky topic because I want to say that olive oil is like wine with varying degrees from garbage to excellent and you get what you pay for.....but that would be off the mark completely. It's a cooking fat at the end of the day, but a very very special type of cooking fat in a category all its own.
bikey
on: 10/12/12
This is the most informative, civil and generally worthwhile exchange I have seen on the internet (or anywhere) for a long time. Thanks very much to all.
Amitt
on: 1/30/13
India is being considered emerging as big market its sounds good but ground reality is different , lower grade & refind olive oil show is going on here with on the name of 100% evoo in transparent pet or glass bottles. As a matter of fact big part of our population is gradualy taking olive oil into their kitchen and getting aware of heath benefits but local oil marketing companies aggresively introducing the kitchen grease , fake olive oil , adultration is rampant in India. Indian FSSAI has not come up with any of strictest measures to counter it even most of these marketers are part of Indian olive association. In this worst case what to expect and to whom. A very big ?? . Thanks

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