Thursday, July 9, 2015

Greek Debt and the Olive Oil Issue

Olive Oil

More than 750 million olive trees are cultivated worldwide, 95% of which are being planted in the greater Mediterranean region. In terms of global olive oil production, 3/4 come from countries of the European Union, among which the 97% of olive oil is cultivated and produced in Spain, Italy and Greece. 
Superior Greek oil is blended with other countries’ oils to raise their quality.
A considerable amount of the economy of Greece is based on olive oil exports. Although Greece produces the largest quantity of virgin olive oil in the European Union (EU), the economic returns generated from sales of what is a premium product have been disappointing.
The majority of Greek exports are in the form of bulk generic oil that is subsequently packaged in Italy as well as some other countries. Bulk generic oil cannot garner price premiums; thus the potential of what is a superior quality product is wasted.

Olive oil from Greece is top-quality. The olive oil industry outside of Greece use Greek olive oil to improve the quality of their final products through blending and to increase their sales. Importers mix lower quality domestic olive oils with superior quality Greek imports.

Sadly, as Greek olive oil cannot be identified by final consumers, any attempt by the Greek industry to expand its market share in international markets is unlikely to be successful. The difficulties lie with both the Greek processing sector and the barriers to entry erected by importing firms.

Threats and Hurdles

The recent gradual revaluation of the Euro against the U.S. dollar has meant a negative environment for exports to the United States, as well as to countries with currencies tied to the U.S. dollar. Further, Mediterranean countries that are not EU members can utilize this situation to their advantage and become more price competitive

Most production takes place on small farms and in family-run businesses. While the domestic olive oil market absorbs a considerable portion of national production, exports are still significant and primarily focused on the EU market. Italy is the most important export market, receiving more than 75 percent of total Greek olive oil exports - blending as discussed reduces value significantly.

The other crucial factor causing poor competitiveness is the large number of small agricultural holdings in Greece specializing in olive trees. Beyond increasing the cost of production, they dramatically reduce the bargaining power of producers when they negotiate the selling price of their product. Further, while many farmer cooperatives exist, they perform poorly, leaving room for private buyers to pay lower prices to producers.

Greek Olive Oil: How Can Its International Market Potential Be Realized? (PDF)

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