The Changing Shape of Global Olive Oil Value Chain

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1 The Changing Shape of Global Olive Oil Value Chain Samir Mili Senior Researcher, Agro-food Economics and Marketing National Research Council (CSIC), Madrid, Spain ENOMETRICS XX Talca, Chile, 4-7 September 2013 Contents VC structure and VCA framework for olive industry Changing profile of olive GVC o Chief market features and trends o Major role of emerging markets o Measuring value in GVC Concluding remarks Olive Virgin olive Olive pomace Co-operative mills Co-operative MilIs -Extraction Marketing at origin/storage Refining Bottling/Canning Marketing/Export Refining Refining -bottling plants Marketing at origin/storage Bottling/Canning Marketing/Export Large trading enterprises at origin Bottling/canning plants Extraction of olive pomace Refining Bottling/Canning Marketing/Export Extraction Refining Extraction and refining Refining - bottling plants Structure of olive value chain segments A conceptual framework for value creation in the olive industry Consumer demands Economic context Macro-environment Micro-environment Cooperation Macro-environment Technological change PRODUCTION PROCESSING DISTRIBUTION CONSUMPTION Interdependence Regulatory framework

2 Characteristics of the olive market (1) One of the fastest growing segments of the global food industry Growing product positive perception (health benefits), spread of Mediterranean diet High price/income elasticity of demand compared with major substitute products Inelasticity of supply Characteristics of the olive market (2) High production costs, large production and price fluctuations High dependency on public subsidies (EU) Absence of official, universally recognized benchmark (only more or less representative local/regional markets) High industrial concentration (Spain), growing market power of retailers and share of distributor brands World market for olive average Coefficient of variation (%) (%) New EU s CAP for olive Decoupled aid (100%), market orientation, quality, safety, environment (crosscompliance) Production EU 77% Future priorities (Europe 2020 Strategy) Consumption EU 70% Exports (1) EU 55% o Redistribution, convergence, greening, young farmers o More support for sustainability, provision of public goods (e.g. biodiversity), climate change, rural development International commitments (multilateral-wto, bilateral) Imports (1) EU 30% o 2004 reform switched the bulk of aids for olive to the Green Box o Emphasis on market access and GIs (TRIPS) (1) Extra-EU Based on IOC and Faostat data

3 Major participants , %/world Production Exports (1) Consumption Imports (1) Spain 44.2 Italy 16.3 Greece 10.9 Tunisia 5.3 Syria 5.2 Turkey 4.9 Morocco 3.6 Portugal 1.9 Algeria 1.4 Jordan 0.9 Based on IOC data Italy 40.0 Spain 33.9 Tunisia 20.9 Portugal 7.1 Turkey 4.0 Syria 3.7 Argentina 2.7 Greece 2.6 Morocco 1.9 Australia 0.9 (1) Extra-EU Italy 23.9 Spain 18.8 USA 9.0 Greece 8.1 Syria 3.9 Turkey 3.8 France 3.7 Portugal 2.8 Morocco 2.7 Brazil 1.7 USA 39.0 Italy 12.8 Brazil 7.3 Japan 5.1 Canada 5.1 Australia 4.8 Spain 4.1 Russia 2.7 Switzerland 1.7 Mexico 1.5 Main non-traditional consumer markets, average consumption % average consumption USA Switzerland UK Belgium Germany Mexico Brazil Saudi Arabia Australia Austria Japan Sweden Canada Ireland China Poland Russia Czech Rep Netherlands Based on IOC data Denmark % Price D T D NT Utility model for reference price response P r E T1 Uhjt = β0 +βy LOhjt+βp Phjt +βl,g(phjt RPhjt) +βc Chjt +βe Dhjt + εhjt E T2 D NT A demand model for olive in traditional and non-traditional markets D T Quantity Uhjt : Utility of consumer h for brand j at time t LO: Loyality variable measuring brand preference P: Observed price RP: Reference price (P-RP) <0: price gain ; (P-RP) >0: price loss C: Brand characteristics index D: Brand disply index ε: Random error

4 Measuring value in olive GVC (1) OO VC is icreasingly integrated internationally boosting network trade Very little attention is being paid on measuring real gains in terms of net value-added (value of output value of inputs) created by trade in GVC Measuring value in olive GVC (2) Lack of conceptual clarity on how to measure trade under GVC: limits of traditional tools like Import content of exports or Intra-industry trade Coventional trade data is unable to capture net valueadded gains (designed to capture trade flows in final products while share in intermediate products crossing boundaries is growing, important in some OO export countries, e.g. Italy) => double counting caused by exports and re-exports of intermediate products Measuring value in olive GVC (3) I/O analysis as alternative to trade data (classifies goods according to their use: final or input for other production, estimates domestic value-added content in gross exports) VC data disaggregated by business functions to complement existing country-level trade statistics and sector-level I/O data Concluding remarks (1) Increasing complexity of economic and policy context -> Pertinence of VC approach OO VC is going increasingly global as a result of trend towards international dispersion of VC activities (production, processing, marketing)

5 Concluding remarks (2) Major economic opportunities (emerging markets) -> Appropriate promotion actions New analytical tools for new, relevant issues: reference price response, valueadded created by trade in GVC Thank you For further information please contact Dr. Samir Mili at

Policies and Trade Liberalisation in the Mediterranean

The Global Market for Olive Oil: Trends, Policies and Trade Liberalisation in the Mediterranean Samir Mili Research Group on Agri-Food Economics and Marketing Spanish Council for Scientific Research, Madrid