See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/232862603

The Olive Oil Sector Facing New International Market Challenges: A Demand-
Driven Perspective

Article in Journal of International Food & Agribusiness Marketing · January 2002

DOI: 10.1300/J047v14n03_04

CITATIONS READS

8 833

2 authors, including:

Samir Mili
Spanish National Research Council
40 PUBLICATIONS 323 CITATIONS

SEE PROFILE

All content following this page was uploaded by Samir Mili on 08 April 2016.

The user has requested enhancement of the downloaded file.

 The olive oil sector facing new international market challenges:
A demand-driven perspective (*)

Samir Mili & Manuel Rodríguez Zúñiga

Consejo Superior de Investigaciones Científicas

Instituto de Economía y Geografía
C/ Pinar, 25
28006 Madrid, Spain

Abstract:

This article explores the new economic context in which international olive oil marketing
strategies are framed. The underlying premises are that the growing liberalization of international trade
is inducing an emergent globalization process in product trading, and that business strategies are
increasingly influenced by a more demand-driven food chain. The first part discusses the macro-factors
conditioning olive oil trade on a worldwide scale, surveying the main changes in market regulation
schemes as well as in recent world product supply and demand trends. The second part addresses a
series of microeconomic and organizational factors shaping business strategies with respect to product
marketing, placing special emphasis on quality as a key factor for expansion into potential markets.

Keywords: globalization, demand-driven food chain, non-traditional markets, quality, olive oil.

(*) Research carried out within the framework of the project SEC99-1208, financed by the Spanish Inter-Ministerial Commission
for Science and Technology. The authors thank two anonymous referees for their helpful comments.
 1

The olive oil sector facing new international market challenges: A demand-driven perspective

1. Introduction

One of the traits that has traditionally marked the evolution of the olive oil sector is that international

trade has been confined to a relatively small geographic region. According to data from the

International Olive Oil Council (IOOC, 2002), until recently, the countries of the Mediterranean Basin

were responsible for 95% of production and 85% of consumption worldwide. In addition, according to

the United States Department of Agriculture (2002), of major vegetable oils, olive oil currently accounts

for only 2.9% of worldwide production and consumption, and 3.2% of world trade (exports plus imports).

Some of the principal factors explaining the low level of internationalization of the sector are the strong

competition of cheaper, substitute oils, the low level of product differentiation to adapt to distinct

segments of demand, and above all, the absence of efficient export strategies with medium and long-

term horizons. In this sense, the international olive oil market has traditionally responded more to

supply criteria than to policies to promote demand and to capture markets (Mili, 1999).

Nonetheless, at the threshold of the new century, a new scenario is outlined in international olive oil

trade, one that has been taking shape since the early 1990s. One reason for this change stems from

increasing world agriculture trade liberalization under World Trade Organization (WTO) agreements.

Moreover, in recent years an increase in both the global supply and demand of olive oil has occurred,

involving a trend toward a gradual growth in world production that is considered by some sources to be

above the potential increase in world consumption (IOOC, 1997, 2001). Hence, the export and market

opening policies are becoming a fundamental strategic factor for the future of the sector.

From a microeconomic viewpoint, the economic agents of agribusiness systems, especially the developed,

govern a chain of functions and operations in which bargaining power and added-value are increasingly
 2

concentrated in the stages closest to the consumer. Conceptually, these transformations shape a new

framework some authors (Folkerts and Koehorst, 1997; Meulenberg and Viaene, 1998) define as a shift

from production to market orientation, mostly induced by quantitative saturation and segmentation of

food consumption as well as intensification of competition both in domestic and international markets.

These factors have obliged the reorientation of business strategies, converting the new perspectives of

demand in the central axis of any commercial strategy. The olive oil sector is not excluded from these

evolutionary trends of the whole agribusiness system.

This article addresses new international olive oil trade and marketing issues and policies, taking into

account the context of potential market expansion and making special emphasis on quality as a key vector

for product expansion into new markets. 1 It begins with two basic premises: first, the liberalization of

international trade contributes to a gradual globalization process in product exchanges; second, business

strategies are increasingly influenced by a strongly demand-driven food chain. The study has four

sections. After this introduction, section 2 explores the macro-magnitudes influencing international olive

oil trade, section 3 analyzes a series of microeconomic and organizational factors that shape

commercial and industrial strategies, and some concluding remarks are drawn in section 4.

2. Macro-factors influencing international olive oil trade

2.1. Regulatory factors

The international agricultural trade liberalization emerging from the Uruguay Round Agreement on

Agriculture (URAA) has had a significant impact on the recent evolution of agricultural and food sectors

worldwide. Policy headings concerned by the URAA (market access, domestic support and export

competition) affected all agri-food sectors, including olive oil, in which general stipulations have been

1 It is not our purpose to focus on the quantification of foreign trade, about which sufficient statistical information is available. See,
for instance, the IOOC statistical series.
 3

applied almost literally. 2 For this sector, the repercussions of the URAA are particularly relevant in

producer countries that are members of the European Union (EU), where olive oil has traditionally enjoyed

high levels of protection due to Common Market Organization (CMO), as well as to additional support

actions provided by national States. The application of the CMO for olive oil has changed significantly

since the 1995-96 crop year, particularly with regard to exchanges with third countries (Ministry of

Agriculture, Fisheries and Food “MAFF,” 1996).

Thus, with respect to exports, the EU conceded until the end of the 1994-95 crop year, subsidies for all

olive oil exports (bulk and branded) in the amount of the difference between Community and world prices.

However, from 1995-96 until 2000-01 crop years, restitutions have been modulated in accordance with the

limitations agreed in the Uruguay Round, which stipulated that in this period the EU must reduce the

volume of subsidized exports by 21% and the corresponding budget allocation by 36%, with the period

1986-90 serving as an average base. 3 This results in a reduction for the entire period of 31,000 tons in

quantity exported with subsidy and 30,9 million Euros in corresponding expense. It is worth noting that

quantities exported in accordance with the Inward Processing System (a temporary import system which

carries tariff advantages for imported olive oil provided it is re-exported outside the EU) were not included

when calculating the limit established by the URAA.

Regarding imports, since the 1995-96 crop year, the so-called fixed-customs-duties have substituted the

former variable-import-levies. These duties vary in function of the category of oil imported, and their

amount, fixed by the Commission, decreases each year to a total reduction of 20% over the six-year-

period covering the URAA. In addition to fixed tariffs, the URAA allows the EU to apply additional customs

2 For a summary of stipulations included in the URAA, see, for instance, Kennedy (2001).

3The implementation period of the URAA was 1995-2000, and existing commitments will continue at 2000 levels until a new
agricultural agreement is reached under the new round of multilateral trade negotiations (Nelson, 2002).
 4

duties to imports when the CIF import prices are below the activation prices (prices fixed by the

Commission that trigger the application of an additional duty), or when the quantities imported surpass a

threshold that could create alterations in the EU internal market functioning.

Nonetheless, beyond the changes in the Community regulatory system derived from the URAA, a

temporary reform of the CMO for olive oil was carried out in 1998 (EC Regulation 1638/98). The previous

regulation system (EEC Regulation 136/66) established a mixed scheme: on the one hand, an intervention

system based on an indicative price, an intervention price, levies on importations and restitutions for

exportations, and, on the other hand, a system of direct aids to production and consumption. 4 The

benefits obtained by EU produces through this system have induced an increase in production, especially

in Spain, which is the largest world producer and where are located the greatest potential increases in

production (Mili and Rodriguez-Zuñiga, 2001).

Contrary to what was stipulated in earlier regulations, the1998 reform establishes an increase of 32% in

the maximum production entitled to subsidies, a system of national quotas for the distribution of aid,

aids for private storage which replaces the State storage system, the abolishment of aid for

consumption and of the support regime for small producers, and the granting for the first time of

subsidies for table olives. However, these reforms were as stated earlier temporary because the

provisions only apply to the three crop years 1998/99-2000/01, though the time period was extended in

2001 for three additional crop years, and definitive reform is planned to take effect November 1, 2004.

The Commission opted to extend the system of aids based on production criteria, attending the

4It is worth remembering that this system was conceived in part as a means of compensating Italy, the only producer in the
Community at the time, for liberalizing its markets for a number of agricultural products from other EC countries. The
protection of Community olive oil meant the protection of Italian olive oil, for which were fixed higher intervention prices in
comparison with other competing oils. The Commission decided to apply the same scheme, though in a gradual manner, first to
Greece and later to Spain and Portugal when they jointed the EC.
 5

argument that member states still do not meet some of necessary conditions for the reform. 5

It could not be stated that this reform introduces radical innovations in the sector’s system of protection,

provided aid continues to be awarded according to the amount produced. Olive oil remains a sector of

conventional Common Agricultural Policy (CAP) in comparison with, for instance, cereals or beef sectors,

where farmers receive increasingly direct payments decoupled with production, or even payments for not

producing. It also receives levels of support that are significantly superior to those awarded to other

Mediterranean products such as fruit, vegetables or wine. In fact the Producer Support Estimate –an

indicator devised by the Organization for Economic Cooperation and Development (OECD, 1997) to

measure total monetary transfers from consumers and taxpayers to agricultural producers– for EU olive oil

shows these transfers amount to 50% of producer’s gross income (Nucifara and Sarri, 1997; Garcia

Alvarez-Coque, 2001), placing this product at the levels of aid awarded the EU continental products

(OECD, 2000). Moreover, this subsidy is mostly classified as Amber (to use the WTO terminology), and

therefore subject to reduction commitments due to its nature as highly-distortional of trade. According to

the WTO (2000), amber box subsidies for EU olive oil, quantified by the Aggregate Measure of Support

and expressed as a percentage of production value, has increased from 40% in 1986-88 to 61% in 1998.

The impact on world trade is quite significant, taking into account the EU large share of worldwide olive oil

production (75%) and trade (45%, without including intra-EU trade).

The fact that levels of support for EU olive oil are high and distributed primarily through instruments linked

to production incentives (prices and aids per kilogram produced), places that support in the front line

regarding its almost certain reduction in future WTO commitments. Indeed, at the Doha Conference of

November 2001, the 142 WTO members agreed in the text that marks the launching of a new trade

5 In this sense, the Commission establishes that adequate control over the production of olive oil and the number of olives
should be guaranteed on the basis of reliable data that can only be obtained through Geographical Information Systems
(GIS), through which the cultivation of olives declared by producers can be appreciated in aerial photographs.
 6

negotiating round (Ministerial Declaration), “the attainment of substantial reductions in domestic aid

causing trade distortions.” With reference to exports and market access, they also agreed to negotiate to

achieve “substantial reductions in all forms of export subsidies with an attention toward their progressive

elimination,” and “a substantial improvement in market access with special treatment for developing

countries” (WTO, 2002).

In short, the sector is currently facing a new era of change in its international regulatory environment,

tending toward intensification of trade liberalization and reduction of subsidies worldwide, which will favor

those producer countries and firms who are most competitive. Specifically in the EU, the sector faces a

temporary regulation that makes it difficult for the economic agents involved to define expectations and to

make medium and long-run decisions, along with a prospective reduction of public support. It is unlikely

that the EU subsidy system that has led to the expansion of production and the creation of (not always

realistic) profitability expectations regarding olive growing will be maintained in the future, at least in its

current form.

2.2. Macro-trends in worldwide olive oil supply and demand

A retrospective look at worldwide supply and demand magnitudes shows that until the beginning of the

1990s, no significant or structural imbalances took place in the international olive oil market: average

annual consumption represented 96% of average annual production in the 1970s and 99% in the 1980s,

according to IOOC data. 6 However, the 1990s have seen number of substantial changes which are

gradually altering traditional patterns.

On the supply side, we observe a tendency toward progressive growth in production, especially

6 This does not mean that occasionally considerable quantities of olive oil have not been accumulated, due to fluctuations in
production resulting from agroclimatic conditions and intrinsic characteristics of olive growing.
 7

(though not exclusively) in large producer countries, mainly due to new orchards, reconversion of

existing plantations into more productive, as well as restructuring of first (milling) and second (refining

and packing) industrial transformation stages. Over the last decade, notable increases in productivity

have been achieved, principally through improved cultural practices, the expansion of drip irrigation, and

the appreciable elimination of marginal plantations. Furthermore, advances have been made in the

conversion of traditional extraction systems to continuous systems, and within these, from those with three

to those with two phases.

This expansion of production has been due essentially to considerable public and private interest in the

product, arisen mainly to coincide favorable commercialization perspectives in emerging markets with the

increase in international prices brought on by low production in the Mediterranean during the first half of

the 1990s. 7 Technological change has contributed to a gradual adaptation of supply to the growing

demands for quality, resulting inter alia in a progressive increase in the share of virgin oil suitable for

consumption (European Commission, 2000). However, this restructuring dynamic has concerned above

all the adoption of technical innovations in product and process, but has scarcely contributed to change

the business management and organization practices.

On the demand side, in the major consumer countries, which are also the principal producers, global olive

oil consumption remained practically stable in the decade from 1990/91 to 1999/00. During this decade,

due particularly to significant increases in consumption in the last two crop years, worldwide consumption

7 Another factor that, especially in the EU, has had and continues to have a critical influence on the increase of supply is the
large amount of public aid for production. In Spain, for instance, olive cultivation is currently one of the agricultural
speculations that affords the highest profits. According to data from the Spanish MAFF, with an average production of
667,000 tons, the total expenses for a hectare in dry cultivation regime are 1,100 euros. The income from oil sales, at 1.80
euros a kilo, would be 900 euros, to which should be added a production subsidy of 660 euros, at a rate of 1.32 euros per
kilo, leading to a total income of 1,560 euros. If 105 euros are discounted to cover processing costs, the net profit per
hectare would reach 355 euros (an analogous calculation for a hectare in irrigated regime would increase this figure to 750
euros), which indicates a significantly superior profitability compared with other agricultural productions.
 8

absorbed practically 100% of an average annual production of 2.059 million tons (IOOC, 2002). In the

major producer countries of the EU, per capita consumption did not vary significantly during this period -an

annual average of 11 kilos in Spain, 12 kilos in Italy and 20 kilos in Greece (Eurostat), although with

certain annual oscillations due to factors related to supply more than to demand.

However, this relative stability in consumption observed in aggregate data for countries or groups of

countries, apart from not reflecting seasonal fluctuations, hides certain facts relevant in a trend analysis of

consumption. Firstly, although in traditional olive oil producer areas consumption levels have not varied

significantly, a notable dynamism with respect to internal composition of distinct product categories can be

detected. For instance, there is evidence that in these markets the demand is being displaced toward

higher-quality segments, particularly the extra virgin category which represents almost 82% of total olive oil

consumption in Greece, 70% in Italy, 37% in Portugal and 20% in Spain, according to European

Commission (2000). Secondly, aggregate figures do not reflect adequately the evolution in countries

where consumption, while not significant in terms of quantity, holds great significance qualitatively.

In fact, consumption in non-traditional markets has increased almost exponentially. Trends in purchases in

these markets over the last decade point to an appreciable, sustained growth in imports, although the

situation varies across countries. The United States became the largest non-traditional purchaser, with

imports increasing from 90,000 tons in 1990/91 to 175,000 tons in 1990/00 (IOOC, 2002), which amounts

to an average annual rate of growth in this period of 7.7% (as opposed to an equivalent rate of 5.1% for all

worldwide imports). The United States is now the world’s fourth largest consumer of olive oil. In other

relevant markets, although in terms of volume imports were lower than those of the United States, the

average annual rates of growth for this period were even higher – 23.6% in Japan and 9.7% in Canada.

Additionally, while the levels of consumption of many of these countries may not yet be very relevant in

quantitative terms, they are in qualitative terms because they mostly focus on top-quality products with a
 9

high added value (Mahlau and Mili, 2001). An indicator of qualitative importance is the degree of

penetration of the product – that is, the percentage of households consuming olive oil. In the United

States, data from Market Segment Research and AC Nielsen show that the penetration index almost

quintupled between 1986 and 2000, increasing from 6.7% in 1986 to 31.5% in 2000. In France, the index

has doubled in a decade, with the percentage of households consuming olive oil rising from 31.7% in 1990

to 63.1% in 1999, according to the French Federation for Olive Oil Industry and Commerce (FEDICO,

2001). In the United Kingdom, in 15 years period olive oil has gone from being virtually unknown to being

present in 40% of British households in 1998 (García Martínez et al., 2001).

In summary, the analysis of worldwide supply and demand trends seems to indicate an increase in both

magnitudes in the near future, though the increase in supply will probably surpass the potential demand.

This could generate surpluses, which, in absence of strategies to increase demand, could result in a

reduction in prices received by producers and a tightening of marketing margins. However, there are

rational reasons to expect future growth in worldwide consumption could successfully offset the predicted

increase in supply, as long as the industry develops policies to foster demand. This implies that quality

policy should emerge as central axis in any strategy of demand expansion, but without diminishing the

efforts to pressure prices downward through a reduction in production and organizational costs. We refer

not only to the intrinsic quality of the product and production processes, in which significant progress has

been made as discussed earlier, but also, and especially, to the commercial logistics quality, as will be

seen below.

3. Business factors and organizational strategies

3.1. New food consumption trends and changing retail distribution

As a consequence of socioeconomic development and more recently of market globalization, food

consumption in advanced societies, as well as in growing population segments of numerous developing

 10

countries, has experienced dramatic changes and is increasingly complex. Although food is probably the

expenditure heading that has changed the most regarding its shrinking share in total household

expenditure, the most relevant changes are qualitative in nature and are found in the realm of consumer

attitudes. During last decades, the hierarchy of potential and revealed consumer preferences has been

changing in nearly all developed and emerging countries. In this way, while income and price continue to

be essential variables to explain consumer demand, qualitative factors, such as preferences, values,

attitudes and perceptions play an increasingly paramount role (Senauer, 2001). Thus, a new consumer

has emerged who is increasingly demanding various aspects of product quality, such as the attributes of

nutritional balance, health, image, presentation and convenience in general.

These demands—especially those related to nutrition and health—coincide largely with the properties of

the traditional Mediterranean diet whose most characteristic product is olive oil, which explains in part why

the Mediterranean diet is increasingly appreciated and valued outside the Mediterranean region.

Prospectively, this seems to indicate that high-quality consumption –which already has reached significant

proportions of total olive oil consumption as seen above- could continue growing not only in traditional

markets where niches still remain unconquered, but also, and especially, in emerging markets as long as a

policy is adopted that emphasizes quality and information over prices, which technically cannot be lower

than determined thresholds (Mili, 1999). An improvement in the physiochemical and organoleptic

proprieties of the product, together with the application of a suitable promotional campaign, will place at

the market a product that combines characteristics appreciated by a highly discriminating consumer.

Parallel to this evolution, and as with food products as a whole, the majority of olive oil is marketed

through distribution channels comprising large retailers. This trend can be observed in nearly all

developed countries. For example, in Spain, according to MAFF estimates (2001), super and

hypermarkets accounted for 87% of olive oil sales for household consumption in 2000; in Germany,
 11

hard-discounts alone currently capture 60% of olive oil sales, according to the Olive Oil Information

Agency of Munich (2000).

Furthermore, large retail distribution has undergone profound organizational and structural changes in

the last two decades, and these changes are predicted to be reinforced in the future. As Moati (2001)

points out, large distributors are suffering growing challenges, brought on by socioeconomic changes

that require the adoption of new behaviors adapted to a new stage of development that will be more

qualitative than quantitative. In this sense, the growth model of virtuous circles (price cuts-more sales-

more economies of scale-more price cuts) experienced by these types of commercial outlets during the

last three decades has shown limitations in recent years. These include: a reduction in the rate of

growth of sales in the food section, which accounts for the majority of total turnover; a decline in

businesses capacity to win new market shares given the saturation of segments traditionally held by

large distribution; greater difficulty in opening new stores because of an increasingly restrictive

legislation in most countries; difficulty in expanding the range of products and services toward non-food

items due to intense competition on the part of entities specialized in these activities; and the

appearance of hard-discount stores, which exert even greater pressure on prices.

This situation has led to an intensification of horizontal competition, to the point of considerably narrowing

profit margins, forcing companies to reduce their costs and improve their competitiveness. In this context,

the restructuring of logistical processes is becoming particularly relevant in business strategies. It could be

said that large distributors are orienting a large part of their activity toward optimizing the binomial “quality

products range/commercial logistics quality”, within a framework of increasing economic globalization and

technological innovation, especially information technology.

The first part of this binomial translates into growing interest on the part of large distributors in segments
 12

they have not traditionally occupied, or have occupied weakly. These include fresh products, which by

nature do not fit easily with the logic of large distribution (Green et al., 1996), but also other products,

including olive oil, which initially did not respond to consumer preferences in non-producer countries. In

addition, it should be added in favor of olive oil that, as a non-perishable product which is easily stored and

adaptable to distinct types of packaging, it does suitably fit the specific logistical requirements that large

distribution has traditionally demanded.

The second part of the binomial requires that the information systems of distributors and suppliers be

compatible, and that their logistical and organizational patterns be tightly coordinated. These strategies

stimulate the formation of enduring collaborative relationships, which allows for significant improvement in

logistical productivity (Horvath, 2001). However, it should be pointed out that the systematic diffusion of

such innovations among food products suppliers continues to be generally low. Moreover, as will be seen

in the specific case of olive oil, few olive oil companies posses the financial, technological and

organizational capacities necessary to develop relations with large distribution operators on the basis of

modern logistics, especially when export markets are concerned.

3.2. The olive oil industry response

Any company wishing to operate in a sector increasingly globalized must outline the type of production,

organizational and commercial strategies it must develop to introduce itself and obtain sustainable

competitive advantages in foreign markets. Some of the issues the company should inquire itself with

respect to the strategies to follow are vertical in nature and refer to links with other agents in the

marketing chain (aspects related with physical distribution and identification of potential buyers), while

others refer to horizontal competition and competitive environment (characteristics of other firms

operating in the sector, degree of rivalry, organizational and production structure of the company itself,

experience in international markets).

 13

With respect to vertical competition, it has already been stated that the demand for quality is growing,

with quality understood broadly—i.e. referring to characteristics of the product and the production

process, as well as to requirements of logistics quality on the part of distribution agents. Following, we

attempt to give an approximation in terms of horizontal competition to the scenario where olive oil

companies have to operate, outlining some insight on the capacity of these companies to respond to

the demands for quality discussed earlier. Particular emphasis will be placed on the cases of Spain

and Italy, since, in addition to be the leading producers of olive oil worldwide, are also the principal

operators in the international markets, and as such those who in large part, for the moment, determine

its evolutionary patterns.

Italian imports are principally of Spanish origin, though they also come from other exporter countries

such as Greece, Tunisia and Turkey. This flow of trade, constituted almost totally of bulk virgin oils, is

oscillatory and determined by the requirements of a quite efficient and strongly export-oriented

industry. The Italian olive oil industry is very established in non-traditional markets, especially the

United States and numerous EU countries, where olive oil goes hand in hand with the Made in Italy

reference.

This notable presence of olive oils with Italian brands in international markets is due to the Italian olive oil

export industry know-how, but also to the fact that Italy was, up until the expansion of the EC to include

first Greece, and later Spain and Portugal, the only country receiving significant financial support as a

result of the application of the CAP. This allowed Italian olive oil to remain competitive relative to

substitute oils, and the export industry to undertake the necessary structural reforms. The result has been

that the “classic” international market for quality olive oil is highly penetrated by brands of Italian origin.
 14

In contrast to the performance of the Italian industry, the Spanish olive oil industry was characterized, at

the time of its integration into the EC (1986), by an atomized structure and weak coordination inter-

linkages. On the one hand, the largest part (more than 70%) of the first industrial transformation take

place in cooperatives who sell practically all their production in bulk, without extending their activities

beyond the milling phase. On the other hand, the industry of the second transformation (refining and

packaging) was markedly dual in nature. A reduced number of companies with consolidated brands

were occupying a large portion of the national market and at the same time were involved to some

extent in exportation, while a large number of small and medium-sized companies, with very limited

brand recognition, operated primarily in local and regional markets. The exports, basically in bulk and

with significant annual oscillations, responded more to the needs of the Italian industry—as the principal

importing country of this type of oil—than to a true exportation policy.

Subsequently, a series of positive signs began to appear allowing to expect a future scenario for

Spanish exports that could permit to go beyond the mere placement in foreign markets of potential

surpluses. On the demand side, we have already made reference to a series of positive factors related

with policies of quality and information. In this respect, the French market is paradigmatic given the

possibilities of expansion it presents. In spite of the heavy emphasis on Mediterranean diet in French

consumption habits, and the high degree of organization of the French distribution sector, olive oil per

capita consumption levels remain fairly low.

On the supply side, the sectoral panorama described earlier has changed substantially since the

admission of Spain to the EC, due to two critical facts: first, the intense concentration and

internationalization processes experienced by the Spanish agri-food industry in general (Rodríguez Zúñiga

and Sanz Cañada, 1994), and the olive oil sector in particular (Mili, 1996); second, the existence of a

CMO that, in spite of the long transition period established, has permitted the restructuring of the
 15

productive and business sectors, as discussed earlier. These facts, along with others more generic in

nature but no less important, which affect economic activity in general (more flexible labor and financial

markets, domestic market opening) have substantially contributed to change the business sector

configuration and to reshape its strategic response to environmental changes.

Indeed, even though until the late 1990s the process of modernization, internationalization and adoption of

high quality standards has been led almost exclusively by a small number of companies with strong ties to

multinational capital, in the beginning of the new millennium we are in presence of a larger, fuzzy

conglomerate of companies (from a structural viewpoint) that have adopted strategies of modernization in

processes and products on a brand-building basis, and are well-represented on the shelves of the large

distribution.

Within this evolutionary process, the trajectory in Spain of two firms, very relevant not only for their large

participation in the olive oil market but also in reason of the strategic and capital movements they

experienced, appears specially revealing. The first and incontestably most important is Koipe, the first olive

oil firm in Spain and world leader in packed olive oil. In 2000 it has controlled a market share of 31% of the

total Spanish market, a share it was more or less being controlling since 1994 when it has absorbed

Elosua, at that time the leader of the Spanish olive oil market (while Koipe was the second in the ranking).

Until half 2001 Koipe belonged to the Italian group Montedison and was depending of Eridania Beghin-

Say, the agro-food subsidiary of that group. The acquisition of Montedison in that date by Electricité de

France and Fiat led to the sale of the whole of the agro-food subsidiary, provided the new owners plan to

center on the energy business. Eridania Beghin-Say operate into four divisions: Povimi, in pet food;

Cerestar, European leader in manufacturing of starch and its by-products; Eridiana, in sugar; and Cereol

in vegetable oils, where the Koipe group has been included. Koipe represents a small, though very

significant part of the Cereol group, where Montedison concentrated not only olive oil, but all its milling
 16

and oil seed refinement business worldwide. In the segment of olive oil, besides Koipe in Spain, Cereol

owns the groups Lesieur in France and Carapelli in Italy.

Montedison’s new holders sold in October 2001 their majority participation in Koipe (52% of the total

capital) to the Spanish food group Sos Cuétara, after negotiations with other groups, namely the

multinationals Cargill (USA) and Bunge (The Netherlands). Sos Cuétera’s plan for Koipe centers on an

operational integration which lead subsequently to societal merger, aiming at last to create a big food

group with top brands in its three different areas of activity (oil, rice and cookies). In the national scene,

one of its objectives is to make more profitable Koipe’s high production capacity, up above 175 millions

liters of bottled oil, appealing if necessary to agreements with the distribution channels to produce oil

with distributor’s brand. In addition, an attempt to take profit from the synergies between the mentioned

three areas of activity in the logistics, trade and promotional levels is to be made. In the international

scene, plans are more ambitious and set up to reinforce Koipe’s world leading position in the olive oil

trade. Sales policy in the external market constitutes a prior strategy for the group in the future, given

the maturity of the internal market and the growing pressure over the prices that narrows the marketing

margins. In order to accomplish that, Sos Cuétara is planning to promote introduction into new markets

(the olive oil exportations now is reaching 20% of the whole of Koipe’ sales in more than 70 countries),

both with contractual agreements with local partners and/or through purchases of firms in destiny.

Mexico, Portugal (countries where Sos Cuétara is leader in rice and cookies), and Brazil are considered

as the main targets of the group. In the two latter markets, Unilever was the leader in olive oil until the

beginning of 2001.

Unilever was precisely the group that owned the second olive oil firm in Spain until April 2000: La Masía

(9.9% of the Spanish olive oil market bottled in 2000, with labels included in the segments virgin extra

and one-grade olive oil), sold at that time to the Spanish firm Migasa. This meant the end of 10 years of
 17

presence of the Anglo-Dutch multinational in the Spanish olive oil market. This sale is a consequence of

recent Unilever’s policy, consisting in focusing exclusively on leader brands and discarding the non-

strategic business for the group. Nevertheless, it should be mentioned the bad results of la Masía,

which not only failed in shortening its distance from Koipe but, besides, its market share was reduced

from close to 10% to slightly above 5% (in the moment of its sale) in only three years. The new owners

did not take too long to undertake the restructuring of the firm: they shut a refinery in order to

concentrate all the refining activity in a single manufacturing installation, and they are making plans to

do the same for the bottling activities.

La Masía acquisition by Migasa has led the latter to the second position of the national ranking for olive

oil market, with a market share close to 12% which, although far from Koipe’s, allows its spacing out

from the rest of the competition. In operational terms, Migasa is set up to make profitable La Masía

according to the same model applied in Aceites Ybarra (firm created in 1996, 50% by Hijos de Ybarra

and 50% by Migasa, to sell Migasa’s bottled oil with the label “Ybarra”). This strategic alliance between

Hijos de Ybarra and its main supplier, Migasa, triggered a noticeable cost reduction for Ybarra, on

account of Migasa’s high supply capacity (one of the most important olive oil suppliers, both in bulk as

refined), and this constitutes a decisive factor in a sector with margins so low. Aceites Ybarra has given

rise to Oleo Masía, a firm of similar characteristics intended at managing the sales of oil under the

labels of La Masía, which remains as a mere owner of the later, but with no industrial activity. In this

process, Ybarra contributes with its know-how in bottling activity and its experience in exportation

markets, where profit margins are higher.

Behind Koipe and La Masía, the following most relevant firms are: Aceites del Sur 6.7% (in 2000),

Aceites Toledo 6.4%, Coosur 6.4%, Agribetica 3.9% (former subsidiary of the French firm Frint,

specialized in bottling olive oil with distribution brands, which has been sold in the beginning of 2002 to
 18

the Portuguese Sovena, included in the Nutinveste Group), large cooperatives: Hojiblanca 2.8%,

Oleoestepa 1%, and Cordoliva 1%, and even companies directly linked to distribution groups, supplying

them with their private brands, such as Olian (the Eroski group) 1.9% (Mate, 2001; Antelo, 2002). All

these corporations, together with other smaller ones that occupy the rest of the market, center their

efforts to adapt their activities to the demands for quality.

Conversely, in the Italian case, businesses operate almost exclusively in the segment of extra virgin oil,

since it represents more than 70% of national consumption of olive oil and a major proportion of

emerging markets imports. The principal companies in this segment, during the twelve-month period

from May 2000 to June 2001, were Carapelli Firenze, with a national share of 13.6%, Van Den Bergh

13.3%, Monini 8.2%, Salov 5.1%, Farchioni 4.1%, Sasso 2.8%, Coricelli 2.3%, and smaller companies

with the remaining 40.3% (D’Auria, 2002).

It could be stated that within the “dominant” business stratum, the Italian and the Spanish scenarios have

at some extent converged, although two important differences remain. The first has to do with the

segment of medium-sized Spanish companies that has opted for modernization strategies with branded

products, and that plans to pursue export markets. This type of company may be more conditioned by

new competitive challenges and by future normative scenarios, firstly, because it is highly specialized in

the oil business, with production volumes unlikely to allow it to have favorable contractual relationships

with distributors and, secondly, because a large percentage of the Italian firms whose position is

consolidated in the emerging markets are found in this same stratum.

The second difference deals with the greater presence in Spain of second and third-degree cooperatives,

as opposed to Italy where industrial cooperativism is scarce. The main new development within this type

of corporations is that while up until fairly recently their major focus was concentrating supply to sell oil in
 19

bulk, currently a growing concentration can be seen among them as well as a connection with national,

and in some cases international, distribution channels, to produce high-quality oils with their own and/or

distributor’s brand. This situation also explains, though only partially, differences in participation of

distributor’s brands in Italy 11% (D’Auria, 2002) and in Spain 27% (Antelo, 2002); in the latter case, if only

more than 100 m2 self-service stores are considered, the distributor’s brands share raise significantly: 36%

in 2000, which also represents a 18.5% increase comparing to the previous year (Aral, 2001).

4. Concluding remarks

The process of globalization and parallel deregulation of markets in general, and of food markets in

particular, is bringing important changes with respect to methods of producing, distributing and consuming

food, opening up possibilities for novel products and at the same time it raises serious challenges as a

result of the increased competition. Old facts and new attitudes combine to create the worldwide scenario

emerging at the beginning of this new century. In markets with growing potential for expansion, such as is

the case for olive oil, positioning will depend on the strategies economic operators adopt in the face of this

scenario.

The consumption function has become increasingly complex in developed societies as well as in growing

segments of population in numerous developing countries. Currently, long-run trends corresponding to

mass consumption schemes coexist with other emergent patterns that outline a consumer who pays more

attention to determined attributes of food such as quality, safety, presentation and convenience. The

circulation and distribution of food has also evolved significantly. Distributive channels have changed

dramatically in recent years, with large distribution gaining a position of hegemony, mainly because of its

greater capacity to respond to a new consumer whose demands are increasingly segmented,

personalized, informed and volatile. At the same time, large distributors operate in an environment that is
 20

highly competitive and that obliges them to define new strategies. Chief among these are the search for

new products that simultaneously meet consumer needs and cost saving through improvements in

logistical operations, which in turn entails greater logistical efficiency from their potential suppliers.

This is precisely the global scenario, strongly demand-driven, where agribusiness firms in general, and

olive oil businesses in particular, have to operate. Following a conventional scheme, one possible

business strategy could be the search for competitive advantages through cost leadership, bringing prices

closer to minimum thresholds that would allow to compete with substitute products, while maintaining

acceptable quality levels. An alternative strategy would be to specialize in a determined market segment,

adopting high levels of quality not only in products and processes, but also in operational logistics. After a

certain period of maturation, this would permit to establish stable relationships with other agents of the

food chain.

The first option seems more oriented toward increasing shares in markets that are already consolidated,

while the second seems to look toward gaining position in non-traditional markets. This is not to say that

these strategies are mutually exclusive, but rather to recognize that between a “commodity” policy and one

that promotes ”delicatessen” consumption, there is a large margin for action, with room for determined

types of companies who adapt their supply to quality requirements on the part of consumers and

distributors.

This proposal is not unfeasible, not only because, as it has been stated, olive oil is a product increasingly

recognized and valued by numerous non-traditional consumers, but also because it is endorsed by past

experience. In this sense, the recent evolution of the Spanish agribusiness system is illustrative. After the

integration into the EC, the domestic market was literally inundated by products with little or no place in the

autochthonous diet, primarily through large distribution channels. Similarly, mutatis mutandis, it is worth
 21

noting the scarce presence of olive oil among the shelves of the French distribution, in spite of the fact that

profile of French consumer preferences indicate a favorable potential for this product.

In fact, some firms have come to the same conclusions, positioning themselves in the category of high-

quality oils and establishing closer collaborative relationships with the large distribution, first in near

markets and later in new markets, coming eventually to hold leading positions in export rankings.

Something similar could be stated about an other business segment, which has high quality levels in

processes and products, and seems to be oriented toward globalized markets, but suffers severe

difficulties in reaching a minimal threshold of logistical efficiency, due mainly to its own production, and

especially, organizational characteristics. In this sense, the need for this type of companies to establish

strategic alliances with other firms (inside or outside the sector) seems evident. This would allow them to

achieve synergies in logistics and to establish stable relations with distribution operators.

Finally, it should be pointed out that if it is true that implicit to entrepreneurial logic is the assumption of

risk entailed when making decisions in an environment of incomplete information, it is no less true that

a basic postulate of regulation theory is that national and supranational intervention organizations

should establish norms that are clear and, above all, stable over medium and long-term, so that

economic agents can define their expansion strategies in a competitive environment that is known and

accepted. If this is the case, possible modifications in the regulatory setting of the sector—and we are

referring to the ongoing WTO negotiations, the upcoming reform of CMO for olive oil and the extra-EU

producer countries national policies— should take into account the strategies different economic agents

have been adopting in response to continuous market challenges. The failure to attenuate actual trade

distortions, or the introduction of new changes that alter worldwide competition, could lead to a rupture

of expansion plans and, consequently, a loss of competitive strength of number of operators.

 22

References

Antelo, A.B. (2002). Aceite: las multinacionales salen de España. Alimarket Revista, 147, pp.103-116.

Aral (2001). El sector del aceite mantiene su apuesta por los vírgenes. Aral, 1469, pp. 7-14.

D’Auria, R. (2002). The olive oil sector in Italy. Olivae, 90, pp. 14-27.

European Commission (2000). Report from the Commission to the Council and the European Parliament
on the Quality Strategies for Olive Oil.. Brussels, COM (2000) 855 final.

Fédération de l’Industrie et du Commerce des huiles d’olive de France (2001). The French olive oil market.
Olivae, 86, pp. 20-21.

Folkerts, H., & Koehorst, H. (1997). Challenges in international food supply chains: Vertical co-ordination
in the european agribusiness and food industries. Supply Chain Management, 2 (1), pp. 11-14.

Garcia Alvarez-Coque, J. M. (2001). La PAC, la OCM e l’olivicoltura spagnola. In A. Cavazzani & G.

Sivini (eds.), L‘olivicoltura spagnola e italiana in Europa (pp. 21-41). Soveria Mannelli: Rubbettino.

Garcia Martinez, M; Aragones, Z., & Poole, N. (2001). A repostioning strategy for olive oil in the UK
market. Paper presented at the 71 Seminar of the European Association of Agricultural Economists:
The food consumer in the 21st century, Zaragoza, Spain.

Green, R.; Lanini, L., & Schaller, B. (1996). Technical and organisational innovations in the food system:
The case of fresh products in France. In G. Galizzi & L. Venturini (eds.), Economics of innovation: The
case of food industry. Heidelberg: Physica-Verlag.

Horvath, L. (2001). Collaboration: The key to value creationin supply chain management. Supply Chain
Management, 6 (5), pp. 205-207.

Informationsgemeinschaft Olivenöl (2000). EU unterstützt trend zu olivenöl. Press releases.

International Olive Oil Council (1997). Projected olive oil production and consumption by 2005. Madrid:
CE/R.47/Doc. nº 3.

International Olive Oil Council (2001). Projected olive oil production and consumption by 2008. Madrid:
CE/R.54/Doc. nº 3.

International Olive Oil Council (2002). The olive oil in the world and in the EC, Statistical Series. Madrid:
IOOC.

Kennedy, K.C. (2001). Reforming farm trade in the next Round of WTO multilateral trade negotiations.
Journal of World Trade, 35 (6), pp. 1061-1079.

Mahlau, M., & Mili, S. (2001). Recent olive oil marketing trends in traditional and non-traditional markets.
Olivae, 88, pp. 18-25.
 23

Mate, V. (2001, April 15). La industria del aceite hace aguas. El País.

Meulenberg, M. T. G., & Viaene, J. (1998). Changing food marketing systems in western countries. In
W. M. F. Jongen and M. T. G. Meulenbrerg (eds.), Innovation of food production systems. Product
quality and consumer acceptance (pp. 5-36). Wageningen: Wageningen Pers.

Mili, S. (1996). Organización de mercados y estrategias empresariales en el subsector del aceite de oliva.
Madrid: MAFF.

Mili, S. (1999). The olive oil sector: International challenges and future scenarios. Olivae, 75, pp. 8-16.

Mili, S., & Rodriguez-Zuñiga, M. (2001). Exploring future developments in international olive oil trade and
marketing: A Spanish perspective. Agribusiness: An International Journal, 17 (3), pp. 397-415.

Ministry of Agriculture, Fisheries and Food (2001). La alimentación en España. Madrid: MAFF.

Ministry of Agriculture, Fisheries and Food (1996). La Política Agraria Común en España. Campaña 1996-
97. Madrid: MAFF.

Moati, Ph. (2001). L’avenir de la grande distribution. Paris: Odile Jacob.

Nelson, F.J. (2002). Aligning U.S. Farm Policy with world trade commitments. Agricultural Outlook (USDA),
288, pp. 12-16.

Nucifora, A.M., & Sarri, D. (1997). Levels of protection for the fruit, vegetables, olive oil and wine sectors of
the European Union. Discussion Paper, University of Siena.

Organisation for Economic Cooperation and Development (1997). Agricultural Policies in OECD
countries. Measurement of support and background Information 1997. Paris: OECD.

Organisation for Economic Cooperation and Development (2000). Agricultural Policies in OECD
countries. Monitoring and evaluation. Paris: OECD.

Rodriguez-Zuñiga, M., & Sanz Cañada, J. (1994): Reestructuración y estrategias empresariales de la

industria agroalimentaria. Papeles de Economía Española, 60/61, pp. 252-263.

Senauer, B. (2001). The food consumer in the 21st century: New research perspectives. Paper at the
71th Seminar of the European Association of Agricultural Economics: The food consumer in the 21st
century, Zaragoza, Spain.

United States Department of Agriculture (2002). Oilseeds: World markets and trade. Foreign
Agricultural Service, Circular Series, FOP 02-02, Washington, DC.

World Trade Organization (2000). Committee on Agriculture, Notification Domestic Support

Commitments: European Communities, G/AG/N/EEC/26. Geneva: WTO.

World Trade Organization (2002). WTO agriculture negotiations: The issues, and where we are now.
<http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd00_contents_e.htm>

View publication stats