By Daniel Burden, content specialist, Agricultural Marketing Resource Center, Iowa State University.

Contributory data from Crystel Stanford, Agricultural Issues Center, University of California.

Profile revised April 2007.

History 

Olives originated in Spain, Tunisia, Morocco, and other Mediterranean countries. In the 1700s, Franciscan monks brought olive trees to Mexico and then to California when they established the California missions. By the late 1800s, commercial cultivation began in the valleys of central and northern California. 

Production

Almost all U.S. domestic production is in California. The California olive industry consists of two main processing facilities. These canneries (and associated oil-crushing facilities) annually process 86,000 to 160,000 tons of olives from about 1,200 growers. Orchards vary from as few as five acres to multi-crop farms with more than 1,000 acres. The large processors and almost all producers are members of the Olive Growers Council of California, the commodity group that represents the industry.

California produces four main varieties of olives: Manzanillo, Mission, Sevillano and Ascolano. In 2002, Manzanillo olives accounted for 68,000 tons, 66 percent of total production. Because olives originated in the Mediterranean region, they will grow well in areas of similar climate (cool, wet winters and warm, dry summers). They can be produced in other areas as long as they have the correct chilling requirement (winter temperatures fluctuating between 1.5°C and 18°C) and summers that are long and warm enough to ripen the fruit. The trees can suffer severe, long-term damage at temperatures less than -5°C, and hot dry winds, torrential rain and air pollination in late spring may reduce fruit set.

Olives will grow in most soil types as long as they are well drained. Steep slopes should be avoided if machinery will be used, especially mechanical harvesters, which may not operate efficiently at slopes greater than 15° to 20°. Olives can be grown without irrigation, but water stress will significantly reduce yields. Research in California has shown the need for approximately 1,000 mm of irrigation plus adequate annual rainfall to produce maximum yields. Good yields are possible using less water, but this requires careful irrigation management to ensure minimal water stress during critical growth stages.

Although olive trees are hardy, for greatest yields, they require the same high level of management as other commercial tree crops, particularly in their first few years of growth. Competition from weeds can be a major problem for young trees. This is managed in developed countries by using selective herbicide application. Young trees need to be pruned to encourage them to take the vase or conical shape necessary for maximum fruit production and harvest efficiency. The trees then need to be pruned every year to maintain their shape and overall tree health by allowing air and light to penetrate the canopy.  Olive trees are biannual bearers, and selective seasonal pruning during "on" years will encourage more shoots and fruit growth in the following "off" year.

The time from planting to first harvest is variety dependent and also dependent on management techniques. Some new varieties are bred specifically to have a reduced non-bearing period that will come into commercial bearing at only two to three years of age. Most olive varieties will take at least four to five years to bear fruit if not properly cared for. Traditionally, olives are harvested by hand. For an economically viable large-scale operation, mechanical harvesters are essential, although olives are generally harder to mechanically harvest than other tree fruits.

With respect to the economics of production, olive growing for oil or table fruit is in the same league as other horticultural tree crops, such as citrus and stone fruits, but is somewhat less profitable than wine grapes. The most important considerations are to use the best varieties and management practices, such as properly timed irrigation, to ensure high fruit and oil yields, and to design the grove to accommodate mechanical harvesting. Throughout the production and processing system, attention to quality control is essential. Due to the levels of agronomic care involved, the labor costs associated with olive and olive oil production can be excessive for larger producers in developed economies.

Modern production that considers economies of scale, labor costs, modern varieties, agronomic practices and access to international markets have placed many of the world’s producers in a strong competitive position with respect to international marketing. This has been particularly detrimental to the U.S. domestic olive industry.

Processing

For table olives or oil, the fruit should be processed as soon as possible following harvest to avoid oxidation (rancidity) and fermentation. Table olives usually are immersed in a caustic solution for a few days to remove bitterness, then washed and fermented in brine for three to twelve months. Oil is extracted from olives by crushing and separating the oil from the meal by using a traditional mechanical batch press (perhaps even a stone-roller press) or a modern large-scale continuous processing system (extruders, perhaps with downstream refining). Olive oil should be stored in airtight and light-proof containers at a constant temperature below 15°C to reduce the risk of oxidation, which causes rancidity.

Olive oil has a quality grading system based on chemical and taste tests. Virgin olive oils (extra virgin, virgin, and ordinary virgin) are obtained solely from the fruit by mechanical or physical means (pressing or extrusion) without using any chemical solvents or heat greater than 28°C. Chemical extraction and excess heat alters the most desirable oil characteristics. When you see "estate grown" on a label, it means that the olives were all grown in the same area and came from the same harvest. Otherwise, the olives were blended to achieve a consistent quality level.

Refined olive oil is obtained from less desirable olive oil that is then treated to improve the odor, flavor and taste. Called “Refined-A,” this oil is usually produced from overripe, rotten, insect-infested or otherwise unusable olives (prior to 1900, it was used almost exclusively in table lamps). Modern refining technology entirely destroys the off-taste compounds. The essentially bland and tasteless oil is then mixed with about 3 percent virgin oil to give it some flavor character, making most of the “Pure Olive Oil" and “Lite Oil” products on the market today. Light olive oil is particularly mild in flavor, so it is a good choice for baking and other cooking uses in which a strong flavor is not desired. Also, it has a higher smoking point.

The olive “pomace” (solid meal left after the first crush or extrusion) frequently is sold to a large processor where it is high-temperature, hexane solvent extracted to recover the remaining oil, producing olive pomace oils. Called “Refined-B,” this oil usually is produced from pits and skins. These are very low-grade products but are suitable for human consumption.

Recently, particularly with respect to olive oil, this competitive pressure has been exacerbated by a reduction in European subsidies and export restrictions due to the most recent version of the General Agreement on Tariffs and Trade (GATT). Additionally, there is strong competition from other southern hemisphere producers, notably Argentina and Chile, where international currency valuations influence import-export markets. Other inexpensive vegetable oils such as canola, soy and corn oil continually erode the markets for lesser grades of olive oil. However, world production of olives has risen by about 1 percent per year, and consumption of olive oil has increased roughly 1.5 percent per year over the past 25 years. The perceived health benefits, a continuing interest in Mediterranean cuisine and promotion by the controlling body of the industry, the International Olive Oil Council, continue to stimulate market demand for olives and olive oil.

Supply and Demand

The United States is a net importer of olives and olive products, with imports valued at more than 50 times the value of exports. Imports in 2002 were up 11 percent from 2001, with the United States importing $644.5 million of olives and olive products. Italy supplied $325.7 million (50.5 percent) of the total imports. Nearly all (99 percent) of the imports from Italy were in the form of olive oil. The U.S. demand trend averages a 20 percent annual increase in consumption. Yet, of this, U.S. domestic oil production only addresses 1 percent of total consumption. The value of the imported oil filling this demand was $519 million in 2003.

With respect to olive oil, and to a lesser extent table olives, some major world producers and their brands include: Bertolli (Unilever); Meadow Lea (Goodman Fielder), brands: Olive Grove and Vetta; Crisco; Comapnia Olive Oil Co., brand: Colavita; Minerva, brands: Dante and Lupi; Conga, brand: Moro; Riviana, brand: Always Fresh; Borges, brand: Borges; Cantarella, brand: Giralda.

In the United States, total imports grew from $298.7 million in 1989 to more than $644.5 million in 2002.  Imports peaked in 1996 at $645.9 million. Since at least 1989, the United States has imported most of its olives and olive products from the same five countries: Italy, Spain, Greece, Morocco and Turkey. Italy has been the number one supplier since 1990. 

California is the only U.S. state producing olives. Approximately 70 to 80 percent of the ripe olives consumed in the United States come from California. In 2002, California produced 103,000 tons of olives on 36,000 acres, down 23 percent from 134,000 tons the previous year. Production has ranged from 166,000 tons in 1996 to 53,000 tons in 2000. Bearing acreage increased from 30,100 acres in 1992 and 1993 to 36,000 acres in 2000 and 2002. The average annual production from 1992 to 2002 was 112,773 tons. Each year since at least 1992, a constant 500 tons of olives have been utilized as fresh olives. The remaining supply was processed. Of 102,500 tons used for processing in 2002 (107,997 tons in 2003), of this, 81 percent were canned, mostly as ripe black olives, and 6 percent were crushed for oil. The remaining 13,700 tons were limited (frozen) and undersized (dried).

The price for fresh California olives has remained constant at $500 per ton since 1992 in nominal terms. When adjusted for inflation (1996 dollars), the price for processed olives has fluctuated throughout the period. In 1992, one ton of processed olives sold for $598. The price peaked in 1995 at $659 per ton. By 1999, the price had plummeted to $363 per ton but rebounded the next year. In 2002, the price was $533 per ton, down 13 percent from 1991.

U.S. olive exports increased 9 percent in 2002, to $11.3 million. Olive oil makes up 44 percent of olive exports. The top three destinations in 2002 for U.S. olives and olive products were Canada, Japan and Mexico, which received more than two-thirds of total exports, or $7.6 million. Olive exports almost doubled from 1989 to 2002. In 1989, the United States exported $6.2 million in olives and olive products.  Exports peaked in 1997 at $14.4 million. Since 1997, they declined steadily until 2002 when they increased to $11.3 million from $10.3 million in 2001.

Per capita consumption of canned olives has fluctuated since 1970. In 1970, U.S. per capita consumption was 0.95 of a pound by fresh weight (product weight was slightly more, at 1.01 pounds).   Per capita consumption reached its lowest level for the period in 1974 at 0.78 of a pound. In 1978, consumption peaked at 1.77 pounds per capita. In 2001, the average American consumed 1.42 pounds of canned olives. The average consumption for the period (1970-2001) was 1.14 pounds per capita. In 2003, U.S. domestic oil consumption was 454 million pounds, with virgin oils accounting for 261 million pounds and refined oils for 193 million pounds of the total.

Marketing Considerations

Olives, for both oil and table fruit, are an international commodity. Most markets are dominated by imports from Spain, Italy, Greece and Tunisia, which account for approximately 80 percent of table fruit production, 85 percent of all oil production and correspondingly, similar percentages of the world consumption of these olive products. The development of any local industry anywhere in the world must be considered in an international context. Climate, physical resources, horticultural infrastructure and expertise are necessary to support any competitive large-scale modern olive operation. Careful evaluation of the potential for developing local and regional niche markets is equally important to small-scale producers interested in specialty value-added products and markets. In developed countries, any new oil label or pickled fruit product must compete with well-established brands with well-recognized brand identification.

Any analysis of the current market for olive products identifies several clearly defined segments. Obviously, there is a difference between the market for olive oil and that for preserved or pickled olive products, commonly known as table olives. Further segmentation can be defined by the different product destinations and the distribution chain. These segments are best defined by the highest volume users, particularly processed food manufacturers and retail chains, for example, the frozen food (pizza, pasta) and pizza and Italian restaurant chains, respectively. In the United States, the volume sold to the food service industry, including pizza parlors and restaurants, is considerable. At least 60 percent of this market is served by imported olive products.

U.S. producers are aware that the market for olives, olive oil and its fractions, particularly virgin olive oil, is a global market. Faced with rising competition from foreign growers and overflowing inventory, California's olive farmers are cutting supply, re-evaluating ad campaigns and looking to specialty markets to keep their industry alive.

Currently, although demand is increasing throughout the world, U.S. inventories are overflowing, causing farmers and marketers to take the best deal they can while the olives can still be sold. Inexpensive imports of European-Union-subsidized Spanish and Moroccan olives are subverting many of the large American and contracts formerly held by California producers.

Recently, the Olive Growers Council, which bargains for farmers, reached an agreement in the fall of 2003 with one of California's largest canners that both sides are calling a "lose-lose" deal. The current economic climate meant that most growers did not make any profit from their operations in 2003, and neither did the leading U.S. processor, Musco Family Olive Co., Tracy, California. Spain and Morocco, where European Union subsidies are cutting production costs and prices, are rapidly flooding the American market with olives.

The current situation leaves the growers short of what they need to cover costs. California continues to produce good crops and inventory levels continue to build, but the canners are increasingly unable to compete in the marketplace against imports. The 2003 California crop is estimated at nearly 130,000 tons, the fourth largest ever. According to the California Farm Bureau, in 2002 California farmers produced 105,500 tons of olives from 36,000 acres of trees with a crop value of $64.1 million.

Though the California olive market is somewhat small by the state's farming standards, ranking 52nd out of some 250 commercial crops in terms of crop value, experts say if the olive industry shuts down in California, the repercussions could be far-reaching. The loss of 36,000 acres of olive production could adversely impact those crops that farmers would tend to shift into, probably almonds and oranges, affecting those crops. Currently, the California Farm Bureau is pressuring trade representatives and the state secretary of agriculture to get the World Trade Organization to negotiate subsidy reductions in foreign markets, seeking to avoid U.S. subsidies by reducing subsidies received by European Union growers.

European imports have already captured big olive contracts with companies such as Subway, Pizza Hut and Domino's Pizza to Morocco and Spain, where cases of canned olives can be bought for $10 less than the U.S. domestic products. This is forcing U.S. growers and marketers to seek new value-added marketing opportunities. New specialty products include gourmet “boutique” olives and olive oils, and growers are developing their own mail order businesses and alliances with other grower groups like wine or nut producers. Producer groups are even sponsoring events, similar to wine tastings, for example, the Sonoma Valley Olive Festival, where specialty olive oils are sipped and food contests highlight various olive products.

Some producers see the situation in California as survivable, although it may necessitate forming alliances with foreign producers. The following is from the Delizia Olive Oil Company Web site, http://www.evoliveoil.com/economics.html:

Factors such as production efficiency, cost of labor, cost of land and subsidies have a dramatic impact on the cost to produce olive oil.

The cost to produce one gallon of olive oil in California, as opposed to one gallon in the Mediterranean, is still very far apart. Even without the European subsidy, California producers are dealing with much higher land, fruit, labor and production costs. A well-run modern mill in Tunisia, Turkey or Morocco can profitably produce and deliver high-quality olive oil to North America (without any subsidy) for less than half the price it costs to produce a gallon of similar quality in California. When the subsidy is taken into account, the actual cost to produce olive oil in Spain, Greece and Italy is lower still.

The question of quality is really a non issue as it pertains to California. California as well as other recent producers like Australia and Argentina is capable of producing very high quality olive oil. Producing high-quality olive oil is not difficult if one has the right olives and the proper machinery. Where the oil is produced is far less important than many producers would have consumers believe.

What is extremely difficult, if not impossible, is to make high-quality olive oil in California at a price that is competitive with the rest of the olive oil world. This is the real reason why there is not a large-scale olive oil industry in California. The United States represents one of the largest and fastest growing markets for premium olive oil in the world. There has been a recent upsurge in interest and investment by small California farmers and producers attempting to bridge this gap. In addition, Americans have begun to purchase and invest in olive oil mills abroad. If current interest and demand continue to grow, there is no doubt that some day California will have a viable, competitive olive oil industry. Last season (2001/2002), the finest olive oil that we tasted out of over one thousand plus selections cost less than $6.22 U.S. per 500 ml. and $5.22 when purchased in bulk. High-quality olive oil does not necessarily cost a fortune. As prices fall, consumption will inevitably increase. If consumption increases, all olive oil producers will benefit.

Australia is facing similar competition. A recent marketing project by a grower organization recognized several very general, but major points useful to any olive marketing strategy. These were as follows:

• Maximize productivity by varietal selection and management.
• Minimize costs through mechanization and economies of scale.
• Focus on understanding and develop existing and new markets.
• Nurture overall industry growth through coordinated organization.

Additionally, agronomic research in Australia is resulting in new, high-yielding oil varieties. Soon to be released from quarantine, these have been specifically bred for intensive cultivation. Intensive cultivation varieties can produce larger yields in a smaller space, often under conditions of extreme crowding. These varieties may require less “inputs” (irrigation infrastructure, herbicides, labor) and may have strong impact on the development of new olive markets and industries, for example, the Australian domestic market, which currently is in a growth phase. Recent intensive culture plantings by Australian producers, not yet in production, could provide 30 percent to 40 percent of Australia’s domestic demand within 5 to 10 years. Currently, about 95 percent of Australian olive and olive oil consumption is met by imports, predominantly from Spain, and to some extent, the United States.

Strong domestic demand and the potential for exports into increasingly affluent Asian markets are driving the re-invigoration of what had once been a marginal Australian olive industry. (Japan has experienced a 500% increase in per capita consumption of olive oil since 1983.) It is unknown whether U.S. producers will be able to carve out a share of the same export markets being developed by the Australians.

Any market analysis needs to recognize a number of clear points. First of all, European producers dominate the domestic and overseas markets, and will not easily give up their share of any of their existing markets. In most developed countries, a wider range of value-added products is needed to absorb new domestic production. These new products need to be high-quality differentiated products that interest affluent consumers in order to be successfully marketed. New novel product development should be the focus of any product research and development initiative. (Quality oil and pickled fruit product technologies are well established and more a matter of comprehensive quality control.) For new product introductions to be successful, improved value chain knowledge is a key competitive advantage (producer and end user relationships, tailored products) and may be crucial to exploiting the demand from newer/resurgent countries (affluent Asian markets).

Some general considerations also have value to a marketing strategy. Perhaps, for example, one is trying to expand the market share of a domestic olive oil. A promotion could address competition from imported olive oils and other fats, for example, canola, soy oil and genetically modified oilseeds, and may help to boost the comparative image of the domestic product. A focus on notable product benefits (health, new uses, outstanding attributes, regional identity) should be key components of this type of communications strategy.

More specific action items could be the evaluation of a range of markets, products and alternative uses: various oil qualities and styles; organics; medicinal, industrial, and cosmetics; and establishing product development initiatives in the most promising areas. Perhaps a campaign defining the health benefits of olive products, yet also extolling the production and return virtues of domestic products (brand identity is crucial) and of the domestic industry to the national economy, compared to imported product costs, returns and subsidies.

With respect to value-added products (enhanced product and product value), particularly for exploiting niche markets or creating new markets, there are two primary strategies. The first is to improve production by transitioning to more intensive culture planting systems, to develop more efficient irrigation technologies or to improve processing technologies. The second is to develop a new product line or improve marketing. Viable options could include producing olives in accordance with organic standards in order to enter those markets, developing “natural” cosmetic lines that use olive oil, test-marketing new food items to food services or other providers, developing case studies for use in later marketing campaigns, lobbying state or national agencies to “buy local” and developing end user "value-chain” relationships with major supermarkets or distributors and on-line Internet-based sales.

One California distributor who produces oil products from facilities around the world summarized his approach to value-added, high-quality products by saying:

We market the best oils that we can find from all over the world. We have sampled and continue to sample oils from Argentina, Australia, California, Cypress, Egypt, France, Greece, Israel, Italy, Lebanon, Mexico, Morocco, Portugal, Spain, Syria, Tunisia and Turkey. We have come to appreciate the diversity and difference in olive oil styles. In our travels we have found that there is not a mill anywhere in the world that does not sincerely believe that, when conditions are just right, they alone produce the finest olive oil in the world. The proverbial five thousand year old book on olive oil is still being written and, in some cases, rewritten.

Throughout the developed world, niche market expansion is being driven by a number of factors. These include improved marketing by the International Olive Oil Council, recognition of the health benefits of using olive oil, increased use of take-away and pre-prepared foods that use olives and olive oil products, increased dining out by affluent consumers, widespread acceptance of the “Mediterranean” and other more healthful diets, greater appreciation and demand for the taste of olives and olive oil and the expanding use of olive oil and table olives as ingredients in other cuisines (barbeque sauces, marinades) or cosmetic products.


Sources

California Farm Bureau

International Olive Oil Council

Olive Growers Council of California

Profile written November 2005 and revised April 2007.