A North American Perspective

The economics of extra virgin olive oil is a broad and extremely complex subject. Factors that effect this market include: The European Subsidy to EU farmers, the relatively high demand for and sale of refined olive oil, the foreign exchange rate, labor, land values, production cost, world wide crop production, marketing subsidies, world wide consumption, carry over from the previous year, mother nature, and good old fashioned politics, to list a few.

The following brief discussion of olive oil economics highlights the core elements that effect the actual cost of producing high-quality olive oil.

As of this writing (January 20, 2003), the US dollar is worth roughly .93 Euros. On New Years day, 2002, one dollar was worth 1.12 Euros. The 20% decline of the US dollar against the Euro is now beginning to show up in supermarkets as the next crop is being harvested. The coming year will bring dramatic increases in wholesale olive oil prices.

With war on the horizon and the US economy still in recovery, further declines of the dollar against the Euro are a virtual certainty. One of the many hidden costs of recent political decisions will be higher costs to American consumers of all European products including olive oil. Hopefully, the geopolitical uncertainties that are driving the current drop in the dollar will subside and something resembling a free market driven by supply and demand will reappear. The recent decline of the dollar against the Euro is the primary reason for the dramatic upswing in prices.

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. The actual cost to produce olive oil in Spain, Greece, and Italy is lower still when the subsidy is taken into account.

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 isn’t 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. There is no doubt that if current interest and demand continue to grow there will some day be a viable, competitive olive oil industry in California. Last season (2001/2002) the finest olive oil that we tasted out of over one thousand plus selections cost less than $6.22 US 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.