USITC Report Shows Olive Oil Threatened in US

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A new report compiled by the U.S. International Trade Commission (USITC) has shown that recent olive oil investment has slowed due to the concern among U.S. producers that their competitive position in the U.S. market is threatened by a lack of regulatory oversight.

The report provides information on production, consumption, trade and an overview of the international market for olive oil; overviews of the commercial olive oil industries in the U.S. and other major supplying countries; analysis of the factors that affect the competitiveness of the major olive-oil producing countries; and an assessment of the role of imports and other factors, such as standards and pricing, on consumption in the United States.

The report states that the U.S. production of olive oil remains small on a global scale, the U.S. is among the nontraditional producing countries that are responding to higher global demand, and output has risen quickly. Recent investment in U.S. olive oil production has slowed due to lower global prices following succession of bumper crops in Spain. The domestic market is threatened by a lack of regulatory oversight.

Current international standards for extra virgin olive oil allow a wide range of oil qualities to be marketed as extra virgin. In addition, the standards are widely unenforced. Mandatory testing with penalties for noncompliance exists only in Canada and the European Union. However, testing in the EU is only mandatory for a very small share of production (0.1%). Broad and unforced standards lead to adulterated and mislabeled products, weakening the competitiveness of high-quality producers, such as those in the United States, who try to differentiate their product based on quality.

EU government support programs contribute to high overall supplies of olive oil, reducing global olive oil prices. Many small growers in the EU rely on costly traditional methods of production and have costs that are at or above global prices. Because some of these producers would likely cease production in the absence of income support from the EU, the CAP has the indirect effect of increasing total global olive oil supply and reducing prices.

Olive oil marketers aim to differentiate their products by brand and level of quality, but price remains one of the most important factors in U.S. consumer purchasing decisions. This is due, in part, to a lack of consumer awareness of quality differences. U.S. consumers are generally unfamiliar with the range of olive oil grades and uses.

Broadly, two types of business models are employed to attract customers in the U.S. retail market: cost leadership or product differentiation. Firms that focus on cost leadership, such as large bottlers that blend oil produced in multiple countries, attract consumers mostly on price. On the other hand, smaller, vertically integrated firms produce a higher quality, more flavorful oil and try to differentiate their product based on quality.

The U.S. olive oil industry produces high-quality extra virgin olive oil, mostly through highly mechanized and intensively managed groves. U.S. farm level production costs for olive oil are competitive, but lack of scale and high capitals costs result in higher prices in the retail market.

Earlier this year a report revealed that food fraud continues to rise hitting a staggering 60% since 2010.

The latest report was compiled at the request of the U.S. House Ways and Means Committee.

Sources:
United States International Trade Commission: Global Standards For Extra Virgin Olive Oil Are Widely Unenforced, Weakening The Competitive Position Of U.S. And Other Premium Producers, Says Usitc

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