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<pre>Dear Wendy:

Currently the EU commission has established the
following production quantities for each of its Member
States.

Spain: QNC tons of olive oil 750,027
France: QNC tons of olive oil 3,297
Greece: QNC tons of olive oil 419,529
Italy: QNC tons of olive oil 543,164
Portugal: QNC tons of olive oil 51,244
EU Total: QNC tons of olive oil 1,777,261

Each Member State supports its olive farmers through a
complex system that involves EU and regional
governmental aids. For example, this year in France,
an olive farmer will receive 130.40 Euros for each 100
kgrs of olive oil that he/she is producing
(approximately FF8.55 for each kilo of olive oil).
Then, the same producer will receive EU aid for
producing table olives. Depending on the area that the
producer is located within France, the same producer
will receive special aid from his regional government.
If a producer is reestablishing an olive farm that was
abandoned in the past, he/she will receive a special
aid from his regional government for this purpose. It
is evident that when we talk about cutting EU
agricultural aid to European farmers, we talk about
partial cut of total aid that each farmer is receiving
from the public sector.

Almost twelve years ago, the Commission of the
European Union realized that aid termination to its
agricultural sector was going to be inevitable due to
the globalization of markets and the establishment of
the World Trade Organization. Commission studies at
that time showed that the European farming sector, in
contrast to the United States, primarily consisted of
small family farms which could not survive without
state subsidies due to the economies of scale. For
that reason new programs were developed to assist
European farmers to adjust to the new world economic
reality. An agritourism program was initiated and
funds poured into the European countryside in order to
assist farming businesses to expand into this
service-oriented sector that has its roots deep into
the beginning of the tenth century but it was often
ignored and never exploited to its fullest potential.
Today, millions of Ecus have been invested in the
agritourism sector, thus enabling the small European
farms to build the hospitality infrastructure needed
to survive and flourish again.

I strongly believe that the organic cultivation will
play a significant role in the economies of European
farming. Interest in organic olive oil is already
quite high in Europe, according to Katherine Dematteo,
executive director of the Organic Trade Association.
In the United Kingdom, demand for organic foods is
growing by 40% annually. Vendors who use olive oil in
their products have also heightened demand for an
organic version of olive oil due to their own interest
in producing organic products. Depending on the retail
outlet, the difference in price between organic and
traditional olive oils can be slim to nearly 50%.
Organic oils will also help the industry as a good
olive oil crop is expected and even high-end product
prices are dropping within the range of most
consumers.

Based on the above, I do not foresee a significant
change in olive oil prices in the near future due to
the new economic support systems which are being
established in the European farming sector. I do
expect, however, an increase in the overall quality of
produced oils and this could have an affect on the
prices of this special food staple. These increases
may be gradual and justified by the better quality
standards of the final product. It is noteworthy that
a big portion of the EU aid to Spanish olive oil
producers this year is dedicated to the improvement of
product quality.

Consumption of olive oil has nearly quadrupled in the
USA since the early 1980s, with extra virgin having
the greatest growth, increasing from 19 tons sold at
retail in 1991 to an estimated 45 tons in 1997. The
North American Olive Oil Association recently released
a study that indicates 56% of non-olive oil users do
not use the oil because they feel they don t know how.
The study also found that 48% don t buy the oil
because it is expensive, while 44% consider it a
special occasion oil. Despite this, olive oil
household penetration rose 2.4% in the past two years,
when prices were at an all-time high. Olive oil
accounts for 7% of all oil sold at retail in the US
and 27% of all dollar sales in this category,
according to The Griffin Report of Food Marketing.

Although the olive tree was brought to America by the
Spaniards and the Portuguese, the introduction of
olive oil into the American diet was largely
attributable to the Italian immigrants. They began
importing olive oil in large scale into the US and
this is why the biggest olive oil importers in the US
trace their roots to Italy. Most large European olive
oil conglomerates that purchase their raw material
from small producing farms, have established import
offices in the US. Although, lists of imported olive
oil quantities can be obtained from the authorities of
each major port of entry in the US, it is difficult to
identify the largest importers by name. I believe that
a visit to your local outlet of a major supermarket
chain may give you a good idea of who the big players
are in the olive oil market.

Finally, in terms of the establishment of a futures
exchange for olive oil, this may be difficult to
envision and implement because of the two year shelf
life of olive oil and the widely varying organoleptic
and chemical properties as well as marketing values
associated with the denomination of origin, etc.
associated with each olive oil in the world.

I hope that this has been helpful. Please do not
hesitate to contact me in case you have any questions
or you need additional information. In the meantime, I
wish you much continued success in your endeavors with
the students at the Fuqua School of Business.

Best regards,

Constantine




=====
Constantine Alexander
http://www.PapasHaven.com/
Where Olive Oil is a Passion
http://www.PapasHaven-subscribe@egroups.com/

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