Tuesday, January 12, 2010

Local Olive Oils Make Market Inroads

Australia and New Zealand are entering the second decade of the new tide of olive oil production and it is a good time to assess how they are faring.

Market penetration

In the mid-nineties both countries imported most of their olive oil requirements with only a few boutique local brands available at the high-end foodstores.

Now, there are around eight Australian brands on the shelves of the main supermarkets. In New Zealand there about four local brands on the main shelves with more in the boutique sections of the large supermarkets. Everywhere there are local brands being sold at farmers’ markets, in delicatessens and upmarket food stores. Many restaurants use regional extra virgin olive oils (EVOO) both on the table and as an ingredient.

These inroads into the markets hitherto dominated by imports from Italy, Spain and Greece can be quantified by looking at the trends in olive oil consumption in Australia since 1997. While New Zealand statistics have not been analysed, observation suggests that the trends are similar to the Australian market.

Consumption falls 22% in last three years

The total olive oil consumed in Australia, calculated by adding local production and imports, then subtracting exports, has risen steadily from 17,786 tonnes in 1997/98 to 37,000 tonnes in the 2008/2009 financial year. Growth was 66% from 1997 to 2001 and since then has slowed to 23% over the last 8 years, or about 6% growth a year. Consumption peaked in 2006/2007 at 47,500 tonnes (IOC data), and has fallen from there to 37,000 tonnes last financial year. This represents a fall of 22% over the last 3 years.

Extra Virgin consumption increases 35%

While this growth over the last decade is significant, the growth in consumption of virgin olive oil is even more impressive. In 1997/98, 76% of the olive oil consumed in Australia was refined, in 2008/09, this has dropped to 41%. The percentage of olive oil consumed that is virgin – most of which is extra virgin – has increased from 24% in 1997/98 to 59% in 2008/2009. Add to this the growth in olive oil consumption overall, the increase in EVOO consumption has gone from 4,239 tonnes to an estimated 21,000 tonnes during the period being considered.

This is real evidence of the success of the Australian olive oil industry in replacing imports and converting consumers to the use of extra virgin olive oil in preference to the ‘extra light’ and ‘pure olive oils’.

The factors affecting the consumption of olive oil in Australia are complex and include local activities over which producers and retailers have control, and international market fluctuations and trends over which they have little control.

Reasons for increased consumption

It is no coincidence that the world’s highest consumers of olive oil are the countries in which olive oil is produced. This is because the cuisine is built around this healthy ingredient and it is part of the culture. This leads to promotion of olive oil at the local level and from here the word spreads through local markets, produce shops and restaurants. Then converted consumers start purchasing the cheaper local olive oils in the supermarkets. So the first credit must go to the producers who market and sell their products locally with passion.

However, this push is limited in the volume it can dispose of at the relatively high prices expected at the early stage in the industry. The real volumes start to move when the price drops and reaches parity with the price of competing vegetable oils or imported stocks. This has happened in Australia where the prices of many brands of local oil compete with imports. And it is starting to happen in New Zealand with three or four brands.

Again it is the producers who deserve the credit for streamlining the supply-chain and reducing input costs. No promotion campaign would have successfully increased sales to the current level if the product was not affordable.

Overlay the international and national promotion of the increased health benefits of extra virgin olive oils, the taste campaigns and the ‘outing’ of imperfect imported products and one gets the successful campaign that the Australian and New Zealand olive producers have conducted.

However, the evidence of substantial reduction in consumption over the last three years is a concern.

Capturing the other half

Gaining the first 50% of the market is the easiest, getting the rest is harder work. The industry must approach this in two ways: increase overall consumption; and replace more imports. Many will see the increase in the percentage of extra virgin olive consumed as a third push – but this is not necessarily a good tactic as there is demand for refined oils and refining disposes of oil that does not make the virgin classification.

Some of the outside influences that will now limit the growth of the industry are; promotion of cheaper cooking oils, increasing overseas production, and exchange rates.

Olive oil is ranked ninth in the world table of production (USDA 2008), and therefore consumption, of the major commodity vegetable oils. This is mainly due to price and any increase in the price of olive oil will decrease consumption. In Australia, canola is a major oilseed crop and the health benefits of high oleic acid canola oil is being promoted as similar to those of olive oil. It is considerably cheaper on supermarket shelves.

The impact of price of olive oil may be one of the reasons that consumption has declined from 2007/8 to 2008/09 due to the global financial crisis and consequent reduced disposable income.

The level of overseas production of olive oil in general, and specifically extra virgin olive oil, will have a dual impact on sales of Australian and New Zealand olive oils.

First, the world trend to greater production of extra virgin olive oil over the refined oil will continue to reduce the price.

Second, increased world production from trees planted well before the global financial crisis affected consumer spending will also tend to oversupply and lower prices. In Spain we are already seeing significant reduction in exports, and high levels of storage at a time when the predictions are for an increase in production over last year. With the high value of the Australian and New Zealand dollar favouring imports and working against exports, an assault from European Union exporters on the lost market share can be expected.

Some current marketing tactics are short term

The campaign in Australia to expose impure extra virgin olive oil imports has received wide acclaim amongst producers. So much so that the publicity implies that all imported olive oils are imperfect.

While ensuring consumers are getting what they paid for is commendable, the publicity generated is not productive for the following reasons. It is bad marketing to publicly talk down a product – in this case the commodity olive oil - as it tarnishes the reputation of the product in general. Consumers generally do not read beyond the headline unless they have a specific interest and may switch to alternatives such as canola oil.

The constant monitoring for fraud will lift the quality of imports so a more competitive quality product will be on the shelves. It may also lift the price of imports, prompting local producers to lift prices and consequently lose customers to cheaper vegetable oils.

It may also bring a response in the form of restrictive imposts and similar campaigns targeting Australian and New Zealand olive oils from countries which are potential markets, such as Italy. The publicity around the testing and consequent action by the Australian Competition and Consumer Commission on fraudulent oils has generally ignored the reports that one in four Australian brands tested by Modern Olives at the same time failed to meet IOC specifications.

The campaign is a short term tactic as its success will mean that only quality oils are imported, ending the effectiveness of the campaign in discrediting imported olive oils as a ploy to replace them.

The ‘Fresher Tastes Better’ campaign run by the Australian Olive Association to promote its brand is also a short term tactic. Australian olive oils are only fresher than imports for six months of the year – before the Northern Hemisphere harvest comes in. The importers of these fresher oils can piggy-back on the Australian campaign by marketing the incoming oil as more recently harvested and fresher. It also gives a free marketing kick to other Southern Hemisphere producing countries, such as Argentina and South Africa, seeking to sell their new season oils in Australia.

Exchange rates are also important in the affect on the price of imports. The Australian dollar dipped significantly from September to December in 2008, from consistent highs through 2007 (Reserve Bank of Australia data). This almost certainly contributed to the highest consumption recorded in Australia in 2006/2007 and the fall away in the subsequent two years as the cost of importing increased. The Australian dollar is now back to the levels of 2007 and we can expect cheaper imports and downward pressure on the price and consumption of Australian and New Zealand olive oil.

New approaches needed

The substantial inroads the Australian and New Zealand olive industries have made into markets dominated by imports are impressive. The producers of the local oils deserve the credit for this as their passion and influence has spread the word like ripples from multiple stones tossed in a pond.

The slowing of growth in consumption, potential worldwide oversupply and unfavourable exchange rates are going to make the next increment more difficult.

New approaches are needed to increase the consumption of olive oil, whether imported or not, over competing vegetable oils.

The industry should be working towards providing the consumers with better quality at lower prices – price being the ultimate determinant of purchase.

A stronger campaign to promote the health benefits of extra virgin olive oil produced in Australia and New Zealand should give ascendancy over competing oils, especially with our aging population. This will need to be supported by research showing that local oils have greater health benefits than imported oils.

In the future, Australia especially, and New Zealand to a smaller extent, will need to export increasing amounts of olive oil. It is therefore important to consider the reaction of potential customers to campaigns which denigrate all imported oils without distinction or by association.

Is Extra Virgin Olive Oil becoming too precious?

Finally, producers need to consider whether they are giving the impression to consumers that their product is so special that it is to be used sparingly.

An example of this approach of extra virgin olive oil being promoted as too special for general cooking was found on the back label of an Australian brand in a supermarket. Besides describing the oil as ‘viscious’ (presumably very robust!), the label stated ‘This is a table oil too good for cooking – but if you must………’

During a recent visit by the author to a New Zealand farmers market, this approach to selling extra virgin olive oil was also evident. No doubt the relatively high price is the underlying reason for this.

To increase consumption of Australian and New Zealand olive oil we must encourage consumers to use extra virgin olive oil for all cooking – as a dressing, ingredient and cooking medium. It is up to us producers to make sure that it is affordable to do this.