A unique investment opportunity exists in the production, distribution, and sale of olive oil. Worldwide demand is growing and the supply chain needed to provide high quality olive oil to the world is in the process of being expanded and improved. There are a number of offshore investment opportunities related to this increase in demand. We look at a specific example of how an investor can become a part of and profit from the response to increasing olive oil demand.
Olive Oil
Olive oil is a staple of the Mediterranean diet and has been for thousands of years. Olive oil is used in many recipes and is popular on tables and in kitchens across the globe as well as in the Mediterranean Basin. Its popularity has grown and, especially, because of the heart healthy effects of olive oil the oil is becoming more popular world wide.
According to the UNCTAD commodities web site page on olive oil, olive oil refers exclusively to oil obtained from the fruit of the olive tree and excludes all other oils obtained by using solvents or re-esterification. The term virgin oil only applies to oil produced in a mechanical process and at lower temperatures so as not to damage the oil. Refined olive oil refers to processed oil that still has the “triglyceric” structure of olive oil. If something else is mixed with olive oil it is not marketed as olive oil. This last fact is specifically different from many cooking oils which will list a number of possible ingredients such as palm, soy, or corn oil, etc.
Olive oil has a unique taste and is definitely the preferred oil for Mediterranean style cooking. Because of its unique structure it is the preferred cooking oil for heart healthy diets.
Olive Oil Consumption
The countries around the Mediterranean Basin account for roughly 77% worldwide olive oil consumption. However, this figure is changing. Because olive oil is an integral part of the Mediterranean diet it has little room to expand. Because olive oil is just entering international markets it has a lot of room to go. According to recent figures the top five consuming nations are as follows:
Italy: 30%
Spain: 20%
Greece: 9%
USA: 8%
France: 4%
Countries that don’t rank very high on the list, like Japan, have just caught on to olive oil and are showing exponential growth in consumption.
Olive Oil Production
Olive oil is not just a historic product of the Mediterranean. Roughly ninety-five percent on olive oil is produced in countries bordering on the Mediterranean Sea. Ninety percent of production comes from the top six producers, Spain, Italy, Greece, Tunisia, Turkey, Syria, and Morocco. Portugal comes in 7th with 1% of worldwide production even though it only borders on the Atlantic Ocean (as well as Spain).
As olive oil consumption has grown over the years it is highly doubtful that these countries can cope with the increasing demand. For example, reliable figures say that 60% of cultivatable land in Greece is planted in olive orchards. There is just not a lot of room to expand production on the North Side of the Mediterranean.
Production and consumption grew together through the 1970′s to mid 1990′s when production tailed off. However, demand for olive oil has continued to grow. Reliable figures and estimates are that olive oil consumption doubled between 1990 and 2000 and will have tripled again by 2020.
The place where the weather is still “Mediterranean” and the soil conditions suitable for growing olives is the North African coast of the Mediterranean. Here is where countries like Algeria and Morocco are catching up with Tunisia with the intent of becoming major olive oil producers and exporters. Algeria is promoting a huge olive tree planting project making available a million hectares (2.5 million acres) of land for orchards.
Investing in Olive Oil
Olive oil investments are not always easy to get into. Production is highly fragmented with orchards historically owned and tended on small properties by families for generations. Olive oil refining is more concentrated. For example, in Spain in 1995 there were 80 refining companies including cooperatives. In the major producing countries the market is very competitive and there are typically substantial barriers barring the entry of newcomers.
Due to the expansion of olive production into the North African portion of the Mediterranean Basin here is where more investment opportunity
A Specific Olive Oil Investment
Espacios Verdes is a Spanish company with an Algerian subsidiary, Desert Vert. Through Desert Vert the company is investing in olive trees in Algeria. It plans to plant 1,500 hectares of olive trees of which 500 hectares (1,250 acres or roughly two square miles) will be open to private investment.
Desert Vert will plant the Arbequinia olive on this land. This olive is fast maturing so that it starts to produce after three years. It is very cold and drought tolerant, and, important for the investor, can be planted in a hyper intensive culture. What this means is that the Arbequinia olive can be planted 1,780 to a hectare. With this level of planting the Arbequinia will produce roughly 11,000 kilo of small brown olives per hectare. Because this olive routinely produces 19% weight per volume of oil it will produce about 2,000 liters of olive oil per hectare. This fact is useful for investors as return on investment after three years includes payment of $2 per liter of olive oil produced.
Because Espacios Verdes intends to export high quality olive oil will build its own processing plant in order to insure prompt and professional processing of the oil of the Arbequinia for export.
Considering the increasing demand for good quality olive oil and the difficulty in investing in the Northern Mediterranean an excellent opportunity may well to invest in a project such as that of Desert Vert/Espacios Verdes on the South side of the Mediterranean Sea.
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