Conventional wisdom has it that virginity is a binary issue. It either exists or not. Not so it seems when it comes to olive oil. There’s extra virgin olive oil, simply virgin olive oil and even if that is not confusing enough some suggest that for most commercially available olive oils, virginity is a questionable virtue altogether. But let’s first start with the definitions: what does virginity stands for when it come to olive oils?
Olive Oil Classifications
The EU, the largest producer and consumer of olive oil globally and US, the second largest consumer have come up with elaborate regulations on classifying olive oils that include both chemical and taste characteristics (EU directive 796 and US Standards for Grades of Olive Oil and Olive-Pomace Oil). These are similar to regulations introduced by the International Olive Council (IOC), the large global organization representing olive oil and table olive producers and consumers. The German and Australian Oil Associations have come up with additional tests (known as DAGs and PPPs). Unfortunately apart from tasting, it’s almost impossible for the average consumer to verify an olive oil’s quality; instead has to rely on representations by manufacturers, public authorities and retailers. But what can the everyday consumer make out of the olive oil’s classification alphabet soup and why does it matter?
Broadly speaking virgin olive oils are those that are extracted directly from olives through only mechanical means i.e. excludes oils that go through any chemical treatment. Extra virgin is the olive oil with lower than 1% acidity, while a grade lower, simple virgin olive oil’s acidity cannot exceed 2%. Oils with higher acidity are not edible. These oils are called lampante as they would only be used as lamp fuel in the past. High acidity olive oils have to go through refining processes and blending with virgin oils to go through the food chain. These chemical processes are perfectly acceptable just as long as product labels indicate so and consumers are aware of what they are buying. Olive oils resulting from these processes are called refined, fine, light or simply olive oil. Pomace olive oil, is a different creature in that is extracted from the first olive pressing pulp refuge, with chemical processes.
Olive Oil Chemistry and Health Benefits
Acidity is just one measure of olive oil’s quality but alone doesn’t guarantee virginity and doesn’t capture all of olive oil’s health features. There are at least ten more criteria, namely concentration in certain chemical substances, used for olive oil classification. Let’s see some of these chemical substances and what one is buying in them. First of all fatty acids: olive oil is rich in monounsaturated and polyunsaturated fats versus saturated and trans-fats who are present in animal and processed fats. Monounsaturated and polyunsaturated fats lower cholesterol levels and risks of heart disease. Olive oil also includes polyphenols. These are natural antioxidants that protect against cell damages, have anti-inflammatory properties, reduce blood pressure and the risk of coronary disease. It’s not accidental after all that in the Mediterranean olive oil is often drunk as medicine or aphrodisiac. Olive oil is also used for skin treatment from healing sunburns to cleansing and conditioning. Non irrigated trees, unripe handpicked olives as well as special varietals give higher percentage in polyphenols. The bitter taste in high quality olive oils, indicate a high percentage of polyphenols. Unfortunately, polyphenols same as monounsaturated and polyunsaturated fats, are sensitive substances that can decay over time or destroyed after chemical treatment or exposure to light and air. Hence oil has to be carefully stored and consumed within one to two year time frame. Olive oil, contrary to wine is not getting better with time. Apart from chemical characteristics sensory tests ensure the right color and absence of unpleasant odors and flavors such as muddiness or fustiness. Only accepted flavors by olive oil connoisseurs are bitterness, fruitiness and pepperiness.
These olive oil qualities are hard to find. Extra virgin olive oils are made from the best quality olives and milled at low temperatures (hence the term cold pressed) to preserve their health features, which however decreases output. If something goes wrong during growing, harvest or production they have to go through chemical treatment and refining to correct flaws and then marketed as refined oils; hence they are not virgin anymore. To secure superior characteristics such as high concentration in antioxidants and intense taste, olives have to be at best handpicked from the tree when just start maturing, sorted out and milled within forty-eight hours or less. Other reasons for manual harvesting is that oil plantations in much of the Mediterranean comprise of sensitive, often ancient trees grown on rocky hillsides and in such spacing that are not suited for modern intense mechanical harvest (SHD plantations).
The Good Scenario for Market Efficiency: The price is right
From all of that it seems that virginity is not easy to find and if so it costs, or to put it better: it should cost. The good scenario would be that in the age of healthy eating and slow food, consumers are well aware of and appreciate qualities of extra virgin and various other oils. Consumers are using extra virgin olive oil, preferably raw in salads or dressings, for its antioxidant and other healthy aspects and may turn to other oils either lower grade olive oils or vegetable oils that still offer lower cholesterol levels for cooking, frying or other uses. That doesn’t mean that extra virgin olive oil could not be used for cooking; this is typical in the Mediterranean but maybe it’s not that economical. But whatever the preferences are, the point is that these consumers are prepared to pay the right price for every type of oil and as a consequence demand and supply adjust accordingly.
A Bad Scenario for Market Efficiency: Information Asymmetry
Then there’s the bad scenario: i.e. consumers don’t differentiate between olive oils or just trust the label in their quest for the more highly appreciated extra virgin olive oil, whatever that means. These are the type of consumers that may be taken advantage of. After all it is perfectly natural that between two extra virgin olive oils and in the absence of any other perceived difference, one would opt for the cheaper one. Higher prices would simply be considered a rip-off. But maybe that’s not so.
UC Davis that has developed expertise in olive oil, carried out a research of large number of commercially available olive oils in California in 2010 which found that most of them do not deserve the term “extra virgin”. In other words contrary to their intentions, consumers are not buying extra virgin olive oils in the many bottles with colorful pictures that proliferate supermarket shelves. At the same time more expensive extra virgin olive oils and their producers are unfairly driven out of the market even if certain consumers have the ability to cover their cost.
This pretty much reminds the “Market for Lemons”, professor Akerlof’s famous paper that studied the damaging effect of information asymmetries in the used car market (lemon is a slang term for defective used cars) and lead to his 2001 Nobel prize in economics. Very briefly, Professor Akerlof argues that used car buyers have difficulty in knowing the exact condition of a used car and in the absence of such knowledge they’d assume that the car is of average quality and be prepared to pay nothing more than average price. At this price owners of superbly maintained used cars will not place their cars in the market, which evidently will bring the overall quality of supply down. This is sometimes summarized as “the bad driving out the good”. In another manifestation of such phenomenon; security market regulators are eager to protect against suspicions of “insider trading” as this would drive away investors that have no access to such information. This could collapse capital markets.
Same as with olive oils: in the absence of reliable information, in the absence of product differentiation, buyers will go for the cheaper product or at least an average priced “extra virgin olive oil”. In vain producers will use superlatives, fancy adjectives, exclamation marks, certifications, nice bottles, emblems and picturesque images to persuade they are “more virgin” than others, hence deserve a higher price to cover their cost. Words have lost their meaning. Many will shrug their shoulders to olive oil producers’ problems. But the problem goes beyond that. It’s not farmers that are doing that bad after all. Instead of going the extra mile to produce high quality extra virgin olive oil the average farmer can sell a descent product at wholesale prices and then pocket some EU subsidy (most olive oil is produced in the EU) to make up for the difference. It is visionary producers of high quality extra virgin olive oil that can’t survive. According to Tom Mueller’s book Extra Virginity, manual harvesting, that is the standard for high quality extra virgin olive oils, costs as much as $3 per liter of the end product. Even outside this segment costs are high. Italian extra virgin olive oil wholesale commodity prices range between $3-4/liter; it is a wonder how it can then retail at $6-8 even $10 and cover bottling, customs, transportation, wholesale and retail margins. Many producers of premium extra virgin olive oils will throw the towel, sell below cost or not produce at these levels. But off course consumers are not aware of all these intricacies. Unfortunately it seems that even retailers don’t know sometimes what they are selling, or at least that’s what it seems like based on the UC Davis report (UC Davis’ report as expected hasn’t gone unnoticed; see NAOOA’s reply for example). One could be safe by selecting upscale retailers or specialized online stores for extra virgin olive oil. These businesses have the ability to sell at higher prices and at these price levels can’t afford to disappoint their patrons.
Making sure that products are correctly labeled doesn’t also mean that lower quality olive oils should be expelled from the market. Beyond free consumer choice, fair markets are about demand and supply. Food is largely considered a commodity, at least up to now. Although supply for some foods like caviar or fillet-mignon is limited hence prices are high, a tomato for example is pretty much the same for everybody. That has started to change with the introduction of organic food, the highest growth food segment in the US and elsewhere. In a world of six billion and counting, for good or for bad, there’s no much room for organic food or free range meat. What would happen though if ordinary products sell for organic without being so? This would register significant profits but it would be fraud. Same with olive oil, be it organic or other premium oil.
Another Bad Scenario for Market Efficiency: Adulteration & Counterfeiting
The other bad scenario behind market inefficiencies is the existence of counterfeit or adulterated olive oils. It’s useful here to briefly outline market economics to put into perspective the extend as well as consequences of such practices.
Global olive oil production varies per year but can be estimated at around 3,000 tons based on 2010 figures, of which EU produces 70% and consumes 64%. In the US alone, olive oil is a $700 million market which amounts to around 9% of global consumption of which more than 90% is imported. The overall US edible oil market (includes all sorts of oils such as canola, sunflower, corn, soya, palm, sesame, avocado, coconut, peanut, cottonseed even margarine and animal fats) is estimated in the tens of billions and grows at 10%, an especially high rate. To complicate things more some oils are also used as biofuels which also affects prices in relation to what’s happening in energy markets. If most of products in a $700 million market are counterfeit to some extend, as the UC Davis report indicated, then profits and foregone taxation must be significant. So the stakes are high. But let’s examine on what’s involved in counterfeiting or adulteration.
Adulteration: Mixing Substances
Adulteration is as old as olive oil trade. It went on in ancient times and through history in 19th and 20th century Europe and US. In 1997 and 1998, olive oil was the most adulterated agricultural product in the European Union, prompting the EU’s anti-fraud office to establish an olive-oil task force. Tom Mueller in a 2007 article quotes one investigator saying: “Profits were comparable to cocaine trafficking, with none of the risks” (Slippery Business, Tom Mueller, The New Yorker, August 13, 2007).
Adulteration can take many faces: from mixing different types of oils to adding dangerous chemical substances. When mixing different types of oils one could add cheaper oils such as rapeseed, sunflower or olive pomace oil to expensive extra virgin olive oil and sell at the higher price pocketing the difference and avoiding taxes. Although mixing different kinds of oil can be harmless to human health; this is not the case when mixing with chemical substances and colorants to arrive at a product whose chemistry, taste and appearance resembles olive oil. In 1981 in Spain, in what’s know as Toxic Oil Syndrome, rapeseed oil was denatured by adding aniline, a dangerous chemical substance and then sold as olive oil. This resulted in over 600 deaths. In April 2008, the Italian police impounded seven olive oil plants and arrested 40 people for adding chlorophyll to sunflower and soybean oil and selling it as extra virgin olive oil, both in Italy and abroad; 25,000 liters of the fake oil were seized and prevented from being exported.
Counterfeiting: Masking Origins
Another possibility is misrepresenting the olive oil’s origin such as country of origin or region (ie if it is of protected designation of origin (DOP)). In 2008 Italian police, in what was called “Operation Golden Oil“, arrested 23 people and confiscated 85 farms after an investigation revealed a large-scale scheme to relabel oils from other Mediterranean nations as Italian. It’s like putting together fake parts to create a Rolex watch.
Let’s go back to global market figures to illustrate the dynamics behind this practice. Of all global olive oil production, Spain is the largest producer with 40%-45% that along with Italy at 15-20% and Greece at 10-15% form the top three producers and consumers, followed by other Mediterranean countries such as Tunisia, Turkey, Israel, Morocco Syria as well as Portugal and Australia down under. Olive oil wholesale prices from the various varietals and regions have different prices. Italian olive oils are usually the most expensive. Although Italy’s production doesn’t cover domestic production it is a major export country controlling more than 50% of US imports. This paradox is explained by sizeable imports to Italy, with the question being which part of Italian olive oil is consumed locally and which exported. At the same time, Greece the third largest olive oil producer and probably one of the first ones, represents only 2% of US imports.
Blending olive oils from various origins is perfectly legal as long as labels indicate so. For example, large circulation brands often mix various olive oils to reach their production quotas at the same time that maintain relatively consistent taste and stable cost basis. On the other hand small producers’ production, same as for wine production, varies in quantities and taste from year to year depending on weather and other circumstances. Much of olive oils sold in the US are blends of olive oils coming from Greece, Italy, Spain, Tunisia and other Mediterranean countries. True to fair representations, US Customs regulations on “country of origin” state that if a non-origin nation is shown on the label, then the real origin must be shown on the same side of the label and in comparable size letters so as not to mislead the consumer. It is interesting though to come across consumers that don’t go beyond the flashy letters and images on the bottle’s front side to check the label on the back side and see what exactly they are buying. On the flip-side some producers argue that there is nothing wrong with blends as one is really buying the bottler’s know-how and guarantees rather than the country of origin. It’s like buying a car assembled in one country whose all parts are manufactured overseas, in the end it’s up to consumer’s choice again.
If mixing is acceptable, nobody can argue in favor of counterfeit products; not at least among WTO members. Unfortunately record shows that there’s still room for better market monitoring when it comes to extra virgin olive oil as well as not the same level of respect. There are numerous experts, magazines, food shows, specialty distribution chains (liquor and wine stores) promoting wine and its uniqueness. Olive oil, sadly though, still lags behind. Maybe producers are not strong enough to enforce a better environment. For example Luis Vuitton has 30 in-house lawyers and 250 outside private investigators and spends $18m to fight counterfeiting (Deluxe: How Luxury Lost Its Luster, Dana Tomas, 2007).
It is amusing and disappointing to come across disbelief for a $50 per liter extra virgin olive oil. At the same time very few would be surprised for a $50 per bottle wine or a $1,000 suit. Nobody is wondering why cars worth more than $200,000 when one only wants to get from A to B, or why a handbag should worth $5,000 for carrying the essentials. It’s often a vain discussion try justify extra virgin olive oil prices by referring to ancient trees, rare varietals, plant densities, non irrigated hillsides, terroirs and labor costs. One would think twice before arguing against the purpose for high wine prices or differences between Cabernet Sauvignon, Merlot, Shiraz, Rioja, Chianti or Pinot Grigio even if not aware of their qualities. It could be embarrassing. Yet in a world where the objective would be to just “drink wine” there’s a good possibility we would only end up with Two Buck Chuck (the two dollar a bottle Charles Shaw wine often synonymous with mass consumption). At the same time very few people can appreciate olive oil from Alberquina, Picual, Mission, Picholine, Frantoio, Leccino, Koroneiki, Taggiasca, Ladoelia and other varietals let alone distinguish between extra virgin or refined. Large retailers and importers would prefer to launch their own branded products than source from independent producers. This may provide a better profit margin and control over quality but in the end it’s product degeneration at its best. And if some argue that fine wine or haute couture or other luxuries is something more than a answers to biological needs, that very understandably, are a statement of art or passion, then what one can say about harvesting century-old olive trees some as old as the civilizations they fed and inspired?
Epilogue: It’s the economy!..
Beyond romanticism, olive oil’s luck will probably change once economic stakes get higher. Americans only consume 1lt of olive oil per person while in the Mediterranean (Spain, Italy, Greece) more than 10 times as much. Olive oil consumption is growing fast in the US and globally along with growing populations, incomes and health awareness. In the US for example trans-fat oils are being phased out. Just imagine the potential if consumption moves closer to that in the Mediterranean. To cater for increased consumption more areas should be cultivated. Olive tree could flourish in California and elsewhere in the US with mildly warm climate as it also does in Australia, South America and South Africa. Production can further increase in the Mediterranean too where the tradition already exists. Higher production can create new jobs and boost local communities both in the US but also in Mediterranean countries that face economic problems. At the same time higher consumption will benefit public health. So there’s great potential and a strong economic case even allowing for some product cannibalization with other kinds of oil. However all these benefits cannot materialize if the economic return to farmers and manufactures is killed with practices such as those already mentioned.
In the end in a large and efficient market there will be ample room for everybody, both at the low and high end. There will be room for mass and premium producers and after all there will be room for teroirs and the sacred tree that threw its shade over Plato’s Academy, provided the winner wreaths in ancient Olympics and the liquid for religious rituals, throughout times, from ancient altars, to christenings and menorahs. And after all virginity, for all what it is worth, will regain its meaning again.