European Olive Oil Ventures Take Root South of the Border

Known primarily in export circles for producing huge volumes of computer monitors, heavy trucks and vegetable crops, this booming border town will soon have another claim to fame: olive oil.

Baja California’s cheap land, low wages, suitable growing conditions and proximity to the U.S. market have lured Italian and Spanish agribusinesses that have committed to plant up to 17,000 acres of olive orchards on farmland in and around this state capital, Mexican officials say.

The project owners hope to tap U.S. baby boomers’ surging appetite for olive oil, prompted partly by its reputation as a healthful, low-cholesterol alternative to butter and other cooking oils.

Imports, which account for virtually all the olive oil consumed in the United States, have shot up about 44% since 1996, according to U.S. Department of Agriculture figures. Annual sales total about $350 million.

Yet Americans are still olive oil neophytes compared with Germans, Italians and other Europeans. A typical Spaniard uses 48 cups of olive oil in a year’s time; an American uses less than a tablespoon.

Even as the United States promises a fast-growing new outlet for olive oil, Italy--the source of nearly three-fourths of the olive oil entering the U.S.--is phasing out subsidies for its olive industry. That makes Baja California, with its cheap labor and other costs, look doubly good.

At least one olive processing plant will be built in Baja, and plans are being laid to ship thousands of tons of extra-virgin olive oil annually to the United States and Canada, said Genaro Lopez, Baja California’s agriculture secretary.

Operations of that scale would dwarf the scattered olive oil production that has cropped up elsewhere in Mexico in recent years and would make Mexicali North America’s largest olive oil production center, Lopez said.

Paul Vossen, a University of California olive oil specialist based in Santa Rosa, was a bit more restrained in outlook, cautioning that olive oil investors have a big job ahead of them.

“There is a lot of potential in Mexico, but it’s not that easy and not that cut and dried” to produce on the scale the Mexicans envision, Vossen said. “Land quality, water quality and availability, climate and marketing a Mexican product all have to be taken into account.”

The projects are the fruit of an aggressive marketing effort by Baja California officials, who have been wooing European olive oil producers for years.

A potential flood of Mexican olive oil does not pose an economic threat to California’s olive industry, however, said Ken Stutz, president of the California Olive Oil Council, a trade group based in Piedmont.

Although a cadre of dedicated California farmers is trying to revive the industry, the state’s growers typically specialize in “boutique,” or highly refined, olive oil that costs significantly more than the products sold in supermarkets and discount stores, which is the market the Baja plantations are targeting.

“Olive oil in California is an industry that is being developed by people who are well-capitalized and for whom it is more an avocation than vocation. They don’t have to make it pay, which doesn’t mean they won’t be successful in selling a high-end product,” said Louise Ferguson, a UC Davis olive expert.

The market for olive oil is separate and distinct from that for table olives, a category dominated in the U.S. by California farmers. But the table olive industry is also in deep distress. Under pressure from Spanish and Moroccan imports, the state’s table olive harvest is in steep decline, with revenue swooning to $40 million last year from $63 million in 1997 and $98 million in 1996.

Producing olive oil is not an option for the state’s table olive growers, because table fruit varieties are typically low in oil content and “because the economics are not there,” said Jan Nelson, manager of the Fresno-based California Olive Committee, a trade association of table olive growers.

More than 98% of the olive oil consumed in the United States is imported. Of that, roughly 75% comes from Italy and 10% from Spain, the USDA says. California is the highest-producing state.

Meanwhile, growers in Italy are under pressure to reduce costs because government subsidies averaging $50 per worker per day during harvest season are being phased out, Lopez said. The average minimum wage in Mexico, on the other hand, is less than $10 a day.

Mexico is not the only site of Italian and Spanish olive expansion. South Africa, Australia and Argentina also are seeing new projects, Stutz said. But the industry’s hopes rest on the United States because it represents the biggest potential market.

Baja California officials, citing personal security concerns, will give only sketchy identifications of the investors.

The largest Baja plantation in the works is near Laguna Salada, 30 miles southwest of Mexicali, and will total some 6,000 acres and 600,000 trees, sources said. The plantation is a joint venture of the Taccone farm interests of Reggio Calabria, a city in southern Italy, and several Mexicali businessmen.

Tens of thousands of dry-root olive tree saplings are now being shipped from Italy to the Port of Los Angeles, then trucked to greenhouses in Baja California, said Earl Roberts, president of R.L. Jones, a customs broker and freight forwarder in Calexico, Calif. Planting is expected to start in a year, with production commencing in 2004.

A Spanish and Mexican joint venture has already planted the 500-acre first phase of olive groves in the Algodones area east of Mexicali. That plantation may ultimately reach 2,000 acres.

The plantations will produce extra-virgin olive oil, which is oil extracted from the first pressing of newly harvested olives without the use of chemicals or heat.

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The Growing Demand for Oil

Foreign olive conglomerates are setting up shop in Baja California in hopes of cashing in on baby boomers’ surging appetite for olive oil. Imports to the U.S.--which ships in 98% of the olive oil it consumes--have jumped by nearly half since 1996.

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While the U.S. lags in olive oil use ...

Cups of olive oil consumed elsewhere for every cup consumed in the United States:

Spain: 24,000

Italy: 23,200

Britain: 440

Germany: 330

U.S.: 1

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... U.S. imports of olive oil have risen ...

In thousands of metric tons

1998: 164,972

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... and Italy leads the list of suppliers ...

Percentage of U.S. imports in 1998:

Italy: 73%

Spain: 13%

Turkey: 6%

Greece: 3%

Other: 5%

... until Mexican plantations come on line.

Sources: U.S. Department of Agriculture, University of California