7.3 Analysis of olive oil production and processing

a) The method of analysis

The surveys focused on two main subjects: i) production and processing quality; ii) agents' propensity to integration. The consumer marketing research that was carried out also added other questions and issues.

The results were organized on the basis of farm and firm classifications (small, medium, large farms; small, medium, large and also traditional, hydraulic, centrifugal mills; medium and large wholesalers; small, medium, large retailers). Moreover, the sample was divided into zones so as to detect likely differences among local agents’ behaviours. Questionnaires were administered to the following subjects: 130 farmers, 44 millers, 39 wholesalers, 27 retailers, 8 exporters (plus 3 informally) and 261 consumers.

The results distinguished between summarized indexes, which reduce the complex reality to simple indicators, and detailed results. Indexes are divided into five classes, from level 1 - “low quality answers”- to level 5- “high quality answers”. The score was calculated by giving a different “score” to each answer/each question (a 1 for “bad” answers up to a 10 for “good” answers) and summarizing groups of questions in relation to olive quality production (only for farms), olive oil processing (only for mills) and olive oil conservation (from farmers to retailers) and propensity to integrate (from farmers to wholesalers). Of course, the observer’s cultural and technical background plays a major role in these “measures”;

Here the discussion is concerned with the first point (indexes), and provides some tentative information about retailers and exporters as well as consumer survey.

b) General results from quality indexes

In general terms, it can be claimed that along the olive oil chain, from farms to retailers, there is always some critical point that can damage the oil quality. At harvest (last moment before harvesting), Syrian olives can be considered a really good product. Moreover, a large number of farms (63 percent) follow a programme of pest and disease control. However, the production method combined with harvesting time and procedures, damage the original quality. Actually, the production quality index (based on the use of pesticides, ripeness degree, methods of harvesting, olives selection) shows (Table 7.9) that only 2.3 percent of the farms reach a good level of 5 and 19.2 percent are at level 4 (4 and 5 together 21.5 percent versus 16.2 percent at level 1 and 2 together). The middle level (62 percent) does not mean that a large number of farms have “enough” satisfactory production, but rather that they always have some (one or more) mistakes in the procedure.

Table 7.9 Farm production quality index

The olives conservation index (based on the place where olives are stored, methods to conserve olives, post-harvest time before processing) shows (Table 7.10) that only 26 percent conserve olives in the right way (levels 4 and 5); actually, 81 percent conserve olives in jute bags, 36 percent for 3-4 days and 52 percent for 5 and more days.

Table 7.10 Farm olive conservation index

This explains the bad reputation in international markets even though producers claim the low acidity. One “discovers” that only 31 percent of the farms produce extra virgin, representing only from 6 percent to 20 percent of their own total production.

Using the farm olive oil conservation index (based on the place and methods to store olive oil, length of conservation), one still finds a low level of oil conservation at farms, 45 percent at levels 1 and 2, somewhat balanced by 32 percent at levels 4 and 5 (Table 7.11).

Table 7.11 Farm olive oil conservation index

The quality chain continues with processing in the mills; the mill quality index (based on time and processing methods) (Table 7.12) is in most cases at level 3 (70 percent) and never at level 5; 40 percent of the traditional mills are at level 2 and 33 percent of the centrifugal mills are at level 4. Surely, it is not only a processing plant problem (all of the traditional ones) but also a problem of procedures to store olives (method and time) and general conditions of processing (temperature, cleanliness) that in other countries would not get through the HACCP system (Hazard Analysis Critical Control Points).

Table 7.12 Mills quality index

Indeed, at the wholesale market, wholesale quality index (based on conservation methods) (Table 7.13), bad conservation continues with some differentation: 28 percent at levels 4 and 5, but 31 percent at levels 1 and 2. Only 5.2 percent use different containers (steel, glass etc.) rather than small and large metal cans that are subject to problems of cleanliness, rust and ions.

Table 7.13 Wholesalers quality index

c) Propensity to sectoral integration

The information collected from the samples does not represent the whole Syrian system but certainly points out a lot of actual problems: incorrect post-harvesting and processing procedures, limited mill and wholesaler sizes, shortage of large modern containers, almost a total absence of farms associated with the processing of olives and absence of agreements among agents along the olive oil chain. In order to compete in the international market, there is a need for larger export firms as well as larger plants and warehouses that can facilitate quality control and reduce costs. As the “natural” course to achieve all this would be too slow, different cooperatives, agreements and contractual integrative forms need to be encouraged and promoted.

Thus the propensity of the different actors in the olive oil sector to integrate at every level has been explored. According to the survey, only some of the agents accept or want links, showing almost the same percentage at each level: 26 percent of the farmers, 20 percent of the millers and 26 percent of the wholesalers. It should be recommended to start with a group of very interested and convinced people after finding out their associative preferences. Certainly no perfect kind of association does exist. The surveys tried to identify the agents’ ideas (note that the percentages below, from detailed tables, are not cumulative).

Obviously, farmers (43 percent do not want integration) prefer to have relationships with other farmers (25 percent), but a small number of them are also open towards relationships with millers and wholesalers (11-13 percent).

No millers are at level 5 of the mill integration propensity index (Table 7.14) and 58 percent have low propensity (levels 1 and 2). They have already had some experience with farmers testing agreements concerning production, harvesting, post-harvest and above all delivery times with some success (14-18 percent) or failure (25-30 percent). Presently, they have a propensity to integrate with every agent in high percentage (over 50 percent), “except with other millers” (only 27 percent). The integration types they prefer are, with the same percentage (10-15 percent), not only the implementation of common general rules and control rules, but also merging and establishing new firms.

Table 7.14 Mills propensity integration index

Wholesalers, as seen from the wholesaler integration propensity index, are interested to a large degree in establishing relationships (Table 7.15): 13 percent at level 5 and 15 percent at level 4. Their interest concerns all types of agents along the chain and especially exporters (41 percent) and farmers (31 percent); the forms of integration preferred are the setting up of contractual rules (28 percent), the quota/share exchanges between firms (20 percent average, but 31 percent of the larger firms), and the creation of new firms (15 percent).

Table 7.15 Wholesalers propensity integration index

Eventually, the millers' and wholesalers' propensity to join together in a “National Marketing Board” was examined. Their response was positive for 67 percent and 51 percent, respectively; 36 percent of millers and 20 percent of wholesalers agreed to a Board with private capital only, 9 percent and 8 percent with public capital only and 23 percent with both.

The agents always talked about respecting common rules in agreements: wholesalers were very sure of themselves but suspicious of others; the farmers were more self-critical and the millers preferred not to answer.

d) Influence of farms and firms types

Indexes show some details per farm/firm type and zone also. Large and medium-size farms pay more attention than smaller ones to the quality aspects of production and conservation but larger ones have more problems in production (level 3: 71 percent of farms). The production index is higher in the Damascus countryside and Dara'a (66 percent at levels 4 and 5), but Aleppo and Tartous are always in the first place, levels 4 and 5, for olive and oil conservation methods (almost 60 percent and 53-55 percent, respectively).

The mills' size and technology type are linked and centrifugal plants are present at level 4 (33-35 percent) together with a small number of medium-hydraulic plants (5 percent). It is surprising that there are none at level 5; actually, it is not only a problem of technology (40 percent of traditional plants are at level 2) but also of processing procedures. Thus, an improvement in quality can be obtained by merely changing procedures using the same plants, with low costs.

Finally, large-size wholesalers help to achieve quality (38 percent level 4), although only medium-size ones reach level 5 (4 percent) but there are no cases at level 1.

Small and medium-size and traditional and hydraulic technology mills seem to have a great propensity to integrate (respectively, 40 percent and 32-33 percent at level 4); the reason may be to achieve modern processing systems fast. Larger wholesalers have more propensity (23 percent at level 5) than medium ones (8 percent) because they are more familiar with marketing issues and think in advance that business trade can compete only through large-scale businesses.

e) Retailer survey

The retail level has been examined in order to have some information about the final consumption and prices rather than retailers’ behaviour. In particular it is evident from the survey that two thirds of the sample do not sell extra virgin and half the sample sells lampante. The fact that consumers buy and “can buy” type 3 is an incredible behaviour even though the quantity sold is limited. This is determined, on the one hand, by the lack of refineries in Syria and, on the other hand, by social and cultural (knowledge) determinants. However, since the survey shows that 38 percent of consumers consume extra virgin or 48 percent type 1, this means that consumers buy a large quantity directly on the farms or on the mills at harvesting time, especially if they live in the countryside, villages and little towns. In other words, retailers satisfy targets of clients who are city dwellers.

The casual observer notices that olive oils are sold in any type of store, including non-food stores; and, along the streets, olive oil cans are seen amassed on the sidewalk even under the sun. Of course, quality cannot be guaranteed at the end of the chain.

f) Exporter survey

From informal talks with three exporters and interviews, via questionnaire, with eight others, one gathers that they are characterized by different businesses: export and domestic sales to other traders and also to consumers. It is very difficult to consider it a real export structure, and actually, only three exporters commercialize large amounts of olive oil. Evidently, they are the “Syrian national export” because the first sells up to 2 000 tonnes, the second up to 1 000 tonnes and the third up to 500 tonnes. This sum, in fact, corresponds almost exactly to the total national export as seen in the statistical data of 1997. In other words, in Syria there is not a true exporting structure.

Looking into quality, all agents admit to sell oil even in great quantities with some little defect; only one small exporter admits to selling a considerable quantity (50 percent) with big defects. Exporters store oil in large metal cans (200 kg) and here again the problem of storage appears.

This type of trader has tried to meet some agreement with farmers to control quality and delivery and with millers concerning delivery. Of course, since all agents are small firms, this relationship is not seen as an institution whose purpose is to organize trade, but only as a temporary personal agreement. Their propensity to find lasting agreements or integration is very limited: they (6/8) do not want to have any relationships and do not like the idea of a Marketing Export Board. In the case of integration, they think benefits are assured in sales, but are counterbalanced by the loss of freedom, other agents’opportunism and also by the danger of big business (a surprising statement for entrepreneurs).

Regarding marketing experience, all exporters have tried to improve quality and have tried to increase prices or decrease prices, with similar effects (50 percent without success, 25 percent with success). They tried brand/label (50 percent and with success) and new packaging (50 percent with some positive results). The main constraints are lack of legislation (5/8), shortage of capital (4/8) and inefficient banking system (6/8).

Concerning exporting markets, they think that the only (new) possible markets are, primarily, the Gulf countries (7/8) because of past experience (easy for language and habits) and, secondarily, North America (6/8). This partially passive mental position is verified by the perception of (new) consumers: 7/8 think about governorates’ dwellers with a current low consumption and 5/8 about Syrians living abroad (this can be a right idea).

Finally, their needs of information and knowledge do not concern so much management, general commercial information and research. There is more interest in international information and credit and financing. Marketing knowledge had the highest preference. Certainly, this would be a good starting point to build the future Syrian export system.

g) Consumer survey

Syria, like other Mediterranean countries, consumes (Table 7.16) a great quantity of vegetable oils and a limited quantity of animal fat (ghee). The annual family average consumption, in the sample, sees olive oil at the first place (51 kg) while the consumption of different types of vegetable oils vary from 20 kg (soybean) to 27 kg (corn and cotton seed oils). Ghee consumption is 21 kg. Of course, data are consumption averages but nobody consumes all types of fats.

Table 7.16 Annual family consumption of fats and oils

Source: Consumer questionnaire

Per capita data (Table 7.17) show that oil and fat consumption decreases with family size, due to the “economy of scale”, while their consumption increases as income increases (olive oil: from 8 kg to 16 kg) in accordance with the Engel's Law and the principle of substitution between superior and inferior goods, with consequent higher prices (i.e. olive oil versus vegetable oils and extra virgin versus other olive oils). It is a fact that Syrian consumers have a definite preference for consuming this excellent product: everybody puts olive oil in first place in their preferences and prefers to buy extra virgin. Olive oil is preferred to other fats for flavour and health (first claimed preferences) or for health and flavour (second claimed preferences).

However, in the consumers’ perception, there are some conditions to increasing general olive oil consumption, based on price considered too high and income level considered too low. Other less important determinants for consumers (at present, less important for Syrians) are improved quality, packaging and promotion (affluent people are more interested in it) and, last but not least, prevention of cheating. This problem is only a worry for some people (lower income class), but one can think it could become a strong element of future marketing.

Table 7.17 Per capita annual consumption of fats and oils (kg/year)