Research and Development Plan for the
AUSTRALIAN OLIVE INDUSTRY
2003 – 2008
FOREWORD
PURPOSE OF THE PLAN
BACKGROUND TO THE INDUSTRY
KEY ISSUES FOR 2002 – 2008
INDUSTRY VISION
THE RESEARCH AND DEVELOPMENT PROGRAM
PROCESS AND PRIORITIES
APPENDICESEnvironmental Analysis Of The Australian Olive Industry Australian Olive Research And Development Projects‘SWOT’ Analysis Of The Australian Olive Industry
See also:
Rural Industries Research and Development Corporation (RIRDC) encourages all new and emerging industries to develop five-year R&D plans. Because of their diversity, the activities comprising the New Plant Products Program are best represented by several individual commodity-specific plans such as this one for olives.
This is the Second Plan for the Olive Industry as the first covered 1998-2002. A great deal has happened in this industry in this time with major plantings of groves throughout Australia and the development of processing and marketing chains.
This plan identifies the key objectives for the R&D investments that RIRDC will make in coming years on behalf of the olive industry and the Commonwealth Government.
The plan stems from extensive consultation with the Australian Olive Association (AOA) and the research community. It should be regarded as a document for discussion and, where necessary, modification by the industry and other interested parties. In deciding on priorities for research the Corporation seeks guidance from industry in setting priorities then in ranking proposals for research each year.
Publication of this plan and inclusion of it in the RIRDC's website has been done to facilitate the on-going consultation undertaken by the AOA to ensure that the plan meets industry's needs and is endorsed by the industry. Your comments and suggestions may be addressed to either AOA or RIRDC at the addresses shown in this publication. You can also direct suggestions and enquiries to the RIRDC Research Manager, Mr. Max Bourke, on 02 6247 4630 or 0427 603541
The plan will be distributed widely by the Corporation (including posting to its website http.//www.rirdc.gov.au) and will be used to guide ongoing R&D investments. It is consistent with RIRDC's Strategic Plan and will be implemented in accordance with the provisions of the Primary Industries and Energy Research and Development Act 1998.
Simon Hearn
Managing Director
Rural Industries Research and Development Corporation
This Research and Development Plan aims to contribute to the achievement
of the strategic goals of the Australian Olive Industry to improve its
profitability and sustainability. In part this will be achieved through
the direction, adequate funding and management of a research, development
and technology transfer program that is market and stakeholder driven.
Thus the plan aims to:
· Encourage consideration and discussion of R & D issues that will address the industry’s competitive challenges and enable it to respond effectively in a global market place;
· Present the rationale for the R & D activities that RIRDC, Horticulture Australia Ltd (HAL) and others will support on behalf of the industry and Government.
There should be no doubt that the olive industry requires an active
R&D program and that the industry needs to come together to ensure
that it is well directed and adequately funded. The experience of other
industries and the analysis of many credible people highlight the competitive
advantage provided by industry investment and collaboration on research
and development.
The present plan is the second iteration and owes much to the analysis, planning and industry consultation conducted for the initial five-year period. While a great deal has been achieved over the past five years, the industry now faces a new set of challenges as it moves from its early revival phase into a period of rapid growth, from a cottage industry to national and international agri-business.
A Review Panel appointed by the Australian Olive Association, including members from all States, guided the current revision of the Research and Development Plan for the Australian Olive Industry. The review draft was circulated widely among stakeholders across the country for comment and revision before being presented in its present form.
The Australian Olive Association is grateful to the RIRDC for its financial support and encouragement for the preparation and circulation of this document. It is hoped that it will be widely consulted and provide useful direction to Industry, all Government agencies and other investors and stakeholders.
In setting the context for the current research and development requirements of the Australian Olive Industry it is worth considering the history of the industry, its current status and the broader environment in which it is set.
The History of Olives in Australia
It is reported that George Suttor introduced the first olive tree to Australia at Sydney in 1800. Experimental groves were subsequently established in New South Wales, South Australia and Western Australia. By the mid-1800’s colonial industrialists such as Sir Samuel Davenport in South Australia were promoting olive oil production as a valuable industry for the fledgling colonies. Large plantings were established in Victoria and South Australia and a South Australian olive oil received an honorable mention at the Great Exhibition of London of 1851 (Burr, 1998).
Interest in olive production continued to the early 1900’s when L. MacDonald, writing at Dookie, records a range of information, gained from the early experimental groves, that is still relevant today (Burr, 1998). Over the following decades however there was a decline in the performance and prospects of the industry. Large plantings in Victoria did not live up to expectations. In South Australia the extensive groves in the eastern and southern suburbs were forced out by urban expansion or declined in World War I and the Great Depression. The main problem was the relatively high costs of picking the olives in Australia compared to the cheap labor available in the Mediterranean countries (Spennemann and Allen, 2000). Small pockets of groves and some extraction plants continued to operate and these were added to by the second wave of European settlers after WWII.
There has been a renaissance in the Australian olive industry from the early 1990’s, primarily due to the increased popularity of Mediterranean cuisine and opportunities for import replacement of over $100 million of olive products. There is optimism from the Australian olive industry that this latest expansion will succeed due to the advent of mechanized olive harvesting and the subsequent ability to be more competitive with producers from Mediterranean countries.
Overview of the Australian Industry
There are no accurate statistics on plantings or yields at present,
however sales and order data from plant nurseries are used to approximate
the former. It is estimated that there will shortly be over 7.5 million
olive trees planted across Australia (table 1). Although SA has historically
been the state with the greatest output of olive products, New South Wales,
Victoria, Western Australia and Queensland have recently expanded their
area of plantings (S.Sweeney, 2000).
Table 1. Projected Olive Tree Plantings in Australia – Based on Nursery Sales and Orders | |||
Destination State |
|
|
|
NSW |
1,314,745
|
611,372
|
1,926,117
|
SA |
747,989
|
507,803
|
1,255,792
|
Qld |
828,520
|
268,000
|
1,096,520
|
Vic |
917,315
|
644,362
|
1,561,677
|
WA |
661,240
|
941,550
|
1,602,790
|
Tas |
105,573
|
2,157
|
107,730
|
NT |
2,000
|
300
|
2,300
|
Unrecorded destination |
100,000
|
100,000
|
|
Total |
4,677,382
|
2,975,544
|
7,652,926
|
Area - ha (@ 250 trees /ha) |
18,710
|
11,902
|
30,612
|
Australian production of olive oil is currently very low, estimated at around 1,500 tonnes annually, but is expected to grow significantly. A conservative estimate is that by 2006 these plantings can potentially produce up to 28,000 tonnes of olive oil (S. Sweeney, 2000). With more plantings estimated up to the end of 2001, about 40,000-50,000 tonnes of oil may be available from Australian producers by 2011 (D. Taylor, 2002).
A survey of the industry in 2000 by the Western Australia Department of Agriculture indicated that the industry is highly fragmented, with 37 per cent of growers planting no more than 500 trees and 90 per cent of growers having 5,000 trees or less. The majority of trees (approximately 70%) will be managed by a small number of project development groves.
The markets for olives and olive oil in Australia are large and growing. Olive oil imports had been around 23,000 tonnes in the previous two years but rose sharply to around 30,000 tonnes in 2000/01. Of this amount, approximately 21% was high quality extra virgin olive oils. The recovery in import levels in the latter half of 2000/01 is thought to be due to the lower world prices and strong promotion by importers and retailers of their brands. Table olives worth about $30 million are imported annually against very low, local production.
Supermarkets account for about 50 per cent of imports of olive oil. Unilever and Goodman Fielder control 40 per cent of total supermarket volume and invest heavily on promotion of their brands and on building consumer preference and appreciation for Spanish and Italian olive oils. Australian producers will have to develop marketable and competitive brands that Australian consumers will select ahead of the well-known imported brands (D. Taylor, 2002).
The Business Environment
Recognizing and correctly interpreting the trends in the wider business
environment can provide the clues for developing a vital competitive advantage.
The World Trade Centre attack and slow growth in major economies makes
for a turbulent environment that could have major impacts on the Olive
Industry over the next five years. Examining the major physical, political,
economic and social factors impacting on the industry (Appendix
1) is strategically important:
· The transfer of EU subsidies from production to less obvious areas is likely to be a continuing feature for some time, given the power of the agricultural lobby in Europe. Domestically, Government food safety regulations will impact by requiring increased investment in equipment and management systems.
· Consumption is influenced by economic trends (credit availability, disposable income, interest and inflation rates). The opening of the Australian economy over recent years has put it in a relatively good competitive position globally. However, the current low inflation environment is likely to experience a cyclic increase in coming years and our exports e.g. wines, are particularly sensitive to exchange rate fluctuations
· Australia’s aging population is living longer and wants good quality of extended life. Thus there is an increasing emphasis on health and vigor. This has given rise to a category of ‘food plus’ products e.g. bacillus enhanced yogurts, with specific health benefits.
Analysis of the structure of the industry itself provides an insight
into the level of competition and hence profitability of the industry.
It can be argued that competition is currently moderate to strong and may
reduce only slightly over the next five to ten years. This viewpoint is
supported by the analysis of the other dominant economic traits of the
industry e.g. market size and growth rate, product differentiation, technological
change and scale economies.
It should be noted that despite an average growth rate of about 9% pa over recent years the domestic market consumption of olive oil might be matched and possibly exceeded by local production within the period under consideration. This, together with the strong competition within the local industry and with the EU on both domestic and export growth markets, ensures that there will be a great deal of downward pressure on prices.
The challenge for Australian producers is more difficult when one considers the fragmentation of the industry in geographical, agri-political and production terms. Thus there are limited ‘scale economies’ in lobbying as well as generally low levels of integration along the demand chain.
There are a number of external environmental influences at the present moment that do not favor the development of the industry. However there are also positive factors such as the interest in good tasting, natural, safe, pure and health-giving foods and the growth in both domestic and some export markets. Scenario analysis for the future does indicate ways in which the impacts of negative influences can be modified.
Burr, M. (1998). Australian Olives – A Guide for Growers and Producers
of Virgin Oils (3rd Edition).
Published by the Author. Pp 232
Spennemann, D.H.R. and Allen, L.R. (2000), ‘Cultivar to Weed: The Spread
of Olives in Australia’. Olivae 82:44-46
Sweeney, S (2000). ‘Olive Tree Numbers 2000’. The Olive Press. Summer
2000. p25-26
Taylor, D (2002). Quarterly Outlook for the Olive Industry. Department
of Agriculture, WA.
The following key result areas, based on a strategic analysis of the industry, review of previous strategies as well as past and current research (Appendices 1,2 & 3) were identified as the priority areas for research and development to enable the Australian industry to build a sustainable competitive advantage:
1. Market and Product Development
The domestic and export markets are currently dominated by European
producers. At the same time there has been an expansion of new plantings
around the Mediterranean Basin and in the ‘New World’ e.g. Argentina and
Australia. While the Australian market and some overseas markets have been
experiencing strong growth, there will certainly be strong competition
in both areas. It is important for Australian producers and processors
to understand both the nature of their competition and the local industry’s
capacity to respond to the challenge in terms of levels of production.
Brand building is seen as the responsibility of individual enterprises.
Basic industry intelligence, generic promotion and stimulation of innovation
in product and market development are the main themes for industry-wide
support.
2. Sustainable Production
The rapid expansion of the Australian olive industry and its transformation
from a cottage industry to commercial status has exposed deficiencies in
local knowledge and skills that need to be remedied. Much of the technical
information is derived from overseas and needs to be validated in Australia
at a national and regional level. As with many ‘emerging’ industries, local
performance data and agronomic information is lacking. Similarly, many
industry participants have little knowledge or experience in horticulture,
olive growing or processing. While confidence and enthusiasm are vital
elements in the industry revival, they must be supported by competence
in basic growing and processing practice. In parallel to production efficiency
is a requirement to protect the industry’s resource base. Priority is therefore
given to acquiring and disseminating knowledge in these areas.
3. Processing and Product Quality
In the recent past there has been an emphasis on production issues
that is understandable considering the stage of industry development. As
new plantings mature it is important to ensure that the industry is competent
to produce safe, healthy and innovative value-added products for the domestic
and export markets. A fundamental requirement for all products in the modern
food sector is that they are of a consistent, high quality of their type
and this must underpin Australian products. There is also growing consumer
as well as legislative requirements to ensure that the environment is protected
and therefore dealing with waste is a priority.
4. Communication, Coordination and Training
Ensuring the competence of industry participants, collaboration and
cohesion in the industry, together with the education of consumers and
other stakeholders, warrants a particular focus on the communication, coordination
and training area. The example of other horticulture industries demonstrates
the importance of this area.
By 2010 Australia will be globally acknowledged as a producer of high quality and price competitive olive products.
This is the overall vision for the Australian Olive Industry espoused by its peak representative body, the Australian Olive Association, in its strategic plan.
THE RESEARCH AND DEVELOPMENT PROGRAM
The research and development program detailed below is designed to assist in achieving the strategic vision for the industry. Under each of the key result areas there is a statement as to the desired Outcome i.e. the purpose or impact of the sub-program in the medium term. This is followed by a summary of the major Issues being addressed and the specific Outputs or deliverables that projects should produce.
Industry priorities for the delivery of specific outputs may vary over the term of this plan. A review process has therefore been established to annually compile a priority R&D output listing across all key result areas (see Process and Priorities section).
1. MARKET AND PRODUCT DEVELOPMENT
Outcome:
An Industry developing and exploiting innovative product and market
niches, domestically and overseas, ensuring the profitable marketing of
all Australian olive production.
Issues
· European Producers dominate the domestic and overseas markets and will not easily give up their share of the Australian market
· Development of domestic and export markets for Australian oil and table fruit is necessary
· Development of a wider range of value-added products is needed to absorb production
· Generic promotion to address competition from imported olive oils and other fats e.g. canola, and boost consumption citing benefits e.g. health, multiple uses in cooking
· A range of markets, products and alternative uses: various oil qualities and styles, organics; medicinal, industrial, cosmetic
· Definition and exposition of the health benefits of olive products
· Benchmarking Australian production/returns with European cost, returns and subsidies
· Collection/analysis of comprehensive industry data: industry participants, yields, planting types (varieties) and size; volumes of oil by different grades
· Current market data: domestic and overseas market size, consumption, consumer preferences
· Production and marketing networks to ensure consistency and volume of supply to major retail outlets on domestic or overseas markets (demand chain coordination)
Technology Transfer Outputs:
· Skilling to enable effective collaborative group action – interpersonal, organizational skills2. SUSTAINABLE PRODUCTION· Case study documentation of successful collaborative marketing initiatives
· Development of market and marketing information in suitable form for broad dissemination (see also Communication, Coordination and Training sub-program)
Outcome:
Commercially viable best-practice production systems that are profitable,
efficient and ecologically sustainable
Issues:
· Mechanical harvesting is needed to strip fruit quickly and at low cost without harming tree
· To compete with imports we must focus on achieving greater yield/tree with higher oil percentages and quality to give a competitive advantage
· ‘Environmental’ issues such as soil degradation and the spread of feral olives must be addressed through the use of responsible farming practices
Research and Development Outputs
· Harvest maturity indicators
· Residue studies to support chemical registrations compatible with IPM strategies
· Strategies to ensure effective pollination
· Irrigation management strategies to minimize water use and optimize yield and/or quality
· Cost competitive (mechanical) harvest technologies
· Pest and disease management strategies for major climatic zones
· Integrated Production System that minimizes agri-chemical, labor and other inputs for optimal yield as part of an Environmental Management System
· Optimization of grove nutrition and to optimize yield/quality
· Tree training systems for maximum yield/quality appropriate to harvesting method
· Risk analysis of olive pest and disease incursion and development of prevention and control strategies
· Evaluation of olives for groundwater recharge control and use in disposal of saline water
· Comprehensive, industry specific Quality Assurance system
· Foster/support the development of organic olive production procedures
· Optimization of grove design to maximize yield/quality and accommodate mechanical harvesting
Technology Transfer Outputs
· Grower education on production of quality fruit to ensure quality oil3. PROCESSING AND PRODUCT QUALITY· Best practice post harvest handling guidelines
· Promotion of the uptake of strategies/guidelines to limit threat of olive "weeds" entering off-farm locations particularly from abandoned groves
Outcome:
Consistent production of high quality, healthy, safe olive products (oil, table fruit and others) that meet consumers expectations and in which they have confidence.
Issues:
· Environmental impacts of waste disposal from both oil extraction and pickling
· Lack of understanding of the characteristics of quality oils (across the environmental range) as a basis for product development, consumer education and marketing
· Requirement
of quality products to underpin the long term success of the industry
· World’s best practice waste utilization and management schemes for oil and table olive processors
· Define quality characteristics of olive oil and table olives
· Strategies to minimizing oxidation during processing, storage and along the demand chain
· Identification
of health active components of olive oil and olive by-products and how
these components may be maximized through various production/processing
variables
· National industry guidelines/regulations for standards and truth in labeling4. COMMUNICATION, COORDINATION AND TRAINING· Best-practice guidelines for quality oil and table fruit production and blending
· Best-practice guidelines for quality table fruit production
Outcome:
Informed, collaborative, innovative, highly skilled and internationally
competitive industry members
Issues:
· The industry has insufficient cohesiveness – it needs to recognize that European and other New-World producers of olive oils and other edible oil producers are the real competition. Australian producers need to be ‘competitive collaborators’ for industry development
· The skills of industry participants in all aspects (production, processing, marketing) must be enhanced to "world’s best practice" to give the Australian industry a competitive advantage
· Factual information and realistic projections of industry performance, growth, risks and assumptions should be made available to key decision makers and industry stakeholders e.g. consumers, government, investment community and the media
Research and Development Outputs
· Improved cohesiveness of industry members through increased membership of AOA
· Systematic review of domestic and international information (identifying pertinent missing information) to produce a coordinated, national resource collection of world’s best practice production information
· Formal planning, monitoring, assessment and review systems for R, D& E projects
· Delivery of technical training programs within nationally accredited, competency framework
· Curriculum development of ‘best practice’ management in:
· Production of olive oil fruit and table olive fruit
· Processing of olive oil
· Processing of table olives
· Manufacture of other value-added olive products
· Strengthening of structures and coordination between industry representative bodies at regional, State and National levels
· Coordinated and funded State based agency extension delivery
· National (AOA web site) register of relevant grower information on soil testing, nurseries, consultants, key contacts etc
Technology Transfer Outputs
· Delivery of nationally accredited business management programs
· Educating consumers in tasting, handling and usage of olive products
The process for making project submissions to Rural Industries Research and Development Corporation and Horticulture Australia are similar i.e. a brief concept development proposal is forwarded initially for consideration. Submissions will be considered by a national R&D Committee comprising representatives from all States. Applicants will be advised subsequently on whether they should prepare a full submission. The details of timing for applications, formats and instructions are available on the RIRDC (www.rirdc.gov.au) and HAL websites (www.horticulture.com.au).
The National R&D Committee will work with fund Program Managers to review the progress and outputs from research programs on an annual basis to ensure effective and efficient delivery of outcomes for the industry. In order to focus attention even more closely on the industry’s needs and to keep that focus current, the National R&D Committee will annually compile a priority R&D output listing across all key result areas.
The industry priorities for 2002-2003 across the program areas are:
· Immediate action on development of a statutory levy funding processThis list is not in priority order. It is intended as a guide to researchers and others but does not preclude the submission of project proposals in other areas detailed under the four key result areas.· National quality standards and enforceable regulations to deal with concerns about truth in labelling and adulteration
· Strategies to ensure effective pollination
· Cost competitive (mechanical) harvest technologies
· Residue studies to support chemical registrations compatible with IPM strategies
· Irrigation management strategies to minimize water use and optimize yield and quality
· Evaluation of the performance and agronomic characteristics of tree varieties and the resultant oil characteristics within the context of the major climatic zones of Australia
· National communication strategy for effective and timely communication with key stakeholders
· World’s best practice waste utilization and management schemes for oil and table olive processors
OVERVIEW OF RECENT OLIVE R & D IN AUSTRALIA
The Australian Olive R&D program, first formalized by RIRDC in 1997, has stimulated a significant amount of activity across the country. Appendix 3 gives a summary of the recent and current publicly funded research. The program to date has covered most aspects of the industry from varietal selection, through various aspects of production efficiency, through to marketing.
It is recommended that those intending to submit project proposals make themselves familiar with current research and that from the recent past in order to avoid duplication or ‘re-inventing the wheel". Details of research leaders are provided to enable interested parties to make contact and extract more information in the case where there are no readily available publications
For enquiries regarding the Australian Olive Association and its R &
D Plan contact:
Chuck L’Heureux,
AOA Secretariat,
PO Box 309, Pendle Hill, NSW 2145
Tel: 02 9863 8735; Mob: 04 1212 1710;
Fax: 02 9636 4971;
Email: secretariat@australianolives.com.au
Website: www.australianolives.com.au
ENVIRONMENTAL ANALYSIS OF THE AUSTRALIAN OLIVE INDUSTRY
A Discussion Paper for Updating The Research And Development Plan
for The Australian Olive Industry 2003-2008
Prepared for the Australian Olive Association, April 2002
by
Gerry Davies
CONTENTS
ENVIRONMENTAL ANALYSIS OF THE AUSTRALIAN OLIVE INDUSTRY
A Discussion Paper for Updating The Research And Development Plan
for The Australian Olive Industry 2003-2008
The Australian Olive Association Ltd (AOA) was established in May 1995 with the objective of bringing together and representing the interests of the olive industry on a national basis. In consultation with all elements of the industry across the country the AOA prepared a strategic plan during 1996/97. Subsequently, the Association, with the assistance of the Rural Industries Research and Development Corporation (RIRDC), convened a workshop of researchers and industry representatives in September 1997 to identify and prioritize the industry’s main research and development needs. The outputs from that workshop became "The Research and Development Plan for the Australian Olive Industry 1998-2002", which was published in hard copy by RIRDC and is available on their web site.
Over the intervening five years there have been substantial developments in the Australian olive industry. At the same time a range of activities has been undertaken by Universities, State Government Departments and private sector organizations to address the priority objectives of the industry R&D plan. It is now necessary to review the progress made, re-evaluate the challenges facing the industry and update the national R&D plan and priorities.
The AOA, again in conjunction with RIRDC, appointed a Review Panel to review and revise the major objectives, strategies and targets for research and development activities to be undertaken on behalf of the national industry. The revision of the plan, for release in the middle of 2002, aims to ensure that researchers are focused on the areas that the industry wants addressed. The review process itself provides a communication channel to get input and ownership from the wider industry. The Draft Plan, having been circulated to all interested parties for comment and revised, will again be published by RIRDC and appear on its web site.
This paper is intended to assist the review by initially examining the nature of the competitive environment in which the Australian Olive Industry operates and the traits and forces within the industry. The aim is to provide the context within which to re-formulate a SWOT analysis for the industry and subsequently update the research and development needs for the next five years.
It is common for managers to focus on their competitors when developing business strategy but it is also important to look at the broader industry issues. Recognizing and correctly interpreting the trends in the wider business environment can provide the clues to developing a vital competitive advantage. There are rapid changes occurring in the current production and marketing environment that will have major impacts on the industry over the next five years. It is essential that individual enterprises and industry organizations analyze the impact of these changes and adopt effective competitive responses.
The following discussion is aimed at exploring the broad industry environment and searching for the industry implications. It aims to reveal the strength of the macro-environmental and competitive forces at work as a basis for taking action to improve the long-term profitability of the industry, in part through applied research and development activities.
The effectiveness of an organization (enterprise or industry group) can be assessed by the degree of ‘fit’ between itself and the appropriate external environment (physical, regulatory, socio-cultural, technological and economic). Fundamental changes in these areas are infrequent but usually have a major impact on an organization when they do occur.
An informal environmental analysis may be satisfactory when the organization has considerable experience and when the environment is stable. However, the Australian olive industry overall is inexperienced and is changing rapidly. The World Trade Centre attack and slow growth in major economies makes for a turbulent environment. Hence, a formal analysis is useful (Table 1).
The dominant feature is Australia’s island-continent status. This isolation, particularly since Britain cut its colonial, commercial links by joining the EU, has encouraged some industries to look excessively inward to their local or regional markets. It also has the impact of increasing transaction costs i.e. communications, transport and logistics. On the positive side, Australia’s isolation has been a barrier to pests and diseases and provides it with a degree of uniqueness.
Environmental concerns have the potential to be a significant factor in the coming five to ten years. In particular, water quality/volume and dryland salinity issues will be a serious threat to conventional agriculture in some areas. Controlling or eliminating chemical contamination and the preservation of native species will also have the potential to make a significant impact.
At an international level the Australian government is unlikely to influence the political environment in favor of the local olive industry. The transfer of EU subsidies from production to less obvious areas is likely to be a continuing feature for some time, given the power of the agricultural lobby in Europe. Domestically the attitude of the Tax Office towards the industry may already be adversely influencing the level of corporate investment. Government food safety regulations will also have an impact by requiring increased investment and management systems.
To the extent that the industry develops the export market it must also be aware of the political and economic factors determining the policies of potential destination countries. The EU and the USA are both attractive markets but also have the inclination and political muscle to exclude unwanted competition in the agricultural sector.
Consumption is influenced by economic trends (credit availability, disposable income, interest and inflation rates). In general terms the opening of the Australian economy over a number of years has put it in a relatively good competitive position globally. However, the current low inflation environment is likely to experience a cyclic increase in coming years and our exports e.g. wines, are particularly sensitive to exchange rate fluctuations.
Growth in the Asian economies can give Australia, due to its proximity, a competitive advantage but only if it is a reliable, cost competitive supplier of quality goods. In this regard the competitive reaction of the major European producers to changing economic conditions must also be considered. As economic turbulence increases it is advantageous to have liquidity and limited specialist assets but strategic collaboration will also assist such as building alliances with major global competitors e.g. Bertolli.
Australia has an aging population that is living longer due to advances in medicine. Many will need to continue working, and those that do retire want good quality of extended life. Thus there is an increasing emphasis on health and vigor. This is a major theme in the food industries and has given rise to a category of ‘food plus’ products e.g. bacillus enhanced yogurts, with specific health benefits. Other demographic changes with significant influence are the higher level of working women, later marriages and child bearing and overall smaller households. Each has an influence on demand for food products e.g. people eat out more and cook less. Changes in the ethnic mix in Australia and the melding of Western and Eastern cuisines will also contribute to variations in demand for food products.
Concern about the impact of production and manufacturing on the environment is an emerging theme in North America and Europe. This extends beyond the immediate concerns with chemical and microbiological contamination or Genetically Modified Organisms to the broader environmental impacts e.g. soil erosion and biodiversity impacts. One estimate suggests that the average expenditure on food in Western Europe is 12% of disposable income. Therefore consumers are less likely to be concerned about price but more concerned about other issues. This is leading to a move towards Environmental Management Systems that are ‘greening’ the supply chain and delivering ‘triple bottom line’ (economic, social and environmental) outcomes.
Unlike consumer electronics, the food industry is not a rapidly changing, turbulent environment. However, it needs to be recognized that the technological environment is global and therefore local organizations can be impacted by overseas competitor’s products (in domestic and export markets) or by the adoption of new technology by competitors.
The application of technology can influence an organization’s administration, decision support systems, operations and research and development. The use of telecommunications technology can allow an organization to communicate better and respond faster or more effectively with their clients. When competing products have little to differentiate themselves, superior client service can provide a competitive edge.
The world steel industry was fundamentally altered by the introduction of efficient, small scale smelting technology. What would be the impact of small scale, chemical extraction technology on the Australian olive industry?
An examination of the competitive characteristics inherent in the industry’s structure is presented (Table 2a) together with a view of other dominant economic traits of the Australian olive industry (Table 2b). They are described as they are now and as they may be towards the end of this decade. The aim is to evaluate those factors that contribute to the attractiveness of the industry and to come to a general view of its profitability now and in the future.
Please bear in mind that this is not presented as a comprehensive, in-depth analysis but rather a simplified, structured means to stimulate discussion.
Many of the entrants are small producers (90% of industry participants have less than 5,000 trees) and differ by little more than the labels on their bottles (if they have labels); their economies of scale are low and the switching costs are not inconsiderable depending on the number and age of trees. In earlier time the competition was heightened by the lack of critical inputs such as trees and stakes. These factors lead to strong competition that is moderated by the ease of access to local distribution (for small volumes) and the relative abundance at this stage of all major inputs.
Difficulties will arise for individual enterprises if there is no rationalization of demand chains. One ‘future’ would see those with larger capacity and capability forming supply chains to larger producer/processors (corporate or cooperative) in order to support efficient domestic and export marketing. This is happening in some areas e.g. Hunter Valley, NSW and Clare Valley, SA.
Over time competition between smaller producers will decrease somewhat as a large number of the smaller industry participants leave the industry with a significant number of trees becoming essentially non-productive either because they are pulled or are neglected. At the end of the decade the influence of the small growers will have declined substantially. However, with the expansion and maturing of corporate operations and large private ventures, competitiveness within the industry may become stronger depending on our success in export development.
Virgin olive oil can be differentiated from competing products on the basis of the non-chemical, ‘natural’, processing it undergoes and, in the case of extra virgin oils, their taste. The premium created cannot be captured by other products but it applies only to a small percentage of the product category and so overall, alternative oils are strong competitors.
If one looks at the market from the perspective of just the local producers there is an additional substitute and that is of course imported product, predominantly from Europe. The disparity in production volume is huge (Mediterranean countries 2,300kt pa, Australia 1,500 tonnes possibly growing to 20 – 30 kt in ten years) which flows through to price and there is the added advantage of EU subsidies (A$2/L).
There are essentially only two national chains and these have access to all the overseas products; they have some low-cost elements in their marketing and our local product is not irreplaceable in their product range. These factors make them very strong.
The overall competitive power of buyers is of course moderated by the fact that most producers are distributing through much smaller and more local buyers. Over time the power of buyers in regard to local product may moderate more as volumes increase; if prices have parity or even are lower than imports and; if substantial alternative domestic channels (food service, manufacture) and export markets develop.
On the processing side i.e. extraction plant, the various brands of equipment have largely the same features and performance. Although the Australian industry is small there is enough interest and competition between suppliers to ensure reasonable service and preclude excessive profits.
Beyond the structure of the industry itself there are a range of other factors that influence competition and profitability (Table 2b). These include market size and growth rate, product differentiation, technological change, scale economies, position on the ‘learning curve’ and capital needs.
The main point that should be noted is that despite an average growth rate of about 9% pa over recent years the domestic market consumption of olive oil may be matched and possibly exceeded by local production within the period under consideration. This point together with the likelihood of strong competition with the EU in the export growth markets makes it clear that there will be a great deal of downward pressure on prices in both domestic and overseas markets.
The challenge for Australian producers is more difficult when one considers the fragmentation of the industry in geographical, agri-political and production terms. Thus there are limited ‘scale economies’ in lobbying as well as generally low levels of integration along the demand chain.
It remains to be seen if advances in technology e.g. machine harvesting, will deliver sufficient increases in labour productivity to significantly contribute to industry competitiveness. Similarly, the potential to innovate and differentiate our products in a similar fashion to the wine industry, as a response to the market dominance of European product, is an unknown quantity.
It is certain however, that the industry will gain considerably from increasing its skills and knowledge in production, processing and marketing. We are currently on the initial, low slope of the curve. As the scale and scope of the industry increases there will be rapid and large returns to improvements in skills, technology and knowledge, before returns decline with maturity.
The overall influence of the various industry factors tends to indicate that the profitability of the industry, while currently low, has the potential for moderate to high growth.
Overall it can be argued that the sum of external environmental influences at the present moment does not strongly favour the development of the industry. The notable exception is the socio-cultural elements i.e. the interest in good tasting, natural, safe, pure and health-giving foods. The scenario analysis for the future however does indicate ways in which the impacts of these environmental influences can be modified.
The industry analysis is a brief overview of the key factors affecting competition and hence profitability. From the perspective of the industry structure it would appear that competition is generally moderate to strong and is likely to reduce only slightly if at all over the next five to ten years. This viewpoint is supported by the analysis of the other dominant economic traits of the industry.
It has been said that analysis of Australian industry tends to focus
excessively on weaknesses and threats. Certainly it is necessary to deal
with these issues to match our competitors but on its own it will not provide
us with a sustainable competitive advantage. To take the lead we must build
on our strengths and develop our opportunities. Thus, whilst it is true
that competition tends to drive down price it can also stimulate structural
adjustment in demand chains, production efficiencies, market development,
product innovation and differentiation. This is the challenge to the industry
and it will be addressed in part by a strategically focused research and
development program.
APPENDIX 2. ‘SWOT’ ANALYSIS OF AUSTRALIAN OLIVE INDUSTRY
Strengths
· Established and growing [domestic] market for oil and olivesWeaknesses
· Australian innovation in agriculture giving efficiency in production
· Good reputation as a trustworthy and efficient producer of agricultural products
· Not ‘hamstrung’ by the past – start with leading edge, best-practice e.g. groves planted with mechanical harvesting in mind
· Successful industries to model on i.e. wine
· Level of organization & infrastructure, cooperation and communication within organizations
· Human resource base – diverse and enthusiastic people
· Ability to produce high quality product
· Adoption of Quality Assurance across the industry
· Counter seasonal production to Europe
· Little reliable, local data on varietal performance, key production and processing issuesOpportunities
· Lack of reliable, comprehensive statistics – industry participant numbers, production
· Ad-hoc, low funding - No levy across the industry – other small industries have one in place.
· Confusion in the market place regarding naming / types of olive oil and table olives
· Lack of basic horticultural skills and skilled people leading to low productivity and undermining quality e.g. contamination due to inappropriate chemical use
· Low productivity/ high costs (vs. European subsidies) threaten long term viability
· Lack of understanding of oil [organoleptic] quality [among producers]
· Industry cohesion is too low – want a substantial, international industry not a cottage industry
· Too many competing, small brands in deli’s
· Consumer ignorance of product
· Claims of Australia as a "clean and green" production country being questioned
· Lack of forward planning for marketing
· European producers market dominance
· Competitive reaction of overseas ‘giants’ e.g. Unilever, to Australian products in local market
· Environmental: failure to successfully deal with e.g. processing waste, biodiversity issues
· Over production across the world and potentially in Australia and subsequent price decline
· Abandonment of groves over time leading to pest, disease and biodiversity problems
· Water shortage / increased price drives olives out of the market - industry looses critical mass
· Pest and disease entry into Australia e.g. olive knot
· High labor costs
· Fall-off in domestic consumption of olive products
· Current lack of confidence in industry makes obtaining finance difficult
RIRDC Reports
Dryland Olive Growing & Oil Processing - R95/017,
Farnell Hobman, SA Dept Primary Industries
Presents economic data on the commercial growing of olives
using modern production and processing methods
Irrigated Olive Growing & Oil Processing - R95/005,
Farnell Hobman, SA Dept Primary Industries
Presents economic data on the commercial growing of olives
using modern production and processing methods.
Olive Oil - Yield, Quality and Cultivar Identification
- R01/23, K. Robards et al
shows how and why there is a need to identify cultivars
due to the longevity of the crop and a need to improve efficiency in growing
and extracting olive oil.
Potential for Establishing an Olive Industry in Australia
- R98/005, D McEvoy, E Gomez, A McCarrol & J Sevil
Assesses the market potential for the development of
an olive industry in Australia
Regional Australian Olive Oil Processing Plants - R00/187,
Meyers Strategy Group Pty Ltd
Words plus an Excel model of the feasibility of processing
olives into oil, in Australia
The New Rural Industries: A Handbook for Farmers and
Investors - R98/034, Keith Hyde, editor
The most frequently asked questions about the market
prospects and production/processing requirements for some 90 smaller or
prospective new rural industries.
The New Rural Industries: Financial Indicators - 99/38,
Hassall & Assoc
Follow-up to the very successful New Rural Industries
- A Handbook for Farmers and Investors.
The Olive Industry in Central Italy and Southern Spain
- R94/007, Farnell Hobman, SA Dept Primary Industries
Presents data on the more advanced overseas practices
and provides an evaluation of the adaptability of these technologies for
the Australian industry, which still uses hand harvesting methods
The Olive Industry: A Marketing Study - R99/086, DG
McEvoy & EE Gomez
Researches the marketing aspects of olive products quantitative
analysis
Wild Olive Selection for Quality Oil Production - R00/116
M. Sedgley
Reports on research was to develop new and improved olive
cultivars based on selection, oil analysis, DNA fingerprinting, sensory
evaluation and propagation.
4th International Symposium on Olive Growing, Barbara
Hall
Italy, 25-30 September 2000 and USA 2000 Olive Tour,
California, 10 October 2000
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Last updated: Aguust 2002
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http://www.rirdc.gov.au/pub/olive5yr.htm