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Wine and olive oil markets

EU Wine markets suck, olive oil markets..kind of

Wine Markets

From wikipedia

Within the European Union, the term "wine" in English and in translation is reserved exclusively for the fermented juice of grapes.

Whereas in the US the word can be used for any fermented fruit, as long as it is prefixed with a more detailed denomination.

However there are a few difference among european countries which makes wine products unfair.

In EU wine is not exactly grapes but juice fermented from vitis vinifera. Which excludes the [vitis labrusca], the american originated grape. Which has to be called something like, just like other fermented juice that is not made from vitis vinifer.

This would be fine...If you want to call wine only stuff made from a particular plant. Except that different countries have different rules. In Italy you are not allowed to add either water, or sugar during fermentation, in other countries however its a mix of legislation, and what ends up being called wine can be quite different from country to country.

It is called wine, but with fermentation process that looks a lot like beer...except for that fact that you use cereals and not (grape) fruits. Ignoring the fact that when making wine, the list of ingredients that are used to stabilize properties like tannins, color, clarity, acidity and slow down fermentation is very long, distancing the final product even further from what is supposed to be fermented juice from vitis vinifera.

To this nonsensical classification of what Europe calls wine we should specify that distinguishing between wine produced without added sugar or water from pure wine is not possible, there isn't a fingerprint that distinguishes pure from artificial, at best you can use heuristic to compare contents of other substances common in pure wine, except for that fact that the innumerable counts of variations between cultivars, years of harvest and locations, makes the construction of an original wine profile quite close to impossible.

What's the outcome? Some countries have stronger wine export because their legislation allows more freedom to cover different market segments, and can better flex production quantities accordingly to demand.

To this, add the fact that France for example, has allowed from a few years ago farmers to plant vineyards for commercial purposes anywhere, whereas Italy is still on a slow path towards liberalization of vineyards plantations that will last almost 10 years. If it wasn't for the fact that wine consumption has been contracting for a few years, it would have put countries that still adopt some form of protectionism towards wine production at a worrisome disadvantage.

Olive oil markets

For oils in general it markets are different, because oil is not just used as food product and finds applications in cosmetics, medicine, mixtures for lubricants and for fuels. Differently from wine which has a a varying shelf life that goes from 1 year to 20 years and more depending on the quality of the production process and storage, oil hardly last more than 2 years. The demand of something which can be stocked for multiple years, like wine is different, as you have products a longer time span influencing the demand, whereas for oil is a recurrent 2 years cycle.

The definition of EVO oil is also a little better compared to wine as it states the amount of allowed acidity that the oil can have, and because oil only needs proper storage for conservation, it doesn't receive many additional treatments like wine does to stabilize the final product. Because oil is a product made of >99% of vegetable oils, it's quality and properties depends from the raw olives (cultivar, ripeness, health) used for production, and the extraction process (time since harvest, kneading).

Oil as a product is more "honest" compared to wine as long as vegetable fats can't be artificially produced. Although blends of oils of different qualities are common (or even blends between olive oils and seeds), the final product is discernable from oils made 100% from olives, because seeds, nuts and olives have different concentrations of saturated and unsaturated fats; also since oil is >99% fats, it can't be corrected with external additives as much as wine since it is more difficult to create substances that are soluble in oil. What is instead common to do with oil is infusing flavors through a decanting process (to give properties like spiciness, or additional flavors like lemon, basils, etc.)

Oil mills and wineries

Wineries don't really produce wine anymore, they make must and then sell the must to who wants to make wine, because, as we stated, wine is more like and end product than a source product. Wineries that collect grapes from vineyards set the price based on the grapes gradation; a drill samples the load and measure the gradation of the must extracted by the sample of grapes. Some people think that they can increase the gradation by mixing sugar to the load, but as long as the process is done correctly it is useless (unless you can inject sugar inside the grapes themselves). The process could be even made stricter by washing and drying the sampled grapes before extraction.

For olives the pricing is more unfair compared to grapes. There isn't a process that gauges the quality, prices are decided before-hand day by day. What decides the prices? There are two main factors which we can call base price and operational price. The base price is dictated by the minimum profit that an oil mill is willing to make in the oil production process. Operational prices is dictated by how much the oil mill looses by having dead hours during the production process. Since during the harvesting period, an oil mill runs day and night, it is for its best outcome to saturate the production line, therefore prices increase only as long as the mill can't saturate production hours, this looks like basic supply and demand, but in agriculture you are limited by distances; this means that despite the fact that you can ascertain an overall scarcity or excess of production, on a closer look, you will see a variation in price that can reach 3x to 4x the base price.

Price Bubbles

If we assume that no farmer is willing to transport the load further than 50KM from the land of harvest then we can predict that price bubbles will form around clusters of oil mills (or around towns, in case of smaller locations). Simple producers of olives (that don't make their own oil) are subjected to whatever price oil mills dictate, there is no bargaining, it is a one way relation. If we assume the possibility that cartels might form among neighboring oil mills the prospect of olives producer is even more gloom.

The probability of cartels among oil mills, paradoxically, increases with competition (usually competition prevents monopolies). How come? Cartels break when the costs of coordination between parties becomes too high. The higher the number of participants, the higher the costs to make everyone agree on a common policy. But this never happens! You will never see a place with enough oil mills to break cartels, because like any other kind of store, there is always strategic planning involved in the choice of location for new mills. The slow-evolving landscape of refineries for agricultural products make it somost of the times there is just enough buyers to form a cartel and not enough buyers to create buyer pressure and kickstart true competition. Farmers on the other hand are many (usually owning less than 5 hectares of olive trees), and scattered even across more than 1 town, which makes coordination costs for the organization of strikes prohibitive. By these rules, we can say that cartels are more likely to form in regions like Apulia and Sicily compared to northern italian regions, where production is considerably lower and sparser.

This model, for the probabilities of the formation of cartels, can be extended to any produce which incurs in fast deterioration, where the time to process has to closely follow harvesting time (a requirement for olives and grapes). Whereas produces like unshelled nuts which can handle multi-day transportation are less likely to have price bubbles. The globalization of produces apt for long range transportation, however, means that price variations will be steeper across years (price will be more volatile on a yearly basis), which will result in harsher effects on local economies which will have to withstand uncalled-for years of over-supply due (for example) to fully mechanized plantations from more technologically advanced countries.

Price Indexes

There isn't a price index for olives and grapevines also for the reasons mentioned above. The dependency of price on location makes the adaption of a one dimensional mean not ideal, as it doesn't have enough explanatory power. Every farmer is subject to the combination of factors involving (micro)climate, yearly industry storage, market trends and local buyers coordination.

The high volatility of the price during harvest time is also evidence that what drives the trend is not dependent as much on externalities and global market trends which still influence the base price, while micro-factors based on locality have multiplicative weight on the price itself.

Yet there is more. Grapevines and olives for oil are a mono application type of raw materials. This means that from grapevines are only used for must/wine and olives only for oil. They are not interchangeable with cultivars for table consumption. Since the farmer doesn't have other potential buyers other than wineries and oil mills, it becomes another limitation around farmers ability for bargaining prices; there isn't an alternative buyer to cause buyer pressure and competition among buyers.

The material for which instead is possible to give a price index are wine and olive oil, because their buyers pool is much larger and therefore truly competitive.

We can apply a generalization in this case, and say that the price stability of some non lasting good is dependent on the multi dimensionality of its applications. It is important to state that the good has to have a shelf life, because materials like metals, which have storage costs and a wide variety of applications, but not an expiry (or a very long one that can be abstracted away) are governed by additional motives.


The fact the the price of grapevines and olives has no weight neither on the local, nor the global market puts farmers in a very precarious position. Farmers are already subject to weather, plants diseases, water shortages, which even if can be controlled to a certain degree, still provide a partial unknown variable to the yearly ratio of profit-loss which is added ot the price unknown. Since refineries extended the set of tools to deals with the unknowns of the production of raw goods, it becomes the optimal strategy for farmers, to vertically integrate refineries into their business model. At this time, we can consider a business model involving exclusive specialization in the production of the raw goods a relic of a past era, (the boomer era), where the affordability of lands, vehicles and fuel allowed farmers to take considerable higher risks which in today's more mature markets are not possible anymore.


Mechanization in the harvesting of grapes

The most common method for harvesting grapes has become grasping through a mechanized machine that passes over the grapevines canopy one row at a time. This method allows fast harvesting times but harvests without discerning non ripe grapes for ripe ones. However the fast harvesting times averages out the inability to leave non-ripe grapes by choosing the right time to harvest with more precision. This method is only possible with vertically grown canopies, whereas mechanical machines for harvesting horizontally grown canopies are still not widespread, since such plantations are more common in southern areas, where they can create a more favorable micro-climate for the grapes under the canopy.

None-the-less the price is influenced by the efficiency cost of those machines, and consequently farmers that cultivate horizontal plantations are put at a disadvantage. However grapes harvested with scissors preserves grape stalks which

This qualities make it so that it can be differentiated enough from machine harvested grapes to justify a premium on the price. The demand for manual cut grapes however is not high enough, and the future of such market is unknown, since it is mostly driven by small customers to produce their own wine; such practice might slowly fade away since rooted in traditions, or will remain a niche for hobbyists with no room for growth.

Mechanization in the harvesting of olives

Olives harvesting machines are an advancement from the grape harvesting that share the same principles and are applied to other compatible fruits (like almonds). They run through rows of small plants, shaking the branches to detach the fruits. Human supported mechanization methods still involve shaking, which makes the harvested product similar, however if for grapes, the higher quality product is the one harvested by hand, for olives, it is the one harvested by the fully mechanized method, because by not involving the use of nets, the olives sustain less impact damage. Moreover, the considerably faster harvesting times (~3x) allows more freedom in choosing the preferred ripeness, which as opposed to grapes, more ripe is not of strictly better quality, because ripeness in olives is a choice of choosing the correct balance between quality (less ripe) and quantity (more ripe).

Fully mechanized plantations have currently a restriction in what varieties can be adopted, however this is only a current limitation that will be less of a factor as more varieties get engineered. Moreover there have been successful attempts in adopting native varieties in some plantations. Mechanized harvesting however is still full of unknowns which make it future uncertain:

The choice between tractor sized mechanization and human sized is still not obvious, although there is continuous R&D on large machines, further developments on small scale harvesting might still make small farming businesses viable in the future.

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