The EU olive oil market: analysis and modelling

Since Greece (1977), Spain and Portugal (1986) joined the European Union, the world olive oil market has been dominated by five member countries (Italy, Spain, Greece, Portugal and France), which account for around 80% of world supply. The main feature of this market is that it is regulated by the Community’s agricultural policy. This policy of price support and the development of demand has encouraged fraud and the expansion of production capacity, which could ultimately lead to serious surplus problems. In the interests of transparency and to guarantee market balance, which is now under threat, the European authorities have undertaken a fundamental reform of the regulations in force and the liberalisation of prices. But given the growth in world demand for olive oil, would there be a real trend towards overproduction if European policy remained unchanged? What impact will the current reform have on market trends? To answer these questions, we began by analysing how the market operates, based on a study of the economic mechanisms and structures that governing the olive sector. Finally, after discussing the place of olive oil in econometric research and the limitations of conventional models, we present a v.a.r. model of the EU olive oil market. The results obtained show that not only would the olive oil market run into surplus problems if it were not reformed, but also that its future will depend on the evolution of demand.