US Olive Oil Market Dynamics

February 19, 2012

California Production Overview

• Since 2005, more than 20,000 acres of super high density olive

plantings have been developed in California

• Most of this acreage has just come into production

• 2012 harvest will likely be double 2011, placing 2.7MM gallons of

CA olive oil on the market

• Total production will exceed 5 million gallons in 2015

2006 Production Level

What impact on price?

5 Million Gallons, in perspective

• 3,600,000: The approximate number of gallons sold by Filippo

Berio, the largest retail brand, last year (across all grades) in IRI

tracked grocery accounts in the US (17% share of market)

• 5,000,000: The approximate total number of gallons of olive oil

sold annually worldwide by Costco (across all grades)

• 425,000,000: Spanish total production in gallons

• 850,000,000: Total global consumption in gallons

We will sell the oil, the question is at what price?

Current Olive Oil Prices

• Italian =

€2.70/kg

• Spanish =

€1.80/kg

• Greek =

€1.90/kg

• Italian =

$12.40/gal

• Spanish =

$8.27/gal

• Greek =

$8.73/gal

Source: International Olive Council, Market Newsletter Dec 2011

Note: Argentinian delivered = $11.80 / gallon (Oakland)

Low Oil Prices at the Retail Shelf

BrandDollar

Sales%Change

Unit

Sales%Change

Merch.

Vol.

Share

%Change

Avg

Price/Vol

ume

%Change

FILIPPO BERIO OLIVE OIL $116,892,100 -8.1 14,849,450 -8.0 55.3 4.5 $4.24 -1.9

BERTOLLI OLIVE OIL $88,742,970 -3.8 11,313,930 -4.4 48.4 -2.5 $5.44 -0.5

STAR OLIVE OIL $32,784,860 -12.4 4,265,941 -12.5 63.2 8.1 $4.80 -4.8

BOTTICELLI OLIVE OIL $21,035,620 -2.9 2,774,748 3.6 77.3 -0.8 $2.37 -4.0

CARAPELLI OLIVE OIL $16,400,160 -31.2 2,007,182 -38.1 43.1 -14.7 $4.80 8.8

CRISCO OLIVE OIL $13,435,210 -9.6 2,625,586 -6.0 49.3 13.3 $4.69 -3.7

CAPATRITI OLIVE OIL $12,902,280 -10.5 1,198,854 -13.7 72.0 -9.4 $1.84 7.0

VIGO OLIVE OIL $5,622,647 -6.9 1,079,024 -4.5 16.7 79.1 $5.14 -1.7

Source: IRI, Total US, 52 weeks ending November 27th, 2011

• These are valued at retail for 16 oz. equivalents (approx. 500ml)

• Average retailer margins in olive oil are 35 – 52%

• Manufacturers / bottlers are receiving 45 – 55% of the price

reflected here

• To support a $15 / gallon bulk oil value, average retail prices for

branded oils must be above $7.00 / 500ml including trade

discounts (promotional spending)

– Trade spending is typically 19 – 25%

– This drives an everyday shelf price of approx. $9.25

What is driving this?

• Category commoditization:

– Major industry players have no incentive to change it’s all

about volume rather than quality due to low high quality

production volumes in the major producing countries

• 20 – 30% of production volume is EVOO, 52% of sales

worldwide are labeled EVOO

– Little real distinction between grades and brands of olive oil

No opportunity for price

– Consumer confusion due to labeling (pure, light, EV)

– Consumers buy what is least expensive

– They’re trying to sell what they have…A LOT OF BAD OIL!

• Rather than building a industry that provides growers &

processors an opportunity for profit, government subsidies are

used to appease them Olives are a social welfare program

• The large buyers of olive oil run the industry today…buyers are

interested in lowering their costs

How do we compete?

• All segments of the sector receive subsidies

– Mills receiving 40% of construction costs

– Growers receiving €800 - €1800 / hectare ($3 – 6 / gallon)

• To add injury to insult, tariff disparities are massive:

– Into EU: €1.45 / kg

– Into US: $0.05 / kg

• HOWEVER:

– Excluding subsidization / tariffs, we have lower average production

costs for high quality, real EVOO

• We can’t compete with European net

production costs because of the heavy

sector subsidization.

• Indications are that European

subsidization of the sector will increase in

2012 as part of the bail-out efforts

Build and Defend our Strengths

• Quality:

– Grading standards: Consumer focused, simple to administer

– Keep our house clean: Ensure that all US-produced olive oil

is graded and labeled properly

– Lead by example: Prove that consumers will pay for

verifiable quality

• Best Practices:

– Support research that will help the US industry increase

yields, improve health benefits, lower production costs

• Commit to Collaboration:

– Organize to address the real issues we face: rampant

mislabeling, unfair trade practices from some importing

countries

WE HAVE DONE THIS BEFORE…

pistachios, almonds, walnuts

Our Options

Current Path

Standard of

Identity (FDA) IOC Membership State Commission

Federal Marketing

Order (USDA)

Relies nearly 100%

on consumer

education

Established to help

consumers

Voting based on

country production

Applies only on a

state-by-state basis

Applies nationally

Expensive, time

consuming…this is

the 20 – 30 yr. plan

Creates common

names for food

products

US would receive 5

of 1000 votes

despite having the

3rd largest market

Should be

evaluated as a tool

to collaborate on

marketing EVOO

Establishes national

committee which

comes under the

USDA

Voluntary standards

don’t work

Sets content

requirements

Standards are lax Standards can be

included

Standards can be

included

“Every man for

himself”

May be helpful as a

part of a

comprehensive

standards program

Focused on

production, not

consumers. Spain,

Italy, Greece hold

all power

Standards apply to

state production

Standards apply to

US production

One bad

processor could

tarnish entire

industry image

DOES NOT

ADDRESS

QUALITY ISSUES!

No ability to affect

necessary change

due to voting

structure

Does not provide

a path to federal

standards for olive

oil

Provides a path to

imposition of

standards on

imports

Why a Federal Marketing Order?

• Method to maintain high quality US production Our primary

advantage vs. imports

• Pathway to standards imposition on imports

• Shared Sacrifice, Shared Benefit Equitable

• Places power in the hands of those with the most at risk

professional growers and processors

Objective: Establish enforceable grading standards for olive oil in

the United States that provide consumers and producers with

clarity and prevent adulteration / mislabeling