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The Palestinian Olive Oil Industry

Contributed by This Week In Palestine on 25.02.2006:

This Week in Palestine

October 2005

By Basem Khoury

The olive tree is unique in this region for its longevity and its ability to continue to bear fruits for thousands of years. Some Palestinian fruit-bearing trees have been producing from the times of Jesus, the Empress Helena, Omar Ben Al-Khatab, Salah Eddin and Napoleon Bonaparte. These ancient olive groves have provided livelihoods for generations; thus, this agro-industry continued for millenniums to be the focal point of many rural communities.

There are approximately 12 million olive trees in Palestine. This staple crop covers over 40% of the cultivated area of the West Bank, and makes up around 45% of total plant production, 80% of all fruit trees and produces around 25% of the gross agricultural income. Olive oil yields alternate from around 35,000 tons in the diamond or «massi» year to around 5,000 tons in the bad or «shelatoneh» year. Thus, this industry contributes approximately 4.6 % to the Palestinian GDP.

The Palestinian olive oil industry is passing through extremely challenging times due to the loss of its traditional export market. To survive, it has to find new markets, meet prices and standards which those new markets require – hence, achieve a level of comparative advantage. In the era of globalization, this is a challenge facing not just Palestine, but industries in every country. Success depends upon a creative, thoughtful, and coordinated strategy.

Palestinian olive oil has historically been a key West Bank export. It was traditionally exported to Jordan, where it was re-exported to other Arab countries, primarily through small, family-run trading businesses. Exports began to decline in the mid-nineties as a result of protectionist measures in Jordan, as well as increased competition from new, lower-cost olive oil producers in neighbouring countries. Compounding this, the closure regime denied many West Bank and Gaza Palestinians access to family members in Israel, closing off the informal, but lucrative, Israeli market. There was an estimated surplus of 20,000 tons of olive oil in 2002.

Even though quality Palestinian olive oil production is a tradition of thousands of years in the making, branding in the international markets was not properly done. Initiatives made by the Palestinian government, by local companies and by NGOs and local co-operatives were not enough to position Palestinian olive oil at a level worthy of its quality. Currently there are various efforts to rectify this.

The three major challenges facing prospective olive oil exporters are: (i) the cost of production of Palestinian oil, (ii) meeting quality standards, and (iii) creating a brand image.

The cost of production is relatively high because of the high cost of transport, primitive methods of cultivation, and the high cost of labour in relation to neighbouring countries. Studies indicate that the adoption of modern technology used in Europe, such as automated harvesters, and better utilization of labour may reduce costs.

The competitiveness of the Palestinian olive oil could be greatly helped by events in Europe, which produces more than two thirds of the world’s olive oil. The EU subsidizes its producers by around 1.5 Euros per litre, costing its budget an estimated 3 billion Euros annually. As a big chunk of this olive oil is exported, Europeans are in effect subsidizing international consumers. According to expectations, cutting agricultural subsidies which currently account for more than 50 % of the EU budget is only a matter of time. Thus, a window of opportunity is widening for Palestinian olive oil.

Farmers in Europe will find it difficult to continue with the production of olive oil if subsidies are cut. With the granted subsidies, profits per litre are around 2 Euros. Many producers do not fully count, as cost, the labour they and their families put in. When accounting for all labour costs, the real cost of olive oil per litre will be around 7 Euros, exceeding current international selling prices. Hence, if subsidies are reduced, the international prices of olive oil will drastically increase, or this agro-industry will slowly leave Europe. When including all costs, Palestinian olive oil currently costs the producer an estimated 12 NIS/kg. If the collection process is mechanized, the cost per litre will drop to around 8 NIS. Since Palestinians can sell the extra virgin oil at around $4, this would leave farmers a good margin to live on and invest in future developments.

European farmers are additionally shielded from international competition by the imposition of a tax on imports of about 1.8 Euros per litre. Palestine managed to achieve a 2,000-ton quota from the European Union. Thus, 2,000 tons of olive oil exported to the EU are exempted annually from import taxes. This will aid in the efforts of Palestinian olive oil to penetrate Europe at fair and competitive prices. We need to benefit from the EU quota, while at the same time working aggressively to meet the necessary conditions by reducing costs and improving and verifying quality.

The challenge of meeting quality standards must also be addressed. Palestinian olive oil is recognized by international experts as unique due to its superb organoleptic (taste and smell) qualities. Its aroma is superior to other oils and its sharp, fresh taste distinguishes it from sweeter north Mediterranean oils. Nonetheless, the decisive factors in determining the quality of olive oil are its levels of acidity and its peroxide values. These decide whether the oil is classified as “virgin” or “extra virgin,” thus determining price. Unclassified oil is very difficult to export, since all major oil producers in the world sell classified oil.

Several Palestinian producers/exporters are attempting to meet these quality standards. Success depends on a coordinated effort throughout the value chain. All involved must adhere fully to a set of predetermined operating procedures. These procedures are accepted by experts as essential to achieving the internationally required standards for acidity and peroxide values. Farmers need to adopt these simple, but critical, “best practices» throughout the entire cultivation and harvesting process in order to ensure and enhance quality. To succeed in export, Palestinian oil needs to be marketed as quality olive oil. This makes testing, verification and certification crucial. This is the key to the continued success of European producers in achieving the desired high quality olive oil. Thus, to achieve and maintain quality, the whole production chain must be properly handled: from fertilizing and pruning the trees to picking the olives, pressing, filtering, packaging and storing the oil.

Various groves/producers in the West Bank have been certified by international experts as capable of top quality production. The oil produced is premium quality extra-virgin, with acidity levels of only 0.2 to 0.6 %. This is among some of the highest quality levels in the world and the quality of the oil is further enhanced by the fact that it is not blended or refined.

Creating a brand image is a key challenge. The logical foreign target markets for Palestinian olive oil are those attracted by the “made in the Holy Land” image and Palestinians in the Diaspora. But more thought and effort need to be put into establishing a national or regional ‘Palestinian Olive Oil’ brand, and creating awareness of, and demand for, that brand. To enhance competition, efforts must be focused on creating a brand image for Palestinian oil, and providing a Domain Origin Protected (DOP), which is a form of certificate of origin received by the best oils of the world.

The past decades witnessed the growth of organic farming internationally. The overwhelming majority of Palestinian olive oil is organic, as chemical fertilizers, insecticides and herbicides are either too expensive or farmers cannot get hold of them due to “security restrictions” imposed by Israel. Additionally, spraying is not practised since all the groves are infested and farmers do not see the need to spray while their neighbours don’t. Creating grass-root awareness of the importance of using organic methods and training a group of Palestinian certifiers are two measures that would greatly push this effort forward, as would achieving the ‘organic’ certification for Palestinian olive oil from a recognized international body. It is agreed upon by experts that the certification of Palestinian olive oil producers as organic is not difficult. As certified organic olive oil fetches higher prices internationally, achieving certification from a recognized certifying body should be high on the Palestinian national agenda.

In light of the importance to the West Bank and Gaza of olives and olive oil, both culturally and economically, a number of initiatives are underway to protect this critical industry. It is vitally important to maintain a growing olive oil industry. Not only is it a source of jobs for farmers and the unemployed, but it is a sector where world demand is doubling every 15 years and where Palestine can contribute a value-added product.

Insuring high quality production, preferably with organic certification, and succeeding in exporting to high-end markets will guarantee the sustainability of this industry in Palestine.

Ultimately, olive oil may create a real opportunity for Palestinian farmers and businessmen, thus contributing to the well-being of a broad category of the population. This will greatly help the ailing Palestinian economy by creating desperately needed job opportunities. Certification of the Palestinian olive oil is pivotal for the success of this endeavour.

Basem Khoury, an industrial pharmacist, is involved in promoting Palestinian olive oil in Europe and has recently founded and serves as the Vice Chairman of the National Company for Agro Industries – Zayt.

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