Thursday, May 06, 2010

Liquid Gold - The Syrian Olive Oil Sector

Syria Today magazine

Syria’s burgeoning olive oil sector has expanded from small producers catering solely to the domestic market into a SYP 23bn (USD 500.5m) industry. The country is now the fourth largest producer in the world. In just over a decade, exports from the sector have reached European and regional markets and now look set to hit Asia.

The sector could get a further boost when the Association Agreement (AA) between Syria and the EU is finally inked. The deal will make it easier for Syrian producers to do business in Europe, although just how much the sector will benefit from the agreement depends on prices and economies of scale.

On average, Syria produces 150,000 tonnes of olive oil per year, with some 100,000 tonnes consumed locally, Samir Jazzar, general manager of Olive House, said. However, annual production is highly dependent on the season and tree yield – one year a tree will provide a 100 percent fruit yield, the next year a 55 percent yield and the following year a 60 percent yield.

Last year’s olive harvest was down by some 20,000 tonnes. This year, however, the sector has recovered.

“This season was a good season, a bumper season,” Hassan Zeno, director of Zeno Oil, which exports 1,000 to 2,000 tonnes of olive oil a year, said. “But due to the Mediterranean fruit fly infestation, we produced 70 percent virgin and 30 percent extra virgin oil. Normally it is the other way around.”

Indicative of this season’s good crop is the price of 1kg of olives costing SYP 136 (USD 2.95), compared to last year’s price of SYP 150 (USD 3.25).

“Syria has jumped [from being the fifth] to the fourth largest producer in the world because there was a crop failure in Tunisia,” Philippe Chite, an export promotion consultant with the Syrian Enterprise and Business Centre (SEBC) in Aleppo, said. “If the crop fails in Spain, there is a need for Syrian oil, so sales are very dependent on the season and how it is sold in the world.”

Long-term rise

There are currently 93 million olive trees in Syria, predominantly around Aleppo, the north-west and in the Dera’a region in the south. Some 65 million trees are currently bearing fruit. When the remaining planted trees mature over the next 10 years, production is expected to increase to more than 200,000 tonnes annually, according to Omar Adi, executive manager of Near East Olive Products (NEOP), the country’s leading olive oil exporter with a 40 percent market share.

“Back in 1997, Syria only had two or three serious companies,” Chite said. “Now it has developed and there are 20 serious companies in the sector, such as NEOP, Zeno, Zaitoun, Emoc, Al-Khair, Al-Mutawasit and United Olive Oil.”

Unusually for Syria, the sector has no state involvement and is totally in the hands of the private sector. The government has, however, provided assistance to farmers.

“The government has played a big role in providing trees at a competitive price, making farmers plant in areas where there is not much rainfall and introducing irrigation,” Chite said. “This has helped as production in the coastal areas has been declining.”

The government also backs a research centre in Idleb that carries out studies on developing the sector, such as gene research and agronomy, as well as tastings and tests to produce oils tailored to the palates of individual markets. To boost production and create better coordination between producers, private companies have teamed up to establish the Association of Syrian Olive Oil Exports. But further assistance from the government is needed to bolster the sector, Adi said.

“The first thing the government could do is give subsidies to exporters,” he said. “Another option is to give subsidies to farmers, not in the form of money but in infrastructure. The third thing that would help is if we could create farming cooperatives since all the land is owned by small landowners.”

Barriers to expansion

The lack of economies of scale – in field size, collective ownership and mechanisation – is a major disadvantage for the competitiveness of Syrian exports. This is further compounded by the fact that EU producers receive agricultural subsidies to produce an estimated 2m tonnes of olive oil per year.

“New laws are being studied to bring farmers together into collectives,” Adi said. “But if it stays like it is today, it is hard for companies to compete internationally, especially with all this competition from countries in South America such as Argentina, Chile and Brazil where the cost of production is low. The problem we have is that we don’t have economies of scale – production is too small and that increases costs at the end of the day.”

Adi gives the example of Syrian olive oil exports to Europe costing SYP 151 (EUR 2.40 / USD 3.28) per kilo and Tunisian exports to Italy costing SYP 126 (EUR 2 / USD 2.74) per kilo, a 20 percent difference. Extra virgin oil from Syria sells at SYP 200 (EUR 3.17 / USD 4.35) per kilo, while Spanish companies are buying oil for SYP 139 (EUR 2.21 / USD 3.02) per kilo from local Spanish producers. With logistics and transportation costs added on top of this, as well as EU customs duties, the cost of Syrian oil on EU supermarket shelves is simply too high.

It is no small problem, given that the future of the sector lies in exports.

“Looking to the future, a surplus of 60,000 to 70,000 tonnes of olive oil needs markets which will pay a reasonable price to the farmer, otherwise they will lose interest in planting,” Adi said. “Some 70 percent of business will go away if we can’t export.”

A further issue the sector is facing is the high acidity of its olive oil. As a result, most Syrian oil sold to the EU is blended.

EU deal on the way

The pending AA will abolish many duties imposed on bio-based oils – oils which break down naturally such as olive, canola and soya – in both Syria and the EU. The duty on Syrian oil, currently SYP 6,942.60 (EUR 110.20 / USD 150.93 ) per 100kg, will disappear, while the 50 percent tariff imposed by Syria on EU-produced olive oil will gradually be phased out. The agreement was initialled by both parties in 2004, but its formal approval has been held up by diplomatic complications. Jazzar, Zeno and Chite all said that the AA will be beneficial to local olive oil producers.

“It will help a lot because it will give Syria an advantage and a guaranteed amount to be exported, whether that is 8,000 or 15,000 tonnes,” Zeno said.

Adi is less optimistic about the agreement, pointing out that the deal will open up the Syrian market to imports while the EU market will not consume all of the country’s surplus stock.

“This agreement is interesting, but not a revolution,” he said. “We are not going to be able to export our entire surplus just from this agreement, but it will help the sector if Syria has a 10,000 tonne quota for bulk sales.”

However, Zeno said that Syrian brands will have to target niche markets.

“Europe is already saturated with Italian, Spanish and Greek brands and it is hard to change the mentality of consumers, even though Spanish buyers say Syrian oil is the wine of oils for its aromatics and great quality,” he said. “Consumers are too used to Spanish and Italian oils.”

The high cost of entry into EU markets also stands as another barrier to local producers, Adi said.

“I think most Syrian companies lack the finances to get into the market because there are only a few brands on [supermarket] shelves,” he said. “European retailers are trying to limit the number of brands.”

Looking east

Due to these factors, Syrian exporters are increasingly eyeing up the Gulf and Eastern markets to offset their surplus.

“Everybody is betting on the Gulf and Asia,” Adi said. “With Chinese purchasing power increasing and rising health awareness, it’s a new market that is opening up.”

Syria is also entering markets where the Mediterranean diet is being adopted, particularly in the Gulf, to cater to expatriate diets.

“The Gulf has great potential and there is the advantage of proximity to Syria, taking just three or four days to deliver goods,” Zeno said. “And they are used to our quality.”

Photograph courtesy NEOP

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