Production costs and product pricing

Product pricing and olive oil production costs can be influenced by the full value chain and even external factors:

• Raw Material Costs: This includes a variety of costs such as the cultivation of olive trees, land, fertilizers, water and pest control. Said costs can fluctuate depending on a number of factors such as water scarcity in the region and the price of fertilizers.
• Production Process: The whole production process from harvesting to packaging has a tremendous influence in production costs and in the final product pricing.
  • Harvesting: The harvesting method significantly impacts production costs. Mechanical vs. manual harvesting impacts labor costs, efficiency and oil quality.
  • Transportation: The cost of transportation may vary depending on the transportation method used as well as the distance that the olives and the olive oil has to travel.
  • Milling: The milling process which includes washing, crushing, malaxation and separation is crucial for the quality and yield of the olive oil, with distinct processes affecting the yield and quality in different ways. For example, cold pressing and short malaxation times retain more nutrients, this way increasing quality, on the other hand, this process may reduce yield.
  • Extraction: Traditional press extraction and modern centrifugal extraction are two distinct methods that affect both quality of the oil and production costs. Generally, modern extraction methods are more efficient and produce higher quality oil, however, they also require significant capital investment.
  • Packaging: Glass bottles, dark containers for UV protection and sustainable packaging hold additional costs but increase perceived value.

Figure : Source: Freepik

• Quality Certifications: As the market becomes more sophisticated, quality certifications represent a significant component that increasingly affects pricing strategies, compelling producers to invest in quality certifications and testing to ensure that their products meet rigorous standards.
• Energy Costs: Electricity, fuel and water are essential variables that may affect production costs. As the olive oil production is energy-intensive and energy costs as well as water costs may vary depending on external factors, such as local/national regulations and policies, weather conditions, global events, and economic conditions.
• Labor Costs: Wages, benefits, trainings and even the productivity of the workforce are labor costs that symbolize significant elements of olive oil production costs.
• Key market influences

The olive oil market is influenced by a variety of factors, including weather conditions, production costs, consumer preferences, geopolitical factors and international trade. Some of the key market influences are:

• Climate Change: Unpredictable weather patterns can significantly affect production levels, especially in major olive oil-producing regions (e.g. Andalusia region was highly affected by the 2023 drought).
• Geopolitical Factors: Geopolitical conditions can have a tremendous influence on olive oil production and pricing. For instance, events such as COVID-19 or the war in Ukraine, can perpetuate trade restrictions and supply chain issues, which in turn, reflect on increased transport and energy costs. Furthermore, trade barriers can restrict access to certain markets and affect global prices.
• International Trade: Global trade and international collaborations influence olive oil supply and distribution.
• Sustainable Practices: Consumers are increasingly environmentally conscious, seeking organic and sustainably produced olive oils.
• Health Benefits: The recognition of olive oil’s health benefits, such as reduction of heart disease risks and other benefits of its antioxidant characteristics, furthermore drives demand.
• Technological Advancements: New technologies and machineries can improve production efficiency, storage and packaging, impacting competitiveness and market dynamics.
• E-commerce: The rise of online retailing platforms brings the product closer to the consumer, making premium oils more accessible and convenient.
• Local/Regional/National Preferences: Different regions have varying consumption patterns, depending on their traditional diets and health trends the consumption of olive oil can be higher or lower.