Figure 1 shows clearly that imports account for almost all the growing consumption of olive oil in the United States. Figure 1 also shows that virgin olive oils account for most of the growth of U.S. imports. The U.S. imported 200,000 tons of virgin olive oil in 2012—two-thirds of total imports. While the EU remains the dominant supplier of olive oil to the United States, shares from non-EU countries have grown.As part of an ongoing study requested by Congress, the United States International Trade Commission held a public hearing in December 2012 to assess the U.S. competitiveness in olive oil in the context of market trends and policies, especially in Europe. At the USITC hearing U.S. olive oil industry representatives expressed concerns about European olive oil policies as well as global quality standards and compliance. The European Commission has provided substantial support for its olive industry for decades. Until the mid 2000’s, the European Union tied financial support directly to production of olive oil. Support to the industry continues, but is less direct; now, the EU ties payments to recent capacity to produce an aggregate of commodities and as an incentive to meet environmental standards. For olive oil specifically, the EU also offers “Private Storage Aid” that pays whenever market prices of olive oil are lower than government-set minimums. Such aid was provided in 2011 and 2012. Subsidies for olive oil vary by country within the EU and aggregate figures are difficult to assemble. In a 2012 statement,cannabis equipment the Spanish Minister for Agriculture, Food and Environmental Affairs said that subsidies were equal to about 40% of the value of Spanish olive oil, with aid of about $1.3 billion. Lack of quality control and standards also raises concerns among U.S. industry representatives. The retail grades and quality standards developed by the International Olive Council are not binding in the United States, and the U.S. Department of Agriculture quality monitoring program that was launched in late 2010 is only voluntary.

Olive oil producers in Europe and U.S. importers of olive oil from Europe have expressed concerns about the U.S. government investigations. European producers asked the European Commission to be ready to act on the potential threats of U.S. trade barriers.Data on olive oil imports into the United States are available by point of entry, country of export, container size , and “quality”—as indicated by the “virgin” designation. No publicly available data provide information on country of production of the oil and import data do not record “extra virgin” or other more-specific quality characteristics. Olive oil is sold into three broad channels in the United States: retail packages of olive oil sold to consumers, olive oil sold to food service establishments for cooking and table use, and olive oil used in food processing and sold as an ingredient in other foods such as sauces. Olive oil imported in bulk containers may be delivered to food processing firms, but most bulk oil is packaged in the United States for food service or retail sales. Bulk shipments have been increasing because of improved technology and the cost savings inherent in not shipping fragile and heavy retail containers. Because the consumers and market channels are mostly the same for bulk and bottled imports, we aggregate oil imported in different containers. We estimated demand equations for three categories of olive oil at the wholesale/import stage of the market. We use the quantity of per capita imports each month to measure quantity demanded. For the relevant prices, we use average unit values computed as the ratios of import values to quantities. We treat the United States as a price-taker in the world market for olive oil because the United States accounts for less than 10% of the world consumption, so we would not expect changes in import prices to be caused by changes in U.S. demand. In fact, import prices have fluctuated widely—driven by exporting country production and demand.

One concern is that given how we measure price simply as the import value divided by the import quantity, errors in the measurement of quantities would exaggerate the measured price responses in the estimation by creating an additional negative correlation between measured quantity and measured price. However, after reviewing the variations in import series by port of entry and using standard statistical tests for potential bias caused by measurement error in import prices, we conclude that any remaining bias is small in magnitude. To complete the demand model, we use per capita U.S. personal income, the number of articles published in U.S. newspapers and magazines that report either the health benefits or the Mediterranean diet attributes associated with olive oil to account for consumer awareness, imports of Italian-style cheese and the price of canola oil—a potential substitute. Finally, we include monthly indicators to reflect seasonality and deflate all prices and income by the CPI. For most of the discussion here, we group olive oil into three categories: virgin oils imported from the EU, virgin oils imported from elsewhere, and non-virgin oils. The classification accounts for the quality difference in olive oils and is supported by the price relations in Figure 2.Our set of estimated demand equations includes the impacts by type of olive oil. We also use our estimates by type of oil to calculate effects for all olive oil considered as an aggregate. We evaluate the estimated elasticities of demand at recent average prices and quantities . The U.S. quantity demanded for all olive oil falls when the average price of olive oil increases, but the percentage effect is small. A 10% increase in the price of all olive oil would reduce U.S. total consumption of olive oil by about 2%. Because of substitution among olive oils, the price elasticity of demand for each individual olive oil type is larger. We find that the quantity demanded of EU virgin oil would increase significantly with a 10% increase in the price of virgin oil imported from non-EU countries, but U.S. consumption of both types of virgin oils is insensitive to changes in the price of non-virgin oils.

That is, virgin oils imported from EU and non-EU countries tend to substitute for each other, but non-virgin oils do not seem to compete significantly with virgin oils. We find that canola oil is a slight substitute for olive oil as a group, but the substitution effect applies mostly to non-EU virgin oil. We also find that U.S. consumption of olive oil would grow by about 10% if U.S. personal income grows by 10%. Most of the income effect applies to EU virgin olive oil, which would rise by more than 20% with an increase in income of 10%. In contrast, the consumption of non-virgin oil has no statistically significant response to an increase in personal income. Finally, we find that accumulated information about the healthiness and trendiness of olive oil and the ongoing globalization of the American diet both stimulate more olive oil consumption in the United States. Alternative aggregations, specifications, and methods used to check robustness of our estimated impacts, yield results that are consistent with those reported here. Olive oil consumption has been growing rapidly in the United States, but U.S. production remains a tiny part of the total supply in the U.S. market. Virgin oil imports have been gaining,vertical grow shelf as have imports of olive oil directly from North Africa—both at the expense of non-virgin oil from the EU. These trends have generated controversy as the U.S. industry seeks to evaluate how EU policies and lack of consistent mandatory quality standards affect demand and market shares for olive oil. We find that attention to the health benefits of olive oil and its place in a flavorful and healthful Mediterranean diet has contributed to growth in consumption. Olive oil consumption also responds to income growth and to relative price changes. The currently available data have not allowed us to estimate impacts of prices, income, or market trends on the consumption of olive oil produced in the United States. Nonetheless, the growing market provides opportunities and U.S. industry can gain insights from analysis of market relationships and estimates of effects of prices and other factors on olive oil imports. Much more work is needed to understand olive oil demand more fully and to place the demand analysis reported here in a context that allows one to evaluate impacts of policy. We are engaged in such a project and expect to report results later this year.Two competing legends dominate the telling of California’s agricultural history. According to the first legend, California farmers are progressive, highly educated, early adopters of modern machinery, and unusually well organized. Through irrigation, they made a “desert” bloom. Through cooperation, they prospered as their high-quality products captured markets around the globe. This farmers-do-no-wrong legend is the mainstay of the state’s powerful marketing cooperatives, government agencies, and agricultural research establishment. According to the opposing legend, the California agricultural system was founded by land-grabbers who continue to this day to exploit impoverished migrant workers and abuse the Golden State’s natural environment. Although the contest between these competing interpretations of the nature of California’s farm system has raged for the past one and-a-half centuries, neither account has engaged in a systematic accumulation and dispassionate analysis of the available data, and both have generally lacked the comparative perspective needed to assess why California agriculture developed as it did.This chapter analyzes major developments in California’s agricultural history to provide a better understanding of how and why the state’s current agricultural structure and institutions emerged.

We will focus on major structural transformations: the growth and demise of the extensive wheat economy of the nineteenth century; the shift to intensive orchard, vine, and row crops; and the emergence of modern livestock operations. Intertwined with our discussion of sectional shifts will be an analysis of some of the special institutional and structural features of California’s agricultural development. Here we offer a brief look at the subjects of farm power and mechanization, irrigation, the labor market, and farmer co-operatives. In all of these areas, California’s farmers responded aggressively to their particular economic and environmental constraints to create their own institutional settings. The results have been remarkable. In recent years, this one state alone has accounted for one-tenth of the value of the nation’s agricultural output. What distinguishes California from other regions more than the volume of output, however, is the wide diversity of crops, the capital intensity, the high yields, and the special nature of the state’s agricultural institutions.When disgruntled miners left the gold fields, they found an ideal environment for raising wheat: great expanses of fertile soil and flat terrain combined with a climate of rainy winters and hot, dry summers. By the mid-1850s, the state’s wheat output exceeded local consumption, and California’s grain operations began to evolve into a form of agriculture quite different from the family farms of the American North. The image of lore is of vast tracts of grain, nothing but grain, grown on huge bonanza ranches in a countryside virtually uninhabited except at harvest and plowing time. While this picture is clearly overdrawn, it contains many elements of truth. California grain operations were quite large by contemporary standards and extensively employed labor-saving, scale-intensive technologies. As examples, they pioneered the adoption of labor-saving gang plows, large headers, and combined harvesters.1 Most of the wheat and barley was shipped to European markets, setting a pattern of integration into world markets that has characterized California agriculture to the present. Large-scale operations, mechanization, and a reliance on hired labor would also become hallmarks of the state’s farm sector. Not only were California wheat farms typically larger and more reliant on laborsaving machinery and animal power than mid-western and eastern wheat farms, Californians grew fundamentally different varieties of wheat and employed different cultural techniques than their eastern brethren. These biological differences, although not generally appreciated, were critical to the success of the early California wheat industry. In fact, when eastern farmers migrated to California they had to relearn how to grow the crop. In the eastern U.S. , grain growers planted either winter-habit varieties in the fall to allow the seedlings to emerge before winter or spring-habit varieties in the spring shortly before the last freeze. The difference was that winter-habit wheat required prolonged exposure to cold temperatures and an accompanying period of dormancy to shift into its reproductive stage.