A Well-Oiled Scheme?

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It's not hard to spot the trend. The short drive up I-5 north through rolling hills dotted with olive trees serves as picturesque evidence that agribusiness is back in a big way in California.

The California Olive Oil Council estimates that in-state production of olive oil has increased by as much as 900 percent over the past decade, with many of the newcomers being small, family-owned producers. Some are seeking a second career, some indulging a hobby, but many are simply looking to cash in on the trend.

Combine the wave of agri-investors with the surge of shoppers looking to keep their dollar local, and the once endangered family farm seems primed for a renaissance.

Yet while there's no shortage of romance and buzz around the olive oil industry, do the economic realities stack up?

"There is money to be made, but you need to be realistic about recouping the investment … I haven't seen anyone do it quickly," says Nancy Ash, owner of Strictly Olive Oil, a Castro Valley-based consulting agency for olive oil producers.

Extra virgin olive oil, which, in order to carry the California Olive Oil Council's certification, must be less than 1% in acidity and extracted from the olives mechanically (not with heat or chemicals that could damage the oil), is notoriously costly to produce and often carries a balance sheet that would make most investors cringe. Land prices alone (expect to pay about $5,000-$50,000 an acre, depending on the location and maturity of the orchard) can knock many would-be producers out of the game. Production's not cheap, either -- orchard maintenance, harvesting, milling and bottling can easily push costs to $10,000 an acre, according to a UC Cooperative Extension 2001 publication.

What's more, competition from cheaply produced (and often fraudulently labeled) imported oils confuses consumers and drives down the retail market. While Ash advises clients to price their oils at between $10 and $15 a bottle, that may cut an orchard's profit margin from 50 percent to 20 percent or lower, and boutique operations may not break even at all with such a price point.

Nevertheless, investors are snapping up olive orchards around the greater Sacramento area in a rush reminiscent of the Napa Valley land grab that characterized the birth of the region's wine industry in the 1970s. Do they know something the rest of us don't?

Despite the crowded playing field locally, production outside of California is negligible and the national market remains dominated by imports. Paul Vossen, farm adviser for UC Cooperative Extension, says the United States still imports 35 million gallons of olive oil a year. And while demand for domestic olive oil has skyrocketed, most of the nation's climate remains unsuited for producing it, putting Sacramento-area producers at the industry's forefront.

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