Assessing the value of quality attributes of italian extra-virgin olive oils: a hedonic price model
Author(s)
Sabbatini, Valentina
Date Issued
June 22, 2016
Type
Doctoral Thesis
Abstract
Olive oil is one of the food products at the base of the Mediterranean diet. Known since ancient times, it is used as seasoning, and eaten in association with other foods. For the olive oil market, qualitative aspects are emerging recently with an increasing differentiation process. In the last years the concept of quality became more sophisticated, including all those characteristics related to health, quality, safety, hedonism and ethical aspects. Linked to this, a strong international competition requires producers to push on differentiation strategies based on quality. This requires deep knowledge about demand trends on olive oil. This study focuses on the Italian market as Italy is one of the major and most reputed countries for olive oil production. The research attempts to quantify the influence of different qualitative clues in the creation of value in the Italian extra-virgin olive oil sector. Based on the data gathered from the influential guide “Flos Olei” for three consecutive years, a hedonic price model was built in order to seek the role of different attributes on the final consumer price of extra-virgin olive oil (EVOO). Flos Olei is a leading EVOO guide that reviews the so-called excellence segment of the market giving updated insights on trends and tendencies that will probably extend to other segments of the market over time. The clues on which the study is focused are gathered in three different groups: the product itself, the olive farm and the processing stage, and the geographical origin. Previous studies based on the application of the hedonic price model for the olive oil market have investigated the effects of only some of these variables within some of the above-mentioned categories. Conversely, in this study a hedonic price model was built including all the main categories of attributes, in order to get more insights about features that impact on the EVOO price. Using the experts’ guide for three consecutive years also made it possible to investigate farm behaviors and advantage, in terms of price premium, by being rewarded from the guide for more than one year. To the best knowledge of the author, none of the previous studies in the application of hedonic price models to the olive oil sector have evaluated either the role of expert judgment or being reviewed for more consecutive years. Furthermore, since in this study, data covers several consecutive years, a panel data analysis, besides the annual OLS estimations, was also conducted in order to study farm behavior across time, using a fixed effects models and a random one.
The main findings in this study suggest that all of the three different factors are significantly linked to the price. In detail, results indicate that the price of the EVOOs is a reflection of the geographical origin. EVOOs coming from the Northern and the Central part of the country are associated with higher PP compared to those from the Southern part. No univocal indications emerge from the presence of the Geographical Indications of Origin, as well as from the production coming from eco-sustainable farming as well as being a cooperative. The study confirms that consumers are careful not only about the features directly related to the product, but also to those related to the processing stage. The study has demonstrated that products coming from small vertically integrated farms with an onsite mill and following a traditional harvesting process are more valued. Differently, a negative price premium seems to be associated with organic farming. This result contrasts with other studies and may be related to the peculiar market segment (i.e. high to very high prices) to which the guide refers. The results obtained from the study of the grade given by the experts offer important insights. The consumers seem to be positively sensitive to the farm ranking given by the experts, as a signal of current and long term sensory quality. The positive price premium associated to the presence in more than one year of being connected to a higher grade shows how effective the role of the expert guide is in contributing to the reputation of small farms to become established in wider markets. Finally, the sensorial category also significantly impacts on the definition of the final price, showing that consumers’ tastes are biased towards some kinds of flavors. Actually, the intense flavor is appreciated in EVOOs and is associated with higher price premiums compared to the medium and the light flavorings. The mono-varietal olive oil seems to be perceived positively, as a recent trend observed in the Italian market and in line with previous works, and can be used, in a sophisticated market, as a tool of promotion for geographical origin based on plant varieties. On the contrary, local varieties are perceived negatively; this is probably because many of them are not known to the majority of consumers. It is worth pointing out that previous results on the price premium associated with mono-varietal EVOO is somehow contrasting with this result, as mono-varietal olive oils are basically produced with local varieties. The last result worth recalling is related to bottle size: as expected, and in line with previous studies, the smaller the bottle, the higher the price, thus confirming the existence of a clear and strong inverse relation that reflects a higher willingness to pay on the part of consumers for lower quantities, but also a sense of rarity and preciousness associated to small quantities.
Overall the results confirm that the Italian olive oil sector is becoming more sophisticated with different quality clues playing an important role in adding value to the consumers’ eyes and with increasing opportunities to segment the market and to elaborate competitive strategies based on different quality conventions. This research provides a useful tool for producers. Knowledge of the attributes preferred by the consumers suggests the implementation of new marketing strategies to be adopted, in particular for advertising and labeling. In fact, by including some information on the EVOO label, both producers and distributors may raise the added value of their product. The findings of this study might contribute and give useful insights to the debate on the use of the GI systems. The European certification system (PDO and PGI quality scheme) associated with non-significant coefficients suggests that geographical and varietal diversity can be promoted more by the use of the GI system. In addition it would be appropriate to encourage promotion and information campaigns aimed at highlighting the characteristics of each area, to promote the image of excellence in the olive oil sector.
Additional information
Dottorato di ricerca in Economia e territorio
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