Olive Oil Blind Tasting ExperimentOlive Oil Extra Virgin CertificationOlive Oil DefinitionsWhere did this policy come from?Why is this policy in place?Olive Oil Extra Virgin CertificationExperimentExperimental DesignSlide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15What does it mean for consumers?What about the producers?Works CitedOlive Oil Blind Tasting ExperimentEEP 142, Spring 2010, Villas-BoasAna Castillo, Daley Kutzman, Andrew Postal, Alice TuOlive Oil Extra Virgin Certification• American olive oil consumption has been growing • No regulation of olive oil labels in the US • Key law effective January 2009 in California requires that olive oil sold in the state must be labeled according to international olive oil standards. • Several other states are on this same path, and federal regulation may not be far off. • How might giving the coveted term “Extra Virgin” regulatory bite affect olive oil markets? (Gustafson and Lybbert, 2009). • In the context of asymmetric information (we will go back to this case and above paper when we cover this in class later in the semester.• Right now focus on product differentiationOlive Oil Definitions• Virgin Olive Oil: obtained by mechanical and physical methods (particularly thermal) that do not alter the oil in any way (2 grams oleic acid per 100 grams of oil)• Extra Virgin Olive Oil : created with a similar method as virgin olive oil, but less acidic (0.8 grams of oleic acid per 100 grams of oil)• Olive Pomace: oil obtained by treating the pomace with solvents or other physical treatments; often mixed with other oilsWhere did this policy come from?• State Senator Pat Wiggins (D-Santa Rosa) in late July 2008 pushed for SB 634 that would bring CA olive oils in line with the International Olive Oil Council Regulations• CA’s definition of olive had not been updated since 1947• She wanted to ensure that the olive oil comes from where it claims to, and the quality is what the bottle says it is.Why is this policy in place?• A history of olive oil fraud has caused lawmakers to inform both customers and themselves that the oil they are importing is legitimate.– The E.U. set up an anti-fraud olive oil task force to investigate fraudulent oil dealers– One example was Domenico Ribatti, who passed other oils off as olive oil • In California, the certification is for 3 main purposes– Providing a standardized method for producers and marketers a method of distinguishing their product – Reassuring consumers that the are indeed purchasing extra virgin oil– Provide a standard method of grading olive oil • In order to gain certification, you must send in two bottles of oil, $250 for first product, $50 for subsequent products• The chemical analysis will determine if the oil contains 0.5 % or less free fatty acids as well as a peroxide value of 20 meq O2/kg or less.Olive Oil Extra Virgin Certification• Do consumers taste extra virgin certified olive oil attribute in a blind tasting setting?• What is the willingness to pay for the certified extra virgin olive oil?Experiment• In a classroom offer two olive oil bottles where the brand and labels are hidden , Bottle A and Bottle B, to be tasted by dipping bread in two separate bowls• Both brands claimed to be extra virgin and both are US brands, and only one was certified• Fill out a simple questionnaire– Do you usually consume olive oil? Y/N– Which brand do you prefer A / B– Which brand is Extra Virgin A / B– How much extra would you pay for preferred brand? ___– http://survey.constantcontact.com/survey/a07e2q57cskg5kb0rch/start– Link for 2010Experimental Design• Number of students enrolled were 95• Sample of students who participated equals 59• Three more subjects tasted after class• Total sample size equals 62• Brand B was the Extra Virgin one99How many people are “usual” consumers?10How many preferred B? How many thought B was extra virgin?Brand BBrand BBrand ABrand A11What are the preferences of usual and non-usual consumers of olive oil?Prefer APrefer APrefer BPrefer B12How many people guessed correctly (thought brand B was EV) between usual and non-usual consumers?Brand B Brand BBrand A Brand A14Preferred BPreferred ADistribution of WTP between those with different preferences15AnalysisWhat does it mean for consumers?• Purpose of Cert: if consumers who prefer cert. oil are more willing to pay a premium, then cert. producers can compete with more efficient producers.• Yet, there does not exist significant evidence for class data. Also this since the regulation has only been in place from 2007 to 2009.• Consumers have not had the time necessary to define their preferences with respect to labeling (extra virgin cert. vs. non-cert.)• Or, consumers have defined their preferences but aren’t willing to pay for certification labels.16What about the producers?• California certification only applies to 100% California olive oils (imported olive oils cannot get this certification.)• Certification give CA producers a competitive advantage over international producers in the USA market.• It entitles CA producers to earn a premium and build a “only the best” reputation.17Works Cited• California Olive Oil Council. <http://www.cooc.com/about_certification.html>.• International Olive Council. <http://www.internationaloliveoil.org/web/aa-ingles/oliveWorld/aceite1.html>.• Muller, Tom. “Slippery Business.” The New Yorker. 13 Aug 2007. <http://www.newyorker.com/reporting/2007/08/13/070813fa_fact_mueller>.• Treleven, Mike. “Bill Seeks Olive Oil Purity.” Napa Valley Register.28 Jul 2008.