A Different Kind of Oil

Olive Oil has become quite a popular product for many households in Europe and North America. It is reported that olive oil consumption has increased by 100% in North America and by 37% in Southern Europe over the past decade. The issue with olive oil is not its popularity but the extensive black market now surrounding it.  Currently the average price for 100% Italian Extra Virgin Olive Oil (500ml) is around £4.45 taking into account Tesco, Waitrose, Sainsbury’s, and the Cooperative. Olive oil is one of the most expensive varieties of oil used for cooking, as it has claimed health benefits, and has become popularised with Mediterranean food.

The black market for olive oil is not something new, throughout history it has often been easily replicated with the use of lard. There is even mafias’ setup on the selling of olive oil, such as the case of Domenico Ribatti, who was sentenced to 13 years in prison during the 90s for dealing ‘faked’ olive oil. Tom Mueller has written both an extensive article on the New Yorker about the ins and outs of olive oil fraud, and has even written a book which is part investigation in the name of: Extra Virginity: The Sublime and Scandalous World of Olive Oil. This black market is particularly attractive, because if caught the sentencing for fraud with foodstuffs is almost negligible in comparison to that of drugs.

Mueller however notes that it is the sheer scale of fraud that is undercutting the honest producers and the artisan oil developers to the point that they either have to join the rest and commit to the fraudulent oil, or risk failing as a business. Current figures are suggesting that Italy sells three times as much olive oil as it produces. Up until 2001 as long as olive oil was bottled in Italy, under EU law it could be sold as Italian Olive Oil, now laws have changed, but this does not alter the fact that some mass producers that are selling the artisan extra virgin olive oil, are not actually using true olive oil production methods. This is a consequence of the economies of scale of brands such as Bertolli and Berio as they are able to use substitutes and mediocre oil to create their “extra-virgin” products, this has two consequences. Firstly, consumers no longer know the taste of true extra-virgin olive oil, and thus if tasting the real product they are unlikely to identify it. Secondly, the Italian farmers who developing true extra virgin olive oil products won’t have a market.

The issue here can be marginally placed on the product itself. Unlike other foodstuffs or oils, olive oil is unique in that to be classified as extra-virgin is a purely subjective view. There are traits that oil should meet to be legally classified as extra-virgin, but through the marketing power of the bigger companies such as Nestle, or Bertolli they effectively have changed the expectation of extra-virgin oil. One of the common fraud methods is the use of hazelnut oil, and deodorizing it with olive essence. It can be chemically proven when an olive oil is not olive oil, but the current scale of fraudulent operations means that recalling each olive oil for testing is out of question.

Flavio Zaramella was a notable producer of olive oil, and now heads an individual tasting panel. Through this panel they are able to clarify the true qualities of oils, and whether they can be considered as extra-virgin.  The issue is that his panel for example has lost its E.U. accreditation due to budget cuts for the International Olive Oil Council. Furthermore, Italian authorities do not perform these tests before oil is exported or sold, and testing becomes even more unlikely once it’s on the market.

The main issue here is that the small producers are undercut by the larger producers using substitutes to make cheaper oil, but through market power and branding maintain a high price for an ultimately mislabelled product. It is suggested that around 70% of olive oil that is labelled as extra-virgin is fraudulent. In the United States the FDA has only begun chemical testing last year, and it has become increasingly difficult to identify fake olive oils through chemical testing as there are new substituting methods being used.

Does this ultimately hurt consumers? Or is it simply inappropriate to be sold a mislabelled product; even though the majority of people cannot tell the difference? Well considering there are currently EU subsidies supporting the production of olive oil, it may be worth taking this matter into serious consideration. Even though there is considerable evidence of fraudulent olive oil, the EU maintains the subsidy. This is protecting a fraudulent industry, while still not helping the small Italian based producers. If the subsidies were removed, we may see an inflow of olive oil from Tunisia, Morocco, and Algeria. Currently the big European producers buy oil from the Middle East and North Africa, and go on to rebrand it. If the EU subsidies were removed, it may enable producers from these foreign countries to provide better olive oil at lower prices. Currently the subsidy in Europe is holding up an industry which has chosen to deceive its consumers, removing the subsidy may also reduce the size of the black market in olive oil.

Additionally, due to the subjective nature of viewing olive oil, it is necessary to introduce stricter guidelines in the production and labelling of the product, so consumers actually know what they are getting. It is clear that demand for olive oil is only increasing, as it become common in people’s diet. This growing demand has driven some producers to fraudulent methods and advertising claims, and in the interest of the consumer it is important to eradicate this market behaviour.

Recommended read:

Extra Virginity: The Sublime and Scandalous World of Olive Oil

By Tom Mueller


The Wine Trade


2012 saw the fully fledged re-emergence of the lucrative fine wine trade. At the forefront of development of the fine wine trade stands a company which has been trading wine since 1698. Berry Bros & Rudd have their original store located in London, and their expansion can be found in Hong Kong. They do offer high quality wine for purchase and consumption, but where they have created the greatest profit is the interest in fine wine as a long term investment.

The majority of fine wines available for investment come at a variety of prices; however they recommend a starting price of approximately £10,000. The attractiveness of the fine wine trade can be found in two areas, the first is boasting rights to having the finest collection of vintage and fine wine, as well as creating a relatively safe long term investment. The best wines only rise in price over time, and this is where the investment potential lies.

What really began to create a booming trade is the possibility of trading wines between investors; this started trade in order to gain new bottles by trading a currently owned bottle as well as an additional sum of money, in order to have a new more lucrative wine in the investment portfolio.

The credentials of this type of investment are still questionable especially if one is hoping to create a proper investment out of fine wine, the two deciding factors in the price of wine is the availability and critic opinion.

For an example a selected wine is Ch. Latour 1993 – Pauillac

The wine was made to a limited number of 200 cases which equates to 1,200 bottles. This can be analysed as the creation of perfectly inelastic supply, as the supply is at a fixed quantity. This particular vintage will never be produced again, and this is what helps to determine the value of wine.

The demand for the wine is decided by two factors the most important being the “Robert Parker Rating”, this rating will be the realisation of the demand for the bottle. The rating is done by Robert Parker the most internationally acclaimed wine critic. A bottle with a 90+ rating (out of 100 and 50 being deemed an “unacceptable wine”) means that there will be an instant increase in demand. Then what makes fine wine a lucrative investment is the factor of time, as demand increases over time as the value increases. This is shown in the graph below:

There are exceptions to the model below, some wines after passing a certain age are considered to lose their finesse and flavouring so they begin to slowly depreciate in value. Some wines are also subject to hype which tends to cause an upward shift in demand.


A growing part of the trade is “En primeur” which is the acquisition of the wine before it has been bottled. This is becoming popular with those unable to buy bottles at peak prices, as prices are extremely low in the “En primeur” stage as there is the possibility that the wine ends up with bad quality, or fails to reach the status of a “fine” wine.

There is also the stage of initial valuation, before the wine is released for rating. This establishes what the producer believes the base price of the wine should be. Certain regions have experienced higher initial valuations for their wines, due to the difficulty of production and the result of extremely high quality wine. The wine trade is beginning to take on considerable form, and soon may rival the extremely well developed whisky trade. What some investors may find most disappointing is that the majority of the time they never taste the fine wines they trade, as opening the bottle will completely eradicate any value of the bottle.

The main aspect of the wine trade is that there is no longer a physical trade of the wine, the trade is done through bonded warehouses as this allows the wine to be exemopt from VAT and other taxes that different countries might levy. The exsistence of private fine wine collectors is rare, and this is what differentiates a fine wine investor and collector.

Berry Bros & Rudd have two royal warrants, and their biggest competitors Lay & Wheeler (wine merchants since 1854) are beginning to stock many single bottles with a valuation above £15,000. But what has increased the interest in wine as an investment commodity is the creation of London International Vintners Exchange (liv-ex), they created they Fine Wine 100 index which tracks the price of the most sought after wines in the world. This is a booming market which has already outperformed the FTSE 100 during various months throughout 2011 and 2012. The creation of the Fine Wine Index has led to a lot of foreign investment into European wines, especially from China. The reason behind this is the fact that fine wine has long held a status of opulence in Europe, and wine was never a big part of Asian culture. This has led to both the increased consumption of fine wine, and increased investment as highlighted by the liv-ex annual report of 2011.

However, times have changed and it is important to look at how the index has evolutionised. Between 2000 and 2010 the index traditionally offered double returns, this is similar to highly rated and investment grade bonds. It can be noted that in late 2010 the index began to shoot up and this was driven by new entrance in the market from Asia as previously mentioned. This created a hype around the fine wine index which brought to public attention in 2011 and 2012, however it can be noted that the index began to fade out by mid 2012 to levels that the index was in early 2010 before it became a trend. This can be attributed to the commodity charecteristic of wine.

I would argue that the characteristic of wine as a commoditiy is a hybrid between the investment chareteristics of percious metals and stones, and art. Precious stones and metals are always considered scarce by the market and always highly valued by society, but unlike wine they benefit from the fact that they do not expire. But this is where the artistic attribute comes in which keeps the value of wine for a given period of time, as each vintage of wine in unique, it is impossible to find two vintages alike whether it be fine or simple wine. This is why wine as a commodity for investment began to fade, as art can be maintained but wine after a certain amount of years simply expires and its value is wiped off.

Fine Wine has displayed itself at times as a worthwhile commodity to invest in, however the question remains what will become of the market once the traditional fine wine is consumed or begins to degrade,  and what will replace it?

Lay & Wheeler:


Berry Bros & Rudd:


Live Wine Stock:


Updated: 22/01/13

Overfishing (Market Failure)

What are the main causes and consequences of the market failure in fishing?

The main cause of the market failure in fishing is the over-consumption and demand for all varieties of fish and seafood.  This is driven by government subsidies aimed to help the fishing industry as they are a considerable part of the economy, as some towns and cities are dependent on fisherman traffic. Governments are also contributing subsidies in the interest of keep food prices down, in foods such as fish which have become common in global diets.

The consequence of this over-consumption is the clear over-fishing and exploitation of the varieties of fish that can be consumed. There is now a growing dependence on fish farms to supply for the demand of fish.

The central external costs of the supply in fish contributing to market failure are:

  • The eventual extinction of specific species of fish
  • Accidental catch of other unwanted fish, reducing general population
  • Algal blooms, caused by dead fish left in sea and ocean
  • Weakening ecosystems, to near collapse
  • Loss of large fish i.e. Tuna
  • Forced government subsidisation
  • Less beautiful underwater cultures for tourism
  • Depleting natural resources
  • Driving small businesses out

The cause of the over-fishing is difficult to pin on a single source as it is both the demand of consumers, as well as the argument “well there will be no difference if the fish are taken now or in a months’ time”.

There is the developing issue of illegal fishing, even though laws and regulations have been set in place to only allow fishing within certain areas it is costly and difficult to actually enforce these laws and regulations. This issue develops on the point that companies now go to other countries to fish as there are less restrictions on quotas, such as the Senegal example where local fishing business is beginning to be taken by corporations.

A cause of over-fishing can be attributed to the methods used to obtain fish, even though they are the most effective and efficient there is a lot of unwanted catch in fine mesh nets and trawling methods. This is why there is a major breakup in the food chain of the species, and has a residing effect on the ecosystem of the fish whether big or small.


Globally, some 75 per cent of wild marine fish are now said to be either fully-exploited or overfished, according to the United Nations’ Food and Agriculture Organisation (UN FAO)

Fish farming, now provides almost half of all the fish consumed by humans.

Development of crime in areas such as Somalia, and Senegal

Have the government solutions to over-fishing made the situation worse?

Overall, it can be argued that the government has not really made a clear attempt for a solution and if anything has made the situation worse. Governments throughout Europe, Asia, and American have made it a prerogative to subsidise the fishing industries.  This is an attempt to keep the industries alive even though they are catching less wanted fish then in the late 19th century and throughout the 20th century.  Governments have made it more worthwhile for fisherman to try and scavenge for what is out there rather than protect fish stocks for the future, and this is what the subsidies have achieved.

In regards to further failure by the government is the inability to abide or follow advice on quotas on the amount of fish that can be fished per day to ensure that there is no complete collapse of a species or ecosystem. Most quotas that governments set range between 20%-40% higher than what scientists advise. There is also the issue of policing this which the government is not completely committed too.  This is because the market failure is heavier on the government and producer side than the consumer. As consumers have not been offered viable alternatives to fish, there is the continued over-consumption.

In a sense government solutions have not done enough as over-fishing is only one cause for the general decline in fish stocks as there is also global warming, and illegal fishing. Global warming has had serious implications on the quality of sea life, and has encouraged the dependency on fish farms to provide common fish. The issue here is that the fish farms still fish to provide smaller fish to larger fish such as tuna.  This has started a vicious cycle which the government has not successfully intervened, and if anything encouraged fisherman to not follow quotas.

There is also the ban of catching certain fish; again this government intervention further contributes to the market failure as it simply makes those fish more desirable. There is also a lower price on farmed fish as they are considered a lesser good than natural fish. There has been no attempt to tax depending on unwanted fish taken, or hand out certain areas of water where companies have to personally decide how to take care of the land.


Unfair Fisheries Partnership Agreements that allow foreign fleets to overfish in the waters of developing countries.

The cost of mismanagement, in lost economic output, is huge: some $50 billion a year, according to the World Bank.


What action would you suggest to reduce the damage done by overfishing while supporting those who depend on the fishing industry?

There needs to be a clear change in government policy as well as the manner in which fishing is done. There should be a greater stress on achievable regulation, and possibly an increase in prices.

Governments may choose to continue subsidising the fish industry, but should begin to subsidise fish farms that grow all the fish needed to feed bigger carnivorous fish. This will produce self-sustaining fish farms that are no longer reliant on the fishing of small fish to provide feed.

Governments should agree that only local fish is not taxed within a country, so in the case of salmon being supplied in Scotland has no tax, whereas if it was exported to another country there would be an export tax in the country of origin, and an import tax in the receiving country. This would accurately price the cost of the fish, and especially rarer fish.

Industry standards have to change; this can be done by introducing time frames that fishing is allowed within the season. Beyond this if a boat goes out to fish for a week then it may only actively fish on 4 of those 7 days, ensuring that quotas are met not over reached. Also in the equipment used for fishing to ban the use of trawling, and fine mesh nets. The method of trawling has adverse effects to the ecosystems, and fine mesh nets produce a lot of unwanted catch of small juvenile fish therefore further reducing the chances of endangered species.

No fish zones need to be created in areas where the ecosystem has suffered or there is the chance of a fish becoming extinct, this is done today but I would call for an international body to police these zones to ensure there is no illegal fishing whether industrial or local.

For a time temporary bans on certain fish would have to be placed, this would reduce the number of jobs and profitability of the industry, however this ensures job safety in the future by allowing the fish populations to naturally increase without intervention.


Restoring these stocks could deliver up to £14.62 billion per year in gross revenues. This is 2.7 times the current (2010) value of their landings

The size of investment required to achieve this is £10.4 billion over the entire transition period (9.4 years) – £9.16 billion in present value terms

Going Hungry?


The United States is currently the biggest exporter of corn, and the world corn trade prices tend to be determined by the U.S. markets supply & demand relationship. Due to the U.S. influence on corn prices, there is a price dependency on weather in the U.S. Corn Belt.

The price of corn has dramatically risen since May 2012. On August 10, 2012 it reached a peak of 843.75 cents per bushel this price is above the peak corn had reached in the 2007-2008 food crisis where it peaked at 765.00 cents per bushel. The increase of price during May and June can be attributed to wet weather around the United States; this led to the delay of corn planting. But the price began to soar towards the end of June and into July, as the most serious drought in the past five years hit the Corn Belt. The drought led to wilted fields and radically reduced the supply of corn; the USDA (United States Department of Agriculture) estimated a corn harvest that is 13% lower than last years. However demand throughout the summer stayed relatively unchanged as the price has still not dropped below 750 cents per bushel. The great constant demand for corn is due to the need for it to be used in livestock feed, and recently livestock producers are planning to work under capacity to reduce the consumption of corn until the prices drop back down. This has led to speculation that demand destruction can occur, due to the continued high prices and livestock producers planning to reduce consumption. The reason that there is only speculation of demand destruction is due to the demand for corn in the production of ethanol and corn syrup (contains fructose from corn). The use of corn syrup is guaranteed in various fruit drinks, soft drinks, and candy; this is due to high prices of cane sugar. Due to the various factors mentioned corn is able to maintain such a high price during a time of vastly reduced supply, due to the lack of downward shift in demand.

Demand Destruction:

A permanent downward shift of the demand curve, most commonly occurs when a price of a commodity has for a long period of time been constrained of supply or high in price.