Quality certification, institutions and innovation in local agro-food systems: Protected designations of origin of olive oil in Spain

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Journal of Rural Studies 21 (2005) 475–486 www.elsevier.com/locate/jrurstud

Quality certification, institutions and innovation in local agro-food systems: Protected designations of origin of olive oil in Spain Javier Sanz Can˜adaa,, Alfredo Macı´ as Va´zquezb a

Instituto de Economı´a y Geografı´a, Consejo Superior de Investigaciones Cientı´ficas, Madrid, Spain b Facultad de Economı´a, Universidad Auto´noma de San Luis Potosı´, San Luis Potosı´, Me´xico

Abstract This article examines the interrelations between establishment of territorial quality certification systems (Protected Designations of Origin or PDOs), diffusion of innovations through local agro-food chains, and the role of the institutions overseeing geographical designations. Empirical analysis is applied to olive oil PDOs in Spain and entails a detailed case study of the ‘‘Sierra Ma´gina’’ PDO in Andalusia. Making use of the neoinstitutional concept of ‘organised proximity’—and focussing specifically on the problematic of organizational quality—the article assesses characteristics that support the competitive positions of local certified-product production systems. In particular, the authors find that collective organisation and coordination between PDO agents who are locally responsible for quality assurance and protection can enhance local competitiveness. Three hypotheses are confirmed. First, PDO labels can, through the action of PDO regulators, become quality assurance systems for distributors. Second, PDO Regulatory Boards can enhance and coordinate local inter-professional activities, particularly with respect to the diffusion of quality-enhancing innovations and knowledge. Third, the study indicates that local certified-product systems are starting to incorporate quality attributes linked to the environment and sustainable development, although much remains to be accomplished in this regard. r 2005 Elsevier Ltd. All rights reserved. Keywords: Quality certification; Designations of origin; Institutional analysis; Diffusion of innovations; Vertical coordination; Sustainable development; Olive oil

1. Introduction: certification, quality and competitiveness in local agro-food systems The economic literature reports that agro-food firms choose two main options when designing their competitive strategies: either competitiveness through cost leadership or competitiveness based on consumer value creation (Christopher, 1998; Kennedy et al., 1997). The first alternative is found in commodities markets for undifferentiated agricultural products whose price is most important to buyers. In the second alternative, a ‘differentiated’ final product adds multiple attributes designed to meet an increasingly segmented and personalised consumer demand. As recent literature on the ‘consumer turn’ indicates, a tendency for economic agents Corresponding author.

E-mail addresses: [email protected] (J. Sanz Can˜ada), [email protected] (A. Macı´ as Va´zquez). 0743-0167/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.jrurstud.2005.10.001

to orient value-added strategies to meet consumer food demands is increasingly important to the agro-food systems of developed countries, contrasting with earlier periods when foods were preferentially defined according to supply or production characteristics (Kennedy et al., 1997; Sanz Can˜ada, 2002; Wilkinson, 2002, Goodman and DuPuis, 2002). Agro-food firms examined in this study, operating within local production systems, are following the second alternative by implementing quality strategies to identify and differentiate high-quality local food products. Local products are defined as goods produced within a ‘local production system’ that may be accorded a PDO (Protected Denomination of Origin). The local production systems examined here are made up of networks of small and medium enterprises and agricultural farms, constrained to a specific territory, that specialise in a particular agro-food niche. They integrate a spectrum of interdependent relations, which may be mercantile (e.g., purchase–sale,

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subcontracting) or extra-market in character (e.g., formal and informal cooperation agreements, exchange of information). This network generates economic value external to associated businesses, and provides a social space where knowledge diffusion and innovation is intensified (for literature on local agro-food production system economics see i.e. Albertos et al., 2004; ARTE, 2004; GIS-SYAL, 2002). Quality strategies, designed to optimise and market product quality, and also ‘organisational qualities’, provide an important method for differentiating local products. Following Me´nard (1995), organisational quality is the capacity for different actors involved in production and marketing along the agro-food chain to coordinate organisationally to better match customer requirements to processes of demand-driven product differentiation. The goal of quality strategies is to identify, organise and certify ‘distinctive quality signs’ that meet identifiable consumer desires (Allaire and Sylvander, 1997; Barjolle and Chappuis, 1999; Endrighi, 1995; Perrier-Cornet and Sylvander, 2000; Valceschini, 1999). Distinctive signs can be defined as credible information summarised in the tangible, visible form of a logotype, initial or name that aims to enhance the product by referring to one or more of its differential characteristics (Valceschini, 1999) which consumers cannot usually notice when buying the product. Such signs are usually associated with labels, the purpose of which is to supply consumers with part of the information connected with the sign. Quality certification systems are one kind of quality organisation strategy involving potentially greater capacity for adding value in local production systems. Numerous systems exist in the food sector; however, at present, territory-linked systems are of the greatest economic importance in the European Union (EU), far outdistancing organic agriculture, the second most important form of certification. Products covered by geographical quality designations have associated values of specificity or ‘‘typicity’’1 and excellence. Besides being a defining feature of geographical designations, product typicity is an attribute in which local production systems can gain competitive advantages over large businesses. The topic of the research is the relationship between the establishment of territorially linked food quality certification systems, the diffusion of innovations through local agrofood chains and the role of the institutions that certify and oversee geographical designations, viewed from the angle of collective organisation and inter-agent coordination. The analysis is applied to protected designations of origin (PDOs) of olive oil in Spain.2 PDOs are labels indicating a 1 Typicity refers to the Spanish, tipicidad, or representative typicalness of a place or region. 2 In the Spanish olive oil sector local production system value accumulation necessarily calls for a change in the models of collective organisation: instead of taking a commodity business approach to olive oil, based on bulk sales and the absence of business initiatives, a proactive local marketing approach is needed where olive oil is viewed as a final

linkage with the geographical environment at every stage of agricultural production and agro-industrial processing.3 The purpose of this research is to ascertain whether PDO certification processes can provide differentiation-related incomes for local economic agents by lowering trading transaction costs thereby improving the mechanisms for vertical coordination with distributors, and whether they serve as an institution for collective, inter-professional concerted action, which might have positive, indirect repercussions on local development. In particular, we wish to ascertain whether the PDO Regulatory Boards4 take on other kinds of economic–institutional functions extending beyond their main roles of certification and legal protection of differential product quality linked to a specific territory. Three working hypotheses will be checked regarding the functioning of the PDO governing bodies. First, we wish to ascertain whether PDOs can help to put in place a quality assurance system for distributors. Second, we wish to check whether PDOs can become institutions for vertical and horizontal coordination, and which display the clear characteristic features of local cooperation, inter-professional organisations and play an active part in aspects such as the diffusion of innovations, joint marketing or promotional–advertising activities. During the course of our research we noted that innovation diffusion processes are one of the most important inter-professional functions of PDOs. For this reason we have dwelt especially on analysing the mechanisms whereby institutions adapt to the changes in the technological paradigm. The third hypothesis we explore is whether, in the near future, besides having to respond to the organoleptic quality dynamics of the product, innovative local production systems will have to incorporate new product attributes linked to the environment and sustainable development. As a result, attributes of this kind may become new factors in competitiveness instead of being considered mere regulatory restrictions of competitive position. (footnote continued) quality product with a significant degree of territorial differentiation. Olive oil PDOs are currently mushrooming in Spain. At the end of 1999 there were no more than six but they will rise to around 30 within a few years time. 3 Besides being territorial, it is a certification system which is public–private (because the Regulatory Board is mixed), product-related (as opposed to processes or systems) and voluntary. The EU Regulation of 1992, currently in force, distinguishes between the two main legal forms of territory-linked food certification covered by the European legislation, specifically PDOs and protected geographical indications (PGIs). The raw material production, processing and packing activities of PDOs must take place in a specific geographical area whereas in the case of PGIs the geographical link must occur in at least one of the three stages mentioned. 4 The Regulatory Boards are institutions for concerted action between economic and public players in a producing area and are made up of agricultural farmers and their organizations—cooperatives—industries, marketing companies and the public administration. They are responsible for drawing up the reference standards or regulations for the PDO; registering the farmers and companies that belong to it; certifying and sealing the product wishing to use the official label; legally protecting the official label from use by third parties; and promoting it.

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The structure of the paper is as follows. Section 2 provides a theoretical analysis of the economic and institutional functionality of distinctive quality seals, based on the theoretical assumptions of the New Institutional Economics, and defines the approach applied and the methodology proposed. The competitive position of olive oil local production systems in Spain is examined in Section 3 in order to define the specific sectoral context of our research. Section 4 presents the results of the empirical analysis of quality assurance functions and the collective inter-professional quality organisation strategies. In Section 5 we will amplify the empirical analysis of the processes of the adoption of innovations and codes of good practice for sustainable development, which will be applied to a detailed case study of the ‘‘Sierra Ma´gina’’ PDO in Andalusia (Fig. 1), while Section 6 will present the conclusions of the research. 2. Conceptual and methodological framework: protected designations of origin and theories of distinctive quality labels We will begin by outlining the three chief economic objectives of geographical designations, and more particularly PDOs (Chart 1), for which purpose we will draw on the neoinstitutional economic literature on distinctive quality labels or seals:

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First, the establishment of labels means that food chain players can obtain differentiation-related incomes that increase the added value of the product and serve, in turn, other series of conditions being equal, to reduce the priceelasticity of demand (Valceschini, 1999). By introducing entry barriers defining territorial exclusion monopolies, the aim is to generate quasi-incomes from the territorial anchorage of a local production system (Perrier-Cornet and Sylvander, 2000). Consequently, Regulatory Boards, and generally the group of economic agents involved, set out to create, protect and secure the permanence of such incomes and to regulate them internally. Second, labels have a number of objectives for consumers and for the different stages of the food chain, namely identification, where the product is considered a specific combination of attributes, time saving, safety, assurance and supply diversification. In the case of geographical designations, the summarised information implicit in the seals (and defined by labels, regulations or laws) encompasses aspects such as the geographical provenance of the foodstuff, the attributes associated with such provenance and, implicitly, the property of excellence. Hence, rules are drawn up because of the need to establish references that reduce the uncertainty of supplying information, thereby lowering the transaction costs associated with trading (Sylvander, 1996). The real ‘‘communal asset’’ of a geographical designation is the reputation linked to the distinctive quality label.

Fig. 1. District of ‘‘Sierra Ma´gina’’. Localisation in Andalusia, Spain.

Chart 1. Functions and objectives of protected designations of origin Regulatory Boards.

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Third, the institutional activity of the Regulatory Boards implicitly entails cooperation between economic agents who have interests in the different stages of the olive oil chain and who pool complementary assets. Hence, the local production systems constituted around a geographical designation can be analysed as cooperation processes between economic agents in the case of a specific territory; the agents organise themselves and draw up their own rules in order to gain collective competitive advantages, which start to materialise even in the stages prior to their formation and to the preparation of their regulations. From the methodological point of view, our choice has been to categorise the four economic–institutional functions that may be performed by PDOs, which are closely interrelated with the economic objectives, from the point of view of the search for competitive strategies for local production systems (Chart 1). In this sense, the first task of the Regulatory Board under its product quality guarantee function is to lay down the attributes, i.e. the reference standards required for the foodstuff to earn the designation seal. It also has to monitor the product and to accept it when it complies with the reference standards. Consequently, its mandate in this case is to carry out strict analytical and sensory quality controls and to issue the compliance certificates that entitle the product to display the seal. This guarantee refers to the attributes of excellence and typicity. The second economic–institutional function of a PDO is to provide legal protection for differentiation-related incomes to prevent third parties from using the quality label. PDOs are protected from any commercial use, imitation or even indirect evocation of the seal. With the implementation of these measures, which are often precautionary, few cases arise of improper use of labels by third parties. The Regulatory Boards also have full powers to impose penalties on PDO members who commit infractions (Lo´pez Benı´ tez, 1996). In trading, the use of PDO labels means that, because they are distinctive seals, distributors need significantly less information to evaluate product attributes. This is because the functions of checking the veracity of the attributes mentioned on the label or specified in the product regulations are assigned externally to an institution, the Regulatory Board, which offers sufficient guarantees of neutrality and which is generally public, although its activity is subject to private law. As a result, the establishment and operation of a PDO can take on the third function of constituting a quality assurance system for distributors. Thus, labels can contribute towards heightened market efficiency because transaction costs are lowered for distributors, thereby helping to enhance vertical coordination relationships (Barjolle and Chappuis, 1999). A fourth economic–institutional function of a PDO is to serve as an inter-professional organisation. This concept refers to a coordinating structure between the different stages of the food chain, involves organisation and collective negotiation on a horizontal and vertical scale

and is designed to plan and promote the production and marketing of an agro-foodstuff. Within the broad range of objectives of such organisations (Langreo Navarro and Garcı´ a Azca´rate, 1995), the incipient local emergence and co-management of certain inter-professional activities is of major interest for local production systems. Instances of such activities include joint marketing, innovations diffusion, quality promotion, sectoral statistical intelligence or the enhancement of vertical coordination relationships. Two characteristics of the action of Regulatory Boards loosely fit in with the basic conditions that have to be met by an inter-professional organisation: firstly, their implementation calls for strategies of cooperation and comanagement between the majority of the local production system economic agents and secondly, it requires the participation of all the local stages of the agro-food chain. As a result, the rules governing the Regulatory Boards make explicit reference to their quality guarantee and legal protection functions; however, the same does not apply to quality assurance systems or inter-professional organisations, except for certain promotional activities which are envisaged under the rules. Additionally, the substantial effort and economic cost of implementing the first two functions might not be offset by the benefits to be reaped by the economic agents. This is so for several reasons; in the case of olive oil, it is primarily because such designations are still little known in Spain outside the areas where they are produced (Sanz Can˜ada, 2001).5 We realise that label awareness is only achieved through medium and long-term strategies including promotional campaigns of some impact. We likewise realise that certification entails additional costs for producers. Nevertheless, we believe that the success of a PDO can extend beyond the functions linked to product quality guarantee and legal protection, which are necessary prerequisites, although not sufficient, to win over a significant share of the value chain at local level. The proposed approach of analysing the economicinstitutional functions of the PDOs predetermined the areas of analysis in the research process: functions of quality assurance with distributors and, in the context of inter-professional activities, joint promotion, joint marketing and innovation diffusion processes. The empirical analysis was structured in two stages. In the first stage, 23 semi-directed interviews were conducted with experts and people with first-hand knowledge of the six longest-standing olive oil PDOs in Spain, i.e. the PDOs approved up to late 1999, although they were set up some years before (Sanz Can˜ada, 2001),6 which therefore had at 5 This lack of awareness can even be said to be inherent not only to PDO oils, but also, albeit on a different scale, to all top-of-the-line extra virgin oils in Spain. 6 Baena, Priego, Sierra de Segura and Sierra Ma´gina in Andalusia, and Siurana and Les Garrigues in Catalonia. The empirical work was funded under research project SEC99-1208 of the Social and Economic Studies Programme of the National R & D Plan (CICYT) (2000–2003), coordinated by Dr Javier Sanz Can˜ada.

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least a minimum of organisational experience. Interviewees belonged to four groups of ‘‘first-handers’’: representatives of the regional administration on the Regulatory Boards; presidents or managers of representative cooperative mills from each PDO; presidents or managers of marketing companies associating cooperatives and small private mills from each PDO; and singular cases of management of private olive oil mills with notable differential quality strategies. The main findings are presented in Section 4. A second stage entailed an in-depth economic analysis of the ‘‘Sierra Ma´gina’’ local production system’s PDO during the 2003 crop year,7 carried out through interviews of experts and mill surveys. Innovation and quality knowhow—including environmental and sustainable development attributes—were the core of the analysis. Field work involved conducting 25 long, semi-directed interviews of experts and prominent figures from the worlds of rural development, olive oil economics and institutions8 in the district, in addition to closed-question surveys of all 36 olive oil mills and packing plants registered under the PDO. Four chief subject areas were broached: current and future status of the diffusion of technology, knowledge and know-how, including environmental aspects; analysis of the functioning of the local institutions linked to the olive and rural development research and development system; local organisation of the marketing chain and role of cooperatives; and quality organisation and operation of the Regulatory Board. Section 5 reports the chief results. 3. Competitive position of local olive oil production systems in Spain The olive oil sector is of major importance in Spain in terms of production and geographical extent—with an output of between 1 and 1.5 M tonne in recent years it is the world’s leading producer and it has 2.5 M ha under olives— as well as from the points of view of history and cultural tradition. In the case of Spain, olive oil local production systems are made up primarily of a wide group of olive growers who are organised into olive oil cooperatives, which account for more than 70% of all the olive oil produced in Spain, in addition to a minority segment of private olive oil mills9 quite often belonging to families owning sizeable 7 This work has been financed by the research project of the Euromed Heritage II programme entitled: ‘‘Filie`res innovantes, savoir-faire locaux et partenariat euro-me´diterrane´en’’ (2002–2006), coordinated by Drs Augusto Perelli (Politecnico di Milano) and Abdelkader Sid Ahmed (IRD de Paris) (contract no. ME8/AIDCO/2000/2095-03). Dr Javier Sanz Can˜ada is the coordinator of the olive oil sector in the project. 8 The following agents were interviewed: management of mills and packing plants applying brand strategies; management from the Regulatory Board; experts from regional and local development institutions, the public administration linked to the world of olive growing, agricultural training and extension, sectoral agricultural organisations, etc.; university faculty and researchers. 9 Olives are made into virgin olive oil at the mills. If the oil does not reach a specific quality threshold it is called ‘‘lamp oil’’, which has to be

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olive estates.10 The main obstacle to enhancing olive oil local production systems is that mills sell the large majority of their oil in bulk, usually through specialised brokers, to Italian or Spanish big oil companies which lead the packing–refining business and also generally make seed oils. In actual fact, it is the big oil companies and the large retailers which implement a real brand strategy, respectively, for manufacturer or retailer labels, the latter of which have been recording recent strong expansion. Put differently, searching for cost leadership competitive advantages on the basis of large-scale production is not the most feasible option for local production systems because it is not possible to compete with the large packing groups and retailer labels in these segments, which still make up the bulk of the market. Paradoxically, the high percentage of bulk oil sold at not very attractive11 prices has gone hand-in-hand in the last decade with an intense dynamic of technological conversion featuring the incorporation of capital goods and the proliferation of codes of good practice for handling olives and olive oil. The result has been a spectacular increase in the quality of Spanish olive oil, particularly in the cooperative sector, generated by important product and process innovations (Commission of the European Communities, 2000; Sanz Can˜ada, 2001). However, olive oil enhancement is still quite insufficient. Nevertheless, in contrast with the general situation just described, a number of cooperative mills, as well as a number of large marketing companies associating cooperative mills (one instance is the recent merger between Cordoliva and Hojiblanca) are starting to emerge in Andalusia as marketers of sizeable quantities of branded extra-virgin olive oil in retailing and distribution outlets. Hence, a fairer proportion of the incomes generated revert to farmers.12 Quality product is in the top-of-the-range category (extra-virgin olive oil); when it is marketed under a brand, it has a very high potential margin for creating added value compared with bulk oil. The above reasoning is strengthened by the fact that, from the demand point of view, the image of quality olive oils is currently taking on increasingly more positive connotations amongst consumers in the developed countries, as well as in the middle–upper layers of society in the developing countries. Some of the reasons for this positive image are that olive oil is one of the core constituents of the (footnote continued) refined. Refining takes place in what are known as second-stage processing facilities, i.e. refineries or packing plant-refineries. 10 Analyses of the recent structural changes in the Spanish olive oil sector can be found in the following papers: Garcı´ a Brenes (2004); Ministerio de Agricultura, Pesca y Alimentacio´n (2004); Sanz Can˜ada et al. (1998). 11 In some crop years, the prices paid for bulk extra virgin olive oil and lamp olive oil (the lowest quality product that needs refining) may differ by no more than a few euro cents per kg of oil, which is not really any economic reward for the additional cost of producing quality. 12 These marketing companies are usually cooperatives whose membership is made up of cooperative mills. In some cases, these companies can also associate some small private companies in addition to cooperatives.

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‘‘Mediterranean diet’’ and its healthy properties are universally acknowledged by nutritionists; other causes are its organoleptic properties, its territorial and cultural links or its characteristics as a natural product. 4. Economic and institutional functions of protected designations of origin: analysis of results We will next ascertain whether territory-linked certification processes such as PDOs may be a prerequisite for successfully achieving a greater degree of local value aggregation in olive oil local production systems as a result of collective action entailing the implementation of associative quality organisation strategies. For this purpose we will begin by focusing on the two types of functions that go beyond the compulsory functions of PDOs: on the one hand, quality assurance systems with distributors and on the other, collective inter-professional strategies implemented on a local scale, such as promotion, joint marketing or innovation. 4.1. Quality assurance systems with distributors The hypothesis was confirmed that the economic–institutional praxis of PDOs can fulfil the functions of a quality assurance system with distributors, especially with the retailing industry, thereby fostering the possibility of generating and enhancing vertical coordination relationships. Hence, labels can help to heighten the contractual power of small and medium enterprises by decreasing the transaction costs of trading with distributors. In particular, distributors appreciate the excellence of the oils in terms of their organoleptic properties and even of their food safety, rather than of their actual typicity, which is not well known: the replies of the 23 interviewees were unanimous on this point. In this way, the certification processes inherent in quality labels are an instance where consumers delegate third parties with the task of checking the authenticity of the information contained on labels and in product regulations. The meticulous certification processes implemented by the Regulatory Boards help distributors when applying the new traceability schemes by facilitating the choice of product references for supply and easing the quality control activities. Another quite general finding that emerged from the interviews was that the advantages provided by quality labels increase in step with the geographical and organisational distance between the mill and distributors. Some interviewees reflected that, curiously, the quality guarantee implicit in PDO labels seems to be appreciated more by foreign distributors, particularly outside the European Union, than by Spaniards. The reason is that the former generally possess less information about the product; hence, in such cases, the information inherent in the label gives rise to a greater reduction of transaction costs.

4.2. Local-scale, inter-professional collective strategies Confirmation has been obtained of the hypothesis that the operation of the PDO Regulatory Boards can help to boost collective quality organisation strategies encompassing inter-professional activities on a local scale, such as promotion, joint marketing or innovation diffusion, because they involve processes of coordination and concerted action at horizontal level and between the different stages of the olive oil chain. First of all, the scant awareness of olive oil PDOs makes it necessary to pay special attention to promotion and advertising activities, which are the prerequisite for the successful marketing of premium oils. In this respect, the Regulatory Boards implement quite extensive collective strategies in a wide range of promotional activities. Such activities represent the largest item of expenditure of the Boards, which receive subsidies from the EU for up to a maximum 50% of the expenditure incurred. Nonetheless, the large majority of interviewees concurred that the size scale of the PDOs is not sufficient to enable them to fund the two types of promotional/ advertising activities that have the greatest impact on consumers, i.e. television advertising and point-of-sale promotion. The implementation of PDOs may also potentially foster joint marketing strategies by local firms. Marketing companies associating cooperative and small private mills are to be found in all the PDOs; they usually group together a great number of local industries, although not always the majority of companies. However, the business organisation of these firms is still generally in its beginnings and they have only consolidated some degree of presence in the big retailing firms in the case of two of the six PDOs (Unio´ in the Siurana PDO and Olivar de Segura in the Sierra de Segura PDO). Nevertheless, interviewees were unanimous about the future importance of these marketing companies, not only in terms of increasing the economies of scale and scope in business negotiations, but also of brand policy or promotional/ advertising strategies. A close institutional link is generally observed between the Regulatory Boards and the associative marketing companies as regards both organisation and initiatives. Thirdly, where the processes of diffusion and adoption of innovations are concerned, it can first be noted that the incorporation of new process technologies such as twophase continuous extraction processes, stainless steel oil tanks and packing lines is almost generalised in all the PDOs and is more intense than the national average for the sector. Storage capacity has also grown significantly in the PDOs. In essence, the unanimous opinion is that the strict control mechanisms entailed in the quality guarantee function exercised by the Regulatory Boards have been amply instrumental in swiftly spreading codes of good practice in PDO areas. For example, the Regulatory Boards have drafted ‘‘quality manuals’’ for olive growing

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and olive oil production.13 Furthermore, all the Regulatory Boards carry out very important work, with varying degrees of frequency, in running training courses for farmers and mill workers; sometimes the courses are given by their own technical officers while on other occasions they are given by outside trainers. Besides carrying out inspection, quality control and certification duties the ‘‘supervisors’’, i.e. the agronomists of the Regulatory Board, especially in two of the six PDOs, provide key support in direct extension work and in finding answers to the problems of farmers and mill technicians. One initial conclusion that can be reached is that, as a result of the economic–institutional activity of the Spanish olive oil PDOs, of the functions mentioned, those relating to processes for the diffusion and adoption of innovations are the ones that can give the most significant results in the short and medium term, i.e. the adoption of innovations in fixed capital goods and human capital and the dissemination and adoption of codes of good practice in olive growing, the olive oil industry and waste re-use. The beneficial effects on local production system competitiveness are on a smaller scale in the case of promotional activities and quality assurance systems. Lastly, joint olive oil marketing processes appear to require more time and more collective awareness to be successful. For these reasons Section 5 will concentrate on the analysis of innovation diffusion processes in the Sierra Ma´gina PDO. 5. Diffusion and adoption of innovations in the Sierra Ma´gina protected designation of origin: analysis of results First, we will begin by demarcating the institutional analysis of the Sierra Ma´gina PDO. The chief features of the olive oil marketing chain in the district and the corresponding organisational innovations are briefly described in Section 5.1. Next to be analysed is the process of diffusing innovations and good practices for improving the organoleptic quality of olive oil. Lastly, the question of innovation is broached with reference to quality attributes relating to the environment and sustainable development. The ‘‘Sierra Ma´gina’’ PDO (see Fig. 1) is a good example of a recent (approved in 1999)14 emerging PDO. Its economy is highly specialised in olive oil and the district is equipped with a major framework of institutions focused on rural and olive oil development. Promoted in the 1990s, this framework is hinged on three of these institutions: the PDO Regulatory Board; the Associations for an Integrated Plant Protection (known by their Spanish acronym of ATRIAs), which are groupings of farmers who join up to hire the services of agronomists to provide them with on-the-ground 13 In some PDOs the manuals are fully fledged handbooks whereas in others they are reminder fact sheets about the main best practice. 14 However, it is only the sixth Spanish PDO in terms of seniority. The district has a surface of 152,586 ha and a population of no more than 60,000 inhabitants, but it has the largest olive crop area in the world to be covered by a PDO—62,000 ha—and an annual average production of 40,000 tonne of oil.

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advice; and an important rural development group, the Sierra Ma´gina Rural Development Association. Other public institutions also influence rural and olive oil development: the governing body of a Nature Park in the district, the District Agricultural Office, which is involved in agricultural extension and veterinary inspection, two advisory and service-providing agencies for local businesses (UTDLT), plus a nearby agro-food research centre (IFAPA, Venta del Llano) and a university (University of Jae´n). All these institutions are public–private partnerships between various kinds of associations, trade unions and business organisations, firms and other players in the district. Furthermore, in the opinion of the experts, there is a relatively high degree of inter-institutional collaboration, which can be seen in the existence of joint innovation and action projects and the participation of institutions in each other’s governing bodies. 5.1. Shortfall of collective organisation in the local olive oil marketing chain The surveys revealed that 75% of the olive oil industries in the district are cooperatives and account for over 90% of the olive oil produced. Bulk sales are still the main marketing outlet for olive oil, representing 85% of the total. Bulk oil is mainly sold to brokers, who sell it on to medium and large enterprises in the Spanish and Italian packing–refining industry, thus mirroring the situation in the Spanish olive oil industry in general. In 2002, only 12% of the oil suitable for marketing under a label was released on the market as PDO oil according to the latest data released by the Ministry of Agriculture, Fisheries and Food. Although bulk sales predominate, a number of mills and packers are selling a small volume of packed local oil and are implementing emerging strategies to market packed, branded virgin olive oil in nearby markets as well as in certain top-end segments of the restaurant/hotel trade and delicatessen groceries. The businesses concerned are several organic olive oil mills—one small/medium-sized cooperative, one small/medium-sized private mill plus two family micro-mills—and several family run mills (6) and packers (2) generally tied to large agricultural farms which sell conventional top-of-the-line oil. The survey figures are eloquent: only 6.25% of the oil mills, precisely mills of this kind, allocate over half of their production for packed sales. However, no more than a small proportion of the oil packed under local brands is sold through the big retailing firms (less than 10% of the total according to interviewees). It was to make up for the absence of joint brand strategies that an associated marketing company (Aceites Andaluces Sierra Ma´gina) was set up in the late 1990s to group together most of the industries in the district and to sell a large part of its quality oil as packed product under a common brand. The aim was for the majority of PDO marketing activities to go to this company. The fact that the project was spawned at the Regulatory Board and that the premises and infrastructure of the marketing company

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have been provided by the Board give an indication of the institutional link between the two entities. The project started out with 17 partners, most of which were big cooperative mills and only a few were small private mills; however, it has been a partial failure and now only has six partners and the volume of brand product sold is quite low. A commercial agent was employed to professionalise sales but did not come up with the desired results and was dismissed; since then, the company has no agent. On the promotional front, the PDO is very visible at the main food and olive oil trade fairs in Spain as well as in the trade press and local and regional media, but the Regulatory Board has to contend with the same problem as all the other Spanish PDOs: it does not have the financial sway to implement strategies entailing television advertising and point-of-sale promotion. As a consequence, the players in the local olive oil chain have not yet solved their problems of collective organisational and business innovation, which is a must to obtain differentiation-related incomes generated by improvements in product quality. This organisational shortfall occurs primarily in cooperatives and is evident in several indicators, such as the refusal to invest in intangible assets or the reluctance to professionalise management and marketing. To give an instance, the surveys revealed that only two of the 26 cooperatives have a commercial agent in the firm; in contrast, five of the eight family mills and packers do have an agent, even though the private firms are much smaller than the cooperatives. 5.2. Innovation and improvement of organoleptic oil quality A series of good agricultural and agro-processing practices have recently become widespread in Sierra Ma´gina. Combined with the intense incorporation of capital goods, this has led to a substantial improvement in the organoleptic quality of the oil. As a result, extravirgin olive oil now accounts for a considerably larger slice of total production, rising in recent years to around 50% of aggregate output, and 45% of the extra-virgin olive oil produced is entitled to the PDO label. Both of these percentages are very high and are hard to beat. Such practices are disseminated by the Regulatory Board in conjunction with the ATRIAs and mainly refer to harvesting, fruit transportation, extraction and storage. Recommendations are put into practice through day-today contacts of the agronomists with growers and mill workers; the Board also sends out a quality manual each year to the mills as a reminder. Recommendations cover the following points: (1) best time to harvest, which is assessed by monitoring fruit development in the orchard and analysing the maturity index of the olives; the tendency now is to bring forward the start of harvesting15; (2) best 15

Oil quality is improved considerably by bringing forward harvesting, which prevents the olives from dropping to the ground and gives more intense, fruitier tasting oils.

conditions for transporting the olives to the mill16; (3) separation of the olives that fall onto the ground from those picked from the tree as well as of any fruit showing freeze, pest or hail damage; (4) crushing of the olives within 24 h of harvest, which is possible owing to the recent increase in the daily processing capacity of the industry; (5) avoidance of washing the olives picked from the tree; this practice is starting to be introduced and recommended although it is still not very widespread in Sierra Ma´gina17; (6) maintenance of satisfactory standards of cleanliness and technical control at mills and packing plants, with the application of the hazard analysis and critical control point (HACCP) system. The goals of raising the organoleptic quality of the oil in the PDO have been widely achieved in the space of no more than 5 years. This is the positive outcome of interinstitutional collaboration, such as the inclusion of the six district ATRIAs in the structure of the Regulatory Board, which itself promoted the creation of the ATRIAs. During the production season (4 months at the most) the ATRIAs agronomists see to the certification and inspection of the oil at the Regulatory Board. The Board applies for public subsidies to cover the salaries of the technicians and makes up the unsubsidised portion of their salaries in exchange for their services for certification purposes. This organisational innovation is not found in many Spanish PDOs and plays a key part in disseminating innovation and knowledge on the ground and in relaying quality policy to the entire olive oil chain. Analysis of the institutions that mills and olive growers turn to for external advice (Tables 1 and 2) provides further indication of the crucial role placed by the Regulatory Board and ATRIAs in providing advisory and extension services. Over 70% of the mills replied that their employees were advised by technical personnel from the Regulatory Board (Table 1); on top of that, almost 9% of the people surveyed seek advice from the Rural Development Association, especially for innovative environmental projects. In the case of olive growers (mill members, Table 2), ATRIAs play a prominent role in providing on-site technical advice for 79.41% of the mills. According to the experts interviewed, although the ATRIAs initially only gave advice on crop health care—strictly speaking this is their job—their advisory services have spread-eagled to cover every aspect of olive cultivation and to relay the quality policy of the Board, to the point where they are now a leading vehicle for disseminating integrated production. The fact that only 14.7% of the firms say they have technical advisory staff also points to the need for collective advisory functions. 16 The different categories of olives should not be mixed together and the trailers should be cleaned when they have carried extraneous products. 17 Washing the olives with water may cause problems in subsequent oil extraction because of the formation of emulsions during beating, which frequently makes it necessary to work the olive paste at inadequate temperatures.

ARTICLE IN PRESS J. Sanz Can˜ada, A. Macı´as Va´zquez / Journal of Rural Studies 21 (2005) 475–486 Table 1 Bodies providing advice for technical or administrative mill staff % of mills replying that some of their employees consult each type of body Regulatory Board Machinery firms Sierra Ma´gina Rural Development Association Research and training centres FAECAa Private agents FEDEPROLb

70.59 8.82 8.82 5.88 5.88 2.94 2.94

a

FAECA: Federation of Andalusian Farmers’ Cooperatives and Stock Breeders. b FEDEPROL: Organisation of Olive Oil Growers (service-provider).

Table 2 Advisory bodies of member olive growers % of mills replying that some of their member olive growers consult each type of body ATRIA technical officers Regulatory Board Mill personnel or manager Commercial businesses Professional Agricultural Organisations Andalusian Organic Agriculture Committee

79.41 61.76 14.71 2.94 2.94 2.94

Source (Tables 1 and 2): Survey conducted under Euromed Heritage II Project: ‘‘Filie`res innovantes, savoir-faire locaux et partenariat eurome´diterrane´en’’ (2002–2005).

5.3. Innovation, good environmental practices and sustainable development of olive growing An extensive body of technological advances is now available to enable olive cultivation to be concurrently productive and environmentally friendly. Consequently, quality improvement must not be viewed exclusively in organoleptic terms; instead the foodstuff must also incorporate environmental attributes both as regards the product itself and its environmental impact. Two causes underlie the environmentally unfriendly intensification of olive growing in Sierra Ma´gina, as elsewhere in Andalusia and the EU. First, a productivity logic was encouraged by the thrust of the Common Agricultural Policy (CAP) of the EU. Up to the 2003/04 crop year, the target of the CAP was to maximise oil production because subsidies were applied on the basis of the kilograms of oil produced by each farm.18 Second, grower training and advisory services have generally been 18 Because the subsidy increased in step with the volume of olive oil produced by each farm, the aim was to produce the greatest possible quantity of oil, which was frequently at variance with an environmentally friendly quality policy. With the current reform of the common organisation of the market in olive oil, most of the quantitites that are subsidised will be independent of current production and will depend instead on the average production of a number of previous crop years. The

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provided by the commercial suppliers of inputs, while public extension and training services have been virtually non-existent in recent decades, notably until the mid-1990s when the Regulatory Board, ATRIAs and other local public institutions started to operate. One consequence of the intensification of olive cultivation has been that farmers have adopted a productive paradigm of maximising production at any cost. The first effect has been the excessive application of fertilisers and synthetic plant protection products which have damaged the environment, particularly the soil and aquifers, and have often led to the presence of toxic residues in the foodstuff. This makes it advisable to foster the compilation and diffusion of codes of good practice for sustainable development. These should incorporate the following objectives at least, which we will deal with next: agroenvironmental practices in soil management; the reduction or elimination of synthetic plant protection products and chemical fertilisers; and the re-use of residues from agricultural and agro-processing production such as pomace, pruning residue and even wastewater. Until recently, tillage was traditionally the widespread cultural system in the district. In areas with steep and medium slopes, which are predominant in Sierra Ma´gina, this kind of practice has heightened soil losses and hampered efficient water use. The experts who were interviewed consider erosion to be the number one environmental problem in district olive growing. According to agro-environmental soil conservation practices, nontillage combined with plant cover is the most appropriate cultural system for olive orchards located on slopes: the use of natural pasture, especially gramineous crops, helps to reduce water dependence and to maintain some degree of soil moisture.19 However (Table 3), only 10% of olive growers intend to increase plant cover in the future. Nevertheless, the work carried out by the ATRIAs and the Regulatory Board has led to the abandonment of tillage, and non-tillage without plant cover now predominates.20 The surveys point to the growing tendency to use fertigation to spread fertilisers, which are clearly applied to excess because hardly any soil or leaf analyses are performed. Organic fertilisation in the form of compost would be much more favourable from the environmental viewpoint because it would remove chemical residues from the soil and ensure that such residues are not found in the oil. It would also help to restore soils on medium and steep slopes and to reduce the pronounced problems of erosion (footnote continued) new CAP measures for olive oil are reported in Commission of the European Communities (2003). 19 The gramineous crops must not be allowed to develop intensely between April and August, which makes it necessary to clear a minimum area or to bring in animals to pasture. 20 However, in Sierra Ma´gina, non-tillage on sloping land is usually supplemented by the use of herbicides and mechanical clearing, which also has a negative environmental impact in terms of erosion and affects biodiversity.

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Table 3 Future trends of cultural systems

Table 4 Willingness of olive growers to apply less conventional fertilisers and to increase organic fertilisation % of replies % of replies

More traditional tillage More non-tillage More semi-tillage More plant cover crops No change

— 20.00 10.00 10.00 60.00

Very high High Medium Low Very low

6.25 9.38 31.25 31.25 21.88

Source: Survey conducted under Euromed Heritage II Project: ‘‘Filie`res innovantes, savoir-faire locaux et partenariat eurome´diterrane´en’’ (2002–2005).

caused by the shortage of organic matter, which is due in turn to the lack of animals and the absence of plant cover crops. Furthermore, it would bring substantial cost savings for holdings. The problem is that supplies of compost are not available in the district but it could be produced on site through pooled utilisation of olive pomace or pruning brush. Local institutions have already taken the initiative in this respect by providing training and prompting debate. However, further training efforts are needed and awareness has to be increased because we have observed (Table 4) that olive growers still only show lukewarm willingness to decrease conventional fertilisation and to expand organic fertilisation. In Sierra Ma´gina, the work accomplished by the ATRIAs has made clear headway in recent years in the strategies for rationalising the use of inputs, particularly phytosanitary products, both as regards the amounts applied and the recommendations for application. Integrated control methods advocate restricting treatments to twice a year and only applying additional treatments when there is a proven pest risk. However (Table 5), the surveys reveal that only one-third of the olive growers are very willing to apply more environmentally friendly crop health care; this coincides with the opinions of the experts who were interviewed, who believe continuing training is highly advisable in this respect.21 Nevertheless, the experts believe that the most effective way of rationalising crop health care in the future is to bring about the widespread application of integrated production systems.22 Some time ago, one of the six district ATRIAs became an Integrated Production 21 The regional Andalusian government has made it compulsory for any farmers who apply phytosanitary products to hold a pesticide user card, which they are issued on completing a training course. 22 Integrated production system is halfway between conventional and organic olive growing. It lays down technical rules for fertilisation and the use of phytosanitary products, as well as for the cultural and soil conservation systems such as the use of plant cover crops or irrigation. However, unlike organic agriculture, it does not totally ban synthetic fertilisers or plant protection products; nor is there a seal identifying this kind of product that can be used for marketing purposes although the regional Andalusian government is finalising the regulations and specifications for such labels. Organic agriculture, on the other hand, aims to restore biodiversity through the introduction of new tree species and to recover soil fertility, neither of which is a compulsory objective in integrated production.

Table 5 Willingness of olive growers to apply more environmentally friendly phytosanitary treatments % of replies Very high High Medium Low

6.25 31.25 37.50 25.00

Source (Tables 4 and 5): Survey conducted under the Euromed Heritage II Project: ‘‘Filie`res innovantes, savoir-faire locaux et partenariat eurome´diterrane´en’’ (2002–2005).

Association (known by its Spanish initials of API). In the opinion of the local experts, ATRIA–API cooperation within the Regulatory Board could turn into the vector for disseminating integrated production to the whole PDO in the near future. This could equip PDO oil with additional food safety attributes attesting that it is a residue-free product. Moreover, from the point of view of agricultural practices and changing farmer mentality, integrated production could be a transitional stage towards organic olive growing, which boasts a string of innovative experiences in the district which could serve as a demonstration for other holdings. Until very recently the wet pomace left over from twophase extraction system was viewed as a by-product of virgin olive oil extraction from which olive-pomace oil was made, but the market for olive-pomace oil has gone through a very severe crisis, beginning in 2001, since when olive pomace is considered as waste as opposed to a byproduct. Instead of being paid for their olive pomace, mills have lately had to pay olive-pomace oil extractors to remove and transport the pomace to the plants. Faced with this problem, in 2004 half of the PDO industries set up a joint company, also promoted by the Regulatory Board, for the co-generation of electric power from olive pomace. The advantages of utilising pruning brush are also being discussed because, at present, this vast amount of biomass is burned despite the ensuing environmental problems and high opportunity cost.23 23

One feasible solution might be for all the mills to jointly purchase machinery for shredding olive pruning brush in the orchard in order to minimise transport costs to the plant. However, this initiative is less ripe

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6. Conclusions The conclusion reached in the findings of the empirical analysis is that the processes of inter-agent collaboration in the quality guarantee and protection tasks inherent in the establishment of a PDO can generate interesting results, even in the short term, in areas of non-compulsory action. On the one hand, labels can serve as quality assurance systems for distributors (hypothesis 1), although distributors are still not particularly interested in the typicity of the oils but are drawn more generally, inter alia, to their properties of organoleptic excellence, food safety or traceability. In addition, the Regulatory Boards can boost inter-professional activities on a local scale (hypothesis 2). This has emerged clearly on analysing the adoption of process and product innovations in Spanish olive oil PDOs, especially in terms of spreading codes of good practice and also, albeit to a lesser extent, on examining collective promotion activities and the more incipient joint olive oil marketing activities. These hypotheses have been verified not only in the case of the general analysis of the olive oil PDOs, but also in the case of the detailed analysis of the Sierra Ma´gina PDO. For the adoption of innovations to move forward, the proportion of the value chain captured by the local agents in the olive oil chain has to be increased in the short term. In this respect, deficiencies are still detected in the organisational innovations linked to marketing processes, which are heightened by the customary reluctance of rural economic agents to invest in intangible assets. If a large volume of top-quality oil continues to be produced at prices that do not reward the extra-quality improvement efforts of farmers and processors, the pathway to product innovation could be reversed in the medium term. Concomitantly, once they have achieved a significant threshold in product quality, Spanish olive oil PDOs face a new emerging challenge in the adoption of innovations. From now onwards, the objective will be to produce quality oil which, besides displaying differentiation in terms of organoleptic excellence and territory, incorporates attributes of environmental quality and a greater degree of food safety and traceability. In the case of Sierra Ma´gina, the local institutions have already embarked on a positive innovative pathway in this new variant of the technological paradigm. Even if only incipiently, we can confirm the hypothesis that local innovative systems are starting to incorporate new environmental and sustainable development attributes (hypothesis 3), although much ground remains to be covered. The results obtained in this article prompt some considerations on certification systems, institutions, innovation and local production systems. In this respect, the territorial proximity of the economic agents in a local (footnote continued) owing to the problems of collective organisation involved in coordinating the timing of pruning by farmers.

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production system is a prerequisite, although not the only one, for activating innovation dynamics based on the ‘‘product quality’’ factor. Consequently, to move forward from mere ‘‘territorial proximity’’ to ‘‘organised proximity’’, it is necessary to network all the rural players in a collective project where local know-how and new externally transferred knowledge are hybridised (Albert et al., 2003; Filippi and Torre, 2003; Torre, 2003). The aim of our work is to contribute to the research on this subject by providing empirical evidence obtained in the olive oil sector in Spain, which is of major territorial and productive importance, on the characteristics required of ‘‘organised proximity’’ in PDOs in order for it to be successful in increasing aggregated value within local production systems. First, in the analysis of the ‘‘organised proximity’’ inherent in PDOs, the innovation and knowledge diffusion relationships resulting from the implementation of the certification system become the leading factor in shaping inter-institutional and inter-business coordination relationships. Second, the innovative system of a PDO is basically structured around the quality factor, which gives rise to a high degree of interdependence between innovation strategies and quality dynamics. From an institutional angle, this innovative system is promoted and directed by the Regulatory Board, which makes dynamic ‘‘organised proximity’’ by acting as the driver of innovative initiatives, by encouraging horizontal and vertical cooperation between local agents, by acting as a vehicle for the dissemination of innovations proper and by compiling and supervising the application of good agricultural and agro-processing practices. This institution acquires a central role in hybridising traditional know-how and new knowledge in the areas of quality, the environment and the foodstuff. Finally, sectoral factors are not the only factors to affect the pathway to innovation; other factors outside the sector also exert an influence, such as the characteristics of local development, institutions, sociological groups or territorial identity. In particular, the institutional framework existing in a rural area becomes an important aid for making better use of the inter-professional activities of PDOs. It is precisely these functions extending beyond the mere certifying function of the institution which can induce a process of economic–institutional dynamics, even in the short term, that generates positive externalities helping to improve local production system competitiveness. Acknowledgements Research work has been financed under the Euromed Heritage II Project of the European Union (EU), Contract No. ME8/AIDCO/2000/2095-03 (2002-06), as well as under Project SEC99-1208 of the Social and Economic Studies Programme of the National R & D Plan (CICYT) (2000–2003): see notes 6 and 7. We would like to thank the anonymous reviewers and to Dr. Gerardo Torres Salcido, a researcher at the UNAM of Mexico, for their comments and suggestions.

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