A New Greek (Economic) Fuel: Olive Oil
The Greek government needs its newest bailout infusion. But in return, austerity would include (among many other requirements) cutting certain civil servants’ salaries by as much as 35%, raising the retirement age again but this time to 67, and plunging the number of associate professors at public universities from 15,226 to 2,000. The Greek Parliament has to decide before November 12.
This takes us to olive oil.
In a March 2012 report, the consulting firm McKinsey & Company proposed a development plan for Greece that would be spearheaded by an Economic Development and Reform Unit. Industry by industry, specific changes were proposed. Looking at what McKinsey suggests for olive oil as a prototype example, do you think the Greeks can leap from their current crisis to economic growth during the next decade?
Here are the broad goals and then the olive oil plan:
- Focus on tradable sectors
- Attract foreign and domestic investment
- Generate more productivity
- Ensure tax compliance
- Create employment opportunities
- Simplify bureaucracy
- Expand the court system
Although Greece is the world’s third largest olive oil producer, Italy is the main beneficiary. Because Greece sends its olive oil in bulk to Italy where it is packaged and marketed, Italy enjoys a 50% premium from the price of the retail product. McKinsey suggests that instead, Greece has to add to its factory capacity at home, develop a “cachet” for the “Made in Greece” label, and sell directly to targeted markets abroad. North America, the UK, Germany & Austria, and the Balkans would be top priority markets. (The McKinsey chart below is interesting.)
Reading the report, you start to realize that while Greece has immense economic potential, the chasm between their current plight and jumpstarting economic development is massive. In addition, since the report was issued, Fage moved its headquarters to Luxembourg and Coca-Cola switched its main stock market listing to London.
Can olive oil and tourism, feta and yogurt help to fuel the Greek economy?
Sources and Resources: My current facts about Greece receiving its newest tranche are from this NY Times article. Thinking of the future, the McKinsey report resounds until, I suspect, it connects to Greece’s political and economic problems. As a counterpoint, you might want to look at this Business Insider slide show detailing the impact of a “Grexit” and this econlife post about Greece.
From McKinsey, “Greece 10 Years Ahead,” p. 49: