Evidence on Euromediterranean Trade Integration: The Case of German Olive Oil Imports Nachweis über euromediterrane Handelsintegration: das ...
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GJAE 59 (2010), Heft 1
Evidence on Euromediterranean Trade Integration:
The Case of German Olive Oil Imports
Nachweis über euromediterrane Handelsintegration:
das Beispiel deutscher Olivenölimporte
Aikaterini Kavallari, Sarah Maas and P. Michael Schmitz
Justus-Liebig-Universität Gießen
Abstract zen somit eine weitere Handelsintegration im eurome-
diterranen Raum. Zudem ist der Handel mit Deutsch-
The deepening of the Barcelona Agreement and the
land positiv mit dem Bestehen von direkten Absatzwe-
discussions of the creation of a Mediterranean Union
gen und Tourismus verknüpft. Diese Einflussfaktoren
has awakened the interest of the non-EU Mediterra-
sollten in Zukunft stärker von mediterranen Ländern
nean countries to expand their exports to the Euro-
genutzt werden, um ihre Olivenölexporte nach
pean markets. This study analyses the factors that
Deutschland auszuweiten.
influence the German imports of olive oil by employ-
ing a gravity model. The results of two random-effects Schlüsselwörter
models corrected for serial correlation and hete-
roskedasticity suggest that being a Mediterranean euromediterrane Handelsintegration; Gravitations-
Partner Country of the European Union has the high- modell; Olivenöl; Deutschland
est impact on trade flows to Germany, thus supporting
further Euromediterranean trade integration. Moreo-
ver, olive oil exports to Germany are positively re- 1. Introduction
lated to the existence of direct marketing channels and
Olive oil is a typical Mediterranean commodity and is
to tourism. Therefore, these valuables should be ex-
considered as an important agricultural product of the
plored more in the future by the Mediterranean coun-
countries surrounding the Mediterranean basin. More
tries so as to boost their exports.
than 95% of the world production takes place in the
Key words Mediterranean countries with the EU member states
being the largest producers accounting for about 75%
Euromediterranean trade integration; gravity model; of the world production (EUROSTAT, various years).
olive oil; Germany Non-EU and non-Mediterranean countries account
only for about 1% of the world production. Tradition-
Zusammenfassung ally olive oil has been consumed in these producing
Die Vertiefung des Barcelona-Abkommens und die countries while Italy, followed by Spain, France and
Diskussion über die Gründung einer Mediterranen Greece dominate olive oil trade with Italy being the
Union haben das Interesse der mediterranen Drittlän- largest importer worldwide (ANANIA and PUPO
der geweckt, ihre Exporte an den europäischen Markt D'ANDREA, 2008). According to EUROSTAT data the
auszubauen. Diese Studie analysiert daher die Deter- non-EU Mediterranean countries export olive oil al-
minanten der deutschen Olivenölimporte an Hand most only to the EU markets (more than 75% or their
eines Gravitationsmodells. Im Mittelpunkt steht hier- olive oil exports were destined to the EU-15 over the
bei die Frage, ob der Abschluss des Barcelona-Ab- last ten years) with Italy again being the largest im-
kommens zu einer Stimulierung des Handels zwischen porter, followed by France and Spain.
Deutschland und den mediterranen Drittländern ge- In recent years due to campaigns for a healthier
führt hat. Die Ergebnisse zweier Random-Effects- way of living the consumption of olive oil has in-
Modelle, korrigiert für Autokorrelation und Hetero- creased in non-traditional markets, providing space
skedastizität, zeigen, dass die Zugehörigkeit zu den for the Mediterranean countries to expand their mar-
mediterranen Partnerländern den stärksten Einfluss ket shares to new destinations. The interest of the
auf die Exporte nach Deutschland hat und unterstüt- Mediterranean countries and especially of the non-EU
40
Copyright: www.gjae-online.deGJAE 59 (2010), Heft 1
Table 1. Imports of Olive Oil (HS 1509) in Germany
Partner country Average share in % Average growth in % over
1995-1997 1998-2000 2001-2003 2004-2006 2007 1995-2000 2000-2005
Italy 84.4 87.2 86.9 77.8 71.2 14.3 9.3
Spain 10.2 6.7 6.4 10.6 9.6 -3.2 28.8
Greece 3.0 2.7 3.2 7.8 13.0 15.2 36.7
France 1.5 1.3 1.7 2.0 2.4 6.2 22.7
Rest of EU-27 0.6 1.9 1.6 1.5 2.9 36.7 12.4
Turkey 0.2 0.2 0.1 0.2 0.5 -18.4 61.0
Tunisia 0.0 0.0 0.1 0.0 0.1 n.a n.a
Rest of MPCs 0.1 0.0 0.0 0.0 0.0 -19.5 47.6
Rest of world 0.0 0.0 0.0 0.1 0.2 17.3 58.8
Total imports
64.5 88.9 120.0 183.6 213.6
(in € million)
Notes: n.a: not available
Source: EUROSTAT; own calculations
Mediterranean countries to expand their market shares 2. German Market of Olive Oil
in the EU member states is expected to become more
obvious as the relationships with the EU are becoming Due to natural production limitations, the olive oil
1
deeper with the Barcelona Process and the updated supply on the German market is entirely covered by
discussions for the creation of a Mediterranean Union. imports, mostly originating from the Mediterranean
Germany with round 82 million inhabitants is one of basin. In fact, Germany’s olive oil imports tripled
the largest markets in Europe and thus an attractive within the past decade (see table 1), thus rendering the
export destination of olive oil. An analysis of the German market a potentially important export destina-
supply chain of olive oil in Germany has shown that tion for Mediterranean olive oil producers. During
the popularity of the commodity is growing but still recent years the imports are dominated by Italy (about
the market is dominated by Italian imports (FLATAU et 71% of the total olive oil imports in 2007), followed
al., 2007). by Greece and Spain (13% and 10% in 2007, respec-
Objective of this study is to stress the factors that tively) (EUROSTAT, various years). The MPCs alto-
influence the German imports of olive oil and specifi- gether account only for 0.4% of the German imports
cally to identify whether trade has been stimulated by with Turkey as the distinguishing country (0.1% in
the formation of the Barcelona Agreement. Within 2007 according to EUROSTAT data).
this framework, the next section gives an overview of In the first five years after the conclusion of the
the German olive oil market and the development of Barcelona Agreement the average growth of the
olive oil trade flows. The economic importance of the MPCs olive oil exports to Germany was negative (-
driving factors for the export to Germany is measured 18.4% for Turkey and -19.4% for the rest of the MPCs)
by applying a gravity model, described in the third as table 1 shows. Nevertheless, after 2000 the coun-
Section of the paper. The findings of the analysis that tries have performed better and the average growth
follow in the fourth part could serve to form further rate of their olive oil exports over the period 2000-
options for the trade policy of the Mediterranean 2005 is the highest among other olive oil exporters,
countries, as discussed in the last Section of the paper. indicating a positive development of Mediterranean
exports to Germany. In detail, the average growth of
German olive oil imports from Turkey over this pe-
riod of time was 61% and 47.6% from the rest of
MPCs. This positive performance which could be due
1
The Barcelona Agreement was singed in 1995 between to the deepening of the Barcelona Agreement is ex-
the EU and the Mediterranean countries: Algeria, Cyprus, pected to continue over the coming years both because
Egypt, Israel, Jordan, Lebanon, Malta, Morocco, the of the entry into full force of this Agreement as well
Palestinian Authority, Syria, Tunisia, and Turkey. Apart
from Cyprus and Malta, which are already member states as because of the implementation of the new market
of the European Union these countries are called here- organisation for olive oil in the European Union (OJ L
after Mediterranean Partner Countries (MPCs). 161, 30.04.2004: 97-127). Moreover, ANANIA and
41
Copyright: www.gjae-online.deGJAE 59 (2010), Heft 1
PUPO D'ANDREA (2008) expect slower production investment or the existence of preferential trade
rates in the EU Mediterranean countries due to de- agreements. Reviews of gravity modelling exercises
coupling support for olive oil which was introduced in of regional trade agreements are given for example by
the 2004 reform which is likely to increase import CARDAMONE (2007) and GREENAWAY and MILNER
demand from non-EU Mediterranean countries. (2002). Although it is commonly accepted that the
Overall, due to the structure and the growing impor- gravity equation has performed well in empirical ana-
tance of trade flows between Germany and Mediterra- lyses, its application is seen as controversial. ANDER-
nean countries, the German olive oil market appears SON and VAN WINCOOP (2003) note that due to lack
particularly interesting for analysing the effects of the of theoretical foundation variables are omitted and
Barcelona Agreement on Euromediterranean trade thus the results of the gravity models are biased.
integration. Moreover, the authors argue that the estimated para-
meters cannot be used for comparative static exercises.
ANDERSON (1979) was the first to derive the gravity
3. The Gravity Model and equation from a model assuming product differentia-
its Empirical Application tion and his attempt has been followed by further
authors, as for example by BERGSTRAND (1985 and
One of the most commonly used tools to examine and 1989), DEARDORFF (1998), and ANDERSON and
explain trade flows is the application of the gravity WINCOOP (2003). Further in the studies of MÁTYÁS
equation on the exports (imports) of commodities (1997 and 1998) and EGGER (2000 and 2002) the
between two or more countries. It is based on the idea econometric specification of the gravity equation has
that the traded volumes from origin i to destination j been improved and the advantages of the application
can be explained by the economic size of the origin of panel data methodology were drawn.
and of the destination country and any other forces, Gravity models have been applied only in limited
specific for the examined trade flow, that attract or not cases to explain trade flows of particular commodities.
bilateral trade. EMLINGER et al. (2006) have built a gravity model for
The basic formulation of the gravity equation is fruits and vegetables to analyse their access to EU
as in equation 1. markets, while VLONTZOS and DUQUENNE (2008)
have applied the gravity equation to examine the trade
Y Yj
PX ij 0 (Yi ) 1 (Y j ) 2 ( i ) 3( ) 4 flows of Greek olive oil. These approaches have the
Popi Pop j
(1) advantage of avoiding inconsistencies due to aggre-
gating trade flows at country level as described in
( Distij ) 5 ( Aij ) 6 eij
AGOSTINO et al. (2007).
In this application, the gravity equation explain-
where i and j to denoted trade partners and for iGJAE 59 (2010), Heft 1
immigrants of the exporting countries live in Ger- associated with higher imports and exports, despite
many (if the number of immigrants is below 1 % of the fact that the gravity equation is applied in a disag-
total immigrants living in Germany the dummy is gregated commodity level. AGOSTINO et al. (2007)
set to zero, above the threshold the dummy equals investigated whether the commodity level aggregation
one. The immigrants number is retrieved from the scheme is a source of bias for assessing preferential
German statistical yearbooks (Statistisches Bundes- trade schemes and found that both on the aggregated
amt, various years)); and disaggregated commodity level the GDP was on
average important in explaining trade flows. More-
exporting countries are EU member states;
over, studies of EMLINGER et al. (2006) and VLONTZOS
exporting countries are partner countries of the EU and DUQUENNE (2008) show that the GDP coefficient
(within the Barcelona Agreement); is significant in explaining trade flows on a disaggre-
German tourists visit exporting countries (this gated product level (i.e. olive oil as well as fruits and
variable is relevant only for olive oil producing vegetables), which as well supports the above expec-
countries, not for re-exporters and again if the num- tation. The coefficient of the per capita income of the
ber of tourists is below 100,000 of total German importer could be either positive or negative depend-
tourists that stay at least one night in the place they ing on whether the imported commodities are consi-
are visiting, the dummy is set to zero, above the dered as necessities or luxury goods (MARTINEZ-
threshold the dummy equals one. The respective ZARZOSO and NOWAK-LEHMAN, 2004). Also the sign
number of tourists is retrieved from the German sta- of the coefficient of the per-capita income of the ex-
tistical yearbooks (Statistisches Bundesamt, various porter cannot be anticipated a priori as it depends on
years)); the capital-labour ratio (BERGSTRAND, 1989). The
distance coefficient, as a proxy for transaction costs
German supermarket chains buy directly from pro-
(including transport costs) should be negative whereas
ducers-traders of the exporting countries (as for in-
the coefficients of the dummy variables are expected
stance Lidl which directly imports from Italy, see
to be positive.
Flatau et al. (2007)); Data on German imports of olive oil are obtained
the exporting countries sell mostly labelled and from the EU’s External Trade Statistics over the pe-
packaged olive oil (instead of bulk). riod 1995-2006. After excluding countries with zero
bilateral trade flows the dataset covers 14 exporting
Following MARTINEZ-ZARZOSO and NOWAK-LEHMAN 2
countries. Regarding GDP and per capita GDP
(2004) the real bilateral exchange rate index rerGj (based on Purchasing Power Parity) the data are ex-
has been calculated by multiplying the nominal tracted from the World Economic Outlook database of
exchange rate of the exporting country (i.e. local cur- the International Monetary Fund (IMF). Measures for
rency value of one unit of country j’s currency value) distance are expressed as straight lines between cities
with the GDP deflator of the export country divided 3
using a City Distance Calculator. Instead of compu-
by the GDP deflator of Germany. It should be noted
ting the distances between capitals as it is the common
that this relationship does not include export subsidies
practise, distances between the main trade centres and
and ad-valorem tariffs since they are not applied.
Hamburg are used as most importers of olive oil in
According to the TRAINS database, non-tariff trade
Germany are located in Hamburg (FLATAU et al.,
barriers have not been reported for the examined pe-
2007). Instead of the geographical distance, NOWAK-
riod. As a result it was not possible to quantify non-
LEHMAN et al. (2007) and MARTINEZ-ZARZOSO and
tariff measures and to include them in the modelling
NOWAK-LEHMAN (2004) use two indices to capture
exercise. Consequently, to our information all MPCs
transport costs, the freight index and transport index,
face the same (zero) tariff no heterogeneity of prefe-
focusing not only on terrestrial infrastructure but on
rences among MPCs exists. This allows to proxy EU-
Mediterranean trade integration using a dummy varia-
ble for MPCs which is not the case if the degree of 2
The countries included in the model are: Austria,
protection varies among MPCs (see EMLINGER et al., Belgium, France, Greece, Israel, Italy, the Netherlands,
2008). Portugal, Spain, Sweden, Switzerland, Turkey, UK, and
It is expected that the coefficients for the nominal USA.
GDP for both the importing and the exporting coun- 3
The city distance tool of http://www.geobytes.com has
tries will be positive since a higher income level is been used.
43
Copyright: www.gjae-online.deGJAE 59 (2010), Heft 1
seaports. Although this approach would be welcomed dered a luxury good by German consumers, which can
as more precise, it has not been followed due to lack be attributed to the nutrition habits of the German
of data on the transport channels of olive oil into consumers (MARTINEZ-ZARZOSO and NOWAK-
Germany. LEHMAN, 2004).
The estimation makes use of panel data metho- The highest value has the coefficient of the
dology which allows accounting for individual hete- dummy variable for MPCs, which suggests that prefe-
rogeneity across countries. As focus is given on time- rential trade agreements between the EU and Mediter-
constant variables, such as the Mediterranean Partner- ranean countries have the intended effect of enhancing
ship, the random effects (RE) approach is considered Euromediterranean trade integration. The results show
as more appropriate instead of a fixed effects model. that being an MPC enhances olive oil exports to
However, to ensure that the assumptions of the RE the German market by about 6%. More precisely, the
model hold (i.e. orthogonality of the individual effects market shares of MPCs on the German olive oil
and the regressors) a Hausman test is carried out, market are, on average, 6% higher that those of non-
which fails to reject the null hypothesis of no correla- MPC olive oil producers. Unfortunately, the analysis
tion between the individual effects and the regressors does not allow distinguishing between trade creation
(GREENE, 2008; JOHNSTON and DINARDO, 2007). and trade diversion effects meaning that increasing
To ensure that the estimates do not suffer from Euromediterranean trade integration has potential
serial correlation or heteroskedasticity, the Durbin– adverse effects on non-Mediterranean olive oil expor-
Watson statistic modified by BHARGAVA et al. (1982) ters which do not benefit from preferential access to
and the Breusch-Pagan test adjusted to the panel data
context are used, respectively. Both tests strongly in-
dicate the presence of serial correlation and hetero- Table 2. Estimation Results
skedasticity. Based on the test results two RE models Variables Random effects Random effects
corrected for serial correlation and heteroskedasticity (PCSE) (GLS)
are estimated by employing panel-corrected standard GDP Germany -0.764 -1.191***
(0.397) (0.328)
errors (PCSE) and Generalized Least Squares (GLS).
GDP per capita -3.042** -3.188**
Germany (0.981) (1.082)
GDP exporting 0.809*** 0.867***
4. Estimation Results country (0.152) (0.152)
GDP per capita ex- 5.275*** 5.711***
In general, the statistical tests indicate that the gravity porting country (0.786) (0.818)
equation has a rather good explanatory power over Distance -0.0008*** -0.0008***
(0.00004) (0.0001)
German imports of olive oil. Moreover, almost all Immigrants 0.725* 1.530***
coefficients have the expected sign and are statistically (0.252) (0.366)
significant. The detailed results, reported in table 2, EU membership 3.005*** 3.240***
show that the differences among PCSE and GLS are (0.279) (0.631)
only minimal. Mediterranean 5.060*** 6.040***
Partnership (0.872) (0.902)
The coefficient of the exporters’ GDP is statisti- German tourism 2.831*** 2.294***
cally significant and has a positive sign implying that (0.269) (0.349)
the income of the exporting countries has a positive Direct marketing 3.845*** 3.992***
impact on olive oil exports to Germany. In contrast, (0.142) (0.128)
while the coefficient of Germany’s GDP has a nega- Labelling -3.067*** -3.710***
(0.402) (0.380)
tive sign and is statistically significant only in the Real exchange -0.0527*** -0.025
GLS estimation. The GDP coefficients are smaller rate (0.014) (0.019)
than one indicating that large economies trade more Constant -10.845 -11.014*
olive oil than small ones. However, trade increases (5.598) (5.145)
less than proportionally with an increase of the coun- R² 0.80 -
try’s economic size. As expected, the elasticity of Log Likelihood - -154.77
GDP per capita has a statistically significant positive Notes: Values in parenthesis are the standard errors of the regres-
sion coefficients, *** (**, *) statistically significant at the 99.9%
sign for the exporting countries, whereas the GDP (99%, 95%) level. The panel-corrected standard errors are correct
coefficient for Germany is negative. This somewhat for heteroskedastic and contemporaneous correlated disturbances.
surprising result implies that olive oil is not consi- Source: BECK and KATZ (1995)
44
Copyright: www.gjae-online.deGJAE 59 (2010), Heft 1
the EU market. However, the fact that olive oil ex- The results suggest that being a Mediterranean
ports from non-Mediterranean countries to the Ger- Partner Country of the EU appears to have a high
man market increased by 17.3 and 58.8% in 1995- impact on trade flows to Germany, fact alone that is
2000 and 2000-2007 (see table 1), respectively, sug- promising for further trade creation with the deepen-
gests that the importance of trade diversion may be ing of the Barcelona Agreement. In fact, preferential
limited. agreements seem to be the most important determi-
The estimated coefficients of direct marketing nant of olive oil exports from non-EU Mediterranean
and EU membership further suggest that the possibili- countries to Germany. However, it remains to be seen
ty of German super market chains to import directly whether this result can be transferred to other products
from exporters and being a EU member state creates and EU member states. Moreover, further research is
trade by about 4 and 3%, respectively. Labelling is the needed to determine whether trade creation rather than
only dummy variable with a negative coefficient, im- trade diversion is the driving force behind this effect.
plying that bulk has more potential to enter the Ger- In this context, extending the analysis to the time pe-
man market than packaged and labelled olive oil, fact riod prior and after the establishment of the Barcelona
that should be attributed to the structure of the expor- Agreement in 1995 would go beyond the identifica-
ters supply chain of olive oil, where most of the ex- tion of integration effects and could provide interest-
porting countries supply bulk olive oil (FLATAU et al., ing insights to the question whether the Barcelona
2007). Moreover, immigration to Germany as well as Agreement changed the structure of bilateral trade
German tourism has a positive effect on olive oil flows between the EU Mediterranean member states
trade. This is certainly interesting for the Mediterra- vis-à-vis MPCs.
nean Partner Countries, since it implies on the one Besides preference agreements, the analysis iden-
side that attracting German tourists may be an oppor- tifies further factors determining olive oil trade. A
tunity to boost their exports to the German market and positive relationship of the exporters’ economic size
on the other side that immigrants tend to consume to the level of German imports suggests that larger
products of their country of origin thus benefiting economies among the MPCs have more potential to
exporters of their home countries. Finally, the parame- export. The analysis also suggests that olive oil is not
ter estimates of geographical distance and real ex- seen as a luxury good by German consumers. Moreo-
change rate are negative but have only minor impacts ver, olive oil imports to Germany are found to be po-
on Germany’s olive oil imports. sitively related to direct marketing and to tourism
meaning that the creation of direct marketing channels
with German super market chains as well as attracting
5. Summary and Outlook
German tourists seem to be important factors that
As trade relationships among the EU and the non-EU could boost exports to Germany. Supposing that both
Mediterranean countries are expected to deepen with the German and the exporters’ olive oil supply chain
the Barcelona Agreement and the recently discussed remains as such, exporting packaged and labelled
conclusion of a Mediterranean Union, the interest of olive oil seems to enter the German market with more
the Mediterranean countries to extend their trade is difficulties than bulk.
expected to increase. That is to say, there is potential for non-EU
This study empirically investigates the impacts of Mediterranean producers to boost olive oil exports.
these preference agreements on Euromediterranean First, olive oil may enter the German market by ex-
trade integration using the example of olive oil exports ploring direct marketing channels. Second, by adver-
to Germany as it is a traditional Mediterranean com- tising the special characteristics of olive oil and the
modity and Germany is the largest market in the EU. particular regional differences in the quality, consum-
Additionally, other factors that might boost olive oil ers could start considering olive oil as a luxury good
producing countries’ exports to Germany are consi- asking for labelled olive oil giving producers the
dered. A gravity model has been employed so as to opportunity to benefit from selling olive oil in a
stress those factors that explain the German imports of higher quality and price segment in Germany as long
olive oil, which were identified in a preceding analysis as they improve their own logistics and export pack-
of the German olive oil supply chain. aged olive oil.
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Copyright: www.gjae-online.deGJAE 59 (2010), Heft 1
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Fruits and Vegetables. Working Paper 06/15, TRADEAG. e-mail: aikaterini.kavallarai@agrar.uni-giessen.de
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