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Savvy Marketers Reap Benefits From Olive Oil Shortage

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When your business depends on an agricultural commodity, the ability to deal with inevitable shortages depends on seeds planted long before it happens.

In 2012, Spain suffered from the second driest olive oil harvest season since 1947 resulting insignificantly decreased olive oil production. But the increase in olive oil demand and sudden decrease in Spain's competitiveness is an opportunity that California-based olive oil producer Theo Stephan, who owns Global Gardens, hopes to take advantage of. She's developed ways of excelling in the unpredictable and often turbulent olive oil market.

Stephan is both an olive oil producer and a marketer of more than 40 specialty food products. She has about 2,000 olive trees and more than 35 percent of her company's products include olive oil. Although the increase in olive oil demand has increased her production costs, she uses innovation and unique marketing campaigns to keep her competitive edge.

"There are shortages around the world in any given year, but we must cope with them," Stephan said. But she expects there is a market for people seeking authentic "Caliterranean" olive oil. California is the primary source of Stephan's olive oil, but she also imports from Greece and other obscure locations from time to time.

"In this industry, you have to be reactive. I've found ways to be innovative based on the projections," Stephan said.

In the past, she has had to promote or create items that require little or no olive oil, citing the company's organic mustards and pomegranate sauces as examples of what she's done to diversify the products she sells.

She also stands as consumers shift from relying on Spanish olive oil to looking to other suppliers.

"In the last couple of years, California has doubled in olive oil production and it's doing very well. About 99 percent of domestic olive oil comes from California," said Eryn Balch, executive vice president of the North American Olive Oil Association (NAOOA).

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Although the U.S. produced less than one percent of the world's olive oil supply last year, the country was number three after Italy and Spain in olive oil consumption. Despite the United States' love for the product, many people still prefer olive oil that originates from Spain.

"The perception is changing and the stigma around domestic olive oil is slowly fading," Stephan said. "For instance, when California started making wine, people were particular and wanted it from Italy or France, but the perception changed."

One way it changes is through education. Stephan talks with her customers about the different types of olive oil and says her company depends on consumers wanting and seeking knowledge about olive oil. She has a retail space and tasting room in Los Olivos, Calif., with a staff of 10 people as well as an online store. The company also sells a "virtual tasting kit," which allows customers to log on to the website and watch a video that guides them through the tasting session.

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"It's amazing because a 30-second conversation can make a difference in the customer's point of view. The proof is in talking to people," she said.

Balch also says consumer education is an essential part in maintaining a lucrative olive oil business. "There is a lot to know about olive oil and it starts with the basics. Like what the different types of olive oil are and what they are used for," she said.

Stephan says it's all about the terroir. "The soil and climate is what makes the taste different. We want consumers to appreciate that difference," Stephan said.

Stephan may have an advantage over other olive oil producers though. "I can constantly educate my customers because I understand what I'm selling. If I'm not the grower, then I'm not the expert," she said.

Balch said it's important for companies to know their olive oil producers, or farmers, well and cultivate a relationship with them.

That's a concept that small business owner Shaver Binici, founder of Olivita Artisan, shaped her company around. She said her family has been in the olive oil production business for more than 600 years and she started her skincare company partly because she couldn't find natural soap for her sensitive skin.

"The demand for high-quality premium olive oil is high. More people are getting educated on why natural products are better and they don't want to put chemicals on their skin," Binici said.

She receives her olive oil supply from small farmers in West Turkey and says supporting small farmers and offering them fair prices is essential to staying competitive in an unpredictable market. Binici said it's important to cultivate good relationships with multiple olive oil producers.

"Thanks to our relationship with smaller farmers we have not been affected by the shortage yet," Binici said. "The smaller and weaker players need a company that can be with them through the good and the bad. When olive oil prices were low in Spain because of various government subsidies we stuck with the smaller farmers in Turkey and paid them fairly," she said.

That relationship means more than ever right now. The demand for Turkish olive oil is high since Spain, once the world's number one olive oil producer, only produced about 600,000 metric tons of olive oil compared to the 1.6 million metric tons produced in the previous season due to drought conditions, according to the NAOOA.

"Turkey is in good shape right now and the number of olive oil trees there is increasing," Binici said.

"Due to the economic situation in many countries the consumption there is either flat or declining so it's somewhat evened out globally," Balch said. She added that she expects olive oil to be available because heading into the recent drought there were surplus stocks, which can offset some of the shortfall.

"The competitiveness will definitely increase," she said.

—By CNBC's Karma Allen. Follow him on Twitter @iam_karma.

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