Olive oil supply chain design with organic and conventional market segments and consumers’ preference to local products

Abstract

Recent market studies showed that the demand for organic and local agrifood products is increasing despite their higher prices. The agribusiness actors should therefore rethink the supply chain configuration to cope with new market trends characterized by the rise of the organic segment and the increase of consumers' preference to more local products. This study focuses on the olive oil sector and proposes a mixed-integer non-linear optimization model for the design of olive oil supply chains while incorporating organic and conventional market segments and considering, for each segment, a supply chain proximity- and price-sensitive demand. The model is developed with the collaboration of olive oil producers in the Mediterranean area. Thanks to this industrial collaboration, we account for real-world practices and constraints and apply the model to a realistic case study. We first linearize the model and show that it can be efficiently solved with commercial optimization softwares. Based on numerical experiments, we derive a series of managerial insights that are applicable to the considered case study, some of them are not intuitive. For instance, we show that an increase in consumers’ preference to more local products may lead the producer to offer products with a more global supply chain. The conventional product variety may be produced with a more local supply chain than the organic (premium) variety. Finally, offering a mix of organic and conventional varieties instead of only one variety would lead to implementing a more local supply chain.