(Bloomberg) — It’s olive season in the hills around Rome, where a century-old family business upgrading its machinery showcases both the fruits and shortcomings of Italy’s efforts to spend European Union cash.
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Pierluigi Ceccarelli plans to use his slice of €100 million ($106 million) in EU funds set aside for Italian olive millers to raise output in his facility by 50% to 6 tons an hour and to improve the quality of the oil harvested from the silver-leafed trees scattered around the town of Fara Sabina.
“In many of these small towns, you find the priest, the mayor and the olive miller,” said Paolo Mariani, head of Assofrantoi, Italy’s association of olive millers. “Financing them is a way of keeping the territory alive.”
More and better could be a motto for what Prime Minister Giorgia Meloni is trying to do with the country’s €194 billion cut of money from Brussels. The test of success or failure will be whether she can achieve such productivity-enhancing results with enough of a scale and impact to revitalize the euro zone’s third-biggest economy.
The recovery fund created three years ago as a response to the pandemic is Italy’s biggest aid effort since its post-World War II reconstruction. The EU program is funneling cash into sectors including infrastructure, schools, health, digitalization, green economy, development of the South and helping businesses boost local communities.
So far, Italy has received about €113 billion in grants and loans. Compared with past EU aid programs, where it often failed to even apply for money, targets are being met and funds distributed. This is key to encouraging other European countries, like Germany, to consider such investment efforts in future.
“It’s a glass half full because Italy is doing very well on receiving the funds and is well ahead of peers,” Eurasia Group senior analyst Federico Santi said in an interview. “However, there are delays in spending, and it’s likely that these delays will increase going forward.”
On another idyllic hillside a 100 miles or so north of Ceccarelli’s olive groves, Mario Draghi spent part of this year drafting his own formula for reviving Europe as an economic and geopolitical power and the former Italian premier is clear that the continent needs much more than an increase in its olive oil output.
“Industrial strategies today – as seen in the US and China – combine multiple policies, ranging from fiscal policies to encourage domestic production, to trade policies to penalize anti-competitive behavior, to foreign economic policies to secure supply chains,” Draghi said in his report. “Europe is lacking focus.”
For Italy, the effort is essential if it wants to finally grow out of its mammoth debt. With decades of lackluster performance behind it and debt well above 130% of economic output, the nation desperately needs investment to drive expansion. Yet, its scatter-gun strategy to doling out EU money may not be enough.
“We are spending a lot of money without really getting anywhere because it’s very fragmented and therefore not impacting long-term output,” Carlo Alberto Carnevale Maffe, a professor of business at Milan’s Bocconi University, said in an interview. “To have a multiplier effect you need to choose a few sectors and spend billions, with a plan. Not helicopter cash spread across the country in myriad projects.”
For Maffe, a better use of cash would have been focusing it on areas like fiber optics and satellites. As for raising productivity — Italy’s long-term pressing challenge — he reckons far better returns could be obtained from growth-enhancing reforms.
What Bloomberg Economics Says…
“If Italy were to use all grants and half of the loans for additional investment, we estimate the EU funds would increase the level of real GDP by almost 2% in 2026.”
—Simona Delle Chiaie, senior economist. For full note, click here
Yet it’s not hard to see why Meloni’s government is trying to support things like the olive business which is worth €1.2 billion for Italian growers and €3 billion for its millers and bottlers.
Though compared to the overall tally, the cash set aside for the olive industry is a drop in an oil vat, it’s still a welcome boon for an area struggling with region-wide challenges ranging from worker shortages to the ravages of climate change.
Throughout the autumn, the terrain around Rome is dotted with locals harvesting their crop by hand. Crates brimming with green and purple fruit are carried to the presses and poured into vats for cleaning and stripping, then churned into a paste, which is spun to remove water.
The result is a golden stream of fresh, tangy extra virgin olive oil which millers are working overtime to produce before fermentation takes hold.
Ceccarelli, whose family business in the historic Fara Sabina area north of Rome dates back to 1915, reckons his new machinery won’t only raise output but will better preserve flavor and the antioxidant polyphenols that have made the product increasingly popular as a health food.
His business is one of the lucky few. Out of roughly 4,300 olive mills in Italy, only a few hundred have asked for funds, according to data from farmers association Confagricoltura.
“It’s welcome cash but it’s never easy to get,” said Ceccarelli, whose application for EU money was one of only seven from his region. “I can see how some other millers give up around here.”
Getting access to money clears only one hurdle. Environmental and regional regulations, outdated administration systems, and lack of experience in smaller towns or businesses trying to use the funds, all contribute to slower implementation.
In August, only about 15% of already assigned tenders had seen work completed, according to Bank of Italy data. Many projects still in progress had considerable delays.
One of the people picking olives in the nearby Sabine hills this season is Filippo Cavalletti, who owns a 500 year-old estate with 6,000 olive trees in the town of Monteleone Sabino. He also worries about bureaucratic delays and the overall approach.
“Upgrading the mills helps the value chain because it improves quality which is Italy’s strength when it comes to oil,” he said. “But to squeeze enough out of the program you need a strategy and a broader approach and perhaps that is somewhat lacking.”
