Dan Kennedy, a farmer in the north Sacramento Valley, used to gaze out over his swampy rice fields or undulating alfalfa. These days, his property in Artois is more likely to have trellised hedgerows of sage-colored bushes bearing a tiny, lime-green fruit.

There's oil in those hedges, a "liquid gold" that reflects a contemporary California rush.

"They're a perfect fit for marginal soils, and use less water," Kennedy said of his 5-year-old olive orchards. "We're pretty happy with them."

Mechanical harvesting and new California olive oil mills are priming a sluggish olive industry, as growers in the state rapidly plant olive oil tree varieties and break into what's historically been an import market.

Spanish missionaries introduced olive plantings to California in the 1700s, and Spaniards rebooted the business in the late 1990s with technological advances and an infusion of cash.

Already, the California Olive Ranch, which began with initial capital from Spanish investors, has built two mills in the Sacramento Valley, with 60 growers signing contracts with the firm, many of them converting land from thirstier crops, such as nuts or the area's iconic rice, to the hardier and drought-resistant olive tree.

Other smaller mills are sprouting up in the Central Valley, as demand for olive oil grows in general and as consumer interest for a fresh, domestic oil is piqued.

"The olive industry in California is growing very quickly," said Dan Flynn, executive director of the Olive Center at the University of California, Davis. He said olives hold promise to compete as one of the powerhouse crops of the state, much like almonds or wine grapes.

Flynn said California olive acreage for oil hovered at 6,000 in 2004, and now has shot to 35,000 to 36,000 acres. Table olive acreage remained flat at 25,000 to 30,000.

Growers favor the crop because they get long-term contracts and guaranteed prices, taking some volatility out of the risky business of farming. Kennedy has a nine-year contract with California Olive Ranch, with a guaranteed price of $9 a gallon for oil.

Growers are getting $15 a gallon for oil, Flynn said. Last year, olive oil was a $15.3 million California commodity.

Meanwhile, growers and processors are swimming in vats of market potential. While 75 million gallons of olive oil are consumed in the United States annually, California produced about 1.2 million gallons last year, up from 850,000 gallons the previous year. The huge gap is made up in olive oil imports, mainly from Spain.

California, which processes more than 99 percent of the nation's olive oil, now has enough olive trees in the ground to produce 4.5 million gallons, once they start bearing fruit, Flynn said. And many industry observers predict that milling capacity will grow to keep pace with olive production and demand.

The business opportunity in olives came from high-density plantings of varieties made for oil processing, said Gregg Kelley, president of California Olive Ranch, based in Oroville. The company was a pioneer in using a Spanish system for planting olives in bushy rows, allowing for mechanical harvesting.

"It was a fundamental change in production, because we can now produce high quantities of high-quality oils with reduced labor costs," Kelley said.

Three workers and a mechanical harvester can strip an acre of trellised trees of fruit in about 30 minutes, work that used to take a crew of 25 a day to pick by hand, he said.

Olive trees can be grown in poor soils, including rocky ground and clay, and are ideal for water-strapped areas. Kelley said olives require about 15 inches a year of water per acre, as opposed to 4 to 8 acre-feet for other crops, including almonds, walnuts and rice.

"I like to think that, long term, olives will have a role in addressing the state's water issues," Kelley said. "They were developed in drought-stricken regions and a Mediterranean climate. They are survivors."

California Olive Ranch planted the first high-density olive orchard in the United States in 1999, on 500 acres in Oroville. The company opened its first mill in Oroville in 2002, and a second mill in Artois in 2008. In 2005, California Olive Ranch owned or contracted for 1,000 acres of olives, and now has holdings and contracts totaling 15,000 acres.

"Last year, California Olive Ranch alone produced three times as much oil as the entire California industry in 2006," Kelley said.

Kelley said olive oil production is creating local jobs and is an economic engine statewide. The firm employs 65 people in its two Sacramento Valley plants. Kelley said California Olive Ranch has grown its investment in the Artois mill 300 percent since initial construction with the addition of a storage facility and packaging line, and increased processing capacity.

"The processing facility will represent a $40 million investment in Glenn County," he said. "Since 2006, California Olive Ranch has invested $100 million in Glenn, Tehama and Butte counties."

While the company still has Spanish backers, it has American investors too, Kelley said. Spanish research and development programs also yielded the specialized harvester, which cannot be widely used in Spain because of its hilly terrain. A nursery in Spain also was home to the oil varieties chosen for their bushy character and success in warm, dry climates, Kelley said.

Brady Whitlow, president of Corto Olive Co. near Lodi, said the high-density plantings and mechanical harvesting drew his family farm into the olive oil business. The company started planting olives in San Joaquin County about eight years ago and built a mill to process oil about five years ago.

Today, Corto owns 3,000 acres of olives and contracts with about 10 other growers.

While traditional olive orchards have about 50 trees to an acre, the high-density plantings have almost 700 trees to an acre, Whitlow said.

In the first year, the Corto mill processed about 5,000 gallons of oil, and Whitlow said it now produces a half-million gallons. With mill capacity at just under a million gallons, there's already talk of expansion, he said.

"Adding capacity is the easy part," Whitlow noted. "We have to demonstrate to consumers how much better our oil is and what a value it is, so we can add acreage and more market opportunities."

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