THE CITRUS WARS

  
Florida and Brazil have been head-on competitors in the citrus industry for decades. In the 1980s Brazil became the world’s largest exporter and producer, expanding its penetration of the US market with lower-cost frozen concentrate orange juice.  The US industry responded with protective tariffs.  During the 1990s, however, Florida production has grown while Brazilian imports have stagnated or fallen slightly. In 1997-1998, Brazil produced 53% of the world’s orange juice; the US (mostly Florida) produced 40%. According to A. Lavigne, executive vice president of Florida Citrus Mutual and an industry spokesman, the Florida citrus industry was aided by a US Department of Commerce ruling in early 1999 that charged three Brazilian processors with dumping. The Commerce Department issued final antidumping margins as high as 65% for the companies covered by the review. 

FTAA:  Potential Impact on the US Citrus Market

The announced goal of the FTAA is to achieve duty-free trade in the Western Hemisphere.  Of course, this includes orange juice and fresh oranges.  So far, Florida growers, with their considerable political clout, have been able to keep in place tariffs on frozen concentrate orange juice from Brazil.  Lavigne recently stated, in response to a visit to Florida by the Brazilian Ambassador, that the industry would continue to defend the tariffs. How Florida growers and their organizations will respond to the FTAA is not known.  Perhaps Florida Citrus Mutual will seek the long-term, gradual reduction of tariffs under the FTAA.  Under NAFTA, the duties are lower for Mexico but are phased out completely only after about 15 years. Currently, duties on frozen concentrate orange juice from Brazil are $0.2889 per pound solid.¹ This rate came after a GATT-negotiated decline in tariffs in the 1990s; no further reductions will occur automatically.  In any case, the hard negotiating for the FTAA over tough issues, such as trade in frozen concentrate orange juice, will not be dealt with until the last minute under the negotiating schedule.  Compromises will depend on the give and take required at that time.  

Brazil Invades Florida

In the past seven years the Florida citrus industry has undergone important structural changes.  Most significant has been the entrance of foreign companies into the processing business through the purchase of existing plants.  Foreign companies now control 35 to 40% of Florida’s processing capacity. In 1993, the French company Louis Dreyfus bought the Winter Garden Coop Processing Plant.  The same company also owns two plants in Brazil.  In 1996, Cutrale Citrus Juices (Sucocítrico Cutrale Ltd. of Brazil) bought two Minute Maid plants owned by Coca Cola in Leesburg and Auburndale.  Cutrale continues to supply orange juice for Coca Cola/Minute Maid distribution with five processing plants in Brazil. In 1997, another Brazilian firm, Citrosuco Paulista SA,  bought a processing plant in Alcoma and reportedly has doubled its capacity.  Coinbra-Frutesp also produces in Florida, according to Brazil Now magazine.  In contrast, the only US company to own plants  in both Brazil and Florida is giant grain trader Cargill of Minneapolis.  

Several reasons account for foreign, especially Brazilian, interest in investing in the Florida market.  First is the desire to have a presence in the US, the world’s largest consumer of orange juice.  Second is the growing importance of not-from-concentrate orange juice sales in the US (imports are minimal due to US tariff and transport costs).  This type of juice has a higher profit margin than juice from concentrate.  Florida processing plants import frozen concentrate, especially in the off season, to mix with early local production for a good orange color.  Finally, foreign companies are reacting to the decline in US imports and increase in Florida production over the past decade. 

Florida Production, Imports and Exports

Florida orange production generally follows a cyclical pattern, with good years followed by bad.  The past decade has been characterized by generally high production, although the 1998-1999 season saw a drop to 185,700,000 boxes after four years of well above 200,000,000. Grapefruit followed roughly the same pattern; the 1989-1999 season showed a decrease to 47,050,000 boxes after six years at or above 50,000,000. Florida typically produces about 80% of the United States’ citrus; lesser producers include California, Texas and Arizona. The forecast for US orange and grapefruit production for this season is up over last year, to 231 and 52.7 million boxes, respectively. 

The following table shows Florida orange production and foreign imports for the past decade.  Mexico is the second largest source of frozen concentrate orange juice imports, but its exports to the US were down drastically in 1998-1999: 16.4 billion gallons compared to 50.2 billion in 1994-1995.  As a NAFTA member, Mexico pays a lower duty than Brazil but more than the CBI countries. ¹ 

Note: Net Pack usually equals a little less than production.  

The major US orange juice export markets in 1998-1999 were, in metric tons: Canada - 14,807, Netherlands - 4,929,  Belgium-Luxembourg - 8,663, Japan - 6,190, and South Korea - 1,592.  France, the UK and Hong Kong were good customers earlier in the decade. 

Brazilian Production and Exports

São Paulo state is the giant of Brazilian orange production and the source of all of its exports.  From 1961 to 1999, São Paulo production increased from 23 million boxes (40.8 kilos) to 388 million.  It is a $2.5 billion business with exports of about $1.5 billion.  Ninety-eight percent of the 1.13 million tons of juice produced in 1998-1999 went to export markets. The US is no longer the major export market for Brazilian frozen concentrate orange juice, representing in recent years only about 15% of the total.  The European Union receives about 70%.  Asia was a fast-growing market until the financial crisis of 1997-1998 but is expected to recover its demand and reduce the high level of current stocks.  

São Paulo Orange Production, Consumption and Exports

Note: Production and export data are for São Paulo. Other states produce 50 million boxes, but it all goes to domestic consumption.  Europe is the largest export market. 

Observations

Orange production is an important source of income for many farmers in Florida.  However, it is hard to justify placing tariffs on juice and not on cars, computers, airplanes, etc.  It is not clear why it is in the national interest to have high consumer prices for orange juice. Lower prices would mean more discretional income in the pockets of consumers. In fact, Florida does not produce enough juice to satisfy domestic demand.  As the large Asian markets and Eastern Europe grow and become more prosperous, demand for orange juice will grow even more.  The two big world producers, São Paulo and Florida, should have more than enough market to supply. Now that Brazilian companies are strongly represented in the Florida market, the industry’s emphasis will likely shift from competition to market development. 

¹ The pound solid refers to concentrate from which all water has been removed; when reconstituted it equals one sse (single strength equivalent) gallon of juice.  The rate of $0.2989 per pound solid was negotiated under GATT and represents a reduction of 15% from its previous level.  This level will not be changed until a new trade regime is negotiated.  Previously, the rate was $0.34 per ps. As a NAFTA member, Mexico pays a tariff of 4.652 cents per liter up to 40 mg, 7.862 cents/l up to 70 mg, and 8.08 cents/l over 70 mg (if snapback prices are in effect).  Imports from Costa Rica, Belize and Honduras enter the US duty free under CBI but are comparatively quite small.   

www.floridajuice.com   www.fred.ifas.ufl.edu/citrus   www.nass.usda.gov/fl.htp    www.fas.usda.gov/htp    Florida Agricultural Statistical Service   Florida Citrus Mutual

Florida Department of Citrus    Brazilian Secretariat of Foreign Trade    Brazilian Consulate