Recent Developments in the
World Orange Juice Trade
and the U.S. Competitive Position
The Changing Face of U.S. Industry
The U.S. industry has gone through many subtle changes in the past decade as consumer tastes change and the industry itself evolves. Changing tastes and technology have altered the direction and products offered by the industry. This article will focus on the changing production levels of Frozen Concentrated Orange Juice (FCOJ) and Not-From-Concentrate (NFC) orange juice in Florida. Florida is the largest producer and exporter of orange juice in the United States.
FCOJ is considered any juice that has been concentrated during production and must be sold in concentrate form or be reconstituted for direct human consumption. FCOJ production has garnered a steady 65 percent of the total Florida orange production over the past decade or between 4.5 and 6 million metric tons. The total volume of oranges devoted to FCOJ rose during the mid-1990's as total orange production in Florida grew, but has slid back to former levels since 1997/98. In the past two years, the percentage of oranges devoted to FCOJ has been about 50 percent. FCOJs advantages are that it remains the lowest cost juice to produce, store, blend, and transport. These advantages allow for a lower average retail sale price and for the use of FCOJ in citrus flavored products, such as orange soda. It is estimated that FCOJ made up about 60 percent of all orange juice consumption in the United States in 1998.
Not-From-Concentrate (NFC) orange juice is juice that has never been in a concentrated form, thus never concentrated for retail or reconstituted (diluted) for consumption. The most apparent change in the industry has been the increasing production and demand for the high quality and fresh taste of NFC. Table 1 shows that Florida orange production devoted to the production of NFC has increased by 139 percent during the 1990's, while total orange production has only increased by 41 percent. In recent years, consumers have signaled their preference for the perceived healthier and fresher NFC juice over frozen or reconstituted juice, despite the significantly higher cost per unit. The higher cost associated with NFC is associated with its higher production, storage, and transportation costs relative to the more established FCOJ. While Table 2 shows that total growth in juice consumption is not dramatic, demand for NFC has been the brightest star in the market. Domestic promotion efforts by organizations such as the Florida Department of Citrus are increasing consumers awareness of the health benefits of orange juice in general and NFC juice, in particular.
The increase in Florida NFC production has been gradual. In 1990/91, 66 percent of Florida oranges were utilized for FCOJ production, while only 25 percent were used for NFC. Utilization of oranges remained at or above 64 percent for FCOJ and near 25 percent for NFC through 1997/98, though total volume varied by seasonal differences in the harvest. The total volume of utilization of oranges for NFC has grown by at least 5 percent each year since 1993/94. The most dramatic change in relative production was in 1998/99 and in the 1999/2000 forecast. During these two years, the percentage of oranges destined for NFC production jumped to over 40 percent. In 1998/99, oranges devoted to FCOJ decreased by 40 percent, while oranges for NFC increased by 7 percent. The utilization of oranges for FCOJ absorbed the reduction in harvest, while NFC continued to increase, despite the low harvest. The 1998/99 season shows that despite the seasonal crop variations, devoting oranges for NFC production is a priority for the industry.
International markets have always been a high priority for U.S. producers of orange juice and the export sector has been benefitting from the increasing worldwide popularity of orange juice, especially NFC. Tables 3 - 8 show that while total U.S. FCOJ exports have hardly budged in the 1990's, NFC exports have grown by almost 700 percent. NFC exports grew from 6,700 metric tons in 1989/90 to over 47,000 tons in 1997/98, while their share of exports went from 10 percent to over 50 percent. 1997/98 was the first year that NFC exports were larger than FCOJ exports in value terms and in 1998/99 the volume of exports are equal. Clearly NFC is now on an equal footing with FCOJ in terms of importance for U.S. producers and exporters of orange juices.
The U.S. market is also a prime target for other exporters. The primary supplier of orange juice is Brazil, with over 60 percent of the import market, followed by Mexico. However, while imports are almost 25 percent of the domestic market, more than 98 percent of all the U.S. imports are FCOJ. Imported FCOJ in the United States is primarily used for blending or retail FCOJ sale and would generally displace the lower quality/cheapest domestically produced juice. Therefore, domestic FCOJ is in tough competition for both the export and domestic market, while domestic NFC is unchallenged in the United States and faces competition only in the export market.
The only major international competitor the United States faces is Brazil. Table 2 shows that Brazil produces about 30 percent more orange juice than the United States, but exports over than 10 times more. Brazilian consumption of orange juice is minuscule because it is considered fresh orange consumption when the fresh oranges are sold in local markets or roadside stands for use in fresh squeezed juice. Almost all oranges in Brazil are produced and consumed or processed in the Sao Paulo region. Roughly 80 percent of the Sao Paulo oranges are processed into FCOJ. The fresh juice is consumed during the harvest season and the FCOJ is primarily exported.
One important advantage that Brazil enjoys is the lower costs of orange production. This is a very important advantage for Brazil in the FCOJ market because this product is competitively priced, mainly due to easier and longer storage and transportation, offering exporters small margins. Relative to the United States, Brazil enjoys several key areas of consistently lower costs, which sum to a total lower orange production cost: labor, land, chemicals, and environmental regulation compliance (in production and processing). Brazilian producers/exports also have a currency advantage because international trade is generally in dollars, while local payments and costs are in Brazilian reals, thus profits from exports are in a more stable currency. The only key advantage that U.S. producers enjoy is lower costs of capital.
The Major Markets
Aside from the United States, the main importers of orange juice internationally are Canada, the European Union, and Japan. Tables 9 - 11 show the relative market share of the United States and Brazil in each segment of these markets.
The European Union market is the largest market in the world for orange juice, importing about 850,000 metric tons in 1998. More than 95 percent of the entire volume of European imports are in the form of FCOJ, with Brazil controlling approximately 80 percent of this market segment. The size of the market continues to grow steadily, almost doubling this decade, as the demand for orange juice increases in the Northern European countries and for off-season consumption in the traditional citrus producing countries. Almost all of the FCOJ is imported into the Netherlands or Belgium, where it is stored, further processed, and shipped to other destinations inside and outside the EU.
Though Brazil dominates the market in FCOJ, U.S. product has made strides recently as consumers are starting to recognize and demand the high quality FCOJ that the U.S. exporters offer (though this is often blended in the United States with non-U.S. juice). U.S. exports of FCOJ have increased by over 100 percent in the past 6 years, though the yearly level varies greatly due to the U.S. harvest and price competition from Brazil. While U.S. exports compete heavily on price with Brazil, the high quality of U.S. FCOJ is a key factor to continued exports.
The U.S. competitive position in NFC is much stronger than FCOJ on the European market. The U.S. share of the market has risen from 12 percent in 1990 to about 49 percent in 1998. Israel, the second largest exporter of NFC to the EU, started to lose market share to the United States in the early 1990's, decreasing from a 55 percent share in 1990 to its current 22 percent share. U.S. export volume to Europe has grown by more than 150 percent in the past 6 years. The United States has been able to compete better in this sector as production, handling, and transportation technology have increased the viability of shipping NFC juice. The United States was able to overcome Israels geographical and tariff advantages through these technological advances.
Constraints in Europe for U.S. orange juice products are that most of the U.S. brand and national distinction is lost due to the level of blending in the industry, lack of a recognized "U.S." brand, and the overwhelming quantity of Brazilian juice on the market. With respect to national identity/origin, consumer awareness of NFC will continue to provide more opportunities and advantages in comparison to FCOJ.
Canada is the largest single country market for U.S. orange juice. Canada is similar to the United States in many ways, sharing evolving consumer tastes and branding. In step with U.S. consumers, Canadians are demanding higher quality juice for the same health and taste reasons. This has helped swing the balance between FCOJ and NFC in the market.
The total market for orange juices in Canada has grown by 150 percent over the 1990's, driven by NFC, while FCOJ imports have actually decreased. NFC has grown dramatically during the 1990's, growing from about 1,000 tons to more than 29,400 tons. Almost all of this growth has been captured by U.S. exporters. Thanks to the development of NFC in Canada, the U.S. has went from a 46 percent total market share in 1990 to about 80 percent in 1998.
In the early 1990's, FCOJ made up more than 90 percent of total imports. However, since 1995, FCOJ has had less than a 50 percent market share in Canada. Brazil holds roughly 60 percent of the Canadian market, with the United States making up the remainder, though this fluctuates depending on the supply situation of the exporters.
Japan holds limited opportunity for rapid growth in U.S. exports due to the distance of the market from U.S. production areas. Of the large orange juice importers, it has had relatively limited growth over the past decade, with only minor changes in the patterns of consumption. The distance and shipping time required make FCOJ a preferred form for imports for the Japanese market and this, along with production cost advantages, makes Brazil very competitive. The main advantages of U.S. juice will be its good quality for use in blending. Thus, the opportunities for US exporters will depend on their ability to remain price competitive in the bulk FCOJ market and to promote the health qualities of NFC.
U.S. Prospects for the Future
U.S. prospects for increasing exports of orange juice are bright. Despite tough competition from Brazil, U.S. orange juice products are of high quality and are recognized as such internationally. Growth in U.S. exports will likely come from markets that are already established orange juice consumers. U.S. exports will benefit more from the developing sophistication and high quality demands from richer, developed countries than from countries where everyday consumption of orange juice is not as widespread and consumers are more price sensitive. Developed country consumers are also more likely to be served by retail outlets that are capable of handling the products so that the highest quality can be maintained, either by freezing or refrigeration. Furthermore, consumers who are less discerning are more likely to purchase lower quality frozen or sweetened juices, which are mostly lower cost Brazilian FCOJ.
U.S. exports of NFC orange juice look to be the shining star for the citrus processing industry in the future. Increasing demand in the United States and in the export market have allowed processors to invest in NFC technology and helped them to leverage the high quality of U.S. juice into a product that provides high returns and differentiates itself from the bulk nature of FCOJ. The best market opportunities should lie in the short and medium terms in the developed markets of Canada and Europe. Both of these markets have consumers who want high quality, fresh juice drinks and are able to purchase the relatively high priced NFC on a regular basis. Regular consumer purchases and high quality refrigeration are also key fixtures in these markets. Since consumers in both of these areas are increasingly concerned about health issues, they are likely to be receptive to marketing campaigns that stress NFC juices health qualities. Additionally, since NFC juices from different origins are mixed to lesser degree and U.S. juice makes up a significant part of the entire NFC supply, exporters can more easily associate the product with generic U.S. juice or U.S. trade brands. Lastly, since NFC is more quality based than price based, the United States can maintain leadership in both markets because neither Brazil nor the traditional EU suppliers match the consistent supply and quality of U.S. NFC. The U.S.s excellent competitive position in the NFC market should provide bright prospects for export growth in the future.
The United States faces a much more challenging position in the FCOJ market in the future. Currently, Brazil has almost 80 percent of the world market and has major cost advantages in production of this bulk commodity. Additionally, the importance of blending in the production of FCOJ restricts the ability of U.S. exporters to distinguish their products to consumers. One advantage of this market, however, is that the qualities vary from country to country, and U.S. juice has certain quality characteristics that make it useful in blending. Continued FCOJ exports will rest on the ability of the juice industry to increase the level of juice consumption worldwide, thus continuing the overall demand for U.S. FCOJ for blending. Increasing world consumption rests on efforts in increasing consumption of juices relative to other drinks in developed countries and tapping into the increased purchasing power of developing country consumers. Thus, in developed markets such as Europe, Japan, Canada, or Korea, increasing consumption of juice in the heavily competitive drink market is essential. These efforts can be linked to health, packaging, availability, or convenience. In other countries, higher levels of juice consumption should start to grow as juice becomes more available, both in terms of refrigeration and distribution, and consumers are willing and able to spend more on fruit juices.
U.S. exports of orange juices face stiff competition in the world market, but have significant strengths to work with in further developing export opportunities. The growth of U.S. orange juice exports should continue given the high quality of the product and strong consumer demand for citrus juices.
(For information on this article or orange juice production and trade, contact Mark Petry at 202-720-0897. For information on U.S. international orange juice marketing issues, contact Ted Goldammer at 202-720-8498.)