|Exporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.)|
|Appendix The development and performance of case study commodity systems|
The production, consumption, and trade of processed citrus products (including juices, segments, and bases) are a post World War II development. The processed citrus product industry has been a leading source of growth in the world citrus economy over the past few decades. The most important processed citrus product--frozen concentrated orange juice (FCOJ), experienced double-digit annual growth in world trade volumes during the 1970s and 1980s. At present, nearly 40 percent of world citrus production is processed.
Through the 1960s, the United States (particularly the state of Florida) was the dominant world producer and trader of FCOJ and other processed citrus products. This pattern has changed significantly, as a result of repeated climatic shocks in Florida and the development of production in several low- and middle-income countries. The most dramatic change has been the emergence of Brazil's FCOJ industry as the leading producer and exporter of this product. Over a period of just two decades, Brazil's industry was transformed from an essentially cottage industry to one with export sales exceeding $1 billion and accounting for 80% of the world market.
Citrus production in Brazil dates back to the 16th Century. Between 1860 and the late 1930s, immigrant farmers and traders developed an export trade in fresh oranges and other citrus fruits, mostly geared toward European markets. While an outbreak of Tristeza disease destroyed several million orange trees in the late 1930s, the industry would later recover, re-initiate exports in the 1950s, and develop a large domestic market for fresh citrus fruits.
A harsh winter in 1962/63 sharply reduced the production of oranges (for processing) in Florida. This development stimulated several Brazilian and foreign fresh fruit importer/exporters to invest in orange juice processing facilities in Brazil, in anticipation of future market opportunities, especially in Europe. Between 1965 and 1973, the investment climate was quite favorable, with rising world FCOJ prices, favorable Brazilian exchange rate policies, negative real interest rates for rural finance, and tax and financial incentives for manufactured exporters. New investments expanded the industry's processing capacity and dramatically increased the area planted under orange orchards.
By the early 1970s, Brazil emerged as the world's leading exporter of FCOJ, although its total output of the product was still small compared to that of Florida. The 1973 oil price rise and the subsequent recession adversely affected world FCOJ demand and prices. This also ushered in a period of macroeconomic instability in Brazil with high rates of inflation, an overvalued currency, and a highly complex and shifting array of macroeconomic and sector policies. The FCOJ price drop and resultant government interventions led several Brazilian processors into bankruptcy and brought about a concentration in the industry. Still, with a subsequent improvement in international market conditions, and with the benefit of both industrial and agricultural sector subsidies, the remaining firms were able to weather the effects of an unstable macroeconomic environment and take advantage of Brazil's strong comparative advantage in FCOJ production.
A major turning point in the industry's development came in 1977 when a major freeze in Florida drove up FCOJ prices in the U.S. to a level permitting competitive Brazilian supplies even after the application of U.S. import tariffs. Brazil's processors responded quickly to this market opportunity. While previous exports to the U.S. (largely for product blending purposes) had rarely exceeded 20,000 tons/year, these exports shot up to 147,500 tons in 1978. When the Florida industry recovered in 1979, most of Brazil's expanded FCOJ production was successfully marketed in Europe.
The Florida industry subsequently encountered climatic shocks in 1981, 1982, 1983, and 1985, leading to a 50% reduction in orange and FCOJ production. World FCOJ prices nearly doubled, leading to considerable new investments in Brazil in orchards and in juice-processing and transport facilities. These investments, together with the maturation of earlier planted orange trees, enabled the Brazilian industry to respond to the massive increase in world (especially U.S.) import demand. Between 1980 and 1984, Brazil's FCOJ exports increased from 401,000 tons to 905,200 tons, becoming the dominant world producer and exporter. The industry's index of revealed comparative advantage (20.27 in 1985) was by far the highest among the major industrial exporting sectors in Brazil.
Brazil FCOJ Exports
Sources: Braga and Silber (1991); U.S. Agricultural Attache Reports
During the early-to-mid-1980s, Brazil's competitive position in major markets was enhanced by its processors' investments in bulk transport and storage technologies which considerably reduced international transport costs and facilitated improved distribution of FCOJ to industrial users within the importing countries. Processing costs have been reduced by large economies of scale and by the use of sugarcane wastes as a partial substitute for petroleum-based fuels. Also important was the development of long-term contractual or ownership linkages with major soft drink distribution companies in the United States and Japan, providing assured market outlets.
Since the mid-1980s, the industry has maintained its dominance of European and U.S. markets and has diversified its trade to cover more than forty countries. Peak production and exports were reached in 1989 at 1,050,000 and 959,000 tons respectively. However, the industry's output, prices, and profitability have been highly variable over this period as a result of unstable macroeconomic conditions, shifting government policies and interventions, and problems in coordination between growers and processors and among the latter in international trading strategies.