<%BANNER%>

UFIR IFAS



Understanding NFC and RECON Orange Juice Demand
http://edis.ifas.ufl.edu/ ( Publisher's URL )
CITATION PDF VIEWER
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/IR00001892/00001
 Material Information
Title: Understanding NFC and RECON Orange Juice Demand
Physical Description: Fact Sheet
Creator: Mims, Will
Publisher: University of Florida Cooperative Extension Service, Institute of Food and Agriculture Sciences, EDIS
Place of Publication: Gainesville, Fla.
Publication Date: 2000
 Notes
Acquisition: Collected for University of Florida's Institutional Repository by the UFIR Self-Submittal tool. Submitted by Melanie Mercer.
Publication Status: Published
General Note: "Published July 2000."
General Note: "FE 175"
 Record Information
Source Institution: University of Florida Institutional Repository
Holding Location: University of Florida
Rights Management: All rights reserved by the submitter.
System ID: IR00001892:00001

Downloads

This item is only available as the following downloads:

FE17500 ( PDF )


Full Text

PAGE 1

Understanding NFC and RECON Orange Juice Demand1 Will Mims, Al Wysocki, and Richard Weldon2 1. This is EDIS document FE 175, a publication of the Department of Food and Resource Economics, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL. Published July 2000. Please visit the EDIS web site at: http://edis.ifas.ufl.edu. 2. Will Mims, graduate student; Al Wysocki, assistant professor; and Richard Weldon, associate professor, Department of Food and Resource Economics, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL. The Institute of Food and Agricultural Sciences is an equal opportunity/affirmative action employer authorized to provide research, educational information and other services only to individuals and institutions that function without regard to race, color, sex, age, handicap, or national origin. For information on obtaining other extension publications, contact your county Cooperative Extension Service office. Florida Cooperative Extension Service/Institute of Food and Agricultural Sciences/University of Florida/Christine Taylor Waddill, Dean. Abstract The primary purpose of this paper is to examine the variables that affect Not From Concentrate (NFC) and Refrigerated Orange Juice from Concentrate (RECON) demand. The examined variables that explain NFC and RECON consumption are orange production seasons, real prices, average real price of all other orange juices, per-capita income, and trend variable. Shifts in demand were studied and are believed to override the effects of recent price increases in the NFC orange juice market. Keywords: Not From Concentrate, Refrigerated Orange Juice from Concentrate Introduction During the past decade, orange juice sales in major U.S. retail grocery stores (sales exceeded $2 million annually) increased from 760 million gallons in 1988-89 (December 1988 through November 1989) to 817 million gallons in 1997-98, an increase of 7.5 percent. At the same time, the dollar value of orange juice sales in these outlets increased from $2.83 billion to $3.10 billion, an increase of 9.5 percent (AC Nielsen). The three major types of orange juice are frozen concentrated orange juice (FCOJ), pasteurized orange juice (NFC), and refrigerated orange juice from concentrate (RECON). These three types of orange juice account for almost 99 percent of the total orange juice sold in the United States. Frozen concentrated orange juice used to be the dominant type of orange juice sold in the United States. In 1988-89, FCOJ, RECON, and NFC accounted for 42.1 percent, 41.6 percent, and 14.3 percent, respectively, of the volume of orange juice sold in U.S. retail grocery chains. However, as a percentage of the dollars spent on orange juice, FCOJ, RECON, and NFC accounted for 36.6 percent, 41.5 percent, and 19.2 percent, respectively. This is because NFC orange juice prices are generally 50 to70 percent higher than FCOJ prices and RECON orange juice prices are 10 to 20 percent higher than FCOJ prices. During the last decade, the volume share of NFC orange juice more than doubled (32.7 percent of all orange juice sales). In contrast, the volume share of FCOJ decreased to 21.5 percent in 1997-98, about half the 1988-89 share. The 1997-98 figures representing the percentage of dollars spent on orange juice for NFC and FCOJ were 41.1 percent (verses 19.2 percent in 1988) and 16.4 percent (verses 36.6 percent in 1988), respectively. The volume and

PAGE 2

Understanding NFC and RECON Orange Juice Demand 2 expenditure shares for RECON orange juice remained steady (around 40 percent). It is a generally believed by the orange juice industry that the quality of NFC orange juice is higher than other types of orange juice. NFC orange juice has good flavor, tastes fresh (comes closer than other orange juice products to freshly squeezed orange juice), and is convenient to use (simply pour and consume). Past NFC, FCOJ, and RECON Nielsen data provide a good measurement of the energy of the U.S. orange juice market. The demand forecast for each of the three orange juice types largely depends on orange juice prices at the processor, economic conditions (e.g., U.S. per-capita income), and the prices of substitutes Study Findings Data were collected weekly during the 1988/1989/1999 citrus seasons. The weekly data were transformed into quarterly data for each season. An analysis of the quarterly data showed the overall demand for orange juice during the 10-year period. In this study, each orange juice season began the first Sunday in December, and each quarter lasted approximately 13 weeks. The following data were collected for FCOJ, NFC Orange Juice, and RECON Orange Juice: gallon consumption, price per gallon, per-capita income, population, and trends (changes in preferences). Prices and income were adjusted to account for inflation or deflation by using the 1998/1999 Quarter 1 Consumers Purchasing Index for Food (CPIF). The data provided an unusual relationship between price and quantity for NFC orange juice. The relationship showed per-capita consumption of NFC orange juice steadily increasing and price only increasing during the last year of the study. This relationship can be seen in Figure 1. In economics, the law of demand states that as the price of a good increases, the quantity demanded by consumers decreases, all things being equal. The data implied, however, that the law of demand did not hold true for NFC orange juice sales. One explanation could be that a shift in demand was caused by consumer income, trends, and an increase in the price of NFC orange juice. Therefore, an outward shift (to the right) in demand would lead to an increase in demand. As consumer income increases and consumers switch to NFC orange juice, the consumption quantity of other orange juice forms could be cannibalized. This means that the consumption quantity of other orange juice forms would decrease as a result of consumers using more NFC orange juice. Figure 1. Retail NFC Orange Juice Sales Conclusion What appeared to be a contradiction to the law of demand (rising price of NFC juice coupled with increasing demand) could be explained by NFC demand-increasing factors related to increases in consumer income during the 10-year study (more money to spend); changing consumer preferences for increased convenience (ready-to-serve easier to use than frozen); changing consumer preferences toward products consumers perceive as less "processed" and more "natural" (NFC more like freshly squeezed); increases in the price of NFC substitutes. According to quantitative analysis, for every one percent increase in price of NFC juice, there should be an expected 1.26 percent decrease in quantity demand. This price effect (a movement along the demand curve) has been overwhelmed by a shift in demand. It is difficult to predict just how long NFC orange juice consumption can sustain these amazing yearly increases. A downturn in the U.S. economy

PAGE 3

Understanding NFC and RECON Orange Juice Demand 3 could cause consumers to look for less expensive alternatives. Also, changes in processing technology could make RECON juice more attractive to consumers. Scientists at the University of Florida are reportedly close to developing a RECON process that will closely mimic the taste of freshly squeezed juice. If this technology is successful, RECON juice consumption could increase at the expense of NFC juice consumption. References AC Nielsen Marketing Research, Atlanta Georgia. Scanner data prepared for the Florida Department of Citrus. For additional information regarding NFC and RECON orange juice demand, refer to Food and Resource Economics Staff Paper SP 00-2, University of Florida, Gainesville, FL, June 2000.