• TABLE OF CONTENTS
HIDE
 Front Cover
 Center information
 Introduction
 The impact of not-from-concentrate...
 Tariffs and the world orange juice...
 Analytical model
 Empirical results-baseline...
 The projected impact of FTAA on...
 Concluding remarks
 Reference
 Tables






Group Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 02-3
Title: Impact of elimination of the U.S. orange juice tariff on the market for processed orange products
CITATION PDF VIEWER THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00089753/00001
 Material Information
Title: Impact of elimination of the U.S. orange juice tariff on the market for processed orange products
Series Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 02-3
Physical Description: Book
Language: English
Creator: Spreen, Thomas H.
Brewster, Charlene
Brown, Mark A.
Publisher: International Agricultural Trade and Policy Center, Institute of Food and Agricultural Sciences, University of Florida
Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2002
 Record Information
Bibliographic ID: UF00089753
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.

Downloads

This item has the following downloads:

pb020003 ( PDF )


Table of Contents
    Front Cover
        Page 1
        Page 2
    Center information
        Page 3
    Introduction
        Page 4
    The impact of not-from-concentrate orange juice
        Page 5
        Page 3b
    Tariffs and the world orange juice market
        Page 4b
    Analytical model
        Page 5b
        Page 6
    Empirical results-baseline model
        Page 7
        Page 8
    The projected impact of FTAA on the world orange juice market
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
    Concluding remarks
        Page 15
        Page 16
        Page 17
    Reference
        Page 18
        Page 19
    Tables
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
Full Text

PRTC 02-3


ional Agricultural Trade and Policy Center


THE IMPACT OF ELIMINATION OF THE U.S. ORANGE JUICE
TARIFF ON THE MARKET FOR PROCESSED ORANGE
PRODUCTS

By
Thomas H. Spreen, Charlene Brewster And Mark A. Brown
PBTC 02-3 May 2002


POLICY BRIEF SERIES













UNIVERSITY OF
) FLORIDA

Institute of Food and Agricultural Sciences













INTERNATIONAL AGRICULTURAL TRADE
AND POLICY CENTER


MISSION AND SCOPE:

The International Agricultural Trade and Policy Center (IATPC) was established in 1990
in the Food and Resource Economics Department (FRED) of the Institute of Food and
Agricultural Sciences (IFAS) at the University of Florida. Its mission is to provide
information, education, and research directed to immediate and long-term enhancement
and sustainability of international trade and natural resource use. Its scope includes not
only trade and related policy issues, but also agricultural, rural, resource, environmental,
food, state, national and international policies, regulations, and issues that influence trade
and development.

OBJECTIVES:

The Center's objectives are to:

Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
publications
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets










THE IMPACT OF ELIMINATION OF THE U.S. ORANGE JUICE
TARIFF ON THE MARKET FOR PROCESSED ORANGE
PRODUCTS

Thomas H. Spreen, Charlene Brewster, and Mark A. Brown

The Free Trade Area of the Americas (FTAA) is a proposal that would create a

free trade zone encompassing nearly all of the countries of the Western Hemisphere.

This region encompasses a population of 825 million with an aggregate GDP of US$10

trillion2. It would be the largest free trade zone in the world. The countries included in

the FTAA account for most of the world's production of orange juice. The states of Sao

Paulo, Brazil and Florida in the United States together produce approximately 85 percent

of the world's orange juice. Mexico and Cuba in the Western Hemisphere and Italy,

Spain, and Greece in Europe also produce orange juice for export. World production of

orange juice by country is shown in Table 1.

The United States is the largest processed orange consuming country in the world.

Canada is also a large market despite its relatively small population; Canada's per capital

consumption rivals that found in the United States3. The other countries of the Western

Hemisphere, however, do not have significant consumption of orange juice. Consumers

in these countries still buy oranges in fresh form and produce orange juice at home.




1 Thomas H. Spreen is Professor of the Food and Resource Economics Department at the University of
Florida. Charlene Brewster is Visiting Assistant Professor, Department of Agricultural Economics, Virginia
Polytechnic Institute, Blacksburg, VA. Mark Brown is Research Economist, Florida Department of Citrus,
Gainesville, FL. This report was supported by funding provided by NAPIAP, USDA and the Commodity
Analysis Division, Food and Agricultural Organization, Rome, Italy. The authors thank Arture Bocardo for
his assistance. Constructive comments were provided by Robert Barber, Robert Behr, and the FAO staff.
The authors are solely responsible for any errors in the manuscript.
2 As reported by WEFA, the GDP of the NAFTA countries in 1999 was US$8.7 trillion in 1990 US$, and
the GDP of the other Western Hemisphere countries in 1999 was US$1.4 trillion in 1990 US$.
3 Canada imports frozen concentrated orange juice at no tariff. All of its imports from NAFTA partners are
tariff free; it does, however, levy a two per cent ad valorem on single strength orange juice imports from
non-NAFTA countries such as Brazil.









Thus, nearly all of Brazil's orange juice production is exported. Outside of the Western

Hemisphere, the European Union is the other major orange juice-consuming region.

Consumption of orange juice in the major consuming regions of the world is shown in

Table 2.

The purpose of this paper is to project the possible impact of the FTAA on world

orange juice trade. The analysis is conducted using a mathematical model of the world

orange juice market developed at the University of Florida (McClain; Brewster and

Spreen). This paper is condensation of another paper recently completed by Spreen, et al.

The Impact of Not-From-Concentrate Orange Juice

The introduction of not-from-concentrate orange juice, also known as NFC, into

the orange juice markets of the United States and Canada has been one of the most

important phenomena of the 1990's. Consumption of NFC in the United States has

increased from less than 200 million SSE gallons in 1988-89 to over 500 million single

strength equivalent (SSE) gallons in the 2000-01 season (Table 3). Much of this growth

has occurred despite the fact the retail prices of NFC have remained relatively stable over

that period. The widespread acceptance of NFC by North American consumers has been

unexpected and requires a change in the understanding of the world orange juice market.

The growth of NFC consumption in the United States and Canada affects world

trade in orange juice in that nearly all of the NFC consumed in North America is

produced in Florida. Mexico has exported small quantities of NFC to the United States

(less than four million SSE gallons), but to date, very little NFC has been shipped from

Brazil to the United States. As such, an increasing share of Florida's orange crop has









been allocated to NFC. In the last three seasons, over 40 percent of Florida's orange crop

has been sent to the NFC market (Florida Citrus Processors Association).

Nearly all of the frozen concentrated orange juice (FCOJ) traded in the world is

first concentrated to 650 or 660 Brix. At this level of concentration, six parts water must

be added to reconstitute the juice to single strength equivalent. NFC, on the other hand,

is never concentrated. Thus to ship an equivalent volume of NFC compared to FCOJ, six

times the volume must be shipped. As a result, transportation costs become an

increasingly important component of the cost of NFC delivered to its final destination.

An important implication of the establishment of a large scale NFC market in the

United States is that, for the present, the Florida processed orange industry has been able

to differentiate its product from that produced elsewhere and thereby partially insulate

itself from import competition. In the analysis of the proposed FTAA, the markets for

NFC and reconstituted FCOJ in the United States must be separated as the latter market is

more vulnerable to reduction or elimination of the U.S. orange juice tariff

Consumption of NFC has begun in both Canada and the European Union. Given

Canada's proximity to the United States, it is not surprising that Canadian consumers

have begun drinking NFC. Canadian import data can be used to infer the composition of

consumption. While data is available on imports of orange juice into the EU, the

composition of imports is not known. U.S. export data indicate that approximately 70

million SSE gallons of NFC were exported from the United States in both the 1998-99

and 1999-00 seasons. Of this total, over 90 percent of U.S. exports were sent to Canada

and the EU4.


4 Data was recently published in a USDA publication regarding imports of NFC into Europe. That report,
however, contained no information on domestic production of NFC in the EU. Both Spain and Italy have









Tariffs and the World Orange Juice Market

Three of the largest orange consuming regions levy tariffs on imported orange

juice. In this section, those tariffs are reviewed. Recently, these tariffs have been

reduced as negotiated in the Uruguay Round of GATT. The most favored nation (MFN)

FCOJ tariff schedules for the United States, the European Union, and Japan are shown in

Table 4. Prior to the GATT agreement of 1994, Canada imposed an ad valorem tariff of

three percent on imports of FCOJ. Import tariffs imposed on orange juice from the

United States and Mexico have been phased out under the North American Free Trade

Agreement (NAFTA).

The United States allows the importation of orange juice duty-free to those

countries identified under the Caribbean Basin Economic Recovery Agreement

(CBERA) also known as the Caribbean Basin Initiative (CBI). CBERA countries that

currently export orange juice to the United States include Costa Rica, Belize, Honduras,

and the Dominican Republic. In 2000, imports from CBERA countries totaled 65.7

million SSE gallons, which was 20.6 percent of total U.S. imports and approximately

four percent of total U.S. orange juice consumption.

Under NAFTA, both the United States and Mexico agreed to phase out their

tariffs on orange juice imports over a 15-year period, beginning in 1994. At the time the

agreement was signed, Mexico levied a 20 percent ad valorem duty on imports of orange

juice, even though very little was imported. Before NAFTA, Mexico's exports to the

United States were subject to the MFN tariff, which at the time the agreement was

implemented was US$.35 per SSE gallon for FCOJ and $.175 per SSE gallon for NFC.


become significant producers of NFC, but their exact production figures are not known. For further
discussion, see Goodrich and Brown.









Imports of orange juice from Mexico had been increasing before NAFTA was

implemented which raised fears in Florida that reductions in the U.S. orange juice tariff

would result in massive increases in Mexican juice exports. To allay these fears, a rather

complicated arrangement was negotiated under which Mexican exporters were granted a

tariff rate quota of 40 million SSE gallons at one-half the prevailing MFN tariff or

US$.175 per SSE gallon. Exports above 40 million SSE gallons are charged a higher

tariff that declines over a 15-year period, reaching zero in 2008. A snapback provision

was built into the agreement that was intended to protect against "surges" of orange juice

imports from Mexico. In the snapback provision, if both price and quantity triggers were

crossed, then over quota imports would be charged the MFN tariff rate.

Analytical Model

A model of the world orange juice market has been developed at the University of

Florida. This model was originally developed in 1989 (McClain) and has been updated

and modified since then (Brewster and Spreen). In the model, there are four production

areas for orange juice: Sao Paulo, Florida, Mexico, and California, United States.

Production in Sao Paulo and Florida is modeled explicitly, while production from Mexico

and California is assumed to be fixed over the forecast horizon. The existing tree

inventory in Sao Paulo and Florida is used to forecast orange production in each region.

Historical processed utilization rates and juice yields are combined with the orange

production forecast to predict orange juice production in each region. After a spatial

price equilibrium is established, lagged grower (on-tree) prices are used to predict future

tree plantings. Historical tree loss rates are used to adjust the tree inventory. The









updated inventory is then used to predict next year's crop. The model is solved in a

forward recursive fashion over a specified time horizon.

The four consumption regions included in the model are the United States,

Canada, the EU, and Japan. The tariffs imposed by these countries are included in the

pricing structure of the model. Demand equations have been estimated for each of these

countries, which also account for growth in demand over time. For the purposes of this

analysis, the annual demand growth rates are assumed to be 1 percent in the United

States, .5 percent in Canada, 2 percent in the EU and 2.5 percent for Japan5.

The model allocates the available supply of orange juice across the four

consumption regions so as to establish a spatial price equilibrium. It is assumed that in

each year, production equals consumption, i.e. changes in inventory are not taken into

account. In the most recent version of the model, the orange juice markets in the both the

United States and Canada are disaggregated into consumption of NFC and FCOJ. Since

most of the FCOJ produced is ultimately consumed as reconstituted chilled orange juice,

this level of disaggregation was deemed appropriate. Separate demand equations have

been estimated for NFC and FCOJ at the processor level, i.e. the prices in the model

reflect the prices charged by processors for NFC and bulk FCOJ. Each demand equation

also includes a cross price effect. This term accounts for the fact that NFC and bulk

FCOJ are close substitutes. The quantity of FCOJ in the market affects the price of NFC

and vice versa.





5 A demand growth rate of 1 percent means that a 1 percent increase in the quantity consumed can be
accomplished with no increase in price. Demand growth in the United States and Canada is mainly driven
by population growth. Demand growth in Europe and Asia is primarily the result of increased per capital
consumption. These estimates are based upon work by the Florida Department of Citrus.









For a discussion of the mathematical model used to conduct the empirical analysis

as well as specification and validation of the baseline model, see Spreen, et al.

Empirical Results-Baseline Model

Projected orange and orange juice production in Sao Paulo and Florida are shown

in Table 6. Orange production in Sao Paulo is projected to decline from the 395 million

90 pound box crop produced in 1999-00 to 332.7 million boxes in the 2004-5 season.

Production is projected to recover to nearly 360 million boxes by the 2009-10 season and

continue to expand to 484 million boxes by 2020. The near term decline in Sao Paulo

orange production is a result of CVC, a viral disease which has killed millions of young

trees in Sao Paulo over the past five years. The latest data on tree numbers in Sao Paulo

indicate that there are currently 12 million nonbearing orange trees in the state. The

normal annual death loss in Sao Paulo is about six percent. In the 1999-00 season, there

were an estimated 162 million bearing trees in Sao Paulo (FAS, USDA) so that nearly 10

million trees were needed to enter the bearing tree population each year. With a total of

12 million nonbearing trees (ages less than one year, 1-2 years, and 2-3 years), bearing

tree numbers began to decline in that season and should continue to decline over the next

few seasons.

Orange production in Florida is estimated to increase modestly to 255 million 90-

pound boxes (the current level is 232 million boxes) by the 2004-5 season. Orange

production is projected to grow slowly over the next 15 years reaching 278 million boxes

by the 2019-20 season (Table 9). This forecast is based upon the reality that Florida

orange producers face constraints to significantly expand citrus production. These

constraints include competition from urban growth for land and water, and the problem of









finding harvest labor. Research is underway in Florida on mechanical harvesting of

citrus, but it is not yet widely adopted.

Orange juice production in Sao Paulo is projected to decline to 1.48 billion pound

solids (1.05 million MT @ 650 Brix) in the 2004-5 season. Production will then recover

to 1.60 billion pound solids in 2009-10 and continue to grow to 2.15 billion pound solids

by 2020. Orange juice production in Florida is projected to range from 1.5 billion to 1.7

billion pound solids over the next 20 years (Table 6).

Even though total orange production in Sao Paulo is considerably larger

compared to Florida, in recent years, Florida's production of orange juice rivals that in

Sao Paulo. This occurs because processed utilization is much higher in Florida (94

percent versus 74 percent) and juice yields are higher in Florida, although Sao Paulo has

been closing the gap in recent years.

With this production forecast, consumption levels in the four major consuming

regions are expected to expand modestly over the next 20 years as shown in Table 7.

With per capital consumption in the EU continuing to expand, EU consumption is

expected to exceed 1.21 million MT @ 650 Brix by 2020. With underlying demand

growth in all four markets, increased production can be accommodated with stable prices

(Tables 8 and 9). Processor prices in Florida for FCOJ are projected to be nearly flat

averaging approximately US$1575 per MT @ 650 Brix for FCOJ. NFC prices are also

expected to show a similar pattern over the forecast period. Prices in the other

consumption markets are expected to decline modestly.

Prices at these levels mean that grower prices should remain in a profitable range

over the forecast period. Grower prices in Sao Paulo should range from US$1.88 to









$US2.20 per box, while prices in Florida will range from US$4.39 to US$4.82 per box.

These on-tree prices are above the cost of production in both Sao Paulo and Florida as

recently reported by Muraro, et al. and could be sufficiently high to encourage expansion

of the world's citrus industry in countries other than the United States and Brazil.

On-tree prices that exceed cost of production in Sao Paulo have proven, in the

past, to stimulate new tree plantings. The main competitor to orange production for land

and labor in Sao Paulo is sugarcane. Brazil has recently modified its ethanol program so

as to divert more cane to sugar production. Combined with a worldwide oversupply of

sugar and other sweeteners, this decision has resulted in depressed cane prices in Brazil

for the past two years. The recent increase in the world price of oil has caused the

government of Brazil to reconsider its recent policy changes towards ethanol. This

change will likely stimulate the domestic sugarcane industry and provide a viable

alternative to citrus in Sao Paulo.

The Projected Impact of FTAA on the World Orange Juice Market

The Free Trade Area of the Americas (FTAA) proposal is intended to create a free

trade zone extending from Canada to Chile and Argentina. If it is similar in scope to

other free trade agreements, it is likely that tariffs and quotas will be eliminated on nearly

all products traded within the region. Clearly, the U.S. tariff on orange juice imports is

one of those import tariffs that could be affected by the passage of FTAA.

In this analysis, the impact of elimination of the U.S. tariff on orange juice

imports is conducted using two scenarios. Scenario 1 assumes that the tariff on both

FCOJ and NFC will be phased out over a 15-year period beginning in 2002. A 15-year

phase out is considered because this is the same timetable used in the North American









Free Trade Agreement. Scenario 2 is based upon the assumption that the tariff would be

reduced to zero beginning with the 2002-3 season. The results of this analysis are

summarized in Tables 8-17.

The impact of phased and immediate elimination of the U.S. orange juice tariff on

Sao Paulo is shown in Table 8. The results indicate that tariff elimination would have

little effect on orange production in Sao Paulo. At the end of the forecast horizon, orange

production in Sao Paulo is projected to be 494 million boxes under immediate

elimination, a level 10 million boxes greater than that forecast if the tariff remains in

place. Phased elimination of the tariff is projected to gradually increase on-tree prices in

Sao Paulo with the advantage reaching US$.12 per box by 2015-16. Immediate tariff

elimination results in an immediate gain of US$.32 per box in 2002-03 expanding to

US$.55 per box in 2019-20.

The impact of tariff elimination on Florida orange producers is shown in Table 9.

As is the case with Sao Paulo, the impact of the tariff removal on Florida orange

production is not large over the 19 year forecast horizon. At the end of the forecast

horizon, Florida orange production under phased elimination is projected to be 272

million boxes compared to 278 million boxes in the baseline. Under immediate

elimination, the impact is greater with projected production being 251 million boxes in

2019-20, a decline of nearly 10 percent. The impact on on-tree prices, however, is

greater. Phased elimination of the tariff is projected to reduce on-tree prices in Florida by

US$.30 per box in 2014-15, a decline of 6 percent. Immediate elimination would cause

grower prices in Florida to decline by more than US$ 1.14 per box early in the forecast

period. By the end of the forecast period, grower prices are projected at US$ 3.91 per









box, still well below the $4.51 per box forecasted under phased elimination. Thus, if the

tariff is removed, Florida growers would fare much better under a phased reduction

compared to immediate elimination.

One way to measure the impact of immediate elimination of the tariff on Florida

orange producers is to examine its impact on producer revenue. If the tariff were

eliminated immediately, producer revenue in Florida would decline by US$291 million in

the 2004-5 season, and US$343 million in the both 2009-10 and 2019-20 seasons. These

declines represent a 25 percent decline in 2004-05 and 26 percent in 2019-20. Another

impact is illustrated in that future orange production is expected to rise modestly with the

tariff intact, but follows a more cyclical pattern under immediate elimination with

projected production in 2019-20 nearly equal to that projected for 2002-03.

The impact of tariff removal on orange juice consumption and prices in the

United States is shown in Table 10. Under immediate tariff elimination, U.S. orange

juice consumption is projected to increase by 84,000 MT @ 650 Brix in 2002-03

(equivalent to about 117 million SSE gallons). Almost all of the consumption increase

would be FCOJ. By 2015-16, the projected increase in U.S. consumption is 100,000

MT, or eight percent. To support higher consumption, FCOJ processor prices in the

United States would decline by approximately US$299 per MT @ 650 Brix (equivalent

to approximately US$.21 per pound solid) in the 2002-03 season or 20 percent. NFC

prices in the United States would also decline, although the percentage decline is smaller

than that projected for FCOJ. NFC prices changes are due to the cross price effect

between NFC and FCOJ and that the model chooses to increase NFC production in

Florida.









The impact of phased reduction and immediate elimination of the U.S. orange

juice tariff on orange juice prices and consumption in Canada is not shown. Immediate

elimination would cause virtually no change in Canadian orange juice consumption and a

small increase in price. Phased reduction would also result in virtually no change in

orange juice consumption over the forecast horizon.

Elimination of the U.S. orange juice tariff on Brazilian imports would cause

prices in the EU to increase and consumption to decrease. This result occurs because the

U.S. market has become more attractive to Brazilian exporters vis-a-vis the EU market.

The impact of phased reduction and immediate elimination of the U.S. tariff on orange

juice prices and consumption in the EU is shown in Table 11. Under immediate U.S.

tariff elimination, the impact in the EU would be modest, as EU consumption is projected

to decline approximately 76,000 MT @ 650 Brix in 2002-03, a decline of nearly 9

percent. By the 2019-20 season, projected consumption in the EU is expected to decrease

by nearly 173,000 MT. Prices are projected to increase by US$92 per MT @ 650 Brix in

2002-03 and by US$161 per MT in 2019-20, the latter figure representing a price

increase of 12 percent. Phased elimination of the U.S tariff has a smaller impact on EU

orange juice consumption and prices, although consumption declines by 42,000 MT and

prices are projected to increase by US$ 39 per MT in 2019-20. Although not shown here,

the impact of U.S. tariff elimination on Japan is similar to the EU. Japanese consumption

declines modestly with a commiserate increase in price.

The impact of U.S. tariff reductions on world trade in orange juice is shown in

Tables 12-17. In Table 12, projected exports under the present tariff regime by country

of destination from Sao Paulo are shown. While the figures shown here underestimate









recent levels of exports to the United States, they do confirm that the EU has become the

most important market for Brazilian orange juice6. In Table 13, projected exports from

Sao Paulo under phased elimination of the U.S. tariff are shown, while Table 14 presents

results for Sao Paulo if the tariff were eliminated immediately in the 2001-02 season.

The clear conclusion drawn from the figures presented in Tables 12-14 is that

U.S. imports of FCOJ from Brazil will increase substantially if the U.S. orange juice

tariff is eliminated. Under immediate elimination, U.S. imports would increase by

89,000 MT @ 650 Brix in the 2002-03 season. Under phased elimination, there is a

gradual increase in U.S. FCOJ imports, which reach 142,000 MT in the 2019-20 season

compared to 86,000 MT in the baseline model

Increased imports by the United States would come at the expense of exports to

the EU and Japan. Canada would be only marginally affected. Since both the EU and

Japan are assumed to maintain their FCOJ tariff in the scenario presented here, it is not

surprising that consumption in these two regions would be adversely affected by phased

reduction or immediate elimination of the U.S. tariff.

The figures presented in Table 14 also help explain why the supply response in

Sao Paulo is relatively small if the U.S. orange juice tariff is removed. Under immediate

tariff elimination, the United States is projected to account for less than 10 percent of Sao

Paulo's market. Therefore the price impact on Brazilian growers and processors is

diluted by the fact that the majority of its exports will still be sent to other markets.

Another factor that limits supply response in Sao Paulo is that the industry is

already undergoing a major recovery from the trees lost to CVC. There are physical

6 For example, U.S. imports of Brazilian orange juice were nearly 200 million SSE gallons in 2000-01
season and the model indicates that approximately 74 million SSE gallons will be exported in 2001-02. It
is difficult to completely validate of model of this type and trade flows are particularly difficult to track.









limits on how quickly orange groves can be developed. The main lesson learned in Sao

Paulo from its last major expansion is that use of non-certified planting material can lead

to serious disease problems.

Utilization of orange juice production in the United States under the three

scenarios is shown in Tables 15-17 Under the current tariff regime, United States

consumption of NFC is expected to grow modestly from current levels reaching nearly

652 million SSE gallons by the 2019-20 season8. U.S. consumption of FCOJ (including

reconstituted chilled orange juice and retail pack FCOJ) is expected to grow modestly,

with Florida production of FCOJ reaching 751,000 MT @ 650 Brix by 2019-20. The

model suggests that all of the FCOJ supplied to Canada will come from Brazil.

Currently, a large proportion of FCOJ consumption in Canada originates from Florida9.

Under phased tariff elimination (Table 16), allocation of orange production to

FCOJ by U.S. producers remains relatively flat, while NFC production increases

compared to the with tariff scenario. The result is consistent with the notion that Florida

has a comparative advantage in the supply of NFC to the North American market and

thus with declining tariff protection, it would choose to allocate an ever increasing share

of its production to NFC.

In Table 17, utilization of U.S. orange juice under immediate tariff elimination is

shown. The trend discerned from these figures is similar to that observed in Table 16

except that the impact occurs much sooner. Utilization of U.S. orange production in the


7 The figures presented in Tables 15-17 include orange juice production from California, Arizona, and
Texas.
8 Some would argue that this forecast is conservative. In the model, growth of NFC consumption is
expected to moderate from the high levels that occurred over the past decade.
9 Given the duty drawback option available to Florida processors, it is possible that the model accurately
reflects the present situation in Canada even though the model does not choose to "pass through" Brazilian
concentrate which is ultimately destined for Canada.









U.S. FCOJ market decreases and increased utilization occurs in NFC produced for both

the U.S. and Canadian market for all years of the forecast horizon.

Although not explicitly included in the quantitative model of the world orange

juice market, phased reduction or complete elimination of the U.S. orange juice tariff

would have adverse effects on those countries which currently enjoy preferential access

to the U.S. orange juice market. These countries include Belize, Costa Rica, Honduras,

and Mexico. Given that all of these countries currently export most of their orange juice

production to the United States, reduced tariffs for Brazilian exporters would result in

lower prices received for exports from third countries along with a possible loss of

market share. These countries might choose to send more of their production to the EU.

Given Mexico's proximity to the United States, orange juice processors in that country

could possibly insulate itself from competition from Brazil by focusing on NFC

production.

Concluding Remarks

World orange juice consumption and trade has shown remarkable growth over the

past two decades. After major freezes destroyed many orange trees in Florida in the

1980's, the high prices that followed have spurred a major expansion in orange

production in both Florida and Sao Paulo, Brazil. These two regions continue to

dominate the world market for orange juice, collectively accounting for approximately 85

percent of world production.

Using a mathematical model of the world orange juice market, production and

price projections are made through the 2019-20. These projections indicate that in the

near term, world orange juice production will decline somewhat as Brazil recovers from









the effects of CVC, a viral disease that has killed millions of young trees. Production

should recover by 2010, and continue to expand to 2020 with Brazilian orange juice

output projected to reach 1.6 million MT @ 650 Brix. Orange juice production in Florida

is expected to remain relatively flat at 1.1 million MT @ 650 Brix. It is anticipated that

other citrus producing regions will not significantly expand their production of orange

juice over the next 20 years. The possible exception to this observation is Mexico, which

will gain tariff free access to the United States in 2008.

The main impact of FTAA would be duty free access for Brazil to the United

States. In recent years, Brazil's orange juice exports to the United States have stabilized

at approximately 175,000 MT @ 650 Brix. As nearly all of Brazil's exports are FCOJ,

the potential impact of elimination of the U.S. tariff has been muted somewhat with the

increase in NFC consumption in the United States.

The quantitative effects of complete elimination of the U.S. orange juice tariff on

Brazilian imports suggest that the benefit to Brazilian orange producers would not be

large. Production would increase slightly, and on-tree prices would also increase. The

impact on Florida producers is somewhat larger. Production in Florida would contract,

and on-tree prices are expected to decline substantially. Expanded consumption in the

United States would come at the expense of reduced consumption in the EU, Canada, and

Japan. Smaller orange juice producing countries such as Mexico, Belize, and Costa Rica

would also be adversely affected as these countries currently enjoy preferential access to

the U.S. market.









If negotiations begin in earnest on FTAA, the U.S. orange juice tariff will be one

of the most debated topics. It is hoped that the results presented herein are helpful to

those discussions.









References


Barten, A.P., and L.J. Bettendorf, 1989, "Price Formation of Fish: An Application of an
Inverse Demand System," European Economic Review 33: 1509-1525.

Brewster, Charlene, and Thomas H. Spreen. "Price Equilibrium in Spatially Separated
Multi-Product Markets: An Application to the World Processed Orange Juice
Market." Selected paper presented at the American Agricultural Economics
Association meetings, Salt Lake City, UT, August, 1998. (Abstract: Amer. J. Agr.
Econ. 80(1998): 1175)

Brown. M., J. Lee, and J. Seal, 1995, "A Family of Inverse Demand Systems and Choice
of Functional Form," Empirical Economics 20: 519-530

Florida Citrus Processors Association. "Annual Report." Various issues, Winter Haven,
FL, 1994-2000.

Florida Department of Citrus. "Citrus Reference Book." Economic Research Department,
Food and Resource Economics Department, University of Florida, Gainesville,
FL, 2000.

Goodrich, Rene, and Mark A. Brown. "European Markets for NFC: Supply and Demand
Issues." International Working Paper IW 01-2, Food and Resource Economics
Department, University of Florida, Gainesville, FL., February, 2001.

Kalaitzandonakes, Nicholas G., and J. Scott Shonkwiler. A State-Space Approach to
Perennial Crop Supply Analysis. Amer. J. Agr. Econ. 74(1992):343-52.

Laitinen, K. and H.. Theil, 1979, "The Antonelli Matrix and the Reciprocal Slutsky
Matrix," Economic Letters 3: 153-157.

McCarl, Bruce A., and Thomas H. Spreen. "Price Endogenous Mathematical
Programming Models as a Tool for Sector Analysis." Amer. J. Agr. Econ.
62(1980):87-102.

McClain, Emily A., "A Monte Carlo Simulation Model of the World Orange Juice
Market." Unpublished Ph.D. dissertation, University of Florida, 1989.

Muraro, Ronald P., Thomas H. Spreen, and Fritz M. Roka. "Focus on Brazil." Citrus
Industry 81:1(January 2000):20-2.

Spreen, Thomas H. "The Free Trade Area of the Americas and the Market for Processed
Orange Products." Proceedings of the InternationalCitrus Symposium 2001.
Organized by the Ministry of Agriculture, People's Republic of China and the
Food and Agricultural Organization, United Nations, Beijing, 2001, pp 265-91.









Spreen, Thomas H., Charlene Brewster, and Mark G. Brown. "The Free Trade Area of
the Americas and the World Market for Orange Juice." Submitted to the Journal
ofAgricultural and Applied Economics, March, 2002.

Spreen, Thomas H., and Juan Pablo Mondragon. "The Tariff Schedule for Imported
FCOJ." Citrus Industry. 77:10(October, 1996):10-12.

Takayama, T., and G.G. Judge. Spatial and Temporal Price and Allocation Models.
Amsterdam: North-Holland Publishing, 1971.

United States Department of Agriculture, Foreign Agricultural Service (FAS, USDA).
"Citrus Annual Report." Sao Paulo, Brazil, U.S. Consulate, 1999.










Table 1. Processed Orange Production by Country, 1998a
Country Production (1000 MT)
Brazil 13,464
United States 10,213
Italy 940
Mexico 700
Spain 664
Cuba 345
Greece 310
South Africa 228
Argentina 196
Australia 192
Israel 142
Others 495
Total 27,889

Source: FAO

aFigures presented are in fresh fruit equivalent




Table 2. Processed Orange Consumption by Country, 1998a
Country Consumption (1000 MT) Per Capita (kg)
United States 11,773 42.96
European Union 13,745 36.70
Canada 1,241 40.60
Australia 276 14.91
Mexico 273 2.85
Brazil 243 1.47
Japan 208 1.65
Others 1,302 N/A
Total 29,061 4.92
Source: FAO
a Figures presented are fresh fruit equivalent












Table 3. U.S. Consumption of Orange Juice by Category,
1988-89 through 2000-01


FCOJa NFCb


Totalc


-------------million SSE gallons--------


Season

1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00


1078
890
871
893
1006
1080
1065
1028
1064
1142
1077
1119


1268
1103
1100
1126
1286
1381
1382
1374
1435
1597
1548
1600


2000-01d 966 535 1501
aEstimated as a residual. Includes FCOJ, reconstituted OJ, and shelf stable OJ.
bEstimated as Florida NFC production + estimated other U.S. NFC production +
NFC imports NFC exports + Florida NFC inventory adjustment.
CBased upon estimates from the Florida Department of Citrus
dForecasted values.













Table 4. FCOJ Tariff Schedule for Major Orange Juice Importing Countries
under GATT


Year


1994

1995

1996

1997

1998

1999

2000 and beyond

Source: Spreen and Mondragon


U.S.

cents/SSE gal

35.01

34.13

33.24

32.36

31.48

30.59

29.71


Europe Ja

--------ad valorem---------

19

18.37 29

17.74 28

17.10 27

16.47 27

15.84 2(

15.20 25


pan



30

).25

i.50

.75

'.00

).25

i.50











Table 6. Projected Production of Oranges and Orange
Juice in Sao Paulo and Florida, 2005, 2010, and
2020


Projected Orange
Production
Sao Paulo Florida
Million Boxes
332.7 254.7
359.8 264.7
484.3 278.3


Projected Orange Juice
Production
Sao Paulo Florida
Million Pound Solids
1477 1581
1597 1645
2150 1733


Table 7. Projected Orange Juice Consumption in Major
Consuming Regions in 2005, 2010, and 2020
Consumption Region
European
United Statesa Canada Unionb Japan
Season 1000 MT @ 650 Brix
2004-5 1160 94 872 92
2009-10 1213 96 936 101
2019-20 1341 103 1213 136


aIncludes both NFC and FCOJ
consumption.
bDoes not include production from
other areas


Season
2004-05
2009-10
2019-20











Table 8. Projected Orange Production and On-Tree Prices in Sao Paulo With, Phased Reduction of, and
Immediate Elimination of the U.S. Orange Juice Tariff


With U.S. Tariff


Phased Reduction


Immediate Elimination


Production
(Mil.
Boxes)
330.0
337.4
333.9
332.7
333.6
337.2
342.6
349.9
359.8
372.1
386.9
402.0
415.8
429.6
442.5
455.0
466.6
476.1
484.3


On-Tree
Price
(US$/box)
2.07
1.88
1.99
2.07
2.14
2.18
2.20
2.20
2.17
2.11
2.06
2.00
1.96
1.92
1.90
1.88
1.87
1.89
1.92


Production
(Mil. Boxes)

330.0
337.4
333.9
332.7
333.6
337.6
342.7
350.0
360.1
372.6
387.5
402.8
416.8
430.8
443.9
456.7
468.5
478.3
486.7


On-Tree Price
(US $/boxl

2.07
1.91
2.03
2.14
2.23
2.27
2.27
2.27
2.24
2.21
2.16
2.10
2.07
2.03
2.01
2.00
2.00
2.02
2.06


Production
(Mil. Boxes

330.0
337.4
333.9
332.7
333.7
337.8
343.3
351.1
361.6
374.6
390.1
405.9
420.5
435.1
448.8
462.2
474.6
485.0
494.0


On-Tree Price
(US $/boxl

2.07
2.20
2.31
2.39
2.46
2.49
2.52
2.53
2.52
2.50
2.46
2.42
2.40
2.39
2.38
2.39
2.40
2.43
2.48


Season

2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20






















Table 9. Projected Orange Production and On-Tree Price in Florida With, Phased Reduction of, and
Immediate Elimination of U.S. Orange Juice Tariff


With U.S. Tariff


Phased Reduction


Immediate Elimination


Production
(mil. Boxesl

232.7
251.2
253.2
254.7
256.0
257.7
259.9
262.1
264.6
266.4
268.1


On-Tree Price
(US $/box)

4.76
4.39
4.52
4.62
4.71
4.76
4.80
4.82
4.80
4.87
4.82


Production
(mil. Boxes)

232.7
251.2
253.2
254.7
256.0
257.7
259.8
262.0
264.2
265.6
266.9


On-Tree Price
(US $/boxl

4.76
4.35
4.38
4.39
4.39
4.44
4.54
4.59
4.54
4.54
4.50


Production
(mil. Boxes)

232.7
251.2
253.2
254.7
256.0
257.7
259.1
260.2
261.0
260.8
260.3


Season

2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12


On-Tree
Price
(US $/box)
4.76
3.25
3.37
3.47
3.56
3.61
3.66
3.69
3.69
3.69
3.67











2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20




Table 10.


269.8
271.4
272.8
274.1
275.2
276.3
277.3
278.3


4.77
4.73
4.71
4.69
4.68
4.69
4.72
4.76


268.0
269.1
269.9
270.5
271.0
271.4
271.8
272.1


4.45
4.43
4.41
4.40
4.40
4.42
4.46
4.51


259.6
258.6
257.5
256.3
255.0
253.6
252.4
251.2


3.66
3.66
3.67
3.70
3.73
3.77
3.83
3.91


Orange Juice Consumption and Price in the United States with, Phased Reduction of, and
Immediate Elimination of the U.S. Orange Juice Tariff


With


Immediate

Elimination
Season

2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09


Consumption
Phased


Tariff


Reduction


With


Prices


Immediate

Elimination


-------- 1000 MT na. 650 Brix


1115
1147
1154
1160
1167
1177
1188
1200


1115
1153
1166
1178
1192
1202
1209
1220


Tariff


NFCa FCOJb


1115
1231
1239
1247
1256
1268
1280
1293


1.60
1.55
1.57
1.58
1.59
1.60
1.61
1.61


1570
1497
1523
1545
1562
1572
1578
1578


Phased


Reduction


NFCa FCOJb NFCa FCOJb


1.60
1.53
1.54
1.54
1.53
1.54
1.55
1.56


1570
1476
1480
1480
1476
1484
1507
1519


1.60
1.34
1.35
1.37
1.38
1.39
1.39
1.39


1570
1198
1224
1245
1262
1271
1278
1281











2009-10 1213 1233 1306 1.60 1570 1.56 1512 1.39 1277
2010-11 1221 1247 1320 1.59 1589 1.55 1503 1.38 1272
2011-12 1236 1262 1336 1.58 1575 1.54 1489 1.38 1262
2012-13 1252 1278 1351 1.58 1560 1.53 1476 1.37 1254
2013-14 1266 1292 1366 1.57 1549 1.52 1466 1.37 1248
2014-15 1280 1307 1380 1.57 1540 1.52 1459 1.37 1244
2015-16 1294 1321 1394 1.57 1535 1.51 1453 1.37 1244
2016-17 1307 1334 1407 1.57 1530 1.51 1450 1.37 1244
2017-18 1320 1346 1420 1.57 1529 1.51 1450 1.37 1247
2018-19 1331 1358 1431 1.57 1533 1.52 1456 1.38 1255
2019-20 1341 1368 1442 1.58 1540 1.52 1464 1.38 1267

a US $ per SSE gallon, processor price.
b US $ per MT @ 650 Brix, processor price.











Orange Juice Consumption and Prices in the European Union With, Phased Reduction of, and
Immediate Elimination of the U.S. Orange Juice Tariff


With


Immediate

Elimination
Season

2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20


Consumption
Phased


Tariff


Reduction


Prices


Immediate

Elimination


-------- 1000 MT iia 650 Brix ----------------


821
883
875
872
873
881
893
911
936
970
1003
1037
1068
1098
1126
1153
1177
1197
1213


821
877
864
855
850
858
873
892
917
944
976
1008
1037
1066
1092
1116
1139
1156
1171


With


Tariff


Phased


Reduction


----------------------U.S. $ per MT @ 65 Brix ---------------


821
806
796
791
791
798
807
821
841
863
889
916
939
961
982
1001
1018
1030
1040


1358
1304
1334
1358
1378
1390
1396
1397
1388
1370
1354
1337
1325
1314
1307
1303
1301
1305
1315


1358
1311
1348
1378
1406
1416
1417
1416
1409
1399
1383
1367
1357
1347
1341
1338
1338
1344
1354


1358
1396
1427
1452
1470
1480
1489
1492
1487
1482
1470
1460
1454
1450
1449
1449
1453
1463
1476


Table 11.


















Table 12. Projected exports of FCOJ from Sao Paulo,
Brazil by destination under existing tariff
schedule, 2001- 02 through 2019 2020.
Destination
Season United States Canada European Japan


Union
1000 MT @ 65 Brix
63 821
64 883
64 875
64 872
63 873
63 881
63 893
63 911
63 936
64 970
64 1003
64 1037
65 1068
65 1098
65 1126
65 1153
65 1177


2001-2
2002-3
2003-4
2004-5
2005-6
2006-7
2007-8
2008-9
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18











2018-19
2019-20


1197
1213












Table 13. Projected exports of FCOJ from Sao Paulo
under phased elimination of the U.S. tariff, by
destination, 2001-02 through 2019-20.
Destination

Season United States Canada Europea Japan
Union


1000 MT
63
64
64
64
63
63
63
63
63
64
64
64
65
65
65
65
65
65
65


@ 65 Brix
821
877
864
855
850
858
873
892
917
944
976
1008
1037
1066
1092
1116
1139
1156
1171


2001-2
2002-3
2003-4
2004-5
2005-6
2006-7
2007-8
2008-9
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20


53
14
18
23
32
34
32
34
37
46
56
67
77
88
100
111
123
133
142












Table 14. Projected exports of FCOJ from Sao Paulo
under immediate elimination of the U.S.
tariff by destination, 2001-02 through 2019-
20.
Destination

Season United States Canada Europea Japan
Union
1000 MT @ 65 Brix
2001-2 53 63 821 85
2002-3 96 60 806 84
2003-4 95 59 796 84
2004-5 96 59 791 84
2005-6 100 59 791 85
2006-7 104 58 798 87
2007-8 110 58 807 88
2008-9 119 58 821 90
2009-10 129 58 841 93
2010-11 144 58 863 95
2011-12 163 58 889 99
2012-13 182 59 916 102
2013-14 201 59 939 105
2014-15 220 59 961 108
2015-16 240 59 982 111
2016-17 260 59 1001 113
2017-18 279 58 1018 116
2018-19 297 58 1030 118
2019-20 313 58 1040 120












Table 15. Projected utilization of U.S. orange juice production,
under existing U.S. tariff by product form and
destination, 2001-02 through 2019-20.
United States United States Canada
Season
FCOJ NFC NFC
1000MT @ 65
0 M Million SSE gallons
Brix
2001-2 668 499 41
2002-3 741 529 19
2003-4 744 533 23
2004-5 747 536 26
2005-6 748 540 29
2006-7 749 547 33
2007-8 750 554 36
2008-9 751 564 40
2009-10 754 572 44
2010-11 757 575 46
2011-12 757 586 47
2012-13 756 596 48
2013-14 756 606 48
2014-15 755 616 49
2015-16 754 624 50
2016-17 752 633 51
2017-18 751 641 51
2018-19 750 647 52
2019-20 751 652 53












Table 16. Projected utilization of U.S. orange juice production,
under phased elimination of the U.S. tariff by product
form and destination, 2001-02 through 2019-20.
United States United States Canada
Season
FCOJ NFC NFC
1000 MT @ 65
0 M Million SSE gallons
Brix
2001-2 668 499 41
2002-3 719 536 42
2003-4 720 547 43
2004-5 720 556 44
2005-6 718 566 45
2006-7 720 573 45
2007-8 726 578 46
2008-9 730 586 47
2009-10 733 594 47
2010-11 732 604 48
2011-12 729 615 49
2012-13 726 626 50
2013-14 723 636 51
2014-15 719 646 51
2015-16 715 655 52
2016-17 710 664 53
2017-18 706 672 54
2018-19 702 678 55
2019-20 699 684 55

















Table 17. Projected utilization of U.S. orange juice production,
under immediate elimination of the U.S. tariff by
product form and destination, 2001-02 through 2019-
20.


United States
FCOJ
1000 MT @ 65
Brix
668
657
661
664
664
665
664
660
656
648
636
624
612
599
586
573
560
548


United States Canada
NFC NFC

Million SSE gallons
499 41
616 49
623 49
629 50
635 50
645 51
655 52
666 52
676 53
686 54
697 55
709 56
720 57
730 58
740 59
750 60
759 60
767 61


Season


2001-2
2002-3
2003-4
2004-5
2005-6
2006-7
2007-8
2008-9
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19











2019-20




University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs