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 Front Cover
 Center information
 Abstract
 Introduction
 Impacts of orange-juice tariff...
 Implications for the Florida orange-juice...
 Concluding comments
 Reference
 Tables






Group Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 02-6
Title: The impact of the reduction in the Australian orange-juice tariff
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 Material Information
Title: The impact of the reduction in the Australian orange-juice tariff
Series Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 02-6
Physical Description: Book
Language: English
Creator: Brown, Mark G.
Spreen, Thomas H.
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
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Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
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Table of Contents
    Front Cover
        Page 1
    Center information
        Page 2
    Abstract
        Page 3
    Introduction
        Page 4
    Impacts of orange-juice tariff reduction
        Page 5
        Page 6
    Implications for the Florida orange-juice industry
        Page 7
        Page 8
    Concluding comments
        Page 9
        Page 10
    Reference
        Page 11
    Tables
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
Full Text

PBTC 02-6


POLICY BRIEF SERIES


UNIVERSITY OF
SFLORIDA
Institute of Food and Agricultural Sciences


THE IMPACT OF THE REDUCTION IN THE
AUSTRALIAN ORANGE-JUICE TARIFF

By

Mark G. Brown and Thomas H. Spreen

PBTC 02-6 December 2002








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










Abstract: After substantial reduction in the Australian orange juice tariff, citrus growers in that
country shifted their efforts away from Valencia orange production towards Navel oranges
intended for the fresh market. Australia has been successful in penetrating the world market for
fresh oranges. Given the large size of the orange industry in Florida, however, it is unlikely that
Florida growers could follow the same model if the U.S. orange juice were substantially reduced
or eliminated.

Keywords: Oranges, Tariffs, Australia








THE IMPACT OF THE REDUCTION IN THE
AUSTRALIAN ORANGE-JUICE TARIFF

Mark G. Brown and Thomas H. Spreen'



Introduction

Oranges are the dominant variety of citrus grown in Australia accounting for 79% and 78%

of total Australian citrus production in 2000-01 and 2001-02, respectively (Table 1). Australian

orange production has nearly tripled since the early 1960s growing from 177,832 metric tons (MT)

in 1961 to 509,973 MT in 2000 (Table 2). Production reached a high point in 1993 when 616,496

MT were produced. Australian orange production accounts for about 1% of world production

(Table 3), and its 2000 production (equivalent to 12.5 million 90-pound boxes) was about 43% the

size of Polk county's 2000-01 orange production level (29.3 million boxes).

Both fresh and processed orange segments are important in Australia. In recent year,

however, the fresh segment has been expanding while the processing segment has been trending

downward. The share of oranges utilized for processing has declined from approximately 60% in

the latter half of 1980s and early 1990s to approximately 40% in recent years, while fresh utilization

has grown (Table 4). Domestic fresh consumption has been relatively flat while fresh exports have

more than tripled since the mid 1980s. Major export markets for oranges include Hong Kong,

Malaysia, Singapore, Japan, New Zealand and the U.S.

About 60% of Australia's oranges are Valencias and 40% are Navels. Navel oranges are

primarily grown for the fresh market (typically the fresh utilization rate is 60% to 65%), while


1 Mark G. Brown is Research Economist with the Economic and Market Research Department of the Florida
Department of Citrus, University of Florida, 2129 McCarty Hall, P.O. Box 110249, Gainesville, Florida 32611-
0249, Telephone: (352) 392-1874, extension 501, Fax (352) 392-8634, E-Mail: MGBrown@mail.ifas.ufl.edu.
Thomas H. Spreen is Professor and Chair, Food and Resource Economics Department, University of Florida,
Gainesville, Florida.








5

Valencia oranges are primarily utilized for processing (typically the processed utilization rate is

70%).

In past years, Australia had protected its orange processing industry imposing various tariffs

on orange juice imports. However, since 1982 this protection has been reduced. Notably, from

1988 to 1996, the tariff was reduced from an ad-valorem rate of 35% to 5%. The Australia ad-

valorem tariff is applied to the value of the product at the port of export, not the CIF (cost-insurance-

freight) value or the value at the port of export plus transportation/insurance costs. The impact of

this tariff reduction on Australia's orange-juice industry is considered in the next section.


Impacts of Orange-Juice Tariff Reduction


Lower orange-juice tariff levels have resulted in reduced orange-juice prices for Australian

growers, resulting in massive eradication of Valencia trees, reduced Valencia tree planting rates and

a refocus from the Valencia juice market to the Navel fresh fruit export market. Australia is a price

taker in the world orange-juice market dominated by Brazil and Florida. Hence, the 35% ad-

valorem tariff in 1988-89 increased the world orange-juice price by 35% for Australian buyers, in

contrast to the present situation where the tariff increases price by just 5%. Thus, reduction of the

Australian tariff since 1988 would have been expected to reduce the price of orange juice in

Australia by 30%, all else constant. Other factors, however, were not constant with Brazil and

Florida orange-juice production increasing notably during the 1990s, resulting in decreases in the

world orange-juice price. Thus, lower Australian orange-juice prices following the reduction of the

* Mark G. Brown is Research Economist with the Economic and Market Research Department of the Florida
Department of Citrus, University of Florida, 2129 McCarty Hall, P.O. Box 110249, Gainesville, Florida 32611-
0249, Telephone: (352) 392-1874, extension 501, Fax (352) 392-8634, E-Mail: MGBrown@mail.ifas.ufl.edu.
Thomas H. Spreen is Professor and Chair, Food and Resource Economics Department, University of Florida,
Gainesville, Florida.








6

tariff are a result of both reduced tariff rates and lower world orange-juice prices. Elton, Hutton and

Mullen indicate that processed orange prices fell below production costs in the 1990s. The USDA

also reports processed prices at "very low" levels with some producers receiving prices well below

the cost of production (USDA, FAS, "Australia Citrus Annual 2002," #AS2014, 5/1/2002).

Australia's non-bearing Valencia orange tree levels have declined from over a million in the

mid to late 1980s to 189,000 in 1998-99 (Table 5). The 1998-99 Valencia non-bearing tree

population is 83.7% lower than the 1985-86 level. In contrast non-bearing Navel orange tree levels

have increased from 585,000 in 1985-86 to over a million in the mid 1990s. The total orange tree

population grew from the mid 1980s through the early 1990s, but declined moderately since the mid

1990s. Based on data for the major production areas in Australia, these trends have continued in

more recent years (Table 6).

As a result of the move away from Valencia to Navel oranges, Australian orange-juice

production has trended downward since the early 1990s (Table 7). This decline, however, has been

moderated by two factors. One is the growth in Navel orange production and its contribution to

processing through packinghouse eliminations; the second factor is the growth in fresh orange-juice

(NFC) consumption which now accounts for 30% to 35% of total orange-juice consumption in

Australia. The Australian industry hopes that increasing NFC demand will stabilize Valencia orange

production.

With the reduction in the orange-juice tariff and lower world orange-juice prices, frozen

concentrate orange juice (FCOJ) imports have increased sharply from 5,323 MT @ 65 degree Brix

in 1985-86 to 23,448 MT in 2001-02, although the variation in import levels over this period has

been relatively large ranging from 1,621 MT in 1986-87 to 42,415 MT in 1997-98.








7

As a result of the growth in FCOJ imports, orange-juice consumption increased by over 70%

from 1985-86 to 2001-02. Australia's orange-juice production as a percent of orange-juice

consumption has declined sharply from 82% in 1985-86 to 46% in 2001-02. Again, over this period

there has been substantial variation in this percentage.


Implications for the Florida Orange-Juice Industry


If the U.S. tariff on FCOJ were eliminated the impact on the U.S. orange-juice price would

be expected to be similar to the price impact in Australia resulting from the 30% tariff reduction

there. The U.S. tariff on FCOJ2 is about $.289 per pound solids (PS) which is equivalent to a CIF

ad-valorem rate of 27% based on the current Florida bulk FCOJ price of 1.07/PS. The U.S. and

Australian tariffs can be compared either as ad valorem rates or dollar per pound solids levies.

Consider a dollar comparison which requires transforming the Australian ad-valorem tariff to dollars

per pound solid. Recall that the Australian tariff is applied to the price of the product at the port of

export which in general would be the Brazilian FOB price. When the U.S. is a net importer of

FCOJ, the Brazilian FOB price would be expected to be equal to the U.S. or Florida price minus the

$.289/PS tariff minus transportation costs of about $. 10/PS. Hence, in this case, the Brazilian price

would be expected to be $.68/PS, and a 30% reduction in the Australian tariff in context of this price

is equal to $.20/PS. For each $.10/PS increase in the U.S. and Brazil FOB prices, the Australian

tariff in dollars would increase by $.03/PS; thus, for example, if the U.S. FOB price were $1.27/PS,





2 The U.S. also imposes a $.166/PS tariff on NFC. Domestic producers of this product are also naturally
protected by relatively high transportation costs of importing this product.








8

the Australian tariff would be $.26/PS.3 Under the assumption that the U.S. is a price taker in the

world orange-juice market, eliminating the U.S. tariff would be expected to reduce the U.S. price by

$.289/PS which would be greater than the $.20/PS impact (or perhaps somewhat larger depending

on the world price) on the Australian price due to the 30% reduction in their ad-valorem rate. The

U.S., however, being both a large producer and buyer of orange juice is not a price taker in the world

market. Both Spreen, Brewster and Brown, and Brown, Spreen and Lee have estimated that

elimination of the U.S. FCOJ tariff would result in a decrease in the U.S. price of orange juice of

$.20/PS to $.21/PS or roughly equivalent to the Australian tariff reduction at current prices.

The large reduction in Australian Valencia orange planting levels following the reduction of

the Australian orange-juice tariff and lower prices suggests that Florida orange tree planting may

also decline sharply with elimination of the U.S. tariff. In the study by Brown, Lee and Spreen,

reduced Florida planting levels consistent with the Australian experience were considered. Florida

orange production over the period from 2001-02 through 2021-22 was projected to decrease from

237 to 136 (198) million boxes, assuming zero planting levels (assuming planting levels are reduced

by 50%). In addition, with orange-juice prices currently at relatively low levels, eliminating the

tariff may reduce the U.S. price below the cost of production for some growers, resulting in some of

these growers going out of business.

As in Australia, the U.S. orange processing industry has been and would be expected to

continue to be supported by NFC consumption. High transportation costs of importing NFC would



This analysis assumes that the U.S. continues to be a net importer. However, as the U.S. moves in the
direction of a net exporter the difference between the U.S. and Brazilian FOB prices would be expected to narrow.








9

be expected to limit NFC imports and help support U. S. NFC prices and grower returns for oranges

utilized for processing. As in Australia, the Florida orange processing industry may become more

focused on NFC production.

The impact of eliminating the U.S. FCOJ tariff would be expected to differ from the

Australia experience with respect to fresh market opportunities. While Australia citrus growers were

able to refocus to a notable extent on fresh Navel production, opportunities for the Florida orange

industry to move in this direction are limited. Fresh orange consumption in the U.S. has been

relatively flat with growth in the availability of other types of fresh fruit. Additionally, California's

dominance as a fresh orange supplier limits the potential for Florida to move more oranges in fresh

channels. Overall, the magnitude of Florida's orange processing sector relative to its fresh sector-

Florida processes about 95% of its oranges with the remaining 5% utilized fresh-indicates the

impact of eliminating the U.S. tariff on the Florida orange industry would be very different than in

Australia. In short, the portion of the Florida orange crop that is utilized in processed form can not

be turned into fresh orange sales.


Concluding Comments


Reduction in Australia's orange-juice tariff in the late 1980s and the 1990s and the resulting

adjustments in the Australian orange industry provide a case study for analyzing the potential impact

of eliminating the U.S. orange-juice tariff on the Florida orange-juice industry. Australia's tariff

reduction resulted in lower processed orange prices and was a major factor underlying the sharp

reduction in Valencia orange tree planting levels. The Australian orange industry has been able to

refocus on fresh sales with export opportunities in Asia and the U.S. Growth in NFC orange juice








10

consumption has been another factor alleviating the impact of the tariff reduction. Australia's NFC

market may help stabilize Valencia orange production.

Based on the Australian experience, it is likely that Florida would experience major

reductions in orange-juice prices, orange tree planting levels and orange-juice production if the U.S.

orange-juice tariff were eliminated. In contrast to Australia, opportunities for expanding sales of

fresh Florida oranges would be limited. On the other hand, the NFC segment is expected to provide

increasing support to the Florida orange-juice industry as in Australia. But FCOJ, predominately

imports, would still be expected to account for a major part of the overall orange-juice market in the

U.S. given its cost advantage, limiting the size of the NFC business and ultimately the Florida

orange processing sector.










References


Australian Citrus Growers Inc., Mildura, Victoria, Australia.

Brown, M., T. Spreen and J. Lee. "Substitution Between Domestic and Imported Orange Juice, and
Impacts of the U.S. Tariffs on Prices and Production." Florida Department of Citrus, Staff
Report, 2002.

Elton, K.J., R. Hutton and J.D. Mullen. "The Returns from Some Replanting Strategies in the
Orange Industry." Australian Agribusiness Review, vol.7 (1999).

Food and Agricultural Organization of the United Nations. "Citrus Fruit, Fresh and Processed,
Annual Statistics 2001," CCP:CI/ST/2001. Commodities and Trade Division, FAO, Rome,
Italy.

Food and Agricultural Organization of the United Nations. FAOSTAT database, Rome, Italy.

Spreen, T., C. Brewster and M. Brown. "The Free Trade Area of the Americas and the Market for
Processed Orange Products." Journal ofAgricultural andAppliedEconomics, forthcoming
2003.

United States Department of Agriculture, Foreign Agricultural Service. Various "World
Horticultural Trade and U.S. Export Opportunities" and Attache reports, Washington, DC.





















Table 1. Australian citrus production.

Share of Share of
Quantity Total Citrus Total Oranges



2000- 2001- 2001-
Item 01 2001-02 2000-01 02 2000-01 02

-1,000 metric % -
tons -

Navel Oranges 246 185 31.3 33.8 39.4 43.3

Valencia 378 242 48.0 44.2 60.6 56.7
Oranges

TOTAL ORANGES 624 427 79.3 77.9 100.0 100.0



Mandarins 116 75 14.7 13.7

Lemons/Limes 33 31 4.2 5.7

Grapefruit 14 15 1.8 2.7

TOTAL CITRUS 787 548 100.0 100.0


SOURCE: Australian Citrus Growers, Inc. (web site: http://www.austcitrus.org.au).











Table 2. Australia orange area and production.a
Year Area Harvested Production


1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000


- hectares -
15,996
15,996
16,503
16,983
17,439
17,828
17,828
18,371
19,464
19,379
19,300
19,000
18,700
18,200
17,800
17,700
18,000
18,300
18,500
19,400
20,600
21,200
21,800
22,400
23,300
22,700
24,100
24,100
24,900
25,200
25,700
26,400
27,300
28,200
26,900
27,000
27,400
27,000
26,200
26,600


aFAOSTAT data in this table differ somewhat from those in Tables and 3 but indicate the
long-range trend. SOURCE: Food and Agriculture Organization of the United Nations,
FAOSTAT (agricultural data).


- metric tons -
177,832
177,832
202,634
190,184
235,922
198,931
232,455
214,370
263,845
234,347
322,424
291,014
351,904
310,036
341,042
361,522
321,674
356,538
368,554
392,092
424,494
376,317
409,995
391,841
444,953
486,000
503,760
478,918
399,248
487,177
453,262
469,881
616,496
582,095
517,242
442,077
522,622
499,784
445,840
509,973


























Table 3. Australian and world orange production.

1999-00

Country Quantity Share of Total

1,000 metric tons % -

Australia 616 1.0

United States 11,040 17.3

Brazil 18,360 28.8

Other 33,684 52.9

WORLD 63,700 100.0

SOURCE: Food and Agriculture Organization of the United Nations, "Citrus Fruit, Fresh and Processed, Annual
Statistics 2001."















Table 4. Sup ly and utilization of Australian oranges.

Processed
Share of
Season Production Imports Exports Consumption Processed Production
--------------------1,000 metric tons -------------------- -


1985-86

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02


519

475

394

544

458

485

612

578

651

416

589

556

448

515

624

437

591


168

162

135

209

142

123

135

155

217

148

185

190

155

188

192

136

180


316

273

233

312

275

295

402

340

350

195

300

265

190

229

302

160

274


60.9

57.5

59.1

57.4

60.0

60.8

65.7

58.8

53.8

46.9

50.9

47.7

42.4

44.5

48.4

36.6

46.4


SOURCE: USDA: various "World Horticultural Trade and U.S. Export Opportunities" and Attache reports.















Table 5. Australian bearing and non-bearing trees.

Navels Valencias Total

Non- Non- Non-
Season Bearing Bearing Total Bearing Bearing Total Bearing Bearing Total

-------------------- --------- 1,000 trees------- -------------------


1985-86

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01


1,569

1,667

1,704

1,708

1,765

1,856

1,960

2,106

2,213


2,109

2,468


585

663

772

913

959

979

1,079

1,039

1,043
a


1,119

937
a


2,154

2,330

2,476

2,621

2,724

2,835

3,039

3,145

3,256


3,228

3,406


3,130

3,533

3,452

3,648

3,734

3,906

4,056

4,246

4,297
a


4,077

3,849
a


1,166

1,179

1,092

1,003

880

763

578

446

396
a


365

189
a


4,296

4,712

4,544

4,651

4,614

4,669

4,634

4,692

4,693


4,442

4,038


4,725

5,228

5,183

5,384

5,528

5,801

6,062

6,410

6,587
a


6,214

6,336
a


1,761

1,853

1,874

1,928

1,851

1,753

1,668

1,514

1,475


1,511

1,151


6,486

7,081

7,057

7,312

7,379

7,554

7,730

7,924

8,062


7,725

7,488


aData not available for all regions.
SOURCE: Australian Citrus Growers, Inc., various "Australian Citrus Growers Annual Reports."























Table 6. Australian bearing and non-bearing trees
Riverland (SAVa


Riverina (NSW), Sunraysia (Victoria),


Navels Valencias Total

Non- Non- Non-
Season Bearing Bearing Total Bearing Bearing Total Bearing Bearing Total

------------------------------ 1,000 trees------------------------------

1994-95 2,039 1,066 3,105 4,550 395 4,945 6,589 1,461 8,050

1995-96 1,583 1,053 2,636 3,604 345 3,949 5,187 1,398 6,585

1996-97 1,989 1,089 3,078 3,985 362 4,347 5,974 1,451 7,425

1997-98 2,254 895 3,149 3,873 221 4,094 6,127 1,116 7,243

1998-99 2,317 877 3,194 3,727 178 3,905 6,044 1,055 7,099

1999-00 2,385 850 3,235 3,722 149 3,871 6,107 999 7,106

2000-01 2,476 912 3,388 3,642 122 3,764 6,118 1,034 7,152


aTrees for New South Wales (NSW), Victoria and South Australia (SA) account in aggregate for around 85% to 90% of
Australian orange production.
SOURCE: Australian Citrus Growers, Inc.















Table 7. Australian orange-juice stocks, production, imports, exports and consumption.

Production
Beginning Consump- Ending Share of
Season Stocks Production Imports Exports tion Stocks Consumption

------------------- 1,000 metric tons -------------------- ----

1985-86 0 21,528 5,253 592 26,189 0 82

1986-87 0 19,330 1,621 1,060 19,891 0 97

1987-88 0 16,953 22,659 2,003 27,787 9,822 61

1988-89 9,822 22,705 10,993 1,596 30,200 11,724 75

1989-90 11,724 20,012 5,532 1,636 27,845 7,787 72

1990-91 7,787 21,468 14,284 988 27,669 14,882 78

1991-92 14,882 29,253 6,975 998 32,803 17,309 89

1992-93 17,309 24,742 11,178 1,174 34,684 17,371 71

1993-94 17,371 25,469 12,504 1,501 35,661 18,183 71

1994-95 18,183 14,190 21,009 1,587 36,149 15,647 39

1995-96 16,015 22,918 21,662 1,939 42,000 16,656 55

1996-97 16,273 19,833 25,582 1,628 43,965 16,095 45

1997-98 16,095 14,370 42,415 1,881 43,965 27,035 33

1998-99 27,035 17,214 21,990 2,557 43,965 19,717 39

1999-00 19,717 22,609 23,267 2,670 44,942 17,981 50

2000-01 17,981 11,979 25,361 2,430 44,942 7,949 27

2001-02 7,949 20,513 23,448 2,443 44,942 4,525 46

SOURCE: USDA: various "World Horticultural Trade and U.S. Export Opportunities" and Attache reports.




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