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U.S. Fresh Citrus and Global Markets1 Suzanne Thornsbury, Mark Brown, and Thomas Spreen2 1. This is EDIS document FE 325, 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 December 2001. Please visit the EDIS website at http://edis.ifas.ufl.edu. 2. Suzanne Thornsbury, assistant professor, Indian River Research and Education Center, Fort Pierce, FL; Mark G. Brown, associate professor, Department of Economic and Market Research, Florida Department of Citrus, University of Florida, Gainesville, FL; and Thomas H. Spreen, 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. Introduction Over time, improvements in infrastructure and transportation as well as the lowering of regulatory barriers to trade have allowed perishable products such as fresh citrus to enter the global marketplace. Demand for fresh fruit is driven by relative prices, income levels, consumer preferences, and market promotion. As globalization progresses and world economies become more integrated, U.S. consumers are able to meet their needs from an increasing number of products from both domestic and imported goods and U.S. producers gain access to a growing number of world consumers. This document addresses the changes in U.S. citrus trade and discusses price and substitution effects that contribute to consumer demand for imports. U.S. Citrus Trade The U.S. citrus industry is highly integrated with the global economy. Between 1996/97 and 1999/00, the United States produced approximately 50 percent and 20 percent of the world's output of grapefruit and oranges on average, respectively [Florida Department of Citrus (FL DOC), 2001]. Fresh grapefruit exports averaged 777 million pounds during the 1980s and approximately 972 million pounds during the 1990s. Since 1988/89, almost 40 percent of total U.S. production has been exported annually (Figure 1). The Japanese beef and citrus agreement, signed in 1989, opened a significant new market for U.S. grapefruit exports. Demand in this market has historically been for high-quality white grapefruit, a product that does not sell well in domestic markets. In recent years, sales of colored grapefruit to Japan have increased, and in the 2000/01 season 45 percent of exports were red. The European Union (EU) is another important market for U.S. grapefruit with over 9.5 million cartons of fresh fruit sold into this market in 1996/97. Recent negotiations over U.S. access to markets in China included the bilateral Agricultural Cooperation Agreement that was signed in April 1999, formally lifting the ban on citrus exports. A March 1999 agreement opened citrus markets in India for mandarins, clementines, lemons, and grapefruit. In addition, a protocol over phytosanitary concerns was negotiated in 1999 with the Philippines to allow imports of Florida grapefruit, oranges, and tangerines. Since 1988/89, there has also been increased penetration of the U.S. market by imported grapefruit and grapefruit products. While the average level of imports increased from 6.4 million pounds in the 1980s to 24.8 million pounds in the 1990s, volumes
U.S. Fresh Citrus and Global Markets 2 remain low as a proportion of total U.S. consumption. Fresh imports as a percentage of domestic consumption were less than one percent before 1989 but have ranged between one percent and 2.1 percent annually since the 1989 freeze. U.S. trade in fresh oranges follows a similar pattern. Exports as a percentage of domestic production ranged from 20 to 30 percent between 1978/79 and 1999/00 (Figure 2). In contrast to grapefruit sales, exports of fresh oranges have remained relatively flat by volume, averaging 1112 million pounds in the 1980s and 1092 million pounds in the 1990s. Primary destinations for U.S. oranges include Japan, Canada, and Southeast Asia. Global markets are particularly important for the California industry, where over 75 percent of the oranges marketed fresh in the United States are produced. Imports as a percentage of domestic fresh orange consumption have been slightly higher than that of grapefruit, averaging almost three percent since the 1989/90 season. Dramatic import surges, to approximately 6.5 and 9.5 percent of consumption in the 1990/91 and 1998/99 seasons, are related to freeze events in those years. Relative Prices Fresh citrus is a commodity that has undergone periods of over-production periodically disrupted by freeze events, resulting in severe supply disruptions. Unlike many produce industries, there can be significant costs associated with exit from citrus production, limiting growers' season-to-season ability to adjust production levels. Permanent exit entails, at minimum, the cost of tree removal. There are also sunk costs at the packing/processing levels that contribute to continued excess capacity within the industry. Such overcapacity in production has kept downward pressure on prices paid by consumers. Retail prices for fresh grapefruit and oranges depicted by the dashed lines in Figures 3 and 4 exhibit the cyclical patterns found in many agricultural products, albeit longer than those for many commodities. An earlier analysis by Brown, Lee, and Spreen found that there was a -0.75 correlation between the retail price of fresh grapefruit and per-capita domestic consumption. When these same retail prices are adjusted for inflation (as shown by the solid lines in Figures 3 and 4), it is readily apparent that relative prices have declined and U.S. consumers paid less for fresh citrus in real terms during the 1990s than they did in the 1980s. Changing Consumer Preferences Consumption of all fresh fruits and vegetables in the United States increased 26 and 33 percent, respectively, between 1977/79 and 1997/99 (Pollack, 2001). Improved quality, an emphasis on health benefits, increased variety, and year-round availability have contributed to the trend. Domestic demand for fresh citrus, however, has not increased; per-capita consumption of fresh grapefruit declined between 1978/79 and 1999/00, and population increases were insufficient to raise total consumption (Figure 5). Total shipments to the domestic market decreased in the face of lower relative prices, a strong domestic economy, increased population, and expansion of overall fruit consumption. For example, fresh grapefruit shipments from Florida to the domestic market fell over 40 percent in the 1990s (Brown, Lee, and Spreen, 2001). Per-capita consumption of oranges in 1999/00 was slightly higher than 1978/79 and the average over the entire period (Figure 6). Yet even with population increases the total consumption between 1992/93 and 1999/00 was less than it was in 1992/93. Increased availability of produce alternatives and changing lifestyles have contributed to decreased purchases of fresh grapefruit and oranges by U.S. consumers. Consumers today have a much wider selection of produce; stockkeeping units (SKUs) sold in supermarket produce departments jumped from 173 in 1987 to 335 in 1997 (Kaufman et. al., 2000). Over the same period the share of SKUs for fresh produce increased almost five percent when compared with frozen or processed fruits and vegetables. Today, more fresh produce items are available worldwide. Traditionally, bananas, citrus, and apples were the only fruit choices available in the winter months, but now selection is much greater. As the American lifestyle has changed, convenience has become an increasingly important
U.S. Fresh Citrus and Global Markets 3 factor in food selection, including choice of fresh fruit. Bananas are the most popular fresh fruit in the U.S. diet; they are relatively inexpensive and easy to eat (Pollock, 2001). In contrast fresh citrus is harder to peel and more difficult to eat. Although oranges are the most popular fruit overall, most orange consumption occurs as juice. However, a notable exception is the growth in U.S. consumption of clementines, a fresh tangerine primarily imported from Spain (Figure 7). Clementines are an easy-to-peel, seedless product with good color and flavor that has been marketed in special packs that are appealing to consumers. Conclusion Produce markets have become increasingly integrated into the global economy. Improvements in transportation and handling, lowered regulatory barriers, and increasing incomes have all contributed to growth in trade. International trade has increased the availability of fruit and vegetables in countries across all income levels, including the United States. Domestic demand for fresh grapefruit and oranges remained relatively flat during the 1990s despite a decrease in real price levels. Consumers have increasingly substituted away from these less convenient items into the wider array of produce that has become available in the supermarket. At least partially in response to lagging domestic demand, the U.S. citrus industry has aggressively pursued opportunities in global markets. Exports of fresh U.S. grapefruit and oranges remain a large, and critical, component of domestic production. References Brown, Mark, Jonq-Ying Lee, and Thomas Spreen. The Decline in the Domestic Market for Florida Fresh Grapefruit. Staff Paper SP01-15. Department of Food and Resource Eocnomics, University of Florida, Gainesville, FL. 2001. Kaufman, Phil R., Charles R. Handy, Edward W. McLaughlin, Kristen Park, and Geoffrey M. Green. Understanding the Dynamics of Produce Markets, USDA Economic Research Service Agriculture Information Bulletin Number 758, Washington D.C. August 2000. Pollack, Susan. Consumer Demand for Fruit and Vegetables: The U.S. Example. In Changing Structure of Global Food Consumption and Trade, Anita Regmi (editor). USDA Economic Research Service Agriculture and Trade Report WRS-01-1. Washington D.C., May 2001. USDA Economic Research Service. Fruit and Tree Nuts Situation and Outlook. Washington D.C. Various issues. Florida Department of Citrus [DOC]. Citrus Reference Book. Economic and Marketing Research Department, Florida Department of Citrus. University of Florida, Gainesville, FL, April 2001.
U.S. Fresh Citrus and Global Markets 4 Figure 1. U.S. fresh grapefruit imports as % of consumption and exports as % of production, 1978/79-1999/00. Figure 2. U.S. fresh orange imports as % of consumption and exports as % of production, 1978/79-1999/00.
U.S. Fresh Citrus and Global Markets 5 Figure 3. U.S. fresh grapefruit retail and inflation-adjusted prices, 1980-1999. Figure 4. U.S. fresh navel oranges retail and inflation-adjusted prices, 1980-1999.
U.S. Fresh Citrus and Global Markets 6 Figure 5. U.S. fresh grapefruit consumption, 1978/79-1999/00. Figure 6. U.S. fresh oranges consumption, 1978/79-1999/00.
U.S. Fresh Citrus and Global Markets 7 Figure 7. U.S. imports of tangerines (including clementines) from Spain, 1990-1999.