Changing Economy Helping Florida Citrus Growers Catch Up to Brazilians

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HAINES CITY | Brazil’s booming economy makes it an up-and-coming player in the global marketplace, but its citrus industry is being left behind.

The changing global economy is making Florida citrus more competitive with its longtime rival, said Tom Spreen, an agricultural economist at the University of Florida in Gainesville and an authority on the global citrus industry.

“They’re getting to a cost structure that’s more and more like ours,” Spreen said.

Among the factors closing the cost gap Brazil previously enjoyed against its Florida competitors are the rising strength of the Real, Brazil’s currency, which makes its exports more expensive; the higher cost of labor, also fueled by a booming economy; and the rising cost of Brazilian farmland, particularly in competition with sugar, another major crop increasingly used to produce ethanol.

Both countries share in the fight against citrus greening and citrus canker, two bacterial diseases that diminish fruit production.

But Brazil’s list of disease threats also includes two viral diseases called citrus variegated chlorosis (CVC) and citrus leprosis; and a still-mysterious disease with the ominous name “sudden death.”

Brazil became the world’s largest orange grower and OJ processor in the 1980s, when Florida was recovering from the devastating impact of three major and several minor freezes. In recent years, Brazil has accounted for a little more than half the global OJ production while Florida furnished about 30 percent.

But Florida OJ is sold almost entirely in the U.S. and Canada while Brazil built its citrus industry, based in the state of Sao Paulo, entirely on OJ exports. Brazil exports some OJ to the U.S. and Asia, but it ships more than 70 percent of its production to Europe. Domestic OJ consumption in Brazil is minimal.

For the past three decades, a weak Brazilian Real played to its juice processors’ advantage, the same advantage that Chinese manufacturers now enjoy for its U.S. exports. Brazil prices and sells its orange juice exports in U.S. dollars, the default global currency, because the Real is not yet widely accepted in international trade, Spreen said.

In the past five years, however, the Brazilian economic surge has turned the dollar-Real exchange increasingly against Brazilian processors, Spreen said at the recent Citrus Expo in Fort Myers.

For every U.S. dollar Brazilian processors currently earn from exports, they get 1.6 Reals, he said. As recently as 2009, they got 22 percent more, or 1.95 Reals, and in 2005 they received 2.35 Reals per dollar, 47 percent more.

“When they (Brazilian processors) look at orange juice, they’ve been seeing declining prices,” Spreen said “Brazil is losing its competitive advantage because of the currency exchange.”

At the same time, as Brazil’s nonagricultural sectors grow and the nation becomes more prosperous, domestic wages are rising, he said.

In recent years, Brazilian growers have adopted a strategy of “running away” from devastating diseases such as greening and CVC, said Tom Stopyra, a crop adviser with the Packers of Indian River Ltd., a Fort Pierce grower and packinghouse.

Stopyra is fluent in Portugese, the Brazilian language, after living there for many years, and he visits annually to talk with citrus industry people.

“I know some guys who used to be citrus growers and have leased their land to sugar cane,” Stopyra said after his recent visit.

Sugar cane has become the biggest competitor for farm land in Brazil because that country is far ahead of U.S. in the production of crop-based ethanol, both Spreen and Stopyra said. The resulting scramble for new farmland has pushed land prices to record levels.

Sugar-based ethanol production increased from a little more than 10 billion liters in 2000 to 25 billion last year, said Spreen, citing U.S. Department of Agriculture figures. During that time, sugar cane production rose from about 250 million tons to nearly 600 million tons.

“There’s been a rural land boom,” Spreen said. “The price on land has really shot up.”

Spreen said a Brazilian economist told him a person would have made more money buying and selling land in Sao Paulo in the past decade than growing citrus.

Florida growers don’t have a run-away option because the state’s citrus belt is confined to the narrow South Florida peninsula, Spreen said.

Neither do they have a profitable alternative crop like sugar cane, Stopyra added.

Brazilian production will continue to play a major role on the global citrus market, Spreen said, but its competitive decline relative to Florida could continue to advantage this state’s growers.

Last year, Brazilian orange growers struggled through a drought, dropping its orange crop to the lowest in 20 years, according to Spreen’s figures. Brazilian orange juice production dropped 13.6 percent in 2010-11 from the previous season, leading to a 38 percent decline in Brazilian OJ exports to the U.S. through May.

The Brazilian shortage helped send farm prices for Florida oranges in 2010-11 near record highs, despite a slightly larger crop than the previous season, Spreen said.

The USDA has forecast Sao Paulo’s 2011-12 crop will rebound to 390 million boxes, up 43 percent from the previous season. Based on that forecast, Spreen projected the country’s processors will produce slightly more than 2 billion OJ gallons, up 31 percent from a year earlier.

Spreen also projected Florida growers would produce 143.5 million boxes of oranges, in line with recently released early-season estimates, and processors will squeeze that into 854.7 million OJ gallons.

That translates to a 4.8 percent increase in OJ production in Florida and Brazil combined, Spreen said, but a large chunk of next season’s production will go to replenishing “exceedingly low” OJ inventories in both countries.

After adding to inventories, the additional amount of OJ that goes on the market for sale would be more like 1 percent to 2 percent, Spreen estimated.

And both Spreen and Stopyra, along with many other Florida citrus people, expressed skepticism about Brazil’s projected 43 percent crop increase based on the past track record of the country’s early season estimates.

Even if the 390 million-box estimate were true, Stopyra said, he estimated the country’s current processing capacity at only 320 million boxes of oranges.

“It doesn’t matter how much hay you grow, it’s how much you can get into the barn,” he said.

Based on the present Florida and Brazil production estimates, Spreen projected Florida growers can expect an average farm price of $1.50 to $1.60 per pound solids in the coming 2011-12 season. Florida processors, who buy 95 percent of the state’s orange crop, pay growers based on pound solids, a standard industry measure of how much juice is squeezed from the fruit.

That would be a decline ranging just 4 percent to 10 percent from last season’s very profitable farm prices, Spreen said.

“Ten percent is certainly at the high end” of a fall off in 2011-12 farm prices, he said. “If orange production is lower than current projections, there could be very little price change.”



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