Future of the Global

Orange Juice

Industry

Allen Morris, Presenter

Global Citrus Industry Economics

Workshop, University of Florida, Citrus

Research & Education Center, Lake

Alfred, FL , April 8, 2010

DISEASE SITUATION AND

FUTURE CROP SIZES

2

Future of the Global OJ Industry

HLB is in Florida and Brazil

►Impact on production, prices and grower profits

►Assumptions, grove-care management, policies, recommendations

3

40

60

80

100

120

140

160

180

200

20

10

-11

20

11

-12

20

12

-13

20

13

-14

20

14

-15

20

15

-16

20

16

-17

20

17

-18

20

18

-19

20

19

-20

20

20

-21

20

21

-22

20

22

-23

20

23

-24

20

24

-25

Mill

ion

Bo

xes

4

Florida Orange Crop Projections

Florida Orange Production

Season

Baseline

Prod.

mil. Boxes

2009-10 131.000

2010-11 164.776

2011-12 159.860

2012-13 156.749

2013-14 152.469

2014-15 149.644

2015-16 145.368

2016-17 141.425

2017-18 138.619

2018-19 135.162

2019-20 131.785

2020-21 127.277

2021-22 125.262

2022-23 123.709

2023-24 121.772

2024-25 121.268

2025-26 121.003

2026-27 120.925

2027-28 120.991

5

Brazilian Citrus Industry

Long Term Outlook

Source: GCONCI

340

330

320

310

301

292

283

275

266

258

251

315

306

296

287

279

271

262

255 247

239 232

290

281

273

265

257

249 242

234 227

220 214

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Optimistic

Realistic

Pessimistic

Brazilian Citrus Industry : Long Term Outlook 6

Fonte: Fundecitrus e IEA Brazilian Citrus Industry : Long Term Outlook

Citrus Belt Movement Trends

Source: GCONCI

7

HLB Assumptions

►No cure/growers do nothing

►Forecasts are based on implementation of best grove-care management practices for HLB in core grower group

►Stop the spread of the psyllid in 2 to 3 yrs

►Availability of resistant trees in 7-8 yrs

8

Production Management Practices

►Mixed approaches:

– Scout, spray and remove infected trees

– Foliar nutrition program

►Core of producers follow first approach:

– Tree population declines from 65 to 45 million trees over next 5-10 yrs

– Production declines

• Loss rates in 5% to 6% range

– Tree loss-rate stabilizes/plantings afterwards

9

Demand Assumptions

►Continue Advertising

►Maintain U.S. per capita consumption; increase total U.S. OJ demand by 1.0%

►Increase E.U. OJ demand by 1.5%

10

Recommendations

►Continue Research

►Continue Advertising

►Develop Risk Management Program/Develop Tree Insurance

►Continue/improve data gathering and reporting (NASS, FAS, IEA & Brazil, etc.)

– Develop formalized baseline data in Brazil on orange and OJ production

11

GROWER COSTS AND

INVESTMENT RISKS

12

Future of the Global OJ Industry

Production Costs for a 10+-Year-Old Southwest

Florida Processed Orange Grove

2002-03

Without Greening

2008-09

Without Greening

2008-09

With Greening

$/Acre % of

Total $/Acre

% of

Total $/Acre

% of

Total

Weed Control & Herbicide 183.13 23.3 185.68 16.7 185.68 11.9

Spray-Pesticide 137.18 17.4 148.48 13.3 372.88 23.8

Fertilizer & Lime-Calcium 152.56 19.4 332.54 29.8 332.54 21.2

Pruning/Topping 28.03 3.6 31.48 2.8 31.48 2.0

Tree Removal/Resets 102.44 13.0 143.36 12.9 265.79 17.0

Irrigation & Ditch Maintenance 184.16 23.3 243.17 21.8 243.17 15.5

HLB Scouting Management

& Canker Decontamination 0.00 0.0 33.30 2.7 134.29 8.6

Total Production Costs 787.50 100.0 1,115.04 100.0 1,565.83 100.0

13

$ Per Acre

Base Grove Care For Mature Grove 1,115.04 (Includes canker decontamination)

Additional Costs For Greening

Additional Spraying (3 sprays + Temik) 224.40

Scouting (4 times / Year) 103.96

Additional Tree Removal and Reset Care 122.43

Sub-Total 450.79

Grove Care Costs With Greening 1,565.83 _________________________________________________________________________________________

Cost of Nursery Trees $8.50 / Tree

Pick, Roadside and Haul Costs $2.52 / Box

Costs of Greening Management

Program for Valencia Oranges

14

$1.10 $1.25 $1.40

($/Ac)

(%/Yr)

-$1,730

$1,057

$3,844

10 Yr Cum NPV by fruit price,

HLB Foliar Program

Initial Production: 150 tree/ac 3.5 bx/tree

6.2 p.s./bx

Tree Loss Threshold by fruit price,

HLB Foliar Program

3.5%

2.9%

2.4%

Fruit Price ($/p.s.)

0

15

The potential for Mechanical Harvesting

is to reduce costs by:

75¢ /box ($200-300/acre)

16 16

April 6-8, 2010 Boteon, M

►Most citrus growers will stop to invest on new groves or even worse some of them may quit the business because of:

– High cost of production:

» Grove care expenses, specially to control the HLB disease » Labor cost

– Riskier conditions: » Greening (HLB) disease and other phytosanitary problems

(Citrus Canker, etc)

– Weak dollar » Brazilian Currency Appreciation

Economic Sustainability of Sao Paulo Citrus Production

17

April 6-8, 2010

Picking Cost

US$ 0,35

US$ 0,90

SP average harvesting costs (picking + roadsiding). The cost above does not include hauling.

18

April 6-8, 2010

These are studies cases and do not represent the average costs of production in Sao Paulo. The grove care costs for specific grove site may differ depending tree age, tree density and the grove management.

19

April 6-8, 2010

TOTAL COST

OF PRODUCTION – Season 2008/09

Note: This study case does not represent the average costs of production in São Paulo. The grove maintenance costs for a specific grove site may differ depending upon tree age, tree density and the grove practiced performed. 20

Recommendations

►Support production research projects to improve cost efficiencies such as: more efficient spray methods, better pysllid control and yield improvement.

►Continue to evaluate the economics of a foliar nutrition program.

►Combine spatial auto correlation analysis with land value impacts.

►Support land use policies directed specifically to benefit citrus producers.

►Create a methodology to directly compare Brazilian with Florida costs of production.

21

RECOMMENDATIONS

22

Future of the Global OJ Industry

Recommendations

1. Continue domestic advertising campaign.

2. Partner with Brazil to develop a global generic advertising campaign that initially focuses on the EU and later is extended to the developing countries such as India and China.

3. Continue research & development investment in production-related research that includes economic analysis.

4. Develop a tree insurance program that provides indemnity for growers following best management practices.

23

Recommendations (Cont.)

5. Develop the methodology to estimate the economic benefit of being in a Citrus Health Management Area. This includes the ability to predict the spread of HLB within a block and the effect of management interventions on that spread.

6. Conduct additional research on the foliar nutritional program addressing specifically the ability to manage newly planted/reset groves.

7. Encourage better data collection in Brazil/Sao Paulo.

24

Recommendations (Cont.)

8. Better reporting of management practices related to HLB in Florida. We are limited by what we can do if we don’t know what the industry is doing.

9. Continue to conduct research on other means to reduce production costs including low-volume pesticide sprays, implementation of mechanical harvesting, and more efficient production inputs including fertilization.

10. Develop an optimization model that considers the entire citrus production/marketing system and then allocates scarce research dollars across that system, i.e., what research efforts offer the highest return?

25

Participating Economists ► 1. AYERS, Antonio Juliano — Scientific Manager, Fundecitrus, Araraquara, SP, Brazil ► 2. BARBER, Robert — Economist, Florida Citrus Mutual, Lakeland, FL ► 3. BEINHART, Roger — Statistical Analyst, National Agricultural Statistics Service-USDA, Washington, DC ► 4. BLAUER, Reed — Agricultural Economist, Office of Global Analysis-FAS-USDA, Washington, DC ► 5. BOTEON, Margarete — Researcher, Center for Advanced Studies on Applied Economics, USP, Piracicaba, SP, Brazil ► 6. BROWN, Mark G. — Senior Research Economist, Economic & Market Research Dept.-FDOC, Gainesville, FL ► 7. CASER, Denise Viani — Director, Center of Agricultural Statistics, Institute of Agricultural Economics, Sao Paulo, SP, Brazil ► 8. CLOUSER, Rodney L. — Professor, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 9. DA SILVA, M.L.M. — AGRAFNP-Info & Consulting Agribusiness Co. & GCONCI-Group Citrus Consulting, SP, Brazil ► 10. DA SILVA, Valquiria — Director, Institute of Agricultural Economics, Sao Paulo, SP, Brazil ► 11. GAO, Zhifeng — Assistant Research Scientist, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 12. GEUDER, Jeffrey K. — Agricultural Statistics Director, Florida Field Office-NASS-USDA, Maitland, FL ► 13. GUNTER, Dan L. — COO, Citrus Research & Development Foundation, CREC-IFAS-UF, Lake Alfred, FL ► 14. HODGES, Alan W. — Extension Scientist, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 15. LESTER, W. BERNARD — Retired, Former Executive Director, Florida Department of Citrus, Lakeland, FL ► 16. HOUSE, Lisa A. — Professor, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 17. LOHBAUER, Christian — Executive President, CitrusBR-Brazilian Assoc. of Citrus Exporters, Sao Paulo, SP, Brazil ► 18. MORRIS, Robert A. — Assoc. Extension Scientist/Economist, Citrus Research & Education Center-IFAS-UF, Lake Alfred, FL ► 19. MOSS, Charles R. — Professor, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 20. MURARO, Ronald P. — Professor, Citrus Research & Education Center-IFAS-UF, Lake Alfred, FL ► 21. NORBERG, Robert P. — Deputy Executive Director of Research & Operations, Florida Department of Citrus, Bartow, FL ► 22. PAGLIUCA, Larissa Gui — Graduate of Agronomy Engineering, USP, Piracicaba, SP, Brazil ► 23. POLLACK, Susan — Agricultural Economist, Economic Research Service-USDA, Washington, DC ► 24. RACEVSKIS, Laila A. — Assistant Professor, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 25. RAHMANI, Mohammad — Economic Analysis Coordinator, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 26. ROKA, Fritz M. — Associate Professor, SW Florida Research & Education Center-IFAS-UF, Immokalee, FL ► 27. SCHMITZ, Andrew — Eminent Scholar, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 28. SPREEN, Thomas H. — Professor, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL ► 29. TOZATTI, Gilberto — Consultant, GCONCI-Group Citrus Consulting, SP, Brazil ► 30. VANSICKLE, John J. — Professor, Food & Resource Economics Dept.-IFAS-UF, Gainesville, FL 26

27

All presentations will be

available on Friday, April 9th

at the fdocgrower.com website:

http://www.fdocgrower.com/emr/powerpoint.php

27

28

Thank you!

28