The Impact of Not-From-Concentrate Orange Juice
Tariffs and the World Orange Juice Market
Long Term Projections for the World Orange Juice Market
The Projected Impact of FTAA on the World Orange Juice Market
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 trillion1. It would be the largest free trade zone in the world. The countries that would be included in the FTAA account for most of the world's production of orange juice. The states of Sao Paulo, Brazil and Florida of 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; Canada's per capita consumption rivals that found in the United States2. The other countries of the Western Hemisphere, however, do not have significant consumption of processed orange juice. Consumers in these countries buy oranges in fresh form and produce orange juice at home. 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 examine the world market for orange juice, document the existing tariff structure for orange juice, and project the possible impact of the FTAA on world orange juice trade. Also presented are projections for world orange juice production and consumption for 2005, 2010, and 2020. The analysis is conducted using a mathematical model of the world orange juice market developed at the University of Florida (McClain, Brewster and Spreen).
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 1990 to over 600 million SSE gallons in the 1999-2000 season. 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 re-examination 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 - Single Strength Equivalent - 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, with that figure reaching nearly 50 percent in the 1998-99 season (Florida Citrus Processors Association).
Nearly all of the frozen concentrated orange juice (FCOJ) traded in the world is first concentrated to 65o or 66o Brix. At this level of concentration, seven 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, seven times the volume must be shipped. As a result, transportation costs become an increasingly important component of final 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 the 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. Data is not available regarding the breakdown of orange juice consumption in Canada. A similar problem exists for the European Union. While data is available on imports of orange juice into the EU, the composition of imports is not known. U.S. export data indicated that approximately 50 million SSE gallons of NFC were exported from the United States in 1999. Nearly all U.S. orange juice exports are sent to Canada and the EU3.
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. Even though these countries currently enjoy duty-free access to the United States, their share of both U.S. imports and the U.S. orange juice market remains relatively small. In 1999, imports from these countries totaled 32.23 million SSE gallons, which was nine percent of total U.S. imports and approximately two 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 $.175 per SSE gallon for NFC.
Imports of orange juice from Mexico had been increasing before NAFTA was implemented which raised fears in Florida that reductions in the U.S. orange juice tariff would result in massive increases in Mexican juice exports. To allay these fears, a rather complicated arrangement was negotiated under which Mexican exporters were granted a tariff rate quota of 40 million SSE gallons at one-half the prevailing MFN tariff or US$.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.
NAFTA was implemented on January 1, 1994. The Uruguay Round of GATT was completed in mid-1994, with its provisions put into effect beginning January 1, 1995. Since the GATT agreement was to reduce the MFN orange juice tariff by approximately 15 percent over six years, the NAFTA tariff schedule was revised to conform to GATT. The revised NAFTA tariff schedule is shown in Table 5.
The European Union also offers trade preferences to selected orange juice exporters. Through the Lome Convention, the EU grants to countries identified as members of the African, Caribbean, and Pacific (ACP) countries preferential access for a wide range of agricultural commodities. Among the orange juice exporting countries, only Belize is an ACP country. As such, Belize is granted duty free access to the EU. Under a special arrangement, Costa Rica is also granted duty free access to the EU.
Mexico has recently signed a free trade agreement with the EU that is scheduled to take effect in 2001. Under the agreement, Mexico has been granted a tariff-rate quota of 30,000 MT @ 65o Brix which can be exported to the EU at 25 percent of the prevailing MFN rate. Mexico can also export 1000 MT of chilled single strength juice at 50 percent of the MFN tariff.
Japan currently imposes an ad valorem tariff of 25.5 percent on imports of FCOJ
In this section, projections to 2005, 2010, and 2020 for world orange juice production and prices are presented. In this analysis, it is assumed that Sao Paulo, Brazil and Florida, United States will continue to be the two dominant supply regions for orange juice. The growth of production in both of these regions in recent years is evidence that their dominance will continue. Even though Florida and Sao Paulo have been strong competitors in the world orange juice market, there have been several cooperative arrangements formed between companies operating in the two regions. Four of the five largest processing companies in Sao Paulo now own processing plants in Florida. Cutrale purchased the processing plants formerly owned by Minute Maid. Minute Maid remains the second largest marketer of orange juice in the United States, but now Cutrale is the main supplier of its product. Tropicana, the largest orange juice marketer in the United States, has entered into an arrangement with Citrosuco, another large Sao Paulo based citrus processor. Citrosuco will produce Tropicana Pure Premium, the largest NFC brand in the world, for the Argentina market. Citrosuco is also a major supplier of orange juice to Tropicana in the United States from a plant it recently purchased in Florida. Cargill and Dreyfus also process oranges in both Sao Paulo and Florida.
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 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 Japan4.
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 market in the United States is disaggregated into consumption of NFC and FCOJ. Since reconstituted chilled orange juice is made from FCOJ, 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. It is also important to note that in this analysis, the existing tariff structure is assumed to remain unchanged over the forecast period. A more detailed presentation of the model is presented in the Annex.
Projected orange and orange juice production in Sao Paulo and Florida are shown in Table 6. Orange production in Sao Paulo is expected to decline from current levels (16 million MT) to 13.7 million MT in the 2004-5 season. Production should recover to 15.3 million MT by the 2009-10 season and continue to expand to 20.7 million MT 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. Presently, there are an estimated 162 million bearing trees in Sao Paulo (FAS, USDA) so that nearly 10 million trees are 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), it is clear that bearing tree numbers will decline over the next few seasons.
Orange production in Florida is expected to increase modestly to 10.7 million MT (current levels are 9.5 million MT) by the 2004-5 season. Orange production is expected to remain relatively flat over the next 15 years. This forecast is based upon the reality that 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 expected to decline to 1.47 billion SSE gallons (1.05 million MT @ 65o Brix) in the 2004-5 season. Production will then recover to 1.64 billion SSE gallons in 2009-10 and continue to grow to nearly 2.2 billion SSE gallons by 2020. Orange juice production in Florida should range from 1.5 billion to 1.6 billion SSE gallons over the next 20 years.
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 processing capacity 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 capita consumption in the EU continuing to expand, EU consumption is expected to exceed 1.26 million MT @ 65o Brix by 2020. With underlying demand growth in all four markets, increased production can be accommodated with stable prices. Processor prices in Florida will decline modestly from US$1 745 per MT @ 65o Brix for FCOJ in the 2004-05 season to US$1 578 in 2020. NFC prices are expected to show a similar decline over the forecast period. Prices in the other markets are also 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$61 to US$75 per MT (US$2.49 to US$3.08 per box), while prices in Florida will range from US$85 to US$104 per MT (US$3.49 to US$4.23 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 will likely cause the government of Brazil to reconsider its recent policy changes towards ethanol. This change may stimulate the domestic sugarcane industry and provide a viable alternative to citrus in Sao Paulo.
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 considering 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 2001-2 season. The results of this analysis are summarized in Tables 8-19.
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 19.2 million MT under immediate elimination, which is slightly 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$.49 per box by 2015-16. Immediate tariff elimination results in an immediate gain of US$.37 per box in 2001-02 expanding to US$.58 per box in 2014-15.
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 minimal over the 15 year forecast horizon. At the end of the forecast horizon, Florida orange production under phased elimination is projected to be 10.9 million MT compared to 11 million MT in the baseline. Under immediate elimination, the impact is greater but still less than five 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$.91 per box (US$22 per MT) in 2014-15, a decline of 25 percent. Immediate elimination would cause grower prices in Florida to decline by more than US$1.00 per box early in the forecast period. By the end of the forecast period, grower prices are projected at US$2.78 per box, slightly higher than the US$2.66 per box forecasted under phased elimination. This result occurs because immediate tariff elimination results in an earlier contraction in Florida orange production.
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$278 million in the 2004-5 season, US$269 million in the 2009-10 season, and US$257 million in 2015-16 season. These declines represent a 25 percent decline in 2004-05 and 26 percent in 2015-16.
One of the by-products of the model's formulation is that separate prices for early maturing and late maturing oranges in Florida are estimated. Hamlin is the main early maturing orange variety found in Florida. Although Hamlins produce a high yield per unit of land area, the juice from Hamlins is generally not of good color. Historically, Florida based processors have needed to import juice of better color for blending purposes. Valencia is a late maturing variety found in Florida, Sao Paulo, and Mexico. Valencias generally produce fewer boxes per unit of land area, but the juice from Valencia oranges is of better color. In the baseline run of the model, a substantial premium is estimated for Valencia oranges compared to early maturing oranges in Florida. In the 2009-10 season, this premium is estimated to be nearly US$.30 per pound solids. When the tariff is eliminated, however, this premium is reduced to US$.12 per pound solid. This result occurs because under tariff elimination, juice from Sao Paulo, which is assumed to be Valencia, is now less expensive to import into the United States.
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 175,000 MT @ 65o Brix in 2001-02 (equivalent to about 244 million SSE gallons). Almost all of the consumption increase would be FCOJ. By 2015-16, the projected increase in U.S. consumption is 177,000 MT, or 15 percent. To support higher consumption, FCOJ processor prices in the United States would decline by approximately US$244 per MT @ 65o Brix (equivalent to approximately US$.17 per pound solid) in the 2001-02 season or 14 percent. NFC prices in the United States would also decline, although the percentage decline is smaller than that projected for FCOJ. NFC prices decrease due to the cross price effect between NFC and FCOJ.
The impact of phased reduction and immediate elimination of the U.S. orange juice tariff on orange juice prices and consumption in Canada is shown in Table 11. Immediate elimination would cause a small reduction in orange juice consumption and a small increase in price. Phased reduction would result in a modest increase in orange juice consumption during the first portion of the phase-out, but eventually would result in a small consumption decrease by 2015-16.
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-à-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 12. Under immediate U.S. tariff elimination, the impact in the EU would be modest, as EU consumption is projected to decline approximately 121,000 MT @ 65o Brix in 2001-02, a decline of nearly 14 percent. By the 2015-16 season, projected consumption in the EU is expected to decrease by nearly 160,000 MT. Prices are projected to increase by US$159 per MT @ 65o Brix in 2001-02 and by US$166 per MT in 2015-16, the latter figure representing a price increase of 11 percent. Phased reduction of the U.S. has a smaller impact on EU orange juice consumption and prices, although consumption declines by 117,000 MT and prices are projected to increase by US$ 141 per MT in 2015-16.
The impact of FTAA on orange juice consumption and prices in Japan are shown in Table 13. In percentage terms, the impact on Japan is comparable to that in the EU. Under immediate U.S. tariff elimination, Japanese consumption declines by 10 to 12 percent with comparable increases in prices.
The impact of U.S. tariff reductions on world trade in orange juice is shown in Tables 14-19. In Table 14, projected exports under the present tariff regime by country of destination from Sao Paulo are shown. While 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 juice5. In Table 15, projected exports from Sao Paulo under phased elimination of the U.S. tariff are shown, while Table 16 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 14-16 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 280,000 MT @ 65o Brix in the 2001-02 season, an increase of 471 percent. This percentage increase is projected to remain stable over the forecast horizon of the model. Under phased elimination, there is a gradual increase in U.S. FCOJ imports, which reach 309,000 MT in the 2015-16 season.
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 16 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 30 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 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 17-196. Under the current tariff regime, United States consumption of NFC is expected to grow modestly from current levels reaching nearly 750 million SSE gallons by the 2015-16 season7. U.S. consumption of FCOJ (including reconstituted chilled orange juice and retail pack FCOJ) is expected to show a small decline. U.S. citrus processors will continue to share the Canadian market with Brazil.
Under phased tariff elimination (Table 18), utilization of FCOJ from U.S. producers declines more rapidly. As the tariff becomes smaller, the model projects that small amounts of U.S. FCOJ will be shipped to the EU and Japan. Utilization of U.S. juice as NFC is also adversely affected as lower-priced FCOJ reduces the demand for NFC.
In Table 19, 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 18 except that the impact occurs much sooner. Utilization of U.S. production in both the U.S. FCOJ and NFC markets decreases and product is shipped to the EU and Japan in all years of the forecast horizon.
The results for the utilization of U.S. produced orange juice are hampered by the lack of a NFC market for Canada and the EU in the model. Currently, U.S. companies are shipping NFC to both regions, and it is likely that under tariff elimination, these companies would attempt to expand exports of NFC as opposed to FCOJ. This shortcoming needs to be addressed in future research.
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 themselves from competition from Brazil by focusing on NFC production.
The impact of U.S. tariff elimination on Cuba would likely be positive as long as the U.S. embargo remains in place. Cuba sends nearly all of its orange juice output to the EU, and prices in the EU are projected to increase if the U.S. orange juice tariff is eliminated.
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 for 2005, 2010, and 2020. 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 @ 65o Brix. Orange juice production in Florida is expected to remain relatively flat at 1.1 million MT @ 65o 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 @ 65o 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 slightly, and on-tree prices are expected to decline by 24 percent. Projected on-tree prices in Florida after elimination of the U.S. tariff are below the cost of production suggesting further decreases in Florida orange output beyond the forecast horizon of the model. 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.
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)
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." Paper presented at the 7th International Economic Outlook Conference for Citrus and Non-Citrus Juices." Orlando, FL, October 2000.
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., and Juan Pablo Mondragon. "The Tariff Schedule for Imported FCOJ." Citrus Industry. 77:10(October, 1996):10-12.
United States Department of Agriculture, Foreign Agricultural Service (FAS, USDA). "Citrus Annual Report." Sao Paulo, Brazil, U.S. Consulate, 1999.
1 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$1.4 trillion in 1990 US$.
2 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.
3 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 become significant producers of NFC, but their exact production figures are not known. For further discussion, see Goodrich and Brown.
4 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 capita consumption. These estimates are based upon work by the Florida Department of Citrus.
5 For example, U.S. imports of Brazilian orange juice were nearly 250 million SSE gallons in 2000 and the model indicates that approximately 70 million SSE gallons will be exported in 2001. It is difficult to completely validate a model of this type and trade flows are particularly difficult to track.
6 The figures presented in Tables 17-19 include orange juice production from California, Arizona, and Texas.
7 Some would argue that this forecast is conservative.