1. Impact of Changing World Orange Juice Markets and Curing HLB on the Demand for Oranges Produced in Brazil and Florida
Allen Morris
Morris Agribusiness Services Indian River Research and Education Center, Fort Pierce, FL January 25, 2019

2. The World

3. World Orange Juice Consumption is Down 21% Over the Past 14 Years
15%
30%
26% 5% 7%
42%
38%
37%
Source: Markestrat

4. Major Countries with Growing OJ Consumption Between 2003 and 2017 are Only 15% of Total World OJ Consumption
Source: Markestrat

5. Major Countries with Decreasing OJ Consumption Between 2003 and 2017 are 70% of Total World OJ Consumption
Source: Markestrat

6. World Orange Production Shares – Although 118 Countries Grow 1
World Orange Production Shares – Although 118 Countries Grow 1.7 Billion 90-Lb. Boxes, the Largest 5 are 57% of World Production
24%
43% 5%
12%
10% 6%
Source: Food and Agriculture Organization of the United Nations

7. Brazil, Florida & Mexico Are Over 90% Of World Orange Juice Production

8. Quantity of Oranges Needed To Supply the World Orange Juice Markets In 2031/32
Current world orange juice market: 2.7 billion SSE gallons
Projected total market in 2031/32 based on historical rates of decline: 1.5 billion SSE gallons
Current orange production in Brazil, Florida and Mexico: 529 million boxes*
Orange needs in 2031/32: 256 million boxes
* Based on recent 3 season averages. Does not include seasons of low production due to hurricane Irma in Florida or atypically bad weather in Brazil

9. The Orange Juice Category of the Future is Not-From-Concentrate
Currently 61% of the US orange juice market
NFC was 21% of the European orange juice market in 2014 and growing
--- Even though the total European orange juice market was declining
When I was at Blue Lake Citrus Products, our spec for NFC orange juice was for a Brix of 12.3
That gave it a taste advantage over juice reconstituted from concentrate, that has a minimum brix of 11.8

10. Five Season Averages of Brix In Oranges Produced in Brazil and Mexico
Average Range
Brazil –11.8
Mexico

11. Let’s Look at What the Future Demand Of 256 Million Boxes of Oranges Means For Brazil
Mexico’s higher Brix will mean that its current production of 109 million boxes will be in demand
As will be described later in this presentation, Florida will only need 70 million boxes and no imports
That leaves only 77 million boxes that will be needed from Brazil, 22% of the recent 3-season average production

12. The U.S.

13. Impact of Curing HLB On Costs, Prices, The US Orange Juice Market , and the Demand For Florida Oranges

14. What is Happening to the US Retail Orange Juice Market?

15. The US Nielsen-Measured Retail Orange Juice Market
This market consists of retail food stores with annual sales of $2 MM or more, drug stores with annual sales of $1 MM or more, mass merchandisers like Walmart and Target, club stores like Sam’s, Dollar stores, and the military. The best data are available for this market

16. U.S. OJ Consumption in Nielsen-Measured Retail Stores 2001/02 – 2017/18
-52%
Source: A.C. Nielsen

17. OJ Prices in Nielsen-Measured Retail Stores 2001/02 – 2017/18
$ Per Gal.
+55%
Source: A.C. Nielsen

18. Florida Orange Production 2001/02 – 2016/17
-70%
Source: National Agricultural Statistics Service

19. The US Nielsen Retail Orange Juice Market is Collapsing
Down 52% over past 16 years
--- the 2001/02 season was chosen as a starting period because that’s when the Florida Dept. of Citrus changed its marketing strategy to no longer differentiate citrus juices based on their health benefits
26% smaller than in 1972/73, 45 years ago
OJ consumption has been declining at an increasing rate
/09 – 2011/12: 3.2% per year
/12 – 2014/15: 4.6% per year
/15 – 2017/18: 5.4% per year
But retail OJ prices are up 55% over the past 16 years
And Florida orange production is down more than the retail market is down

20. This Market Decline Appears to be Caused by Reduced Orange Production and the Resulting Higher Prices
To the degree Florida is not producing enough orange juice for the US market, orange juice is being supplied by imports from Brazil (56%), Mexico (35%), Costa Rica (6%), and others (3%)
Imports have met 51% of total US market needs during the past three seasons
--- The same as happened during the freezes of the 1980s
There is less supply worldwide, and that has prices up like they were in the 1980s

21. Is the Decline in the OJ Market Caused by Reduced Supplies and the Resulting High Prices?
Lets examine the facts to see if it is. Price elasticity measures the changes in consumption of a product caused by changes in its price.
The price elasticity for orange juice in the retail market is -.77.*
That means for every 10% increase in OJ prices, there will be a 7.7% decrease in OJ consumption, and vice-versa for decreases in prices
Price elasticity measures the effect on consumption of changing only price, and not income or other variables like tastes and preferences that could affect consumption
______________________
*Morris, Allen. Demand for Orange Juice, Blends and Drinks: A Comparison Between 1988/1997 to 2005/2010. University of Florida, IFAS, CREC, Lake Alfred, FL September 4, 2010

22. What’s Causing the Decline in the Orange Juice Market?
Income elasticity measures the changes in consumption of a product caused by changes in inflation-adjusted personal disposable income
The income elasticity for orange juice is +.46
That means that for every 1% that inflation-adjusted personal disposable per capita incomes increase, .46% more orange juice will be consumed

23. Income Elasticity
Income elasticity measures only the affect on consumption of changing incomes, and not price or any other variables
Impacts of changes in other variables like consumption trends independent of price or income, or seasonality, where purchases are always lower in some months than others, are mathematically accounted for in order to isolate only the price or income effects on demand

24. So How Much of the Decline in Orange Juice Consumption Is Because of High Prices?
Based on the price elasticity of -.77, orange juice consumption should have declined 42.7%, not the 52.3% it declined
Inflation-adjusted personal disposable per capita incomes increased by 22.8 percent over this 16 year period*
That resulted in an increase in consumption of 10.5% to partially offset the 42.7% caused by price increases
______________
*Federal Reserve Bank of St. Louis, Economic Research Division

25. Not All of the Decline in Orange Juice Consumption Is Because of High Prices?
After accounting for changes in both prices and consumer incomes, the OJ market should have declined by 32.2%, not 52.3%
38.4% of the decline in OJ consumption was caused by factors other than high prices and reduced supply
Only 61.6% of the decline in orange juice consumption was caused by high prices

26. 62%

27. If Almost 40% of the Decline in OJ Consumption is not Caused by Higher Prices and Reduced Supplies, What is Causing it?
First, some nutritionists and physicians have been downplaying orange juice because of its high sugar content, which they claim contributes to obesity
--- Research published in scientific journals (Nutrition Research in 2011 and Nutrition Journal in 2012) has shown that consuming orange juice compared to not consuming is not associated with an increase in bodyweight in children or adults

28. If Almost 40% of the Decline in OJ Consumption is not Caused by Higher Prices and Reduced Supplies, What is Causing it?
Second, consumers haven’t been given a compelling reason to drink orange juice for a number of years
--- To give consumers a compelling reason to drink orange juice they need to be told what is different about orange juice and why that difference has value

29. What’ is Different About Orange Juice and Why Does That Difference Have Value?
According to the results of research published in the Journal of Food Science, Nutrition Research, The American Journal of Clinical Nutrition, and Nutrition Journal, orange juice has the following benefits that most other beverages do not have
More nutrients per calorie than apple, grape, pineapple, and prune juices
Unusually high in vitamin C
Contains potassium citrate, flavonoids, folate, thiamine, and other compounds that may act as anti-oxidants and as a result, can contribute to:
--- improved blood vessel functioning, reduced risk of birth defects, reduced LDL (the bad cholesterol), prevention of kidney stones, lower blood pressure, and protecting cells against free radicals which reduces the chances of cancer

30. Simple Logic Can Dispel The Myth That the High Sugar Content of Orange Juice Contributes To Obesity
During the 1970s and 1980s, good tasting diet sodas were introduced into the US marketplace
They became mainstream as consumers switched from caloric to non-caloric soft drinks
Currently, diet sodas account for almost half of soft drink consumption.
If beverages containing sugar were the cause of obesity, almost half of the American population would have lost weight when they switched to diet sodas, but this didn’t happen

31. Simple Logic Can Dispel The Myth That the High Sugar Content of Orange Juice Contributes To Obesity
According to the Centers For Disease Control, between 1990 and 2015, the percentage of obese adults increased from 11.1% to 29.3%
Why would switching from consuming orange juice to consuming water or lower calorie beverages prevent consumers from becoming obese when switching to diet sodas didn’t?

32. Curing HLB: Implications of Orange Juice Market Dynamics And The Demand For Florida Oranges

33. This Analysis Requires Including the Rest of the Market for US Orange Juice Supply
The total US retail orange juice market consists of the Nielsen market and the non-Nielsen market
The non-Nielsen market consists of convenience stores, independent and chain restaurants, school and hospital cafeterias, orange juice consumed in juice blends and drinks, and unidentified inventory
It is currently 91% as large as the Nielsen Market
Adding US orange juice exports, which are only 9% as large as the total US retail orange juice market, gives the total market for US orange juice supply

34. There Are Currently Four Promising Cures For HLB
Using the citrus tristeza virus to deliver a spinach gene into citrus trees which will defend against HLB by attacking the HLB bacteria, Candidatus Liberibacter
Use of RNAi genetics by adding small RNAi sequences into citrus trees that would eliminate the psyllid by killing it when it feeds on citrus leaves
Use of CRISPR, a gene editing system, to produce varieties of citrus immune to HLB
Development of HLB-tolerant rootstocks

35. It Appears As If The Spinach Gene Technology Will Be Available First
Trees with this technology may be approved for planting in 2019 or 2020
This technology does not create a genetically engineered or genetically modified tree
-- Juice made from fruit produced by these trees would not need to carry a GMO label
However, it is not known how long the CTV spinach gene will express in citrus trees
-- Maybe as long as the trees live without HLB infection or maybe not
-- Five years of field testing satisfies the regulatory requirements

36. Affects on the Florida Citrus Industry of Curing HLB
Trees resistant to HLB will be planted
As they age and produce more fruit, the industry average costs of producing oranges will decline
As the costs of producing oranges decline, and supply increases, growers will supply oranges for lower prices
These greater supplies and lower prices will translate to lower retail orange juice prices
These lower retail orange juice prices will stimulate growth in orange juice consumption

37. Let’s Evaluate Each of the Five Affects on the Florida Citrus Industry of Curing HLB
The estimated $450 per acre for managing HLB will go away
Fruit yields will increase from the 213 boxes per acre that it is projected to be with an orange crop forecast of 77 MM boxes (yields were 187 boxes/acre in 2016/17)
Juice yields will increase from the 2015 – 2017
3- season average of 5.98 pounds solids per box

38. Analysis of Each of the Five Affects on the Florida Citrus Industry of Curing HLB
Three year average of fruit yields before HLB was discovered in Florida: 388 boxes per acre
Three year average of juice yields before HLB was discovered in Florida: 6.5 pounds solids per box
Using these three year averages of fruit and juice yields before HLB was found in Florida, and removing the caretaking cost of managing HLB, the delivered-in break-even cost of producing oranges would decline from its current $2.21 per pound solids (it was $2.50 in 2015/16) to $1.16 per pound solids

39. One Result of Curing HLB Will Be Lower Costs of Producing Oranges
It requires an investment of about $9,000 per acre, not including the cost of the land, to replant an existing grove with HLB-resistant trees at a density of 198 trees per acre, and grow it to 4 years of age to produce a commercially harvestable crop
Adding a 10% required return on that investment increases the $1.16 per pound solids to $1.52 per pound solids
It is likely that growers would continue to increase production via new HLB-resistant plantings until the increased supply reduced fruit prices from their current level ($2.86 PPS average over past two seasons) to that $1.52, which is a decline in fruit prices of 47%

40. The Lower Costs of Producing Oranges Should Result in a 47% Decline in Fruit Prices
These lower fruit prices will translate into lower retail orange juice prices
Processed orange prices currently represent 33% of the price of orange juice on the store shelf
--- the other 67% is fruit processing, warehousing, blending, packaging, distribution, sales and marketing expenses, and profit
So 33% of the retail orange juice price will decline by 47%.
That means that the current retail price of $6.82 per gallon would decline to $5.76 per gallon, a decline of 15.5%

41. Lower Fruit Prices Will Result in Lower Retail Orange Juice Prices
At a price elasticity of -.77, this 15.5% decline in retail prices would increase consumption by an estimated 12%.
If planting of HLB-resistant trees were to start in 2019/20, and the first fruit is commercially harvested in 2022/23, the increase in supply would begin then and would take a number of years as fruit yields increase with aging trees and additional plantings occur.

42. Lower Retail Orange Juice Prices Will Result in an Estimated 12% Increase in Orange Juice Consumption
The estimated 12% increase in consumption was applied not only to the Nielsen-measured retail orange juice market, but also to the non-Nielsen market.

43. The 12% Increase In Consumption Will Happen Over a Number of Years
If the first HLB-resistant trees produce a commercially harvestable crop by 2022/23, that will not be nearly enough fruit to reduce costs and increase supplies enough to stimulate growth in orange juice consumption.
As more HLB-resistant trees are planted, producing fruit at lower cost, the increased supply and lower prices will ultimately stimulate growth in orange juice consumption.
It is assumed to take until 2031/32 for a significant increase in orange production from new plantings

44. Amount of Fruit Needed in 2031/32
Projected total market for US orange juice supply in 2022/23: 666 MM gallons; 12% market growth from lower prices: 666 X 12% = 80 MM gallons
Projected total market in 2031/32: 403MM gallons + 80 MM gallons = 483 MM gallons, less projected OJ production in California and Texas of 44.4 MM gallons
OJ needs in 2031/32: 483 – 44.4 = MM gallons
Florida orange needs in 2031/32: MM gallons / 6.3 gallons per box = 69.6 MM boxes

45. The Increase in Consumption is Projected to Coincide With The Increase In Production
Assume that the lower prices from lower cost production get into the orange juice market evenly over the 2022/23 – 2031/32 nine year period, reflecting the time required for fruit produced from new plantings of HLB-resistant trees to increasingly impact prices.
Nine years after the first plantings begin producing harvestable crops, by 2031/32, only 70 million boxes of Florida oranges and no orange juice imports will be needed for juice volume, although imports may be needed to for blending to achieve Brix or ratio objectives
--- In spite of a 12% increase in the OJ market stimulated by the lower prices, the underlying rate of decline in OJ consumption eliminated its benefit.

46. Can the Price-Induced Increase in Orange Juice Consumption be Increased or Even Sustained?
Remember, over the past 16 years, 38% of decline in orange juice consumption was caused by factors other than high prices
That’s an annual decline in consumption of 1.2% not responsive to the economic variables of pricing or consumer purchasing power
--- It is an underlying rate of decline

47. There is an Underlying Rate of Decline in the Orange Juice Market
As explained earlier, I believe that consumers’ irrational concerns over the sugar content in orange juice, and not being aware of the numerous health benefits of orange juice, in addition to being a source of vitamin C, are the cause of this underlying rate of decline in OJ consumption

48. There is an Underlying Rate of Decline in the Orange Juice Market
If the impact of these non-economic variables can’t be mitigated, any increase in supplies as a result of curing HLB, and resulting lower retail prices that stimulate growth in orange juice consumption will ultimately be lost by the downward pressure on the market fueled by this consumer behavior
As time progresses, less and less fruit will be needed to supply the declining orange juice market

49. Florida’s Citrus Growing Sector Could Be in Worse Trouble Than It Is Now
Even when a cure for HLB is implemented, unless something is done to stop the decline in orange juice consumption, the citrus growing part of the industry will become too small to support the infrastructure of input suppliers, harvesters, grove caretakers, etc. necessary for it to function competitively.

50. The National Juice Brands Will not Have Enough Fruit To Economically Justify Processing
At some point, with Florida orange production continuing to decline because of the declining orange juice market, the brands will no longer be able to economically justify processing
One bulk processor may have the opportunity to toll process fruit for all three brands
Reducing costs by processing the industry’s remaining volumes in one plant
Brands’ Florida facilities will continue to be used, but mainly as juice storing, blending and packaging operations

51. The National Juice Brands Will Probably Increase Their Focus on Juice Blends and Juice Beverages
Such as blueberry mango, pomegranate lime, watermelon, berry greens, etc.
Brands’ advertisements will be for these types of juice blends and for products like fruit punch and lemonade rather than orange or grapefruit juice
Brands will begin to position themselves away from citrus in the US market

52. We Can Control Our Destiny
This outcome doesn’t have to happen. But it is likely to happen unless something isn’t done to restore the US orange juice market to growth.

53. What Household Data Show About Orange Juice Consumption
On September 20, 2017, Dr. Ron Ward presented results of the analysis of household data about orange juice consumption to the Florida Citrus Commission
Concerns about the natural sugar content and calories of OJ reduces demand
Awareness of the health benefits of consuming OJ was the most important variable in increasing demand
Even though OJ consumption is declining, the marketing program we have generates $8.74 for every dollar spent, compared to having no marketing program at all
This suggests that with a marketing message that effectively communicates the health benefits of consuming OJ, growth can be restored to the US OJ market

54. Strategy to Restore Growth to the US OJ Market
Concerns that the natural sugar content and calories of OJ cause obesity must be dispelled using logical, simple explanations
--- Using obvious examples like the one about consuming diet versus non-diet sodas
A marketing campaign must be developed that describes the specific health benefits of OJ
Campaign must also include merchandising and PR
The information should be backed up with credible published research like that shown earlier
Choose most effective media
--- TV, radio, print, social media, Internet, a consumer-oriented OJ website

55. Thank you! 55