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Brazilian rains, more Japanese imports brighten frozen OJ industry's future.

Brazilian Rains, More Japanese Imports Brighten Frozen OJ Industry's Future Florida forecast sees 3-billion gallon global market by 1999. U.S. will remain largest market by far, with removal of trade barriers in Japan clearing way for expanded exports.

The drought that afflicted citrus groves in Brazil seems to be over, and restrictions against orange juice imports in Japan are on the way out.

By the end of the century, then, the world market should come close to three billion gallons a year for orange juice, with Japan accounting for perhaps 200 million of that.

The long-term outlook is in sharp contrast to the short term: a 14% drop in Brazilian FCOJ (frozen concentrated orange juice) exports as of the end of December sent prices tumbling, and a Florida freeze in February had processors briefly nervous.

Brazil's problems arose despite a tight supply of FCOJ based on a reduced orange crop brought on by the drought afflicting Sao Paulo state, which is as much the center of the citrus industry in the South American country as Florida is in the United States.

Exports for the last six months of 1988 (Brazil's season runs from July through May) were reported to have sunk to 134 million 42| Brix gallons, compared to 155.7 million a year earlier. Something had to give, and it was the export price, which fell from $1.85 a pound (solids) to $1.50.

That sent Robert M. Behr and his economic research team at the Florida Department of Citrus back to their calculators to assess the impact of the Brazilian situation on the U.S. market. But revisions to the 1989 forecast are ultimately less important than their peak into the next 10 years based on world trends.

While the United States remains and will remain the largest market by far, the opening of Japan could alter the whole balance. Japan's quota has been raised to 20 million SSE -- single strength equivalent -- gallons this year. Next year, it will be 40 million gallons; and after that, the quotas come off completely.

"It's a done deal," Behr told Quick Frozen Foods International, not like some global trade agreements subject to ratification or even renegotiation. And his team's projection of a 100 million gallon-market in Japan by the turn of the century is considered conservative by others -- "Some people think demand will exceed our projections, even reaching 200 million gallons in a few years."

With that much demand, Brazil could presumably sell all the FCOJ it produced, even with better weather improving the outlook for harvests and processing. The Japanese market could breathe new life into Coca Cola's plans for orange groves in Belize, and if the U.S. market for orange juice remains stalled -- due to either prices or changing tastes -- even Florida might look to a new market.

Right now, Brazil has to worry about getting through the current season. The drought reduced the 1988-89 crop to 210 million boxes, vs. 220 million the year before, with processed utilization at 175 million from 180 million. With a beginning inventory of 13.1 million 42| Brix gallons and a pack of 237.9 million, Brazil had 251 million gallons to play with -- off 8.6%. So it is almost a blessing that exports are expected to fall 8.6% to 232 million (domestic usage remaining the same, at a scant 6.9 million), leaving a carryover of 12.1 million.

Brazilian growers and processors may take a bath, since they had been counting on higher prices. But if they make it through the 1988-89 season -- and they've made it through a lot worse -- their prospects should brighten. Already, according to another of the Behr reports, the Brazilian industry is planning to invest in a terminal facility in Japan, similar to one in the Netherlands opened several years ago to handle European imports. Of course, Brazil's international trade generally could be affected by other factors -- its debt burden, a collapse of the new cruzado that recently replaced the old cruzado in yet another attempt to curb inflation, and so on.

In the United States, meanwhile, the latest freeze seems to have been a false alarm, and as new trees mature, the Department of Citrus expects production to increase from 166 million boxes in 1989-90 (the December-November period) to 243 million in 1998-99--while Brazil's advances more slowly from 260 million to 297 million. For the current year ending this November, Florida's FCOJ pack is estimated at 181.9 million 42| Brix gallons, up 6.4% from 170.9 million in 1987-88. Yet a 30.7% drop in imports, from 61.3 million to 42.5 million gallons, will reduce total availability from 280.7 million to 266.6 million gallons. Movement through retail, bulk and institutional channels is expected to total 227.3 million, up slightly from 224.6 million in 1987-88, when a "futures deliveries" item (not expected to recur) added 13.8 million.

Recovery Forecast

Overall retail FCOJ sales, which slumped from 394 million to 353 SSE gallons in 1987-88, are expected to recover to 366 million this year. Chilled orange juice sales, also off from 448 million to 428 million last year, are projected for stronger gains, reaching a new high of 467 million. Canned orange juice will remain a slight factor at 16 million gallons out of an overall total of 849 million, up from 797 million. Grapefruit juice retail sales, also off a bit last year, will increase from 72 million to 75.5 million gallons in the current year, the Department of Citrus predicts -- with frozen accounting for only 10 million gallons of that, up from 9.8 million.

In the long-term forecast, total U.S. orange juice production (including California and Arizona as well as Florida) is projected to increase from 984 million SSE gallons next year to 1.412 billion in 1998-99, overtaking Brazil's (actually, just Sao Paulo state's), which is projected to grow from 1.165 billion to 1.320 billion SSE gallons over the same period. Combined output will expand from 2.149 billion to 2.732 billion. Demand during the same 10 years, assuming a 2.7% annual growth rate and constant tariffs, is projected to reach the same 2.732 billion gallon figure from the same 2.149 billion-gallon base, with markets of 1.657 billion for the U.S. (up from 1.288 billion), 800 million gallons in Europe (up from 637 million), 178 million in Canada (up from 141 million), and 107 million in the rest of the world (up from 83 million).

But that's without counting the effect of the removal of orange juice quotas by Japan. Two other scenarios developed by Behr and his colleagues (Mark G. Brown and Emily A. McClain) look at the impact on future world demand of a stronger dollar as well as Japanese imports. A 60% appreciation of the dollar over the next three years, with the rate stabilizing thereafter, would curtail the market to 2.575 billion gallons in 1998-99 (1.626 billion here, 694 million in Europe, 151 million in Canada and 104 million elsewhere). Opening the Japanese market under the same alternate scenario, however, will increase the total to 2.791 billion -- 787 million in Europe, 175 million in Canada and 203 million elsewhere. That would exceed projected production in the U.S. and Brazil.

Other Players

Of course, Brazil and the United States aren't the only sources of orange juice. Israel is a significant supplier to the European market, and other producers include Morocco, Italy, Spain, Argentina, Chile, Cuba, Uruguay, Mexico, Egypt, Tunisia, Turkey, Greece and South Africa. All are small players in today's market, but might develop their industries further if demand warrants it. Tiny Israel shipped 122,487 tons to the EEC in 1987, second only to Brazil's 304,552 tons; while Mexico exported 39.7 million SSE gallons to the United States the same year, compared to 470.8 million for Brazil. Australia is another small-scale producer that will undoubtedly be taking advantage of the Japanese market and expanding its output.

Another long-term projection by Behr's team has to do with tree plantings. They are expected to decrease in Florida, from five million next year to 2.1 million in 1998-99. During the same period, Brazil's plantings are also expected to decrease, from 10.3 million next year to a low of 7.1 million in 1994-95, before picking up again to 9.3 million in 1998-99.
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Title Annotation:includes related articles on orange juice industry; orange juice
Publication:Quick Frozen Foods International
Date:Apr 1, 1989
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