Perfect storm in the countryside makes consumers pay more for juice – 09/11/2023 – Vaivém

The Brazilian citrus industry experienced a perfect storm in the 2022/23 harvest. The climate punished the orange groves, greening progressed and affected productivity, there was a reduction in the supply of fruit, losses and delays in harvesting, in addition to the lower quality of the orange, which requires more boxes of fruit to obtain a ton of juice.

The result is that the final stocks of orange juice in Brazilian industries ended the 2022/23 harvest (from July of one year to June of the following) at 85 thousand tons, a drop of 41% compared to last year and only 11 % of volume ten years ago.

This sharp drop in stocks of FCOJ juice (concentrated juice that is consumed as reconstituted juice) makes the product more expensive for consumers, who will not have a break in prices in the short term. It is the third consecutive drop in stocks, which were at 471 thousand tons on June 30, 2020.

Negotiations on the international market point to a strong acceleration in prices. In August last year, a ton was traded at US$2,500 on the New York Commodities Exchange. In the same period this year, the value rose to US$4,500, an increase of 80%.

Domestically, a box of oranges, which have been registering record prices in negotiations between industry and producer, were at R$45 on average in August this year, an increase of 45% compared to the same month last year.

It is the fourth consecutive year of falling productivity. Ibiapaba Netto, executive director of CitrusBr, says that the estimate was for 277 million boxes of 40.8 kg to be crushed by the industry in the harvest that ended. Due to losses due to weather and difficulties in harvesting, the crushing amount remained at 265 million.

As a result, the initial juice production projection, which was 1.03 million tons, was not confirmed, falling to 945.5 thousand tons in the 2022/23 harvest. Weather, labor difficulties and delays in the harvest caused a loss of 82.5 thousand tons of juice.

Without this loss, the final volume of stocks could have been close to 160 thousand tons, putting less pressure on the market.

The effects of the climate are difficult to control and are increasingly frequent, but a bill in the Chamber of Deputies wants to better regulate the supply of labor for perennial crops, such as coffee, sugarcane and oranges.

Anyone who receives government benefits cannot be registered, which inhibits temporary hiring in these sectors. The bill wants to give a grace period of a few months to this obligation so that workers can be hired and registered during harvest peaks, without losing government benefits.

Cepea (Center for Advanced Studies in Applied Economics), which monitors this citrus sector daily, attributes the high prices in the sector to the low supply of fruit, the greater demand from industries, which have a reduced volume of stocks, and competition from oranges destined for the consumer’s table.

Citrus farming has been going through a slowdown for several years. World consumption is falling, and Brazil, the world leader in production and exports, is feeling this slowdown.

In the 2015/16 harvest, the area with orchards in production was 403 thousand hectares in the citrus belt of São Paulo and Minas Gerais. It has been decreasing year by year and, in 2023/24, it is 337 thousand hectares. The number of productive trees increased from 174 million to 169 million in the same period.

The average productivity of boxes per hectare rose from 745 to 918, but currently 24% of trees are affected by greening, up from 18% in 2015/16, according to Fundecitrus.

The effect of the rise in raw materials ends up affecting the consumer, says Netto, since the price floor for oranges becomes the amount paid by the industry.

He does not see significant price increases ahead, but there is also no prospect of a rapid replenishment of stocks in the sector. Very fat harvests would be needed for this restoration, he says.

On the external side, the situation is also not good. Florida, which produced 242 million boxes of oranges two decades ago, is expected to end the 2022/23 harvest with 15 million. Reduction in area, adverse climate and diseases in orange groves have caused a strong reduction in production in this American state.

Mexico and Spain are on the same path. Severe droughts have reduced production in these countries, where competition between the fresh fruit market and the industry is great.

The reduction in stocks occurs after an increase in consumption during the pandemic, caused by the search for the properties of vitamin C. Netto also highlights the greater consumption at home, due to the home office and a return to the food service market.

The director of CitrusBr states, however, that it is still difficult to measure demand. Stocks fell, prices increased, and only with a normal supply of juice will this assessment be possible. “Today there is no product to test demand.”

American consumption has apparently stabilized at 500,000 tons, but it is a volatile market, and for every percentage point increase in prices there is a two-point decline in consumption. The diversity of products is great, which makes migration easier, says Netto.

European demand also still needs to be assessed. While the Germans are more sensitive to prices, the French are more focused on quality. The Chinese are surprising and maintain stable consumption, accounting for 7% of Brazilian exports.