Florida Orange Growers the Florida

Florida Orange Growers

The Florida orange producers are facing a strong challenge from Brazil, and they also face internal challenges as well. Brazil is the world's leading producer of orange juice and exports 99% of its supply, including to the U.S. market. Florida producers have traditionally been protected by a tariff. Economically, Brazil has strong cost competitive advantages that allow it to be a low-cost producer. The proliferation of global free trade agreements is putting pressure on the U.S. To remove the tariff, the only defense producers have being that to do so would guarantee a Brazilian monopoly on global orange juice production, with the attendant threat of monopolistic abuses.

One of the areas where the Florida growers face a cost disadvantage is that they pay a tax on each box of citrus to a marketing board, the Florida Department of Citrus, which markets orange juice. Internally, there is dispute about the value that the grower's are receiving from the board in the face of declining citrus sales. The tax also contributes to the cost disadvantage vs. Brazilian producers. The Department was originally set up to help market orange juice, but has little experience in doing so against international competition. Orange juice is a commodity product with little inherent differentiation. Economically, this indicates that the competitive advantage will go to the lowest-cost producer, unless other producers can successfully differentiate their producers. Although that is the role of the FDOC, the Department has yet to demonstrate that it can successfully do this against Brazilian orange juice.

The citrus growers must determine if they are able to maintain to FDOC. Orange juice is a commodity market, so the costs associated with the FDOC do not appear to be rational. Those costs increase the degree of competitive disadvantage faced by Florida citrus growers. The market is close to perfect competition. If there is a difference between Florida juice and Brazilian juice, the consumer is unaware of that difference. In a state of perfect competition, an equilibrium price will be set for the juice that matches the aggregate marginal cost. This is likely to decrease the production capacity of producers who are producing above this cost. The subsidy distorts this market to an extent, allowing more Florida producers to continue to remain in the business. Under natural market conditions, however, the amount of acreage under development in Florida would decrease as the result of Brazilian competition.

Another issue is the erosion of pricing power that the growers have experienced over the years. As the retail side of the industry has experienced consolidation, the buying power of retailers has increased significantly. This has the effect of transferring most of the risk of orange juice price fluctuation to the producer, whereas through much of the 20th century this risk was offloaded onto the consumer. The FDOC had worked to hedge against this risk through the use of price floors, and may still have a vital role in maintaining some semblance of bargaining power for the producers with the major retailers.