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TARIFF
REDUCTION ON IMPORTED CITRUS WOULD CRIPPLE When
you look at the current world market for orange juice there are only
two main
players: Florida and Brazil. Production of orange juice between the
two players’ make up roughly 90% of the world market. The
Florida citrus industry has an economic impact to the state of $9.1
billion (1),
employs 90,000 people, and is considered to be the state’s second
largest industry after tourism. Practically
speaking, the current citrus tariff helps level the playing field
for the two orange juice competitors. Eliminating or reducing the
tariff, which is currently only $0.0785 per liter(2),
1) would have adverse consequences for Florida’s citrus producers;
and, 2) would have little or no benefit for US consumers. First,
it would severely cripple Florida’s second-largest industry as grower
revenues and income each year would decline by the equivalent of
nearly $500(3) per
acre. With this kind of revenue impact, a majority of Florida growers
would be forced out of business. Second, it would increase the market
power of Brazilian processors and extend their cartel-like control
over both the world orange juice market and the market for processed
oranges. US consumers would be at the mercy of Brazilian processors,
and may not realize any savings from tariff reduction. The North American orange juice market is the leading orange juice market in the world. The development and growth of this market was, to a large extent, financed by Florida citrus growers, who have invested hundreds of millions through a self-imposed marketing and advertising tax. Any reduction in the current tariff would provide Brazil freer access to a market developed by Florida growers for Florida growers. Approximately 95 percent of the North American orange juice market is from Florida and Brazil. The remaining 5 percent is either duty-free under the Caribbean Basin Initiative (CBI) or duty-reduced under NAFTA. Production Differences As depicted in Table 1 below, Florida far out produces Brazil in terms of yield/acre. However, Brazil continues to enjoy production cost advantages, which are determined largely by differences in: environmental regulations, worker protection standards, food safety regulations, and governmental macroeconomic policies that impact exchange rates and relative labor costs. The major difference is seen in labor costs, caused by the aforementioned factors. Moreover, recent currency devaluations in the Brazilian Real have exacerbated Florida’s cost disadvantage. According to a recent study(4), the 1999 Real devaluation resulted in a 31% decrease in Brazilian harvesting cost, placing the Florida citrus grower at an even greater cost disadvantage. Advantages for Brazil These cost advantages, combined with a cartel-like market structure, enable Brazilian producers to adjust prices in a predatory manner. Last year, Brazilian exporters lowered prices of bulk frozen concentrate orange juice (FCOJ) to their primary markets to less than $700 per metric ton. Such prices can be sustained by Brazilian exporters for extended periods, even when they are below Brazil’s average costs of production. Without the benefit of offsetting tariffs, Florida growers would have virtually no income during these periods. Brazilian Dumping Over the past two decades, Brazilian processors have dumped orange juice (sold below cost) in the US market. An antidumping order remains in effect at this time, with dumping duties ranging from 2 percent to 27 percent on some imports of Brazilian orange juice. Any reductions in the U.S. tariff would further exacerbate the inequalities that have been endemic in this market for the past 20 years. Tariff
Must Not Be Altered References: (1) ECONOMIC IMPACT OF FLORIDA’S CITRUS INDUSTRY, 1999-2000 by Alan Hodges, Effie Philippakos, David Mulkey, Tom Spreen and Ron Muraro University of Florida, Food and Resource Economics Department, Gainesville, Florida (2) U.S. Department of Commerce (3) “The Free Trade Area of the Americas and the Market for Processed Orange Products” (draft), Tom Spreen, University of Florida, report prepared for the Food and Agricultural Organization of the United Nations, February 2001 (4) “The Impact of the 1999 Brazilian Devaluation on the Delivered-In Costs of Oranges Produced in Sao Paulo, Brazil”, Ron Muraro, Tom Spreen, and Fritz Roka, University of Florida, January 2000
Source: Florida Citrus Mutual |