An Economic and Marketing Solution to Citrus Greening Allen Morris June, 2014 Nobody would disagree that the Florida citrus industry is in serious trouble as a result of endemic citrus greening. However, the citrus industry is also in serious trouble because it is losing the orange juice market. That s not only caused by high prices, it s also caused by declining orange juice demand not accounted for by higher prices. This declining demand is evidenced by declining penetration (fewer households buying orange juice) and increasing impacts of substitutes for orange juice, mainly juice blends, many of which are higher priced than orange juice. Between 2000/01and 2012/13 the Nielsen-measured U.S. orange juice market declined by 41%, orange production declined by 40% and retail orange juice prices increased by 42% (Exhibits 1 and 2). Sounds like a supply problem, huh. Well, it s not. An examination of history during the supply-reducing freezes of the 1980s will help explain why our market problem is not caused by inadequate supplies. Between 1979/80 and 1989/90, Florida s orange crop went from 207 million boxes to 110 million boxes, a 47% decline (Exhibit 3). Yet the Nielsen-measured orange juice market only declined from 808 million gallons to 702 million gallons, a decline of 13.1% during this time, even though retail orange juice prices increased by 62% (Exhibit 3). How did we suffer a 47% decline in orange production, experience a 62% increase in orange juice prices, yet only lose 13% of the market? Imported orange juice from Brazil as a result of strong demand. What were Florida growers getting for their oranges amidst all of those Brazilian imports? In 1989/90 the Florida Citrus Processors Association average price for early-mid and Valencia oranges was $1.55 per pound solids, which in today s dollars would be $2.77. Why has our orange juice market declined so much that it s now smaller than it has been in over 30 years? Because since 2001 we haven t effectively marketed orange juice. Effective marketing of any product requires telling consumers what s different about the product and why that difference has value. Telling them that orange juice helps them take on the day doesn t convey these messages. Coffee, tea, soft drinks and a number of other products can also help consumers take on their day. The consumer needs to be told what s different about orange juice, which is its health benefits. If we can t make that claim provably with our advertisements, then we should get a credible scientist to say orange juice is an important part of a healthy diet as part of the advertisement, which is an opinion and doesn t require verifiable evidence. Obviously HLB has caused a supply problem. But that s partly our fault as well. And there is a solution. Surveys conducted by a collaborative effort of the University of Florida Institute of Food and Agricultural Sciences (UF/IFAS), the Florida Department of Agriculture s Division of Plant Industry, the USDA s National Agricultural Statistics Service Florida field office (NASS) and U.S. Sugar Corporation estimated that the rate of greening infection in Florida orange groves
was 1.6% in 2007/08 (Exhibit 4). By 2010/11, that had increased to 21.9%. Since by 2011most growers were no longer scouting for infected trees, the survey was discontinued after that. During this same period, a survey conducted by FUNDECITRUS, a Brazilian research organization, estimated that greening infection in Brazil had increased from 0.6% in 2008 to 3.8% in 2011. As a result of these much lower HLB infection rates, and ability to move new plantings into greening-free regions, an option not available to Florida growers, citrus production in Brazil has not been affected by HLB like it has in Florida. In fact, average Brazilian orange production in the most recent three years is actually 10% greater than it was the three years before greening was discovered there (Exhibit 1). Why did greening get out of control in Florida? After the failed canker eradication program, many Florida growers felt that eradication of canker should never have been the goal, that managing and living with canker the way Brazilian growers had been doing for decades should have been the goal, and that the eradication program had destroyed tens of thousands of acres of citrus unnecessarily. This hurt the credibility of the scientists and state and federal agencies with growers and as a result, many didn t take the threat of greening seriously. Consequently, a number of growers either did not follow recommended practices to control greening at all, or although they sprayed to reduce psyllid populations, did not remove infected trees that were still economically viable, which exacerbated the spread of the disease. The unpopularity of the canker eradication program was one reason no attempt was put into place to legally require citrus growers to manage HLB. By the time growers realized how serious greening was and began to aggressively follow recommended HLB management practices, it was too widespread to effectively control. By then, in many cases, Florida growers choices were between an enhanced foliar nutrient program or an unprofitable grove. We have the technology now to live with HLB, the same as China has been doing. In Ganzhou, the world s largest naval orange production region, larger than California, Spain and South Africa combined, they tried enhanced foliar nutrient programs also. But ultimately all of their citrus trees were wiped out. So they replanted using disease-free budwood, with higher tree densities, 250 or more trees per acre; they regularly identify and remove symptomatic trees as soon as they are found; reset lost trees; and spray aggressively to control psyllids, coordinating their psyllid spray schedules so all are spraying on the same days. The result is an average HLB infection rate in Ganzhou of only 0.2%. In order for the Florida citrus industry to live with endemic HLB, infected groves need to be replanted at much higher tree densities, 198 to 350 trees per acre, which will provide more trees to offset higher tree mortality from HLB. Some smaller groves producing fruit for the fresh market are already being planted at densities as high as 570 trees per acre. An advanced production system (APS) is being used where the higher planting density is combined with nutrients and water, precisely managed through a combined drip/micro-jet (to facilitate freeze protection) irrigation system. To reduce the impact of crowding as the trees mature, dwarfing
rootstocks are used in APS groves. The smaller trees receive sunlight in their interior more uniformly than traditional trees, which improves fruit yields. Fruit harvesting costs are also reduced because the trees do not grow tall enough to require ladders. Replanting groves to higher tree densities, controlling psyllid populations, and regularly identifying and removing trees symptomatic for HLB is how the Florida citrus industry can survive and live with endemic greening. So what s the obstacle? THE DYING ORANGE JUICE MARKET! What if a national brand provided 15 year fruit contracts with a floor price equal to that $2.77 per pound solids that fruit prices were in 1989/90 after the supply damaging freezes? Then adjusted it annually for inflation, and gave all of the rise to each season s market price in a high-priced market with strong demand? I bet that would get a strong supply response, and ultimately lead to an industry successfully living with endemic HLB the way China is doing. Why would a brand do that? In order to secure a stable base of Florida fruit for a growing high-priced orange juice market that is if we still had one. The Marketing Solution to HLB Under the strain of a continuously declining citrus crop and falling tax revenues with no relief in sight, on March 19, 2014, the Florida Citrus Commission voted unanimously to terminate its contract with BBDO Atlanta, its advertising firm. This firm has been primarily responsible for creating and implementing a national TV orange juice campaign since 2010. The continuing decline in Florida's orange crop under the effects of citrus greening has reduced tax revenues received by the Florida Department of Citrus too much to support an effective TV marketing campaign. How can the Florida Department of Citrus (FDOC) get the funds to support an effective national TV advertising program for orange juice? By issuing the Healthy Taste Challenge. The Healthy Taste Challenge will be a national contest where two winners are chosen every 3 months for a year. The winners are the people or families that have spent the most and the second most money on OJ during that three month time period. First prize will be a new car. Second prize will be an all-expense paid 7-day trip for four to Florida to visit one of the theme parks near Orlando. One of the auto manufacturers and one of the theme parks will be chosen to partner with the FDOC on this contest, and provide the car and the all-expense paid trip for to Florida for four, respectively. They will also promote that they are one of the sponsors of the Healthy Taste Challenge, their incentive being that Florida citrus, which is healthy, wholesome and produced by Florida growers, is a good image for them.
The unique nature of this contest, boosted by the promotional results of the auto manufacturer and theme park chosen, will gain national media attention. Some of the headlines might be The Florida Department of Citrus, Ford Motor Company and Disney World have teamed up to award big prizes to families that buy the most orange juice. ; Want to win a new car or spend a week in Florida? Enter the Healthy Taste Challenge and buy lots of orange juice. Following these types of headlines, the article will point out the health benefits of orange juice, and the fact that this contest can help save an industry threatened by greening. The TV talk shows will likely pick up on this and officials from the FDOC, the auto manufacturer and theme park can be interviewed on the TV talk shows and give the same message as the newspaper articles. This will give lots of free opportunities to correct the growing negative image of OJ and to re-educate the public about its health benefits. It will also get on the internet, face book, twitter, etc. and go viral. It could become a national mania with hundreds of thousands of families taking the healthy taste challenge. And the FDOC won t have to spend a penny on TV advertising to get tens of $millions worth. How will the winners be chosen from tens of thousands of contestants without spending a fortune on accounting? Each applicant will complete an application form. It will require name, contact information and the total amount spent on OJ purchases. Receipts from all OJ purchases must be included. The total on the forms must agree with the receipts. If the total on the form doesn t agree with the total from the receipts, the applicant will be disqualified. No applicant would spend a significant amount on OJ to win the contest and run the risk of being disqualified. The winners can be quickly determined by finding the forms with the highest and second highest spent on OJ. Then the receipts confirmed for the first and second place winners. We are currently losing our industry from both the supply and demand sides, and have no more money to market orange juice. But this article points out a way to change all of that. There s nothing to lose by giving this a try, and a lot to gain if it works.
Exhibit 1. Orange Production, Acres and Trees in Florida and Orange Production in Sao Paulo, Brazil Florida Brazil Season Million Boxes Acres (a) Million Trees (a) Million Boxes 2000/01 223 355 2001/02 230 648,806 85.8 280 2002/03 203 365 2003/04 242 622,821 83.0 290 2004/05 (b) 150 380 2005/06 (b) 148 529,241 70.8 320 2006/07 (b) 129 350 2007/08 170 496,518 65.8 360 2008/09 163 315 2009/10 134 483,418 63.8 320 2010/11 141 275 2011/12 147 473,086 62.5 420 2012/13 134 390 2013/14 E 114 459,311 61.2 290 2014/15 E NA 320 (a) Data only published every other year (b) Effects of hurricanes, the canker eradication program and the start of HLB Notes: Florida s harvest season is November June and Brazil s is May - January Sources: USDA, National Agricultural Statistics Service USDA, Foreign Agricultural Service
Exhibit 2. U.S. Retail Orange Juice Market Mil. SSE Gal. $ Per Gal. 2000/01 889 4.37 2001/02 861 4.39 2002/03 836 4.40 2003/04 807 4.35 2004/05 795 4.42 2005/06 745 4.69 2006/07 650 5.71 2007/08 624 5.91 2008/09 629 5.61 2009/10 609 5.53 2010/11 575 5.92 2011/12 531 6.25 2012/13 525 6.23 Note: SSE is single strength equivalent Source: A.C. Nielsen
Exhibit 3. U.S. Retail Orange Juice Market, Florida Orange Supply, and Orange Juice Imports Retail Orange Juice Market Florida Orange Supply U.S. Orange Juice Imports Mil. SSE Gal. $ Per Gal. Mil. Boxes $ Per Lb. Sol. Mil. SSE Gal. 1979/80 808 2.60 206.7 0.85 103 1980/81 808 2.98 172.4 1.06 208 1981/82 804 3.11 125.8 1.22 374 1982/83 863 3.05 139.6 1.14 377 1983/84 856 3.50 116.7 1.24 550 1984/85 817 3.80 103.9 1.69 598 1985/86 884 3.25 119.2 0.98 546 1986/87 858 3.34 119.7 1.09 546 1987/88 797 3.97 138.0 1.43 416 1988/89 755 3.72 146.6 1.54 383 1989/90 702 4.20 110.2 1.55 492 Note: SSE is single strength equivalent Sources: (1) A.C. Nielsen (2) USDA, National Agricultural Statistics Service (3) Florida Citrus Processors Association (4) U.S. Dept. of Commerce
Exhibit 4.