July ended with good news for the Brazilian citrus sector. The government from the United States decided to exclude the national orange juice from the tariff hike, bringing a relief for the sector. The US market is dependent on the OJ from Brazil, which is responsible for circa 60 % of the total volume consumed in the United States.

The steep decrease in the US juice output over the last years, especially in Florida, reinforced the vulnerability of the US production chain. In this context, the 50 % tariff could lead to product scarcity, inflationary shocks and logistics disruptions, which led to the exclusion of the OJ from the list of products affected by the new tariff.

For Brazil, the exclusion represents the preservation of the competitiveness in its most important market and avoids income loss.

In general, this scenario may lead players to close new contracts involving 2025/26 oranges again, bringing liquidity to the market.

On July 17th, US President Donald Trump announced that he had secured from Coca-Cola an agreement to replace high fructose corn syrup with cane sugar as the sweetening agent in Coca-Cola. This can be understood as part of the Trump administration’s ‘Make America Healthy Again’ initiative, which is partly characterised by increased scrutiny on the highly processed elements of Americans’ diet. However, simultaneous threats of increased tariffs on Mexican and Brazilian imports endanger the commercial desirability of Coca-Cola’s proposed reformulation, says GlobalData, a leading data and analytics company.

GlobalData’s recent report “Industry Insights: The impact of tariffs on consumer packaged goods” reveals which CPG-relevant sectors are most affected by tariffs within specific trade relationships and how companies in these sectors will be affected. It also provides insights into consumer reactions to changes in the market caused by the imposition of tariffs.

Rory Gopsill, Senior Consumer Analyst at GlobalData, comments: “The recent headlines indicate that the US’ reliance on sugar imports could become very damaging for US beverage manufacturers like Coca-Cola. This is because, over the last two weeks, the US threatened 50 % tariffs on Brazil and 30 % tariffs on Mexico. According to the Observatory of Economic Complexity, Mexico supplied 33 % of the US’ sugar imports and Brazil provided 23 %.”

From a tariff-focused perspective, corn syrup is more desirable than sugar for US beverage manufacturers. This is because the US can supply corn syrup demand with domestic production but relies on imports to meet sugar demands. According to GlobalData’s Crop Area Production and Yield database, the US devoted 36.5 million hectares of land to corn cultivation, more than any other country except China. This strong domestic supply means the US is a major exporter of corn and does not need to rely on imported corn to meet the needs of domestic manufacturers.

Conversely, the US imported $2.4 billion worth of raw sugar in 2023, while exporting only $230 million, according to the Observatory of Economic Complexity. While the US is the second largest cultivator of corn globally, it is the 10th largest cultivator of sugar cane, resulting in comparatively weaker domestic production capabilities that results in the country’s reliance on imports.

Coca-Cola caught between ‘Make America Great Again’ and ‘Make America Healthy Again’

The policy conflict places Coca-Cola in a precarious position. Shifting away from corn syrup – abundant and cheap thanks to US subsidies – and toward cane sugar would already involve reformulation costs, new supplier negotiations, and possible consumer backlash. Add to that an additional cost surge from trade barriers, and the proposition could begin to undercut itself.

Gopsill concludes: “Solutions for Coca-Cola could involve increasing the proportion of their beverage that is produced in Mexico, where sugar cane is the normal sweetener. This could limit the reformulation and supply chain adaption costs. Avoiding new tariffs on Mexican imports being added as a cost to their business seems an unlikely prospect if the US makes good on its 30 % threat. If USMCA-compliant goods remain tariff-exempt, Coca-Cola should maximise the volume of sugar/finished beverage products it imports into the US from Mexico that are USMCA-compliant.”

The Brazilian exports of orange juice increased in the first months of the 2022/23 season (July and August 2022). According to data from Secex, Brazil exported 175.9 thousand tons of Frozen Concentrate Orange Juice (FCOJ) Equivalent in July/August, 8 % more than that in the same period last year. Revenue totaled USD 332.6 million, 32 % up in the same comparison.

The exports of non-concentrate juice (NCJ) have had the highest increase this season, totaling almost 292.7 thousand tons, with a revenue of USD 108.3 million, 14 % and 24 % up from that in July/August last year. On the other hand, the revenue from FCOJ exports rose higher than that for NCJ, by 36 %, totaling USD 224.3 million in the first two months of the current crop; the volume shipped increased by 6 %, totaling 122.7 thousand tons.

These increases were already expected for this season, considering that, in 2021/22, the Brazilian exports were limited by estimates for low stocks of orange juice.

In August, CitrusBR reported that, in June/22, only 143 thousand tons of FCOJ were stocked, a steep 55 % down from that in June/21. CitrusBR considered a possible increase in the exports to the USA because of the low orange production in Florida, due to the high incidence of greening.

DESTINATIONS – The European Union continues as the number one destination for the Brazilian orange juice, with a share of 62 % in the total exported – in the same period last season, its share was at 64 %. The second major destination for the national juice is the United States, with a share of 21 % in the total, against 25 % in 2021. The share of other destinations increased from 12 % last season to 17 % this season (considering the months of July and August).

The ending stocks of orange juice ended the 2021/22 season at low levels (on June 30th, 2022), according to data released this week by CitrusBR. And even if orange production increases in the 2022/23 season, the volume of juice stocked by the end of the crop is not expected to be high.

According to CitrusBR, the ending stocks of Frozen Concentrate Orange Juice (FCOJ) Equivalent totaled 143.1 thousand tons at the end of the 2021/22 season, almost 55 % lower than that in the previous crop and below the strategic level (250 thousand tons).

CitrusBR estimates juice stocks to total 140 thousand tons by the end of the 2022/23 crop, in June 2023. Despite the increase in the number of oranges allocated to the production of juice, industrial yield is expected to be lower than that last season – it is important to consider that, in the 2021/22 crop, rainfall was not that frequent, which favoured yield.

According to CitrusBR, the Brazilian exports of orange juice to the United States may increase, due to the low orange production in Florida, which is keeping low the American stocks of juice.

This scenario confirms the high industrial demand for oranges in the current season (2022/23). However, next season, the demand from juice processors is expected to continue high – to replenish stocks, at least partially. Thus, juice prices are on the rise abroad.

Cepea estimates that, for the volume stocked by the end of the 2023/24 season (in June 2024) to return to the strategic level of 250 thousand tons, orange processing during that season needs to be around 300 million boxes of 40.8 kilograms, which accounts for an output of 340 million boxes in São Paulo State + the Triângulo Mineiro. This calculation considers stable juice sales, of a million tons, and the average yield of the five previous crops.

However, since the beginning of Fundecitrus surveys, in 2015/16, orange production has surpassed 340 million boxes in only two seasons: 2017/18 and 2019/20. Since then, the area with orange groves has shrunk. On the other hand, groves were renewed in that period, which tends to favour productivity and production.

As observed for other agricultural products, the production costs of citrus farming have increased sharply in Brazil, due to higher inputs prices, majorly fertilisers. This scenario is concerning farmers in Brazil, considering that citrus production was low in the two previous seasons, which resulted in higher costs per unit.

Even if productivity and production increase in the 2022/23 season – compared to that in 2020/21 and 2021/22, because of the slightly more favourable weather –, higher inputs prices are expected to limit a possible reduction in the production cost per unit. Thus, profit margins may be lower than the expected, despite orange valuations in 2022/23 – so far, the ceiling orange price is at BRL 32.00 per 40.8-kilo box, harvested and delivered to processing plant (considering only large-sized processors).

Tight profitability may continue to constrain investments in both crops’ renewal and replating, mainly because shorter-cycle crops, such as soybean crops, are currently more attractive and bring better opportunities to farmers.

Last year, after five consecutive years of stability, the area allocated to citrus farming shrank in São Paulo and the Triângulo Mineiro (citrus belt), according to data from Fundecitrus, which may happen again in 2022.

Lower profit margins may also hamper adequate crop management in the citrus belt. Lower investments in crops’ renewal and replanting added to difficulties related to crop management may reduce orange production even more in the mid-term. Low supply may underpin prices, since the stocks of orange juice at the processing plants in SP are not high, and production needs to be higher for inventories to be replenished.

Citrus market

The domestic demand for oranges has not been high enough to raise prices. According to Cepea collaborators, many purchasers are trying to pay lower prices, putting farmers off selling oranges in the domestic market.

Brazilian citrus farmers claim that, if prices drop lower than the current levels, sales in the in natura market will become unviable. Currently, juice processors are bidding prices up to BRL 32/box (harvested and delivered). Although the values paid by processors include the harvesting and freight, the quality standard required by this segment and the risks of default are lower, making sales to the industry more attractive.

In this scenario, if the demand from processors continues high and prices, attractive, sales to the in natura market are expected to decrease, at least during the Winter and the beginning of Spring, when supply increases, while demand decreases. Also, most oranges have not reached the ideal maturation stage yet, allowing farmers to wait and sell the oranges when the processing activities in the 2022/23 season begin, forecast to late May/early June.

The Brazilian exports of Frozen Concentrate Orange Juice (FCOJ) equivalent are currently 17 % lower than that in the previous season, according to Secex. Between July 2020 and February 2021 (2020/21 season), shipments totaled 670.7 thousand tons. Revenue from these exports totaled 985.19 million USD, 27 % down from that in the same period last season.

Among the major purchasers of the Brazilian juice, the European Union was the one that most reduced purchases. From July/20 to Feb/21, shipments to the EU totaled 419.7 thousand tons, 22 % down from that in the previous season. Revenue totaled 626.44 million USD, 32 % down in the same comparison.

Exports to the United States have been more stable, totaling 135.83 thousand tons, very similar to that from the previous season. Revenue totaled 201.62 million USD, 8 % down in the period.

Higher production estimates for the Brazilian citrus belt (São Paulo and the Triângulo Mineiro) in the 2019/20 season were confirmed by Fundecitrus (Citrus Defense Fund) in a report released on Dec. 10. Although estimates were 0.8 % lower than that reported in September, data indicate that the current crop should be 34.7 % larger than the previous, totaling 385.31 million 40.8-kilo boxes of oranges.

According to Fundecitrus, new estimates were based on the lower rains in the citrus belt in 2019 (from May to November). With lower rains and high production, the size of the oranges produced in the citrus belt is shrinking – from 260 fruits per box, estimated by Fundecitrus in May, to 262 in December, 0.77 % down. As regards the drop rate, new estimates increased from 17.60 % to 17.63 %, on average, considering all citrus varieties. If the drop rate remains at this level until the end of the crop, it will be the highest in all times, based on data from Fundecitrus.

Still according to the report, the harvesting of pera rio oranges has already reached 85 %, against 50 % for valencia and folha murcha varieties. Natal orange harvesting, in turn, has totaled 45 % so far. As regards the total volume harvested, 74 % of the 2019/20 crop has been harvested, against 78 % in the same period last season.

This scenario indicates that, although estimates point to a smaller amount of late oranges this year – due to fruitlet losses in December/18 and lower flower settlement in mid-January/19 –, low supply, which is usual at the beginning of the year, may be postponed. The end of pear orange supply has been reported by Brazilian citrus farmers, but there still are some amounts of late oranges (mainly natal) available to be harvested in December and January.

Thus, based on the higher volume forecast for the current crop, agents from processors believe orange crushing will not be interrupted between a crop and the other – although the crushing pace may be slower than that in 2019/20. It is worth to mention that the crushing pace has been fast at processors since the beginning of activities this year, reaching 100 % of the capacity in almost all plants.

MARKET IN BRAZIL – Despite the nearness of the holiday season, when the demand for citrus fruits usually decreases, farmers reported firm demand in the first fortnight of December. According to agents, this scenario may be linked to the beginning of the month, when workers’ wages are paid.

As regards tahiti lime, quotes have been dropping, due to growing supply. According to Cepea collaborators, the supply of small-sized fruits is still high in the market of São Paulo State.