By Marcos Fava Neves
A recent Nielsen report reveals negative news for U.S. retail orange juice (OJ) sales. When comparing November 2018 with November 2017, the decline in OJ consumption was 7.4 percent. The value shrunk 3.4 percent, dropping from $223.94 million to $216.44 million. This represents a $7 million dollar loss. Not-from-concentrate juice came down 12 percent, and reconstituted juice fell 0.7 percent.
In Brazil, the December forecast by Fundecitrus showed production of 276.02 million boxes. This is almost 1 percent up from the last estimate and 4.26 percent less than the first estimate of the season, which was 288.29 million boxes. Good rains this season (23 percent higher than average) are bringing hope for good production. Around 80 percent of the crop is already harvested, compared to 75 percent at the same time last year.
Since the 2018–19 Brazilian harvest is at a late stage, current weather conditions will be reflected more in the 2019–20 crop, but conditions have been favorable for a good crop. Prices received in the last two to three years made possible some replanting of areas with more technology, but not too much.
Earlier this month, the U.S. Department of Agriculture predicted 77 million boxes of oranges for Florida, 71 percent higher than last season. The weather is also helping Florida’s production. As the state’s citrus industry starts processing, weather conditions will continue to be followed.
POLITICAL AND ECONOMIC CLIMATE
A new Brazilian president, Jair Bolsonaro, took office on Jan. 1. He was elected in October with approximately 56 percent of the votes. The change in leadership represented a strong switch from left wing to right wing.
President Bolsonaro finished choosing his team, and most of the population is comfortable with the new ministers and presidents of state-owned companies, some of them coming from the military, the same origin of Bolsonaro. In the economy, a very liberal team is in place so strong privatizations and reduction in the size of the state are expected. In the areas of environment, justice and others, people more linked to business were chosen.
The result is more confidence in the industry and the economy. There is hiring again, but still at a slow speed. The inflation rate was approximately 3.68 percent in 2018 and is expected to be 4 percent in 2019. Interest rates were about 6.5 percent in 2018 and are predicted to be 7.5 percent in 2019. Gross domestic product grew 1.3 percent in 2018 and is expected to increase 2.5 percent in 2019.
Regarding possible impacts to the orange juice business, stronger growth in the economy can help to increase the consumption of fruits and juices in the internal market, although this represents only about 10 percent of the size of the U.S. market. Another positive impact may be a more efficient government and business environment, reducing production costs related to inefficiencies.
Finally, we have to look at exchange rates, since most of the OJ production in Brazil is exported, and a more devalued real (Brazil’s monetary unit) makes the system more competitive. Currently, exchange rates are around 1.00 dollar = 3.80 reals. Analysts expect this rate to continue.
If reforms happen and investments come, a more valued real can be expected. Bolsonaro’s government will be much friendlier and aligned to the United States than Brazil’s last governments.
Marcos Fava Neves is a professor of business in Brazil at the University of São Paulo and the Fundação Getulio Vargas São Paulo School of Business Administration.