Orange Juice Shortages and Staggering Prices

Josh McGillEconomics, Orange Juice

By Marisa L. Zansler

The orange juice (OJ) category has experienced turbulence over the past four years, characterized by volatility in prices, sales and distribution. Initially, the category declined in volume sales amid a saturated beverage market, with numerous options vying for consumers’ attention.

prices

However, the pandemic in early 2020 revitalized consumer interest, positioning OJ as a convenient and healthy breakfast staple. The surge in demand helped stabilize the surplus inventories accumulated during the previous year, leading to robust sales volumes compared to 2019. Nevertheless, changes in the global economy influenced demand for OJ. In addition, supply-side challenges mounted, and Florida producers were caught in the middle.

Distinguishing between OJ consumption and the demand for OJ has never been more critical for the Florida citrus industry. The correlation between decreasing consumption and reduced overall world availability stemming from both citrus greening and adverse weather events can be conflated among stakeholders striving to safeguard the industry.

UNPRECEDENTED INFLATION          

Over the past two years, considerable attention has been devoted to price inflation, which exhibited a steady upward trend throughout 2021 and 2022. Inflation reached 9% in June 2022, followed by a gradual moderation. The food category experienced even higher inflation rates, reaching 11.4% in September 2022, according to the Consumer Price Index. The OJ category also experienced rising prices, peaking at 14% in January 2023, according to a Florida Department of Citrus (FDOC) Nielsen report. OJ prices eased slightly to a still substantial 12.5% by May 2023. These figures show little sign of easing in the summer months.

Many economists attribute the rise in inflation to disruptions in global supply chains caused by the pandemic and the war in Ukraine. As prices surged, speculation arose about whether consumer spending would stabilize, since wage growth seemed unable to keep pace with prices. However, prices remained stubbornly high by the summer of 2023.

For the OJ category, supply shortages played a pivotal role in the price rigidity. In May 2023, the average price per equivalent gallon of OJ reached $8.89, marking an 11.8% increase compared to $7.95 in May 2022. Meanwhile, overall inflation had moderated to 5%. Furthermore, prices were a staggering 26.5% higher compared to the price of $7.02 per equivalent gallon in May 2019. Even more astounding was the fact that the promotional sales price of OJ in 2023 was 1.5% higher than the non-promotional sales price from the previous year.

prices

SUPPLY AND CONSUMPTION

Sustaining demand for Florida citrus products relies on maintaining adequate production and availability, as a decrease in either factor has a negative impact on overall consumption. In the OJ category, supply shortages exerted greater pressure on prices compared to other categories, particularly after the 2022 Florida hurricane and freeze events which decimated Florida’s production in the 2022–23 season by 60%.

Despite the increase in Brazil’s production last season, global availability of OJ was projected to decrease by up to 13% when initial inventories were included in total availability. This decline stymied retail distribution, which is the primary channel for Florida’s production to reach consumers. Total U.S. consumption experienced a nearly equivalent rate of decline, falling short of 700 million gallons despite increased imports.

THE GROWER DILEMMA

Florida citrus growers are in a precarious situation as they evaluate higher prices at retail. While it may seem advantageous, high prices lead to a decline in consumer demand and overall revenue. Furthermore, for the Florida grower, inflation means higher production costs at a time of reduced yields. Despite higher prices, record high production costs continue to strain grower profitability, leading to a net reduction in revenues. Consequently, producers must balance gains from increased prices with high production costs and diminished yields.

Undoubtedly, the industry confronts an array of challenges that demand attention and action in the foreseeable future. Nevertheless, the OJ category holds significant value. OJ is still the leading breakfast juice and is a staple in U.S. households. The leading drivers of OJ demand are taste, being a rich source of nutrients like vitamin C, and families considering it to be part of a balanced diet. Solving these challenges will be crucial in maintaining and growing the OJ category in both the shopping baskets and the minds of consumers. 

Marisa L. Zansler is the director of the Economic and Market Research Department at the FDOC in Bartow.

Share this Post

Sponsored Content