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Production cost hikes put future orange juice supplies under threat

By Guy Montague-Jones , 31-May-2011

Rabobank has warned that orange juice prices are likely to remain high over the next decade as farmers in Brazil and the US battle higher production costs.

The early signs are that 2011 will produce a good harvest and the likelihood is that following the price highs of 2010 demand may weaken leading to a drop in prices.

“By 2010, the global availability of orange juice had fallen to its lowest level for a decade but availability for next year is forecast to improve due to higher supply and lower demand. As a result, the price might temporarily come back down,” wrote Rabobank analyst Francois Sonneville in a new report on the future of orange juice prices.

But the analyst does not expect a sustained decline in prices and warns that the long term trend is pointing in the opposite direction.

Prices could easily spike again as higher production costs have eaten into supply coming from Brazil and the US – two countries that together account for 80 per cent of global orange juice production.

Since 1999 production in Florida has almost halved. Sonneville puts this decline down to several factors including higher fertiliser prices and the cost of crop protection chemicals needed to combat diseases like canker and greening.

In Brazil as well production costs have risen significantly. Orange harvesting is a labour intensive business and substantial wage increases over the past five years in the Brazil have therefore weighed heavily on costs.

The net result is a global squeeze on orange juice supply that could tighten if investment is not forthcoming.

Sonneville warned: “The average age of trees in orchards has already risen to critical levels and without investments, we will see a severe, structural decline in orange supply in the coming years, regardless of weather conditions.”

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