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Brazil puts squeeze on citrus industry

As the mercury plunged the morning of Dec. 13, 1962, worry deepened among Florida citrus growers. And when citrus trees started splitting from the bitter cold, the industry was frozen in despair.

The devastating freeze _ temperatures hovered below freezing for as long as 15 hours _ awakened Florida's citrus industry to the need for an alternative source of fruit and juice to meet demand.

It came from the south.

Brazil seemed the obvious choice, with its warm, dry climate and arable land.

Now, 35 years later, Brazil has replaced Florida as the world's top citrus producer, increasing its production from 24-million 90-pound boxes of oranges in 1966 to this year's expected crop of 450-million boxes.

What's more, in the past few months, the top four processors in Brazil have purchased plants in Florida.

Those acquisitions now give Brazil, which a year ago accounted for about half the world's orange juice supply, nearly 65 percent of the global orange juice market. By comparison, Florida, which accounts for almost all of U.S. citrus production, has about 26 percent of the market.

What does all this mean for consumers? In the short term, the Brazilians' moves aren't expected to affect the price of orange juice, and their increased presence could bring stability to the market should there be a freeze here.

But long-term, some see the shift in power to Brazil as potentially troubling.

"Price likely will still be dictated by supply and demand (in the long term)," said Tom Spreen, a professor in the food and resource economics department at the University of Florida. But Brazilians' increased presence could cause problems "if the consolidation of the Florida industry continues and you have fewer and fewer players."

By establishing such a significant presence in processing here, driven in part by the opportunity to buy Florida plants at below-market prices, the Brazilians can better hedge their bets each year.

This year, the Brazilian companies have access to record Florida crops, which could come in handy. Droughts and diseases at home, coupled with a more lucrative market in coffee and sugar, have decreased citrus acreage in Brazil.

"This (the United States) is the largest orange juice market in the world," said Allen Morris, head of sales procurement and planning for Cutrale Citrus Juices USA, a Brazilian processor that bought the Minute Maid plants in Auburndale and Leesburg last year. "And if you're going to supply customers you have here, then you're going to need operations here."

Brazil's move into the U.S. juice market has been a relatively recent development. Only in the past two decades has Brazil supplied noteworthy amounts of orange juice to the United States.

In the 1960s and '70s, the burgeoning Brazilian industry built markets in Asia and Europe, where orange juice consumption has nearly tripled since 1983.

Then, when the '80s brought more crop-damaging freezes that crippled Florida's ability to fill domestic demand, Brazil began channeling juice into the United States and built a substantial customer base here. For most of the 1980s, Brazil supplied about 50 percent of North America's orange juice.

Since the '80s freezes, Florida growers have rebounded and are expected to harvest a record crop of their own this year at 254-million boxes.

But with growth of worldwide production of oranges outpacing demand, financial returns to growers and processors have shrunk.

To stay in business, both growers and producers must be cost-effective, a trait already practiced by the Brazilian processors now in Florida.

Two of the plants have been bought by multinational conglomerates: Louis Dreyfus Citrus SA near Orlando and Cargill Citro America Inc. in Frostproof. The other plants have been bought by Brazil-based companies: Citrosuco North America Inc. in Lake Wales and Cutrale Citrus Juices U.S.A. Inc. in Auburndale and Leesburg.

All four companies already are increasing capacity and storage space at their Florida plants. Since they are getting low prices for their products, they will produce as much as they can to reduce the effect of fixed costs, said Elizabeth Steger, founder of Citrus Consulting International in Orlando and a veteran of both countries' industries.

Brazil also has built distribution channels to key markets like North America, Europe and Asia. Unlike their Florida-based counterparts, Brazil's top four producers own steamships for transportation and have their own warehouse space in other countries.

This year, it will be tough for anyone in the citrus industry to make much money. But no matter what happens, the Brazilian processors apparently are in Florida to stay.

"The Brazilians can withstand the financial losses as long as they have the possibility to gain dominance or share of the industry," Steger said. "The Brazilian processors tend to look farther into the future. They saw tough economic conditions in Florida and plants for sale at below-market prices. They have the diversity to withstand losses for a period of time."

Florida processors have suffered along with the growers. Both are having trouble finding enough outlets for their products, and Florida's citrus industry has had a series of lackluster years.

"Something has to be done. It's really getting bad beyond comprehension," said Dudley Putnam II, a Polk County grower. "I hate to preach doom and gloom, but I don't see any light at the end of the tunnel. Maybe this foreign ownership will serve as a wake-up call to our industry and we can benefit from some of the markets they've been successful in, such as Europe."

Still, several factors will work to Florida's advantage in the near future as the battle for control of the global citrus market continues.

The production of trees planted in Florida following the freezes of the '80s should level out in the coming years. And Brazil's production should begin to decline because of disease and economic factors.

"Diseases and viruses are resulting in them losing 7 percent to 10 percent of their trees each year," said Morris, the Cutrale official. "The cost of labor has also gone up, and growers there are also facing lower prices. Many of them are switching their land use to sugar, coffee and other products.

"If Florida growers can just hold on for a couple of more years, things should get better as supply decreases and we continue to open other markets."