US threaten to ban Brazilian orange juice

Friday 13th January 2012 2 Comments

New Zealand importers of orange juice concentrate may get some relief from prices near 20-year highs squeezing margins after the US threatened a ban on product from Brazil, one of biggest suppliers to the kiwi market.

Orange juice futures spiked this week after the US Food and Drug Administration said it was investigating a complaint that Brazilian oranges and orange products contain a fungicide not approved for use in the United States. Futures and physical pricing have since eased.

“Right now we are seeing the physical pricing coming off a little bit in US dollar terms from the Brazilian supply,” said Damian Honiss, co-owner of Auckland-based juice trader RD2 International. “It’s not a lot but it is trending back down a little from the last quarter in 2011.”

New Zealand sources about 90 percent of its orange juice from South America, and Brazil in particular. Prices have been kept high by Brazilian government subsidies that encourage producers to stockpile juice. Those producers have drawn down about 245 million Brazilian reals of a 320 million real credit programme, according to Brazil’s Advanced Research Centre in Applied Economics. At the current exchange rate, that amounts to about NZ$351.4 million.

Currently about 100,000 tonnes of concentrate is being held back until July this year, the research centre says.

A global boom in commodity prices based largely on demand out of China has contributed to the high cost of OJ concentrate. Local importers have largely absorbed the increase because consumers are resistant to price hikes for what can be regarded as a discretionary purchase in a weak economy.

“The two main retailers won’t allow price rises” and that’s led to a squeeze on profit margins, Honiss said. “No-one’s making money out of this.”

Honiss says while the price New Zealand and Australian importers pay isn’t tied as strongly to US futures prices, the prospect of a ban on Brazilian exports to the US may force them to turn to other international markets, cushioning the impact of the stockpiling measures. America sources about three-quarters of its oranges for concentrate from Florida, importing the rest.

The US FDA restricts levels of the fungicide carbendazim, which is used to combat black spot, and received an anonymous tip-off last month to report the presence of the chemical on Brazilian product.

Australia and New Zealand combined import about 30,000 metric tonnes of OJ concentrate a year, and typically buy forward contracts for three- to six-month terms.

New Zealand’s biggest concentrate retailers are Frucor, which sells the Fresh Up and Just Juice brands, and Coca Cola, which sells Keri.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 13 January 2012 at 12:08 pm cheryl said:

Does this mean that potentially Kiwi's will be drinking the fungicide? Maybe we should be looking into this too.

On 23 January 2012 at 6:22 am Karen said:

It wasn't an anonymous tip-off; Coca-Cola "discovered" the contamination; so don't think for a sec that your prices will go down. Obviously, Coke is up to something.