Policy,Research,and ExternalAffairs -WORKING
PAPERS Trade Policy
]
Country Economics Department The World Bank May 1991 WPS 687
Brazilian FrozenConcentrated OrangeJuice The Follyof UnfairTradeCases
CarlosAlberto Primo Braga and Simao Davi Silber
The maineffectofantidumpingactionsbroughtagainstBrazilian producers of frozen concentrated orange juice has been to relationshipbetweenBrastrengthenthe oligopoly-oligopsony zilianproducersandtheirU.S.partners.Thislimitstheprospects for competition in the world market for frozen con,entrated orange juice. The Policy. Rsearch, and External Affairs Complex distributes PRE Working Papers todisseminate the findings of work in progress and to enwurage the exchange of ideas among Bank staff and all others interested in development issues. Thesc papers carry the names of the authors, reflect only their views, and should be used and cited accordingly. The findings, interpretations, and conclusions are the authors' own. They should not be attributed to the World Bank, its Board of Directors, its managerment,or any of its member countries.
Policy,Research,and ExternalAffairs
TradePolicy=
WPS687
This paper - a productof the TradePolicyDivision,CountryEconomicsDepartment- is part of a largereffort in PREto understandthe economicsof the emergenceof "fairness"as a standardfor regulatinginternationaltrade,its implicationsfor the continuedopennessof the internationaltradingsystem, and its continuedfunctioningas an importantvehiclefordevelopment.Copiesare availabefreefrom the WorldBank, 1818H StreetNW,Washington, DC 20433. PleasecontactNellie T. Artis,roomN1O-013,extension37947(46 pages). From 1965to 1976,the UnitedStateswas a net exporterof frozenconcentratedorangejuice; since the 1977freezein Florida,it has beena net importer. In 1978,the price differentialbetweenthe Floridaand Brazilianconcentratescxceededthe tariffwedgeand the Brazilianprn . ict began to displaceU.S. production and, indirectly,Florida-grownoranges. Brazildominatesthe internationalmarketfor frozenconcentratedorangejuice. By the mid-1980s, Brazilaccountedfor about 80 percentof world exportsof the product. Brazilianproducerssupplied more than 94 percentof U.S. importsof the product in the 1980sand accountedfor 50 percentof sales in the U.S. market. Brazilis also the mainsupplierin the EuropeanCommunity. The Brazilianfrozenconcentratedorangejuice industryhas beenable to expandrapidlydespite heavyprotectionin its major markets- especially the UnitedStates - and erraticchangesin Brazilian policicsat all levels. The dynamismof the Brazilian industryis attributableto Brazil's comparative advantageand to the seriesof climateshocksto Florida's orangegroves. In Brazil, the industryis largely in the hands of four large firms - who sell 80 percentof their productsto a few largeU.S. firms (CocaCola, Procter & Gamble,Tropicana,Pasco,and Beatrice),at significantpricerebates. Floridaorangegrowers,beset by importcompetition and climateshocks,tumed to unfairtrade laws for protectionin the early 1980s,relyingon them increasinglyas a substitutefor safeguardactions. Becauseof Brazil's interventionisttradepolicies,the prevailingU.S. belief was that any Brazilianindustry
was guiltyof unfair tradepracticesuntilproven innocent. When U.S. firms accusedBrazilianproducersof unfair trade,the Brazilianproducerswere in a bind: the imbalancebetweentheirproductioncostsand sale prices was the result mainlyof an exceptionallack of coordinationamongBrazilianfrms strugglingto securestable input supplies. But it was seized upon by foreignproducersas unfair trade. In 1986,the Brazilianindustrywasaccusedof dumpingby both the UnitedStatesand Australia. And unfairtrade proceduresin the UnitedStates,once initiated,havea high probabilityof resultingin an affirnative decision. Unfairtrade casesagainst Brazilianfirms have had littledirect impacton outputor price levels. But apparentlythey promoteoligopolisticcoordination amongBrazilianfirms. To the extent that these unfair tradecases fosterthe marketpowerof Brazilian frozenconcentrateproducers,they increasethe likelihoodof increasedlong-termwelfarecosts to consumersworldwide. Unfairtradeactions havehad a particularly negativeimpacton their supposedbeneficiary,the U.S. citrus industry. The anddumpingcases were basicallyused to protectorangegrowersand highercost frozenconcentrateproducersat the expenseof U.S.juice and soft drinkprocessorsand distributors linkedby marketingarrangementsto Brazilian concentrateexporters. Theireffect has probablybeen relationship to strengthenthe oligopoly-oligopsony betweenBrazilianproducersand theirU.S. partners, furtherhinderingthe prospectsfor competitionin the world marketfor frozenconcentratedorangejuice.
The PRE WorkingPaper Scriesdisseminatesthe findingsof work underway in the Bank'sPolicy,Research,and Extemal AffairsComplex. An objectiveof theseries is to get these findingsoutquickly, even ifpresentations are less than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.
Producedby the PREDisseminationCenter
Tabl- of Cont-nts
..........
o ..* a.... Growth of the Brazilian citrus industry ....
2
....
Brazilian economic policies and the citrus industry . . . . . . . . . .
6
. . . . . . . . . . . . . . .. ..
6 8
.
12
environment a... . . . . .
and the macroiconomic Trade policies . ... . . .. 0. policies Sectoral
. ...
Market structure,industrial organization,and competitiveness .
.
.
. .. . . . . . . . . ... . . . .... The domestic market ... . .. arket........................ ........ The internationalmarket .n.al . *a9* . ...... o ....... 0 0 Industrial organization ........... Internatlonalcompetitiveness . . . . o a . a . a . . . . . . . . .
Unfair trade cases
. . ..
. .
..
.. ..
.
..
..
. ..
.
. . . .
.
o... . . .. . . Protectionismand the U.S. citrus industry . . . . . . The U.S. countervailingduty investigation. . . . . . . . *. . . . a . . . . .- . . . . . . . . . . .. . . AntidumPing cases ................ .................... * case The U.S. antidumping ................. caae The Australiansntidumping *..**..... Effects of unfair trade actions . .......... . *. . . . * *. . . . . . . . . . . on policy . . . Effects ..................... Effects on the industry Co.xclusion............
. ............................
9 9 References Tables. . . .
. . .
Nlotes
......
12 13 15 16 17 17 19
20 22 24 25 25 26 2;
* *
31
. .
.
33
.. .. .. ..........
.
43
. .. .9
. . . . . . .
. . . . . . . . . . . .
. . . . .
,
9
Brazilian Frozen ConcentratedOrange Juice: A Study on the Folly of UnfaLr Trade Case, Carlos Alberto Primo Braga Simao Davi Silber Brazil has been the world's leading exporter of frozen concentrated orange juice since the late 19609. The origins of the Brazilian industry go back to 1963, when the first modern plant for processing frozen concentrate was built in the state of Sao Paulo. Since then, the industry has grown dramaticallyas the internationalmarket for frozen concentrate has expanded. Between 1963-67 and 1983-87,Brazilian exports grew at an average yearly rate of 33.9 percent. Only four decades ago, orange juice was a seasonal product and a luxury good. Advances in processingand packaging technologiestransformed orange juice as a commodity and revolutionizedthe economy of the citrus sector across the world. As the taste and quality of processed juice products improved, they were rapidly substituted for ^resh citrus products in industrialcountries. In the United States, for example, processed citrus products accounted for 63 percent of per capita citrus consumptionby 1960, up from 17 percent in 1940 (FAO 1989a, 1-2). The Brazilian frozen concentratedorange juice industry emerged in response to this growing internationaldemand for orange juice. The Biazilia. industry,which produces a highly concentratedform of frozen juice (usually, 65 degrees Brix')primarily for manufacturing,grew rapidly throughoutthe 1960s and 1970s, playing a complementaryrole to the Florida processing industry. Its expansionwas geared largely to the needs of the European market. In the 1980s, however, several events significantlyaltered the internationalstature and market orientationof the Brazilian industry. First, several severe freezes in Florida damaged much of the citrus crop, allowing the Brazilian industry to overtake the Florida producers.Brazil not only expanded its market share in the United States and in other major importing
- 1-
regions, but it also became the largest world producer of frozen concentrated orange juice. Second, developmentsin transport (bulk shipping) and storage techniques (tank farms) began to affect traditional distributionnetworks and to reduce the market power of Florida processors in the U.S. market (McClain 1989). In response, Florida orange growers and segments of the U.S. frozen concentrate industry increasinglydemanded protection against foreign competition.A series of unfair trade actions were initiated against Brazilian producers during the 1980. as a safeguard device for local producers. While these actions had only a marginal impact on the output and price levels of Brazilian producers, they created incentivesfor oligopolisticcoordination among Brazilian firms. To the extent that these unfair trade cases fostered rather than inhibited the market power of Brazilian producers, they increased long-termwelfare costs for consumers around the world. This chapter analyzes the hietory of these unfair trade cases and their impact on the Brazilian frozen concentratedorange juice industry.
Growth of the Brazilian citrus industry
The history of the Brazilian citrus and frozen concentrate industry can be divided in three periods. From the beginning of this century until the 1960., the citrus industryproduced mainly for the fresh fruit market. Brazilian orange exports to Argentina in the second decade of the 1900s and to 2 Europe in the 1920. suggest the early outward-orientationof the industry.
The main producing areas in the countrywere the states of Rio de Janeiro and Sao Paulo and the city of Rio de Janeiro. Sao Paulo, however, rapidly assumed a leading role because of its superiornatural-resourcesendowment and infrastructureand because of direct support from the state government,which began to sponsor citrus-relatedresearch in the 1920s. With the Great Depression and the crisis in the coffee sector in the 1930s, farmers in Sao Paulo began to move into oranges as an alternativecrop.
- 2 -
Theirexportsharegrow from 12 percentof totalBrazilianexportbof 359,000 boxes (40.8kilogramseach) in 1927 to 50 percent( of 59601,900box.s)by 1939.In the late
M3es,however,citr.sproductionIn the statewas almost
Not until 1957 wiped out by the citrusdiseaseknown as "tristeza." completely did Sao Paulo recoverits leadingpositionin Brazil'scitrusindustry.' The secondperiodin In the historyof the industrybeganwith the processingplant in the city of openingof the firstfrozenconcentrate Bebedouro,Sao Paulo,in 1962.This firstplant -- littlemore than a cottage operation-- was soon followedby severallargerones in 1963,1964,and 1965, were motivated in processingactivities also in Sao Paulo.These investments demandfor orangejuice, che 1962 freezein by the growinginternational Florida,and expandingcitrusproductionin Sao Paulo. Most of the capitalinvestedin theseplantscame from firmsand involvedin exportingor importingfreshfruitor from firmsin entrepreneurs the beverageindustryin the UnitedStatesand Europe.The Suconasaprocessing plant in Araraquara,for instance,Was ownedby a PuertoRican entrepreneur (PedroSantiago)who was the firstto perceivethe potentialof a Brazilianbasedoperationto supplythe U.S.market.In 1967,Suconasawas acquirre1Kv Jose Cutrale,Jr., a major Brazilianorangegrowerand exporter,and bek -a Sucocitrico CutraleS.A., soon to be one of the giantsof the industry. amongthe CitrosucoPaulistaS.A. in Hataowas the resultof an association PascoPackingCompany(a U.S. juiceproducer),the Ecks Group (a major German orangejuice importer),and Carl Fisher (a Germanimmigrant,who had a fruit exportcompanyin Brazil). with qualitycontrol,the Despttemany initialproblems,particularly, orangejuice industryexpandedrapidly(see Brazilianfrozenconcentrated tables6.1 and 6.2).And, in turn,so did Brazil'scitrussector.Between1963 and 1967,only 12 percentof the orangesgrownin Sao Paulowere processed (Ferreiraand Larson 1973, 13);by the firsthalf of the 1970s,that sharehad increasedto 62 percentand soon reachedmore than 80 percent,where it has remained.
3-
In the aid-1970s,Brazilianfrozenconcentrate processcrsexperienced their first
systemiccrisis.The worldwiderecessionfollowingthe firstoil
price 6. Jck In 1973 depressedinternational demandfor frozenorangejuice concentrate, pushingpricesdownby 17 percentbetween1974and 1975.The financialimplications of this pricedropwere magnifiedby eventsin the Brazilianorangemarket.Some Brazilianprocessors were offeringunusually high pricesfor the 1974/75 orangecrop becauseof the aggressivebehaviQ.v of the Italianfirm of Sandurson,which had acquiredcompletecontrolof the Cia. Mineirsde Conservasprocessingplant in 1970.The neu company,Sanderson S.A.,had ambitiousexpansionplans,and in Date 1973 it began to bid up the price
of oranges
for
future
delivery.
But as the world
price
of frozen
and filed concentrate fell,the companywas unableto honor its commitments for bankruptcyin mid-1974. Orangegrowersand some processingfirmssoughtgovernmentintervention in the sector.Some also accusedCitrosucoof dumpingfrozenconcentrated orangejuice
on international marketsand magnifyingthe price fall.The
government finallyintervenedin July 1974 (describedin detailin the followingsection).But its impositionof a minimumexportprice for frozen concentrate and a minimumprice for oranges-- as well as the suopensionof Citrosuco's
export
licenses
until
December 1974 -- did not help the sector.
The decreaseddemandfor orangesresultingfrom the suspensionof Citrosuco's licensesand the bankruptcyof Sandersonfurtherdepressedorangeprices, despitethe government'e attemptsto regulatethe industry. The contemporary induetrialstructureof the citrusprocessingsector emerged from the crisis
of 1974. In 1975, the state governmentof Sao Paulo
expropriated tkheindustrialassetsof bankruptSandersonand reorganized the company,which returnedto productionin the 1975/76seasonas Fruteep.In 1977, Coopercitrus,
a cooperative
of orange
growers,
acquired
control
of
Fruteep.Severalsmallercompanieshurt by the crisiswere acquiredby Citrosuco
and Cutrale,
thereby
increasing
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the concentration
of the
industry.
And finally, Cargill"n acquisitionof Citrobrasil in 1976 marked the arrival of a major new player in the industry. In 1977, a freezi in Florida initi ted a period of much higher world prices for frozen concentratedorange jul;e (table 6.3). By 1978, average wholesale prices for frozen concentrate in tle U.S. market had increased by roughly 71 percent over 1976 levels (Irias 1981, 20). Brazilian companies responded rapidly, expanding their productionand increasingtheir exports to the U.S. market. The U.S. share of Brazil's exports of frozen concentrated orange juice increased from an average of 14 percent during 1970-76 to 22 lercent in 1977 and 44 percent in 1978. By 1978, the United States was the largest importer of Brazilian concentrate.' The climate shocks suffered by the Florida orange crops in the 1980a were the primary factor that shaped this third stage of developmentof the Brazilian citrus industry. The United States became a net importer of frozen concentratedorange juice, and Brazil became the dominantworld producer, largely because of its increasingshare in the U.S. market (table 6.4). At the beginning of the decade, Brazilian processorshad produced the equivalentof 91 percent of Florida's frozen concentrate output; by the second half of the 19809, Florida's production represented less
than £0 percent of Brazil's
output. The Brazilian frozen concentratedorange
*e industry also increased
its share in the country's total exports, from 0.5 percent in 1970 to 4.7 percent in the 1980s. The industry'sshare in the economy as a whole is much smaller, however. Even after two decades of rapid growth, industry revenues are equivalent to only 0.56 percent of Brazil's GDP, a reflection of the strong outward-orientationof the sector. The industryhas a much greater relevance to the economy of the state of Sao Paulo, however, since most (96 percent) of Brazil's processing capacity is located there, and citrus-related activities employ an estimated 150,000 workers in the statA.
-5-
Brazilian economlc policies antdthe citrus ivlustry
Government
policies
have also affected the citrus industry, although
they have not been directly responsible for its phenomenal growth. Both broad economic policies, such as export and agriculturalsubsidies and exchange rate management, and sictoral interventionshad an effect on the economic performance of the industry. But the picture that emerges from an analysis of these policies is at best mixed. Although the industry profited from export subsidies and domestic incentivesin the 1970s, the overall impact of governmentpolicies has not always been favorable to the sector, particularly in the 1980s. It is quite clear, however, that sector-orientedpolicieswere not designed to foster competition among frozen concentrateproducer& in Brazil, and in fact they tended to reinforce the oligopolisticstructure of the industry.
Trade pollcles
ana the macroeconomic environment
Over the last three decades, Brazil's economic policies have often fostered import substitution-basedindustrializationand appreciationof the real exchange rate, which created an economic bias against exports.' Macroecoromicimbalanceshave been the norm rather than the exception, as the upward trend in the inflation rate since the early 1970s and in the current account deficit up to the early 1980s suggests (table 6.5). The major exception to these policies occurred during 1964-73,when the government followed a consistent set of macroeconomicpolicies that controlled inflation and a trade liberalizationprogram that diminishedthe antiexport bias of the economy. With the first oil shock, however, the government introducedan ambitious import substitutionprogram directed at basic industrialinputs and capital goods. This program raised the cost of domestic inputs and reduced the competitivenessof Brazilian exports. The situationwas aggravated by an exchange rate policy, based on a naive purchasingpower parity criterion, that did not take into account adverse p:ice shocks. To
-6-
reducethe antisxportbisa of thesepolicies,the governmentreliedmainlyon exportsubaidies. Under externalpressurein the early 1980s,Brazilbegan to substitute real exchangerate adjustments
for exportsubsidies.The overalltradepolicv,
however,remainedhighlyprotectclciist as Importswere curladthrougha growingarrayof nontariffbarriers.Eventually, the follyof this strategy Was recognized, and by 1988a trade liberalization movementbegan to gather support.In 1990,the Colloradministration announceda major liberalization eff rt, beginningwith the abolitionof most nontariffbarriers.Ironically, however,macroeconomic disturbances and governmentintervention have induceda significant appreciation of the domesticcurrencyover the last few years (table6 5), counteracting the positiveimpactof the tradeliberaligation for enporters. The antiexportbias resultingfrom the importsubatitution strategiesof the Braziliangovernmenthas not been a major obstacleto expansionof the frozenconcentrate industry,however.Historically, orangeshave represented roughly65 percentof the processingcobcs of the Brazilianfrozenconcentrate industry(Martinelli 1989,310).For a typicalBrazilianorangegrove, tradablessuch as fertilizers and pesticidesaccountfor as much as 50 percent of productioncosts (Amaro,Yamaguishi, and Barros1983, 11).Yet despite government policies international Price controls
level,
that
raised
the domestic prices
of tradablesabovetheir
the burden of thesehigherdomesticcostshas fluctuated.
were often
applied
to agricultural
inputs,
and subsidized
credit programs during the !F!i/Os substantiallyreduced the real cost of some
criticalinputsfor the sector(Irias1981).And givenBrazil'schronichigh inflation,relativepricessometimeseven changedin favorof orange producers. There is no doubt,however,that the citrussector',asbeen heavily taxedby the overvaluation of the domesticcurrency,althoughthe overall impactof this distortionhas dependedon the effectsof othergovernment policiesas well. Duringthe 1970e,the frozenconcentrated orangejuice -7-
industry
and otherexportindustrieshad acceseta a wide arrayof incentives.
These benefit.
includedtax credit@, exemptions
from state and federal value
profits,and added taxes and from corporateincometaxeson export-related subsidizedlinesof credit
financingof for investmentand for operational
Martoneand Prim*Braga (1988)have shownthat,for export exportactivities. activitiesin general,these incentivesoutweighedthe disincentive effectsof the overvaluedcruzeiroIn the 1970s,The citrussectoralso benefitedfrom variousagricultural support programs,includingsubsidizedcreditfor fertilizerpurchasesand, until 1976,fiscalincentivesfor reforestation projects .6 All in all, and exchange rate
the net imp.t of the my-roeconomic policies
was favorable
te the citrus
et I.ronment and of trade sector
in the 1970s.
But as the distortions in the Brazilianeconomyworsenedand external pressuresmounted,the governmentbeganto phaseout its myriadfiscal incentivesin the 19809.7The citrussectorlost accessto theseince.tives just as the macroeconomic environment grew more unstable.In the secondhalf of the 1980s,the currencybecameincreasingly overvaluedand, in the context of failedstabilization attempts,high real interestrates at times substantially increasedfinancialcostsduringthis period.
Sectoral
pollcles
Over the last two decades,the governmenthas introducedseveralsector8 In 1974,export specificpoliciesthat have affectedthe citrusindustry.
licenses --
issuedby the Brazilian Foreign Trade Bureau -- were introduced as
a way of imposinga new minimumexportprice scheme.The minimumexportprice schemewas expectedto increasethe country'sforeignexchangerevenuesand to preventcapitalflightby placinga t.aoor on the amountof foreigncurrency that Brazilianexportershad to repatriate(table6.3). The governmentalso took severalotherstepsduringthisperiodin responseto the firstmajor industry(describedabove). economiccrisisfacedby the frozenconcentrate of the assetsof the bankruptSandersonby the state The expropriation - 8-
of Sao Paulo in 1975paved the way for the appearanceof a major govei-nment produ-er(Fruteep)controlledby orangegrowers.Also in frozenconcentrate orangejuice 1975,the ForeignTrade Bureaucreateda frozenconcentrated with the powerto definethe minimumexportprice and export exportcommittee, between quotasat the iirm leveland to overseefruitpricentegotiations growersand processors. relationsbetweencitrus Despiteincres3inggovernmentintervention, growersand processorsremainedtense.In 1976,orangeproducersL.-cueed But by 1977,the Brazilian behavior.9 Citrosucoand Cutraleof cartel-like industryentereda new phase of expansionfollowinga frozenconcentrate becamenonbindingas severefreezein Floridacitrusgroves.Price regulations pricesfor irozenconcentrated a sellers'market developedand international orangeJuicedoubledbetween1976and 1978 (table6.3). Anotherchapterin the regulatoryhistoryof the industrywas openedin 1979,as the governmentintroducedmajor changesin its tradeand exchange of existingexport rate policies.To accompanythe gradualdismantling of the subsidies,the governmentagreedto a 30 percentmaxidevaluation cruzeiroin December1979-- the firstmajordeparturefrom the policyfollowedsince 1968.But the government or crawling-peg ninidevaluation the differencebetweenthe 30 was unwillingto allowexportersto appropriate and the loss percentincreasein cruzeirorevenuesbroughtby the devaluation of tax credits(rebatesof federalvalue addedtaxes)equivalentto 15 percent a 30 percentexporttax on the of the exportvalue.The governmentintroduced orangejuice.The prevailingminimumexportpriceof frozenconcentrated profitsard help rationalewas that this tax would eliminateabove-normal preventtermsof tradelosses. The industryreactedstronglyto thesemeasures,whichwould have exporttdby redu-edthe cruzeiroearningsper metricton of frozenconcentrate 0.6 percent(Duranand associates1981,32). The governmentretreatedin Januery1980by loweringthe exporttax rate to 8 percent.But in May, it raiselthe minimumexportprice from $350 a metricton of frozenconcentrate -9-
(65 degrees Brix) to $900, thereby increasingthe tax burden from $28 a ton to $72.10 In Jun
1980, the rules of the game were changed again, as the
government substituteda system of compulsorycontributionsfor the export tax. The contributionsfollowed a decreasing schedules starting at $210 a ton on June 1, 1980 they fell by $15 every two weeks, reaching zero by the end of December. The contributionvas then to be returned to exporters according to a symmetrical schedule. The governmentalobjective -- besides a short-run increase in revenue and access to zero-cost financing -- was to induce exporte-s to postpone sales to counter&ctthe declining trend in international prices. In May 1980, the governmentsuspended export licenses for the frozen concentrate industry in order to force orange producers and processors to reach an agreement on conditions for the sale of the 1980/81 orange crop. The agreement reached in June 1980 establishedminimum prices for the fruit and conditions of payment, and for the first time included a clause linking the final price per box of oranges to market conditionsfor frozen concentrate. The governmentwanted the industry to build up stabilizing inventoriesof up to 200,000 metric tons of frozce concentrate-- about 50 percent of the Industry'sprocessingcapacity at the time -- by the end of the 1980181 season. Credit subsidies to sustain this buildup of inventorieswere offered as an incentive. If market conditions improved and the industrymissed the carryover target, orange producerswould receive an additional$0.015 per box delivered for each 10,000 metric tons of frozen concentrate below the established target." By November 1980, however, it became clear that this strategywould not prevent the internationalprice of frozen concentratedorange juice from falling. Florida had a good orange crop in 2979/80,and the international market was already signaling a price 30 to 40 percent below the prevailing Brazilian minimum export price (table 6.3). The governmentabolished the minimum export price system, which meant that orange growers and processors
-
10
-
had to negotiatea new agreementsincethe minimumprice per box was linkedto the minimumexportprice.Undergoverwnentprodding,growersagreedto drop the clause
linking the final price to inventory levels in exchange for
the minimumpriceper box initiallyagreed. maintaining Oncemore, however,an externalshockfavorablyalteredmarket Industry.In January1981,a conditionsfor the Brazilianfrozenconcentrate freezereducedthe Floridaorangecrop by an estimated34.3millionboxes.The bouncedback promptly,breakingthe $1,OlOa ton price of frozenconcentrate barrier.Subsequentfreezesin Floridain 1982and 1983maintainedsellers' market conditionsuntil 1985. modifiedits sectoralpoliciesin response And oncemore, the government the minimumexportprice and It reintroduced to thesenew circumstances. adopteda systemof exportquotasin 1982.The quotas,which were allocatedto imposed producerson the basisof past exportperformance, frozenconcentrate the dominantpositionof the two a iw barrierto entry and strengthened The exporttax also reappeared. largestfirms (Cutraleand Citrosuco). By 1985,however,the rapidexpansionof Brazilianproduction(table 6.1) end optimisticforecastsof the recoveryof Floridaorangeriesbegan to pricesdown (by 43 percentin nominaltermsbetween drive international January1985 and February1986).The BrazilianForeignTradeBureaureduced the minimumexportprice severaltimes,but it couldnot do so fast enoughto prices.As in 1980,processorshad to keep pacewith changesin international registertheir sales at the minimumexportpricevalue in order to get export sellingthe productat a lowerprice.Processors licenseswhile effectively used theirexternalassetsto reducetheirsalesprice,returningthe differencebetweenthe minimumexportprice and the marketpriceto buyers-Finally,in March 1986,both the minimum
a practiceknown as camblo-portugues.
exportprice and exportquotaswere abolished,leavingexportlicensingas the sole instrumentof governmentcontrol. governmentattemptsto mediateprice In a paralleldevelopment, betweengrowersand processorsfailedin 1985.Effortsto fix a negotiations -
11
-
minimumpriceper box of orangewhile pricesfor frozenconcentrate were collapsingmet strongresistancefromprocessors. The governmentfinallybowed out as an arbiterin thesenegotiations, and in 1987 both sidesaccepteda market-oriented solution.Undera new type of pricingcontract,calleda participation contract,both sidesagreedto base the price for a box of orangeson the seasonalaveragedollarprice of frozenconcentrate in the New York futuresmarketinsteadof establishing a minimumprice in domestic currency.By acceptinga formulafor sharingthe risksof price fluctuations, growersand processorshopedto minimizefrictionsin theirnegotiations. Market structure, industrialorganization,and competitiveness
The domestic market Unlikemost of Brazilianindustry,the frozenconcentrated orangejuice industrydid not rely on a protectedhomemarket to expandits capacity.Since its earlystagesin the 1960s,the industryhas been outward-oriented, with domesticsalesrepresenting only 3 to 5 percentof totalshipments.This marketorientation contrastsmarkedlywith the inward-orientation of most of Brazil'sindustries. Even aftertwo decadesof exportexpansion,exportsof otherindustriesrepresented no more than 22.6 percentof total industrial shipmentsin 1989,comparedwith 95 percentfor the frozenconcentrate industry. Domesticsalesof frozenconcentrated orangejuicehave been smallfor severalreasons.First,per capitaincomeis relativelylow (about$2,000a year in 1989),and frozenconcentrate remainsa luxurygood for most Brazilians. Second,the domesticsupplyof freshfruitis scatteredacrossthe country,enablinglocalfruitgrowersto competesuccessfully with the relatively high- pricedfrozenconcentrate. Becauseof this smalldomestic demand,monopolistic pricingin the home markethas not helpedto pave the way for exportexpansion,as it has in some otherindustries. The Brazilianfrozen
-
12 -
concentrate industry has, however, achieved a significantdegree of market power in the internationalscene.
The Internationalmarket The state of Sao Paulo in Brazil and the state of Florida in the United States, the two major frozen concentratedorange juice producing areas in the world, account for about 84 percent of world production.There are also two major importing areas, the United States and the European Community (EC), which account for 91 percent of world imports.Australia, Mexico, Spain, Japan, Israel, Argentina, Italy, Cyprus, South Africa, Cuba, and Belize also produce frozen concentratedorange juice, while on the demand side, Canada and Japan are also important importers. By the early 19709, Brazil had establisheditself as the leading exporter of frozen concentratedorange juice (table 6.6), but is was still a small producer comparedwith the United States: Sao Paulo's production represented only 13 percent of Florida's production. Florida producers maintained price leadershipin the world market and were the primary suppliers for the U.S. market. Brazilian frozen concentratewas exportedmainly to Western Europe, which was the fastest growing market for frozen concentrated orange juice (Ferreiraand Larson 1973) and was much less protected than the U.S. market. By 1970, 72 percent of Brazilian exports of frozen concentrated orange juice were going to the EC and only 3 percent to the United States. Brazilian exports to the U.S. market before the late 1970s were determined to a large extent by technical considerations.Brazilian concentratewas used to improve the color of early-seasonFlorida juice (Ward and Kilmer 1980, 30).12As long as the price differentialbetween Florida and Brazilian concentratesremained smaller than the price wedge created by U.S. trade barriers, imports from Brazil were used mainly for reexport.Drawback regulationsallowed U.S. producers to receive rebates of duty payments on imports of frozen concentratethat were reexported.By using the drawback scheme, U.S. producers were able to lower the average price of U.S. exports - 13 -
and so to compete in third markets -- basically, Europe -- againstlower cost producers. From 1965 to 1976, the United States remained a net exporter of frozen concentratedorange juice, with drawback operationsaccounting for approximately60 percent of exports (Moretti and associateG 1985, 45). The 1977 freeze in Florida was the turning point in the modern history of the industry. Since then, the United States has been a net importer of frozen concentratedorange juice. And since 1978, the price differentialbetween the Florida and Brazilian concentrateshas been larger than the tariff wedge (Ward and Kilmer 1989, 135-'7),and the Brazilian product began to displace U.S. production and, indireclly,Florida-grownoranges. The importanceof the U.S. market for Brazilian frozen concentrate producers increased dramaticallywith the consecutiveclimate shocks suffered by Florida citrus groves in January 1981, January 1982, and December 1983 (tables 6.1 and 6.4). Orange production in Florida, which had peaked at 212.7 million boxes during the 1979/80 season, fell to 107.2 million boxes by 1984/85, and the production of frozen concentrate from Florida oranges fell from 670,000 tons to 340,000 tons (FAO 1989b, 41). And although citrus production in Florida has since recovered,estimates suggest that even under optimistic assumptions,Florida will not surpass its previous output record until the mid-1990s (Behr, Brown, and McClain 1989). Brazilian dominance in the internationalmarket is clear. By the mid1980s, Brazil accountad for about 80 percent of world exports of frozen concentratedorange juice (FAO 1989b, 15). Brazilian frozen concentrate producers suppliedmore than 94 percent of U.S. imports during the 1980s and accounted for 50 percent of sales in the U.S. market. In the EC, Brazil also remains the primary supplier, accounting for more than 65 percent of imports from outside the EC.
-
14 -
Industrlal
organrIzeton
orange structureof the Brazilianfrozenconcentrated The contemporary juice industrybeganto take shapein the mid-1970.duringthe industry's first
major economic crisis,
absorbedby larger
producers.
as severalsmallfirmsdroppedou. or were After the mergers,
the structureof the industry
By 1985,Cutraleand Citrosuco more concentrated. becameincreasingly controlledabout65 percentof installedprocessingcapacity,up from 52 1989),and jointlyoperatedthree smallcompanies percentin 1975 (Martinelli (Sucorrico, Brazil's
Tropisuco,and Citral). Four firms accounted for 92 percent of exports of frozen concentrateand 90 percent of installed processing
capacity(table6.7).The stateof Sao Paulowas home to twenty-oneof processingplants,and Sao Pauloproducerscontrolled96 Brazil'stwenty-eight 13 percentof the industry'sprocessingcapacity.
Severalimportantentrybarriershelp explainhow the industrial over the lastdecadedespitethe structurewas able to remainso concentrated of the industry.The existenceof economiesof scale is risingprofitability one factor.Citrosuco,for instance,controlsthe largestconcentrate processingplant in the world (in Matao,Sao Paulo),with a processing capacityof 69 millionboxes of orangesa year.The capitalintensityof the producersmove into bulk as large-scale industryhas also been increasing, transport.Bulk transportrepresentsa $80-$100reductionin shippingcosts shippingin 200 kilogram over conventional per ton of frozenconcentrate shipping in tank farms,specialized drums,but it requiresheavy investments systems.Orangesuppliespresentyet another terminals,and transportation vertical obstacleto new firms.Some of the largercompanieshave introduced theyhave to guaranteetheirorangesupplies.Accordingly, integration orangesuppliersthan acquireda strongerbargainingpositionwith independent new entrantswould have. networksin distribution The difficultyof accessto established importingcountriesis anothermajor obstaclefor new entrants.Strongties link Brazilianexportersand foreignbuyers.In the UnitedStates,Coca-Cola -
15
-
buys exclusively from Cutrale,Procter& Gamblefrom Cargill,and Tropicana, Pasco, and Beatrice from Citrosucol In Japan, Mitsui buys exclusively
from
Citrosuco.An estimated 80 percent of Brazilian shipments of frozen concentratedorange juice to the United States go to those preferred importere, leaving only 20 percent of the market for open competitionamong exporters.This exporter-importerrelationship,which usually involves significantprice rebates, establishes a dependablesource of frozen orange juice concentrate for beverage processors and a stable outlet for the Brazilian producer. In Europe, preferentiallong-run contracts between
Brazilian
exporters
and local processors
cover a much smaller
share of
transactions. Finally, governmentpolicies up to the mid-1980. also supported concentrationin the sector. Export quotas based on past export performance is probably the clearest example. The concentratedstructure of the industry, the barriers to entry, and Brazil's dominance in the internationalmarket all made oligopolisticpricing possible. And price coordinationhas been often fostered by the Brazilian government, through such measures as the minimum export price system.
internatlonal
competitlveness
For the most part,
the history
of the Brazilian
frozen concentrated
orange juice industry has been a tale of classic comparative advantage. Favorable climate and elaesic land and labor supplies for orange production allowed for rapid, low-cost expansion of the industry. Orange production grew at an average annual rate of 12.5 percent during 1970-87 (withoutany significant increase in yield per tree), while industrialprocessing capacity grew at an annual rate of 19.2 percent (tables 6.2 and 6.8). The price of oranges -- a measure of comparativeadvantage in the frozen concentratedorange juice industry since
oranges represent about 60 percent of
production costs -- is much lower in Sao Paulo than in Florida. Except during the 1985/86 season, the on-tree price in Florida has been at least twice the - 16 -
price
in Brazil (table 6.9). Brazil's cost advantage essentiallyreflects its
lower land and labor costs. Brazil's internationalcompetitivenessin the frozen concentratedorange juice industry is also illustratedby its high index of revealed comparative advantage of 20.27 in 1985, which is by far the highest among the major industrialexporting sectors in Brazil (food, beverages, and tobacco is next at 3.1).14
Unfair trade cases
Protectionism
and the U.S.
citrus
Industry
The dynamism of Brazilian exports and the rapid expansion of internationalflows of frozen concentratedorange juice over the last two decades were not entirely unimpeded by restrictionson trade in citrus juices. Although trade barriers tend to be low or even absent in nonproducing countries,they are quite high in most producing countries (table 6.10). Import duties have been the main instrumentof trade protection in developed market economies.Ad valorem tariffs above 20 percent are not unusual, in sharp contrastwith low average tariff rates in these countries. Some countries apply specific duties, with implied tariff rates as high as 40 percent, depending on market conditions.In Japan, high tariffs were augmented by an import quota system for oranges and concentratethat is now being phased out under a bilateral agreementwith the United States (PAO, 1989b). The history of protection for the citrus juice industry in the United States is probably the clearest example of the industry'sability to secure protection against foreign suppliers.The Smoot-HawleyTariff Act of 1930 introduceda duty of 70 cents a gallon on the regular-strengthequivalentof 5 In 1948, the most-favored-nationrate was frozen concentrated orange juice."
reduced to 35 cents a gallon (equivalentto $487 per ton of concentrate at 65 degrees Brix), where it remains." Drawback regulationsallow refunds of 99 percent of the duty if an equivalent quantity of frozen concentrate is
-
17 -
exportedwithin three years. The importanceof drawbacks declined after 1977, however, as the U.S. industry became more and more inward-oriented. In addition to the import duty, all froze.sconcentratedorange juice imports arriving in the United States through a Florida port must pay the Florida citrus import equalizationexcise tax of $41.50 a metric ton. The tax was introducedunder pressure from the Florida Citrus Commission as a way of making imports share in advertising and promotion costs paid by Florida producers. The importanceof this tax has been declining,however, because a growing proportion of imports are arriving through ports outside Florida. In the late 1970s, 83 percent of imports arrived through Florida ports, but by 1986 this share had dropped to 46 percent, largely because of the growth of tank farms (which process bulk juices)
outside of Florida (Ward and Kilmer
1989, 134). Such processing and packaging operationshave become economically feasible because of the growing shift in U.S. consumer demand from frozen concentrate to chilled, reconstitutedorange juice. And, as Berman (1986, 50) points out, this structural shift is bound to continue as long as Brazilian producers have a strong interest in finding ways to bypass the equalization tax. In the early 1980s, Florida growers, beset by increasing import competitionand a consecutiveseries of climate shocks, began to look for alternative forms of protection. That they turned to unfair trade laws is not surprising since the United States, as well as other developed countries,has been relying increasinglyon these laws as a substitute for safeguard actions. And considering Brazil's interventionisttrade policies, the prevailing belief in the United States was that any Brazilian industrywas "guilty"of unfair trade practices until proven innocent."' That meant that the task of building political support for relief against Brazilian exports did not require a major public-relationseffort from import-competingindustries in the United States.
- 18 -
The U.S. countervaillqg
duty Invest4gatton
of orange On July 14, 1982, Florida Citrus Mutual, an association
was growers,filed a petitionclaimingthat the Braziliangovernment The U.S. Commerce orangejuice eAports.e' frozenconcentrated subsidizing underU.S. Departmentacceptedthe petitionand initiatedan investigation Trade duty laws.On September9, the U.S. International countervailing of injuryto determination preliminary Commission(ITC)issuedan affirmative domesticproducers,and on December13, the CommerceDepartmentissueda local was subsidizing that the Braziliangovernment determination preliminary producers.19
Two Brazilianprogramswere explicitlyidentifiedas providingsubsidyfinancingof likebenefits:Resolution674,which providedpreferential workingcapitalfor exporters,and the incometax exemptionfor export earnings.Based on dataprovidedby the three leadingBrazilianfrozen exporters(Cutrale,Citrosuco,and Cargill),the Commerce concentrate financingunderResolution674 was Departmentestimatedthat preferential 20 and the incometax exemptionto a equivalentto a subsidyof 1.64 percent
subsidyof 1.13percentof the value of the Brazilianexports.On December17, of all 1982,the CommerceDepartmentordereda suspensionof liquidation to the UnitedStates,and an import Brazilianexportsof frozenconcentrate depositof 2.655percentof the fob value of Brazilianfrozenconcentrated orangejuice saleswas imposed. The Braziliangovernmentrespondedin January1983by requestingthat be susperdedand offeringto imposean exporttax equal to the investigation 21 While the agreement the was beingnegotiated, the estimatedsubsidy.
subsidylinkedto Resolution674 was reassessedat 2.38 percent,becauseof in the Brazilianfinancialmarket.Finally,a suspension new developments agreementwas signedon February24, 1983,and on April 30, 1983,Brazil orangejuice imposedan exporttax of 3.51 percenton its frozenconcentrated exportsto the UnitedStates.
-
19
-
Despitethe suspensionagreement,the Braziliangovernmentrequested that the subsidyinvestigation be concluded.On June 6, 1983,the Commerce Departmentissueda positivefinaldetermination, and on July 14, the ITC issuedits final injurydetermination, rulingthat the local industrywas 22 The ITC threatenedwith materialinjurybecauseof Braziliansubsidies.
rulingarguedthat the recoveryof the U.S. frozenconcentrated orangejuice industryto prefreezeproductionand profitability levels,given flat consumption trends,would be hinderedby futuresubsidizedimports.The suspensionagreement,basedon the offsettingBrazilianexporttax,was maintained. On May 31, 1984,Cutrale,Citrosuco,and Cargillfileda requestfor a reviewof the injuryruling,arguingthat the December1983 freezein Florida and the lower-than-expected Braziliancrop of 1983/84had changedthe circumstances underwhich the industryoperated.FloridaCitrusMutualopposed the request,but the ITC agreedto initiatean investigation. On December11, 1984,the ITC ruledthat revocationof the suspension agreementwould threaten the domesticindustrywith materialinjury. This firstexperienceof Brazilianfrozenconcentrate producerswith accusations of unfairtradepracticeswas significantly influencedby events beyondthe controlof the Brazilianindustry.The increaseddemandfor protectionfrom Floridaproducersarosemainly from the cost-pushprice impact of unusualback-to-back climateshocks.The secondroundof unfairtrade actionsagainstthe Brazilianfrozenconcentrate industry,however,was more directlyrelatedto reactionsof Brazilianfirmsto marketdevelopments.
Antldumping
cases23
By the mid-1980s,the Brazilianfrozenconcentrated orangejuice industryfound itselfin a trap.The unusualsequenceof severefreezesin Floridaand the highworld pricesthat prevailedthroughoutthe firsthalf of the decadehad fostereda dramaticexpansionof Brazil'sorangeproductionand processingcapacity.The Brazilianharvestof 1985/86produceda record239 - 20 -
million boxes of oranges. At the same time, the Florida orange industrywas showing the first signs
of recovery,with a 14 percent increase in outpuc over
the previous record-low season. Brazilian processors
facing an unusual situation.The
were also
expansion in processingcapacity had increased the competition for future orange supplies. By late 1984, while the internationaldemand for Brazilian concentratewas still strong, Brazilian processors tried to guarantee their future orange supplies by offering significantadvance payments for the 1985/86 crop. This competitionbid prices up to a record level (table 6.9). Meanwhile, frozen concentratedorange juice prices
in the U.S. market,
which had been fairly stable after a steep increase in the first part of 1984, began to show a clear downward trend after May 1985. This trend reflected the excess supply
conditionsthat had developed in the internationalmarket. But
it caught Brazilian producers in a vulnerableposition, locked into high-price contracts for
their main input while facing declining world prices for their
product. The financial squeeze suffered by Brazilian producers during the 1985/86 2' While the average minimum export price for the season season was severe.
was about $1,100 a metric ton (at 65 degrees Brix), direct production costs averaged $1,327.50 a ton: fruit costs ($935 for 250 boxes) plus costs ($112.50)plus
pick and haul
processing,warehousingtand transport costs to the port
of Santos ($280.00).Other costs to producers included the state value added tax of 8.5 percent (on the fob export value), the export tax of 1 percent, and the offsetting export tax of 3.51 percent on all shipments to the United States. The picture becomes even bleaker when one considers that the minimum export price was really just an accountingartifact and not a relevant price benchmark for frozen concentrateexporters.As internationalprices collapsed, the minimum export price often lagged behind, forcing Brazilian producers to practice the cambio-portugues
described earlier. The effective price received
by Brazilian exporters in 1985/86 was only about $850 to $900 a ton (USDA
-
21 -
1986), or approximately20 percent below the average official minimum export price for the period. Reflecting these market developments,Brazilian frozen concentrate exports fell by almost 12 percent between the 1984/85 and 1985/86 seasons.At the same time, production reached record levels in 1985/86 (875,000 tons at 65 degrees Brix). With exports down and the domestic market continuing to be only a marginal source of demand (less than 5 percent of total demand), the industry ended the season with very high stocks of frozen concentrate (about 230,000 metric tons), further contributingto its financialwoes."3 This imbalance between production costs and sales prices was the result mainly of an exceptional lack of coordinationamong Brazilian firms as they fought to secure stable input supplies. Yet, it was promptly seized on by foreign producers as a situatior that could be exrloited under the unfair trade banner. In 1986, the Brazilian frozen concentratedorange juice industry was accused of dumping by both the United States and Australia. The U.S. antidumpingcase.
On May 9, 1986, Florida Citrus Mutualfiled a
petition arguing that frozen concentratedorange juice from Brazil was being sold in the United States at "less than fair value," and the Commerce Department agreed to initiate an antidumpingduty investigation.On June 23, the ITC issued a preliminary determinationthat the U.S. frozen concentrated orange juice industrywas "materiallyinjured or threatenedwith material injury" by imports of frozen concentratefrom Brazil at less than fair value (USITC 1986, 1). On October 16, 1986, the Commerce Department issued a preliminary determinationthat Brazilian sales of frozen concentrate in the United States were being made at lees
than fair value and estimated the dumping margin at
8.45 percent. In its final determinationon March 17, 1987, the Commerce Departmentmaintained the suspensionof liquidationof all exports of frozen concentratedorange juice from Brazil, except those from Cutrale, imposing an 26 The estimated margin import deposit of 1.96 percent of the selling price.
for Cutrale's sales was negligible (0.48 percent), and its exports to the
- 22 -
UnitedStates(35 to 40 percentof totalBrazilianexportsto the United order.In Arril States)were excludedfrom the suspensionof liquidation
1987,
of injury. the ITC made a positivefinaldetermination case raisedmany complexlegalissues.SeveralU.S. This antidumping Procter& companies-- includingthe NationalJuice ProductsAssociation, They argued, Gamble,Tropicana,and Coca-Cola-- opposedthe investigation. that FloridaCitrusMutualwas not an alongwith the Brazilianrespondents, orangegrovers)did not produce interestedparty sinceits members (basically, orangejuice).They also arguedthat (frozenconcentrated the like-product fromthe beginningthat a majority FloridaCitrusMutualhad not established that it could and, furthermore, of the industrysupportedthe investigation not have done so becausea majorityof the U.S. industryopposedthe investigation.
the CommerceDepartmentfoundthat therewere Despitethis opposition, On the issueof whetherthe sufficientgroundsto initiatethe investigation. petitionerwas an interestedparty,the Departmentpointedout that although FloridaCitrusMutualhad been the onlypetitionerin the earlier the issueof standinghad not been raised duty investigation, countervailing had baen initiated,the Besides,afterthe investigation at that opportunity. orangejuiceprocessorsas petitionwas amendedto add six frozenconcentrated copetitioners.
The questionof majoritysupportwas dealtwith in two stages.First, the CommerceDepartmentarguedthat initiationof unfairtradeproceduresdoes not requiremajoritysupportin the domesticindustry.Comerce's was tantamountto sayingthat a petitioneris presumedto be interpretation filingon behalfof the domesticindustryunlessit can be shownthat a majorityof the domesticindustryopposesthe petition.Second,although a represented that the partiesopposingthe investigation recognizing proportionof the U.S. industry(theyaccountedfor 52.9 percent significant the CommerceDepartment orangejuiceproduction), of U.S. frozenconcentrated arguedthat the properdefinitionof the industryshouldexcludeprocessors -
23
-
whose Brazilian imports accounted for more than 50 percent of production. Once this "exclusionprovision"was applied, the remaining firms opposing the investigationaccounted for only 38.64 percent of U.S. production and, accordingly,did not represent a majority of the industry. In 1988, the question of majority supportwas brought up again by Citrosuco in a petition to the U.S. Court of InternationalTrade." The argumentwas again rebuffed,with the court stating that the Commerce Departmenthad the discretion to reject a petition for lack of industry support but was not "required to dismiss petitions that are not proven to be 26 affirmativelysupported by the domestic industry."
Finger and Murray (1990) have pointed out that unfair trade procedures in the United States, once initiated,have a high probability of culminating in an affirmative determination.The broad interpretationof injury is a major factor behind this bias in favor of the petitioner. In the case of the frozen concentratedorange juice investigation,the final dumping margin was quite small and the penetration ratio for Brazilian frozen concentrate in the U.S. market had changed little in 1985/86 from the previous season.9 Yet, the ITC reached a positive injury determinationby a vote of 3 to 2. LA short, the history of this antidumping investigationhighlightsthe flexibilityof U.S. legislationin accommodatingthe protectionistinterests of domestic producers under competitivepressure from foreign imports. The Australian antidumping
case.
On July 25, 1986, the Australian Citrus
ProcessorsAssociation submitted a complaint on behalf of eight processors to the Australian Customs Service, claiming that Brazilian frozen concentrated orange juice was being exported to Australia at prices below "normal value" -that is, at prices that did not recover the full cost to produce and sell the frozen concentrate.The gist of the complaintwas that internationalprices had fallen from $1,800 to $800 per metric ton (65 degrees Brix) between February 1985 and March 1986, while the normal value for Brazilian concentrate was about $1,401 a ton (fob Santos).The normal-valueestimatewas based on cost of production data published in a U.S. periodical (CItrograph,
-
24 -
June
1986),using a methodologysimilarto that presentedin the cost estimate describedabove. The Australianmarket accountedfor only 0.5 percentof Brazilianexport revenuesin 1985and 1986 (table
6.3),'° and the shareof Brazilian
in orange juice consumption in Australiahad been decliningsince
imports 1983 (from
42 percentin 1983/84to 27 percentin 1986/87).So althoughBrazilwas the sourceof 90 percent of AustralianImportsthroughoutthis period,the Australian
market was of only marginal
fact helps to explain antidumping
why Brazilian
investigation.
importanceto Brazilianproducers.This
producers
failed
Of the five Brazilian
to cooperate
in the
companies asked to supply
information, only Frutropic,with 3.2 percentof the Brazilianindustry's processingcapacity,botheredto answer.Accordingly, the CustomsService consideredthe information providedby the petitioners as the best information availablefor the investigation. In November 1986, the Australian determination
Customs Service made a preliminary
of dumping and established
value of $1,050 per metric
a noninjurious
ton for Brazilian
free on board (NIFOB)
concentrate
3 ' In (FA0, 1989b).
the final determination of June 1987, Customa reaffirmed its finding of dumpingand ruledthat a causallinkexistedbetweenthis practiceand some of the claimsof materialinjurymade by the Australianindustry.Customsdid not considerthat impositionof a duty equivalentto the full dumpingmarginwas warranted,decidinginsteadon an amountequalto the differencebetweenthe fob export
price
and the NIFOBvalue.
$1,401 a ton for iiports
The NIFOBvaluewas established at
before December 31, 1986, and $1,200for those
enteringafterJanuary1, 1987. Effects
of unfair
Effects
trade
on policy.
actions
There is no doubt that
the policy
environment in
which the Brazilianfrozenconcentrated orangejuice industryoperateshas gone throughsomemajor changessincethe firstunfairtradeaccusations in the early 1980s.The minimumexportprice scheme,exportquotas,and -
25
-
goverumentIntervention in the negotiations growers have all disappeared, suggesting
between procassors
and orange
a move toward liberalization. But the
tax burden on the sectorhas grownheavier,with the introduction of the state value
added taz and the end of the income tax exemption for export-related
profits. But the link between these changes and the unfairtradecases is tenuous at best.
The demise of export
response
to both externalpressuresand domestic interests,
search for new sources developments specific
provided
policies.
It is ironic
on the industry.
discrimination
since
including
the
suspension
changes in industry-
was the offsetting
export tax
agreement in the countervailing
that while the offending
(or significantly
reform in
goverAments. Macroeconomic
The only major exception
duty case.
price
of a broader
the impetus for most of the recent
under the U.S.-Brazil
Effects
was part
of revenue by state
introduced discontinued
subsidies
subsidies
have since been
reduced),
the export tax has remained.'
Brazilian
producers
1986 to prevent
2
have avoided International
third-market
sales
prices
from
beingused as a basis for new antidumping cases.So despitethe strong devaluation of the U.S. dollarvis-a-visEuropeancurrenciessince 1985,there has basicallybeen only one "worldprice"for Brazilianfrozenconcentrated 33 orangejuice.
Interviewsconductedwitn Brazilianproducerssuggestthat Brazilian pricingbehaviorin exportmarketsduringthe 1980.has been consistent with a dominant-firm price-leadership strategy.SinceFloridais the only other significant world supplierof frozenconcentrated orangejuice,Brazilian producershave been able to use U.S. supplyforecastsas a basis for establishing pricesthatwill maximizetheir short-runprofitsfor a given level of residualworld demand.Errorsare absorbedthroughstockmovements. In short,duringperiodsof tightwor'd supply,Brazilianexportersseem contentto considertheir foreignsalesas complementary to the domestic productionof importingcountries.
- 26 -
Price coordination amongBrazilianfirmshas also been facilitatad by some institutionaldevelopmentsfostered by the 1985/86 crisis.
The most
importantchangewas the adoptionof participation contractsby orangegrowers and processorsfor sharingthe risksof international price fluctuations. Thesecontractsdiminishthe dangerof a cost-revenue mismatchsuch as those that occurredin 1974/75and 1985/86.They also lessenthe vulnerability of the industryto accusations of sellingat below-costprices.Anotherchange was the Braziliangovernment's adoptionin January1987of a reference-price systemto guidethe repatriation of foreignexchangeearnings.The reference export price -- which is also used in preparing participationcontracts -- is
established by subtracting the costsof transport,the U.S. tariff,the lessthan-fair-value margin,U.S.warehousing, port and brokeragefees,the Florida equalization tax, and othercostsfrom the price of frozenconcentrate in the New York futuresmarket.' Sincethe 1985/86season,therehas been no excesssupplyin the international market for frozenconcentrated orangejuice.Dry weather, disease,and poor care of citrusgrovesreducedBrazilianorangeproductionto an averageof 10 percentbelow its recordoutputof 1985186(table6.8).A significant increasein domesticdemandfor freshlysqueezedorangejuice duringthe artificialeconomicboom createdby the CruzadoPlan (1986)and lowerconcentrate ratiosfor the Brazilianorangealso helpedto reducethe outputof the Brazilianfrozerconcentrate industry(table6.1).At the same time, the recovery
of Florida
groves was slower than expected,
while consumer
demandremainedstrong in both the United Statesand Europe.Under thesetight supplyconditions-- a reversalof the scenariothat motivatedthe antidumping investigations -- one might even arguethat thereare no majer opposing interestsbetweendomesticproducersin importingcountriesand Brazilian exporters. Most models, however, forecast that growth in the supply
of frozen
concentrated orangejuicewill outpacegrowthin demand,creatinga buyers' market by the early
1990s (FAO, 1989b). Already by late - 27
-
1990, expectations
of
bumper orange crops in Florida and Sao Paulo caused a rapid drop in the internationalprice of frozen concentrate.Thus, market conditions that tend to elicit charges of dumping are likely to emerge again in the 19908. Furthermore,since Brazilian producers have higher fixed costs (reflecting their larger scale and larger stock accumulationpractices), they remain vulnerable to accusationsof pricing below average cost during periods of falling prices." Whether the Brazilian industrywill be able to escape these accusations,given the new marketing and institutionalarrangementsintroduced in the mid-1980s, is an open question. Still, there is no doubt that Brazilian companies are now more difficult targets for unfair trade actions than during past episodes of excess supply. The measures imposed as a result of unfair trade cases have had only a marginal impact on the industry and have been completely dominated by other distortions affecting the industry.The direct burden imposed on producers by the offsetting export tax on sales to the U.S. market was less than half that of Sao Paulo's value-added tax. And the U.S. antidumpingduty of 1.96 percent is dwarfed by the specific import duty of $487 per metric ton, which was equivalent to a 22 percent ad valorem tariff on the average U.S. selling price for the 1987-89 period. The Australian antidumpingduty, in turn, has become completely irrelevantduring 1988 and 1989 as the Brazilian fob price has risen above the estimated noninjuriousfree on board value. That is not to say that the unfair trade actions had no impact on the performance of Brazilian firms. Most important,as described above, was the apparent education effect of the antidumping cases, which helped bring about institutionalchanges and new marketing arrangementsthat intensified oligopolisticcoordinationamong frozen concentrateproducers. Second, the "noise" created by the Australian antidumpinginvestigationwas sufficientto shut down that market for Brazilian firms during 1987 (table 6.4). Last but not least, Brazilian firms were unanimous in pointing out the high harassment effect associatedwith these investigations.
- 28 -
of Brazilianfirmarevealednot only Interviewsvith representatives coat.According theirdistastefor externalaudits,but also the substantial with the defenseagainstantidumping to some experts,legalfees associated have averagedmore than $500,000per company.One interviewee accusations suggestedthat the totalcoats incurredby his company(includingthe requestedby cost of personnelassignedto gatherthe information opportunity have been as high as $3 millionsince 1986. investigators) antidumping What have been the welfareeffectsof the unfairtradecases?In an earlierstudyof the U.S. specificduty on importsof frozenconeentrated orangejuice,Hufbauer,Berliner,and Elliot (1986)foundthat the gainsto were negligibleand thatmost of the welfare exportersfrom traderestrictions with the efficiency lossesof $130million(in 1983prices)were associated productionin the UnitedStates. lossesresultingfrom expanded,higher-cost This analysis that
model that
was based on a simple partial-equilibrium
the imported and domestic goods are imperfect
substitutes
assumes
and that
the
supplythat of importsis perfectlyelastic.The resultsimplythat the welfareeffectson Brazilianexportersof the much lowerdutiesresultingfrom unfairtrade actionsmust have been insignificant.
Conclusion orangejuice industrywas able to The Brazilianfrozenconcentrated expandrapidlydespitehigh levelsof protectionin its majormarkets-in the UnitedStates-- and erraticchangesin Brazilianpolicies particularly at both macro and micro levels. Brazil's
comparative
This dynamism is explained
advantage in production,
not only by
but also by the fortuitous
(from
climate of Brazilianproducers)occurrenceof consecutive the perspective shocksto Florida'sorangegroves. of the industryovermost of the 1980s, Despitethe high profitability major entrybarriersmake it unlikelythat any largenew firmswill enter the orangejuice market.At the same time,productionof frozenconcentrated - 29 -
is
expectedto increasesubstantially In Braziland Florida,barringany adverse exogenous shocks. Unfair trade
cases against
Brazilian
firma had little
direct
Impact on
outputor price levels.Apparently, however,theycreatedincentivesfor the adoption firms.
of practicesthat promoteoligopolistic coordination amongBrazilian The widespread
adoption of participation
growers and the industry in the international
contractsbetweenorange
and the avoidonce of price-discrimination
markets
practices
are good examplesof theseeffects.And to the
extentthat theseunfairtrade casesfosteredthe marketpower of Brazilian frozen concentrate long-term welfare The folly their
producers, costs
proceesors
cases were basically
exporters.
oligopoly-oligopsony partners,
further
of additional
Its
hindering
market for frozen concentrated
evident
from
orange growers and higher-
at the expense of U.S. juice and soft drink
main effect
relationship
is particularly
-- the U.S. citrusindustry.The
linked by marketing
as suggested by their
investigation,
actions
used to protect
producers
and distributors
concentrate
trade
supposed beneficiaries
cost frozen concentrate
the likelihood
to consumers worldwide.
of these unfair
Impact on its
antidumping
they increased
arrangements
has probably
between Brazilian joint
defense
the prospects orange juice.
-
30 -
to Brazilian
been to strengthen
producers
strategy
and their
the
U.S.
In the antidumping
for competition
in the world
References
Australian Customs Service (ACS). 1987. "Frozen ConcentratedOrange Juice from Brazil." Dumping Report No. 121. Canberra. Amaro, A.A., C. Yamaguishi, and G.C. Barros. 1983. "Perfil Economico da CitriculturaBrasileira."Piracicaba,Sao Paulo: Fundacao de Estudos Agrarios Luiz de Queiroz and Abrassucos. Behr, R.M., M.G. Brown, and E.A. McClain. 1989. "World Orange Juice Outlook: 1989 Through 1998-99 Seasons."Working Paper Series, Florida Department of Citrus Economic Research Report, Gainesville:University of Florida. Berman, P. 1986. "Orange Crush." Forbes 137: 42-50. Brown, M.G. 1987. "Florida Citrus Production Trends 1987-1988 through 19961997." Florida Departmentof Citrus. Gainesville:University of Florida. Deardorff, A.V. 1989. "EconomicPerspectiveson Antidumping Law." In J.H. Jackson and E.A. Vermulst, eds., Antidumping Law and Practice: A ComparstiveStudy. Ann Arbor: University of Michigan Press. Duran, T.A., M.G.C. Simoes Costa, R.M.S. Furtado, and F.A. Todesco. 1981. "Sucos Citricos." Research report. Rio de Janeiro: Fundacao Centro de Comercio Exterior (FUNCEX). Ferreira, F.L., and D.W. Larson. 1973. "0 Mercado Internacionale a Producao Brasileira de Suco Concentradode Laranja." ESALQ Working Paper 23. Piracicaba, Sao Paulo: Escola Superior de Agricultura Luiz de Queiroz, University of Sao Paulo. Finger, J.M., and P.A. Messerlin. 1989. "The Industry-CountryIncidence of Unfair Imports Cases in the United States and the European Community." Paper presented at The Hague Group Meeting at Thoresta, Stockholm. Finger, J.M., and T. Murray. 1990. "Policing Unfair Imports:The U.S.Example." PRE Working Paper 401. Washington,D.C.:World Bank. Food and Agriculture Organization (FAO). 1989a. The Market Outlook for Orange Juice. Committee on Commodity Problems. CI 89/5. Rome.
Food and Agriculture Organization (FAO). 1989b. Citrus Juices: Trends and Prospects In World Productlonand InternationalTrade. FAO Economic and Social Development Paper 78. Rome. Graham, G.F. 1987. "BrazilianFCOJ Pricing Strategiesand Impacts." Economic Report. Lakeland, Florida: Florida Citrus Mutual. Hasse, G. 1987. A Laranja no Brasil: 1500-1987.Sao Paulo: Duprat & lobe Propaganda.
Hufbauer, G. C., D.T. Berliner, and K.A. Elliot. 1986. Trade Protectlon in the United States: 31 Case Studies. Washington,D.C.: Institute for InternationalEconomics. Irias, L.J.M. 1981. "An EconometricModel of InternationalTrade of Frozen ConcentratedOrange Juice." Ph.D. Dissertation,University of Florida, Gainesville. Martinelli, O., Jr. 1987. "O ComplexoAgroindustrialno Brasil: Um Estudo sobre a AgroindustriaCitricolano Estado de Sao Paulo." M.A. dissertation,University of Sao Paulo. Martinelli, O., Jr. 1989. "A AgroindustriaCitricola no Estado de Sao Paulo." Escudos Economicoo 19: 277-317. Martone, C.L., and C.A. Primo Braga. 1988. "Brazil and the Uruguay Round." Paper presented at the Rockefeller Foundationconferenceon the Developing Countries and the Uruguay Round, Washington, D.C. McClain, E.A. 1989. "A Monte Carlo SimulationModel of the World Orange Juice Market." Ph.D. dissertation,Universityof Florida, Gainesville. Moretti, V.A., M.C. Vieira, L.A.S.B. de Almeida, L.F. Vieira, and Associates. 1985. Demands Externa por Suco de Laranja Congelado Concentrado do Brasll. Estudos Economicos Alimentos Processados 21. Campinas,
Sao
Paulo: Instituto de Tecnologiade Alimentos. Piani, G., and L.V. Pereira. 1990. "Financiamentoas Exportacoes."Working Paper 25. Rio de Janeiro: Fundacao Centro de Comercio Exterior (FUNCEX).
- 31 -
Revista Citrus. Various issues.
Suramerica de Aleaclones Laminadas,C.A., et al. v. Unlted States. 1990. Customs Bulletin and Declsions 24: 3-22. United Nations. Various years.
International Trade Statistics Yearbook. New
York. U.S. Department of Agriculture.Various years. "Brazil Citrus." Internal Report. Washington, D.C. U.S. InternationalTrade Commission (USITC). 1990. "Frozen ConcentratedOrange Juice from Brazil: Final Results and Termination in Part of Antidumping Duty AdministrativeReview." Federal Reglster 55: 47502-04. U.S. InternationalTrade Commission (USITC).Various years. Frozen Concentrated Orange Juice from Brazil. Washington, D.C. (1983, no. 1406; 1984, no. 1623; 1986, no. 1873; 1987, no. 1970; and 1989, no. 2154.) Ward, R.W. 1976. The Economics of Florida's FCOJ Imports and Exports: An Econometric Study. Florida Department of Citrus Research Department Report 76-1. Gainesville:University of Florida. Ward, B.T., and R.L. Kilmer. 1980. The Unlted States Cltrus Subsector: Organization,Behavior, and Performance.Monograph 8, N.C. Project 117. GainesvillesUniversityof Florida. Ward, R.W., and R.L. Kilmer. 1989. The Citrus Industry. Ames: Iowa State University Press. Wilson, J.H. 1980. "Brazil'sOrange Juice Industry."Foreign Agricultural Report. FAS-M-295.Washington, D.C.: U.S. Departmentof Agriculture. World Bank. 1989. World DevelopmentReport. New York: Oxford University Press.
- 32 -
Table 6.1 Frozen concentrated orange juice production In Florida and Sao Paulo, 1961-87 (in thousands of metric tons at 65 degrees Bri)
Year
Florida
1961
265.7
1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974
364.8 162.6 169.0 279.8 241.8 414.8 263.5 326.7 393.4 394.1 422.6 554.4 541.1
Year
Sao Paulo
-
6.0 5.0 8.0 14.0 22.0 33.0 29.0 48.0 80.0 107.0 121.0 170.0
Source: U.S. Department of Agriculture.
-
33 -
Florida
Sao Paulo
1975
561.0
189.0
1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987
586.5 497.6 507.6 545.0 728.2 526.5 386.6 491.8 351.6 348.6 384.0 422.0
211.0 229.0 400.0 424.0 479.0 586.0 550.0 508.0 726.0 848.0 600.0 750.0
Table 62 Processing capacity of frZen concentrated orange juice plants, In the state of Sao Paulo, selected years, 196S87 (1000 boxes of oranges)
Year
Processing capacity
1965
5.2
1970
16.0
1975
57.6
1976
76.4
1985
268.0
1986
273.6
1987
344.1
Note A Braziilanplanttypicallyprocess 285bomsof orangesto produce1 metricton of fromenconcentratedorangejuice at 65 degreesBrix Sources:U.S.Departmentof Agriculture,Foodand Agriculture Servces;Instituteof AgriculturalEconomics, Stateof Sao Paulo.
- 34 -
Table 6.3 Brazilian prices of frozen concentrated orange juice, 1963-89
(U.S. dollars per metric ton at 65 degrees Brix)
Year
Averageprice (fob Santos)
1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981
408 378 327 340 359 386 469 440 464 476 526 546 454 481 829 963 980 844 1,031
na na na na na na na na na na na 560 350 350 350 350 350 900 na
1982
1,100
1,200
1883 1984
1,099 1,563
1985
1,545
1986
844
1987 1988 1989
1,100 1,724 1,395
1,100 1,250 1,300 1,450 1,600 1,700 1,800 1,400 1,150 1,000 800b na na na
Minimum erportprnce Price Montha
February
May-November December January March March July October January June November January March
na Indicatesthat no minimumesport price was in force. a. Month new price was intraduced. In 1980, the minimumeport price was In effect fronwMay to November, and the scheme was then discontinuedfor a while. b. Export liense price, established for calculating amount of resotrces that had to be repatriated. Source: BrazilianForegn Trade Bureau.
- 35 -
Tbke 6.4 Value of exports
(fob) in major markets for Brazilian frozen concentrated orange juice,
selected years, 1975-88 (thousands of U.S. dollars)
Year
Australia
1975 1980 1981 1982 1983 1984 1985 1986 1987 1988
na 7,282 4,447 11,984 15,026 19,903 3,625 3,360 0 !0.548
Cananda 9,865 33,865 85,689 22,936 36,476 70,725 37,446 41,525 66,440 80,103
European Community 45,212 181,688 299,696 159,996 223,898 356,494 217,676 259,462 370,730 548,210
Source: Brazilian Foreign Trade Bureau and Abrassucos.
- 36 -
United States 9,042 66,787 268,439 328,235 281,822 901,392 436,602 350,308 359,808 459,731
Other markets 18,085 49,030 876 50,237 50,648 65,986 53,576 27,531 33,521 45,740
Total 82,204 338,652 659,147 573,388 607,930 1,414,500 748,925 628,186 880,499 1,144,332
Table 6.5 Selected macroeconomic indicators for the Bralian
economy, 1970-89
Year
Cufent waccount (US$miL)
Trade balance (US$miL)
Inflation rateb (%)
Growthof realGDP
Realerchange rate iee
1970 1971 1972 1973 1974
-562 -1,307 -1,489 -1,688 -7,122
11.3 11.9 14.0 8.2
873 90.4 93.4 84.7 77.1
232 -341 -244 7 -4,690
19.8 187 16.8 16.2 33.8
1975 1976 1977 1978 1979
-6,700 -6,062 4,038 -6,991 -10,743
5.2 10.3 4.9 5.0 6.8
77.2 74.2 73.4 83.4 84.1
-3,540 -? 147 97 -1,024 -2,840
30.1 48.2 38.6 40.5 76.8
1980 1981 1982 1983 1984
-12,807 -11,735 -16,310 -6,837 45
9.2 -4.4 0.7 -3.4 5.0
94.4 79.5 74.0 98.7 100.0
-2,830 1,202 780 6,470 13,089
110.2 95.2 99.7 211.0 233.8
1985 1986 1987 1988 1989
-241 -5,304 -1,428 4,889 1,424
8.3 7.5 3.6 0.0 3.6
102.8 103.9 97.2 93A 73.1
12,406 8,305 11,173 19,184 16,111
235.1 65.0 415.8 1,037.6 1,782.9
a. Real exchange rate in terms of the U.S. dollar, taking the OECD GDP deflator as an index of world prices and the Brasilian GDP deflator as an index of domestic prices. b. Yearly growth of general price index-FGV. Sources: Central Bank of Brazil, World Bank (1989), Conjuntzra Economica, and authors' calculations.
-
37 -
Table6.6 MJorwwoM eportern of hrewnconaenatnddonwn Juko4aeukedyem, 197047 (metrc tons at 65 deges Bdx) 1970
CM"t
UUMF-W
1974
ama
1978
%
%
Brazi
33.47
18.4
10&46 35.9
UnitedStates
33.29
18.3
50.48 16.7
45.59
8.9
51.46
ksael
18.23
10.0
38.63
12.8
33.92
6.6
Spain
18.21
10.0
18.20
6.0
1939
Italy
25.70
14.1
16.70
53
Morroco
22.91
12.6
12.39
Others
30.12
16.5
57.53
Total
182.09 100.0
1987
1983
QUMVU--y 335.63 65.6
553.11 73.5
OnV
%Q
754.80 733
6.8
40.19
3.9
94.04
12.5
142.72
13.9
3.8
6.02
0.8
958
0.9
9.36
1.8
12.04
1.6
22.57
2.2
4.1
10.64
2.1
9.48
1.3
11.03
1.1
19.0
56.68
11.1
26.26
3.5
49.56
4.8
302.29 100.0
S115S
100.0
Note: Figurasmaynot add up to totals because of rounding.
Souree Ilas (1981)and Butler(1988).
-
38
-
752.33 100.0
1,030.44 100.0
Table 6.7 Marketconcentrationratios in the Brazilian frozen concentratedorangejuice industry, 1983-85 (percentage shares)
E:xpol quantit&is
E:xport revenue
E-Wort quantities
Export revenue
1983 Processing capaciy
Sucocitrico Cutrale
40.7
40.9
35.1
34.7
30.4
Citrosuco Paulista, SA
31.9
31.8
36.3
36.4
34.4
Cargill Citrus, Ltda.
12.9
13.2
10.1
9.9
15.4
Frutesp, SA
6.6
6.4
5.2
5.7
9.5
92.1
92.3
86.7
86.7
89.7
1985a
1984 Firm
Concentration ratio
a. January-November. I'. Six and one-half months of operation a year. Source: Brazilian Foreign Trade Bureau; U.S. Department of Agriculture.
-
39 -
Table 6.8 Orange production in Sao Paulo 1979/80-1989/90 Nonbeanng trees (thousands)
Beating trees (thousands)
Producton (million bores-
Yeld (boxesa/tree)
1979/80
29.80
63.79
155
2.43
1980/81
31.08
67.53
170
2.52
1981/82
31.69
69.99
180
2.57
1982/83
30.28
74.34
195
2.62
1983/84
22.84
87.06
200
2.30
1984/85
26.13
86.24
205
2.38
1985/86
30.23
88.62
239
2.70
1986/87
33.43
91.96
220
2.39
1987/88
35.12
95.86
220
2.30
1988/89
40.51
99.23
210
2.12
1989l90
45.88
105.45
206
1.95
Season
a. Ninety-pound boxes. Source: Brown (1987) and FAO (1989b).
40 -
Table 6.9 On-treeorange prices, Sao Paulo and Florida (U.S. dollarsper box)
Season
Sao Paulo
Florida
Floridal Sao Paulo
1975176
0.90
1.77
1.97
1976/77
0.85
2.17
2.55
1977178
2.00
4.14
2.07
1978179
1.72
4.65
2.70
1979/80
1.70
3.71
2.18
1980181
1.65
4.08
2.47
1981/82
2.12
4.28
2.02
1983/84
0.97
5.79
5.97
L984/85
2.10
7.75
3.69
1985/86
3.74
3.68
0.97
1986/87
1.15
4.69
4.08
1987/88
1.42
8.63
6.08
Note: Florida productionseasonis Decemberto November;Brazilproduction seasonis July throughJune. Sourc¢s:FloridaCrop and LivestockReportingService,FloridaCitrusMutual,and Instituteof AgriculturalEconomics,State of Sao Paulo.
-
41 -
Table610 Crrent Import 1li on ore
R e#mkway
Juns In selected mporins coutrkea
Poda aa pdon
Inior £aiff
Comuent
North Ameica Canada
* onnge julce * blended orangegrapfuit juioe * unsweetened omangegrapefit concentrate
3 percent ad valomem a 3 percent ad valorem free
Most favored nation rates
United States
* nooncentrated dtnrs juies * concentrated citns julces
a 20 cents a galln * 35 cents a galon (on single-strengthequivalent)
Imports from Caribbean Basin Initiative countries are eligiblefor duty-free entry
* ornge juice of a density exceeding 133 g/cm3 at 200 C * orange juice of a density of 133 g/am3 or less at 20PC, of a value ewceeding30 ECU/100kg
a 42 perent ad valorem
Preferencs for Algeria, Cyprus, srael, Morocco, Tunisia, and Turkey ACP free
coentrated citms juices in containers of 20 Utersor more * concentrated citrus juices in other containers
a 105 sdillngp per 100 kilograms a 420 schllling per 100 kiogams
* an citrus juices
* IS percent ad valorem
Wesern Eurpe BuMpean Community
Austria
Eastern Eurpe Bulgaria
* 19 percent plus additional duty on sugar content
Czechoslovakia
U
Hungaty
* al citrus juices
* 20 percent ad valorem
Poland
a all citrusjuices
* S percentad valorem
Romania
mall citrus juices
* 40 percent ad valorem
* orange juice, containing added sugar (not more than 10 percent by weight of sucrose) * other orange juice
* 30 percent ad valorem
Oter developed countries Japan
Austalia
Near East Dubai Egypt Saudi Arabia Far Enst Malaysia Singapore
o
al citrus juice
a 3.75 percent ad valorem
Preferenes for developing countries Preferences for developing countries Preferences for Cuba and other developingcountries
* 25 percent ad valorem
orange juice
* 10 percent ad valorem plus specific duty related to total soluble solids content and domestic support price
a imports by sea a imposts bynair
a 3 percent ad valorem a 2 percent ad valorem
* all citrusjuices
a 150 percent ad valorem
all citrusjuices
a 7 percent ad valorem
a all citms juices
a 25 percent ad valorem
* all citrus juice
* free
Source: FAO (1989b).
-
42 -
Ad valorem equivalent of the composite duty was about 30 percent in 1987
Notes We would like to thank J. Adelino Arantes Filho, who initiated us into the complexitiesof the frozen concentratedorange juice industry.We also gratefully acknowledge comments and informationprovided by Aluisio Campos, Gary N. Horlick, J. Michael Finger, Leila Frischtak,Paul M. Meo, R. Christian Berg, Sergio Thompson-Flores,and participantsin a World Bank workshop on RegulationsAgainst Unfair Imports: Effects on Developing Countries. The views expressed in this paper are, of course, our own. 1. The Brix scale was developed in the nineteenth century by the German chemist Adolf F.W. Brix. It measures the amount of solids (basically,sugars) that are diluted in the juice. Freshly squeezed orange juice would normally be at 12 degrees Brix -- 12 kilograms of solids for every hundred kilograms of water. 2.For details on the early history of the Brazilian citrus industry, see Martinelli (1987) and Hasse (1987). 3.Presently,than 80 percent of Brazil's orange groves are in Sao Paulo. In the northern region of the state, more than 145 million trees (about 70 percent of them in a fruit-bearingstage) cover an area of about 52,000 square kilometers. The trees are owned by some 25,000 growers, and even though the influence of large producers has been increasingover time, orange production remains quite dispersed.In the early 1980s, orange groves with a maximum area of 100 hectares still accounted for more than 40 percent of the oranges produced in the state. This fragmentedstructure of production for oranges is in sharp contrast with the highly concentratedstructure of the frozen concentrate industry, a fact that has given rise to the "love-hate" relationshipbetween them. 4.Until then, West Germany and the Netherlandshad been the main markets for Brazilian frozen concentratedorange juice. During 1970-76, for instance,West Germany and the Netherlands bought 31 and 20 percent, respectively,of Brazilian exports. S. For further details see, for example,Martone and Primo Braga (1988). 6.Fiscal incentives for reforestationprojects were introducedas a support program for the paper and pulp industry.But since the original regulations did not bar the use of these resources for planting fruit-bearingtrees, orange growers were able to use this program to plant 9,000 hectareo of orangeriesbetween .968 and 1976, when this loopholewas closed. For further details, see Hasse (1987, 205-6). 7.The last one to disappearwas the income tax exemption on export profits. In 1989, exporters began to pay a 3 percent income tax on export-relatedprofits; the rate was raised to 6 percent in 1990. 8.The state of Sao Paulo has a history of support to agriculturalresearch that goes back to the 1930s. This research, carried on by institutionslike the Instituto Biologico,was critical to the control of several diseases that afflicted citrus trees (see Hasse 1987). 9.The investigationby the Conselho Administrativode Defesa Economica, the government unit in charge of controllingabuses of economic power, dismissed the charges in 1981 (see Hasse 1987, 249-50).
-
43 -
1O.All dollar values refer to U.S.
dollars.
11.The Foreign Trade Bureau was charged with supervising implementationof the agreement (see Duran and associates 1981). 12.The economics of U.S. imports of frozen concentratedorange juice from Brazil are detailed by Ward (1976). 13.Data on the changes in the installed capacity of the Brazilian frozen concentratedorange juice industry are frequentlyreported by Revista Citrus. 14.U.N., InternationalTrade StatisticsYearbook (variousissues). Revealed
comparative advantageis definedas (X,,nIX.)I (X,,wlW"), where X1 ,n -
Brazilian exports of industry i; X. - total Brazilian exports of manufactured goods; Xl,w = world exports of industry I; and X. - total world exports of manufactured goods. 15. The specific duty rate is applicableto orange juice in its natural form. For concentratedjuice, the duty is levied on the number of gallons of reconstitutedsingle-strengthjuice that can be produced from a gallon of the concentrate. 16. The import duty on nonconcentratedorange juice or reconstitutedjuice with a concentrationlower than 1.5 is 20 cents a gallon (see Hufbauer, Berliner, and Elliot 1986, 100). 17. Brazil was subjected to a higher level of antidumpingand countervailing duty actions per dollar exported than most developing countries over the 1980s. Finger and Messerlin (1989, 6), for instance,have asserted that among major developing country exporters,Brazil "is the only one whose share of U.S. unfair trade cases is far above its share of the U.S. import market; 7 percent versus 2 percent" for the 1980-88 period. 18. Unless otherwise stated, the informationon the countervailingduty investigationcomes from USITC (1983, 1984). 19. The usual forty-five calendar-dayperiod for issuing a preliminary determinationwas extended in this case, which was classifiedas "extraordinarilycomplicated." 20. This estimate was derived as follows: first, the amount of financing obtained by producers under Resolution 674 was multiplied by the difference between prevailingmarket intereGt rates and the preferentialResolution 674 rate. This result was then divided by the value of exports as a proxy for the ad valorem subsidy. All calculationswere based on data for fiscal year 1981. 21. The Brazilian government, by pursuing a suspensionagreement,was in essence buying an "insurancepolicy" against the possibility of a tougher final determination. 22. The ITC determinationwas based on a 1 to 1 vote, with one commissioner finding that the U.S. industrywas threatenedwith material injury by imports of "subsidized"Brazilian frozen concentratedorange juice and the other commissionerdissenting. 23. Unless otherwise stated, informationon antidumping cases was derived from USITC (1986, 1987, 1989) and AustralianCustoms Service (1987).
- 44 -
24. Figures are based on informationprovided by U.S. Department of Agriculture reports ("BrazilCitrus") and Nartinelli (1987). 25. Over the previous five seasons, the ending carryover had averaged 39,600 metric tons. 26. The investigationwas based on Cutrale's and Citrosuco's sales of frozen concentratedorange juice in the U.S. market from November 1, 1985, through April 30, 1986. For Citrosuco, the exporter's sales price (representingthe U.S. price) was compared with Citrosuco's sales to Canada, or constructed values. For Cutrale, purchase price figures were used to represent the U.S. price and sales in the Brazilian domesticmarket provided the benchmark for the foreign-marketvalue. For further details, see USITC (1987, R-2/R-3). 27. See Citrosuco Paullsta v. United States, 12 CIT, 704 F. Supp. 1075 (1988). 28. Citrosuco Paulista v. United States, 12 CIT, 704 F. Supp. 1085 (1988).A recent decision of the U.S. Court of InternationalTrade, however, confirmed the interpretationthat a petitioner in antidumpingand countervailingduty investigationsmust "show that a majority of its industry supports its petition."According to some analysts, if the frozen concentratedorange juice antidumping case were initiated today, Brazilian companieswould probably achieve better results using the "majoritysupport" argument. Yet, it remains to be seen whether this new interpretationwill be upheld in the courts. For details, see Suramerica de AleacionesLaminsdas, C.A. et al. v. United States (CustomsBulletin and Decisions 24, [September1990]: 3-22). 29. A recent administrativereview of the antidumpingduty on frozen concentratedorange juice found the followingweighted average dumping margins for the period May 1, 1988 through April 30, 1989: Citrosuco Paulista, S.A., 0.06 percent; Cargill Citrus, Ltda., CoopercitrusIndustrialFrutesp, S.A., and Montecitrus Trading, S.A., zero. Since the margins found were either zero or (in the case of Citrosuco) negligible, cash deposits are no longer required for shipments from these manufacturersas of November 14, 1990 (see USITC 1990). 30. Australia's highest share in Brazil's export revenues from frozen concentratedorange juice was 2.47 percent, reached in 1983. 31. The concept of NIFOB is consistentwith Article 8 of the GATT Antidumping Code, which allows the duty to be "less than the margin, if such lesser duty would be adequate to remove the injury to the domestic industry." 32. Since August 1984, the subsidies proividedthrough preferentialfinancing for exports have been significantlyreduced as the system of export credits was privatized. While the Foreign Trade Eureau continued to offer an interest rate equalizationplan -- financed by Fundo de Financiamentoa Exportacao, a Central Bank fund -- that provided subsidized loans for exporters, the system collapsed in 1988, when its resources dried up. For further details, see Piani and Pereira (1990). 33. It is also important to note that possibilitiesfor internationalprice arbitrage exist, despite the pervasivenessof one-to-onemarketing arrangementsbetween Brazilian producers and major distributorsin the United States and Japan. For details concerning the price performance of Brazilian frozen concentratedorange juice in European markets, see Graham (1987).
-
45 -
34. The role of the New York futuresmarketin termsof directinternational pricearbitration in frozen concentratedorange juice remains limited, however.Only a smallproportionof worldwidefrozenconcentrate transactions are intermediated by this market,which is dominatedby Floridaproducers (physicaldeliveryof the productexclusively to Floridaports is required). For furtherdetailson the functioning of the futuresmarket in frozen concentrated orangejuice,see Ward and Kilmer (1989). 35. For a theoretical analysisof the economicrationalesfor dumpingsee, for instance,Deardorff(1989).
-
46 -
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Contact for parer S. King-Watson 33730
WPS676 HigherEducationin the Republic ViswanathanSelvaratnam May 1991 of Yemen: The Universityof Sana'a OmpornL. Regel
C. Cristobal 33640
WPS677 On EconomicTransformationin East- AndresSolimano CentralEurope: A Historicaland InternationalPerspective
May 1991
E. Khine 39361
WPS678 EconomicGrowth: A Reviewof the DavidRenelt Theoreticaland EmpiricalLiterature
May 1991
R. Luz 34303
WPS679 PovertyAlleviationin Mexico
SantiagoLevy
May 1991
M. Strouide 38831
WPS680 On Hungerand PublicAction
MartinRavallion
May 1991
C. Spooner 30464
WPS681 Political-EconomyArgumentsfor UniformTariff
Arvind Panagariya DaniRodrik
May 1991
K. Cabana 37947
WPS682 IntertemporalSubstitution,Risk Aversion,and PrivateSavingsin Mexico
PatricioArrau SwedervanWijnbsrgen
May1991
S. King-Watson 31047
WPS683 VocationalSchooling,Occupational ShoshanaNeuman Matching,and Labor MarketEarnings AdrianZiderman in Israel
May 1991
C. Cristobal 33640
WPS684 The Valueof Intra-household Survey LawrenceHaddad Datafor Age-basedNutritional RaviKanbur Targeting
May1991
J. Sweeney 31021
WPS685 Childrenand Intra-household Inequality: A TheoreticalAnalysis
May 1991
J. Sweeney 31021
May1991
C. Cristobal 33640
RaviKanbur
WPS686 Lendingfor Learning: TwentyYears AdriaanVerspoor of WorldBankSupportfor Basic Education WPS687 BrazilianFrozenConcentrated OrangeJuice: The Follyof Unfair TradeCases
CarlosAlbertoPrimoBraga May 1991 SimaoDaviSilber
N. Artis 37947
