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Anti-trust regulator says brake on Consecitrus is merely temporary



Friday November 30 2012

Volume: 40 Issue: 48

BRAZILs government has temporarily suspended ongoing efforts to jump-start Brazils Council of Orange Producers and Orange Juice Industries (Consecitrus) as a platform to coordinate activities of citrus producers and the national juice industry, in a surprise decision that could even impact the terms of last years merger between Citrosuco and Citrovita.


The Administrative Council for Economic Defense (CADE), Brazils all-powerful federal antitrust authority, issued an injunction warning that Consecitrus can only be constituted after the antitrust organ announces its final ruling on the fate of the new council.

The proposed Consecitrus association has been under scrutiny by CADE since April. The injunction, which was approved unanimously by CADE council members on 21 November, means that any eventual contracts signed based on a Consecitrus [pricing] model will be disregarded.

CADE also decided that Consecitruss founders, the Brazilian Association of Citrus Exporters (CitrusBR) representing the interests of the juice industry and the Brazilian Rural Society (SRB) representing citrus producers, have to inform producers and the public over the next 45 days that: (i) Consecitrus is still under scrutiny, (ii) CADE still has not authorised or approved its functioning and (iii) any implementation measures, including prices or contract models can only be utilised after CADEs final analysis. This information has to be divulged over the internet, as well as in newspapers and on radio stations across 30 municipalities responsible for more than half of orange production in São Paulo state.

Failure to comply with CADEs decision will result in fines ranging up to BRL100 000 (USD48 000) for each infraction. The injunction was issued after the Agriculture Federation of São Paulo State (FAESP) reported that erroneous information was being publicly presented about CADEs alleged approval of Consecitrus.

Recent facts indicate that the debate over Consecitrus may be being handled improperly, which could influence the behaviour of producers and cause grave and irreparable damage to the market, said Ricardo Machado Ruiz, CADEs rapporteur for the case.

Although the fate of the Consecitrus project will undoubtedly shape the future of relations between producers and industry in Brazils citrus sector, CADEs final ruling on Consecitrus will also influence the terms of the Citrosuco and Citrovita merger that created the largest orange juice exporting business in the world (FOODNEWS 21 May 2010).

When CADE approved the merger in December 2011 it made its decision conditional on the companies signing a so-called Performance Commitment Agreement (TCD) as specified by CADE councilor Carlos Emmanuel Joppert Ragazzo. Corrective measures in the TCD focused on two competition-related issues: (i) existence of information asymmetry and (ii) vertical integration of the orange processing industry.

In his December vote on the merger, Ragazzo explained: With the creation of Consecitrus, it is possible that the problems remedied by the TCD will be reduced or even solved. Consequently, the applicants [Fisher S/A Comercio, Industria e Agricultura and Citrovita Agro Industrial] will have to present the constitutive documents of Consecitrus to CADE, which will evaluate whether the [Consecitrus] association attends the proposals sought in the [TCD] accord.

Although the acrimonious dispute between several producer organisations and the juice industry over Consecitrus is likely to continue in the short-term, both sides might find it advantageous to broker a compromise solution that avoids a protracted and costly stand-off in times of uncertainty for the sector.

The situation will now become much more difficult. In addition to the lack of a mutual understanding on the establishment of a [Consecitrus] council, we will, on the other hand, again face a harvest without [adequate] remuneration. These two things will now be coupled, warned Marco Antonio dos Santos, president of Brazils Sectorial Chamber of Citrus Production.

ANALYSIS
You cannot buck the market. All efforts made by Consecitrus to establish a bridge between orange processors and growers have collided head-on with the reality of a huge over-supply of FCOJ. The first moves to establish Consecitrus were made two and a half years ago, and throughout that time there has been continual conflict between the two sides. Even last week, it was attacked by the São Paulo State Federation of Agriculture (FAESP) (FOODNEWS 23 November).

Bluntly, the virtual cartel that is now the Brazilian orange juice processing industry can do what it likes, and the independent growers are effectively sidelined. The Big Three have already shown that they can maintain a high price for FCOJ, even though they are sitting on a massive lake of the product, and global demand is stagnant. Price models and subsidies mean nothing. The processors now control a substantial part of the growing operation, through their vertical integration, and if independent growers become disgusted with the poor returns they receive for their fruit and decide to give up growing oranges, the Big Three may be perfectly happy to buy their citrus groves and increase their stranglehold still further.

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