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Emerging Nations to Keep Brazil Oranges in Black

 

Source: Reuters
17/02/2009

 

Sao Paulo, Feb 17 - High stocks, weak demand and the credit crisis have not been kind to the orange juice sector in top world producer Brazil, but purchases by emerging nations should eventually help revive it, an industry executive said on Monday.

 

Orange juice futures on the New York exchange are trading at 68 cents per pound, half what they were a year ago and well below the $2 reached at the end of 2006 when hurricanes in U.S. orange grower Florida in the preceding two years cut output.

Henrique Freitas, executive director of Louis Dreyfus Commodities, which processes and exports frozen concentrated orange juice from Brazil, said the product had a bright future but it was put on hold by the state of the global economy.

"In the medium term, incomes should rise in poorer countries, Latin America, India and Eastern Europe and earning more, you have access and can switch from sodas to juices," he said.

Chinese demand, driven by year upon year of strong economic growth until the credit crisis erupted last September, provided growth for the product as diets improved with better incomes.

Meat consumption also soared there for the same reason.

Brazil's orange industry controls about 80 percent of the international orange juice market and the sector earns around $2 billion per year.

Dreyfus plans to invest 550 million reais ($241 million) in factories, transport and plantations from 2008 through 2012 to expand on its existing three processing units in Brazil and one in Florida, which can handle 90 million 40.8 kg boxes of oranges.

Freitas said the orange juice industry had lost market share to other drinks in the United States and in Europe due to rising prices, the result of which was an accumulation of stocks.

He said prices had languished despite the most recent harvests producing less than in 2007 in Brazil. Citing data from market research firm ACNielsen, he said demand in the United States tumbled 25 to 30 percent over eight years.

Analysts say the harvest in Brazil's top orange-growing state, Sao Paulo, should end at around 310 million boxes, offering a lower estimate than the government's 360 million. Output in the 2007/08 season was 368 million boxes.


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