The Free Trade Area of the Americas and the Market for Processed Orange Products
Spreen, Thomas H., Brewster, Charlene, Brown, Mark G., Journal of Agricultural and Applied Economics
The proposed Free Trade Area of the Americas would join the world's two largest processed orange producing regions: Brazil and the United States. Because the United States currently imposes a sizeable tariff on imported processed orange products, there is concern by U.S. orange growers over possible adverse effects resulting from tariff elimination. A model of the world processed orange market is developed as a spatial equilibrium model with implicit supply functions based on the dynamic behavior of orange production. The model is used to estimate the impact of U.S. tariff elimination on U.S. production, grower and processor prices, and imports. The results suggest a sizeable price impact on U.S. producers if the tariff is eliminated.
Key Words: orange juice, spatial equilibrium, tariffs, trade
JEL Classifications: C61, F13
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The Free Trade Area of the Americas (FTAA) is a proposal that would create a free trade zone that encompasses nearly all of the countries of the western hemisphere. This region encompasses a population of 825 million with an aggregate gross domestic product (GDP) of US$10 trillion.1 It would be the largest free trade zone in the world. The countries included in the FTAA account for most of the world's production of orange juice. The states of Sao Paulo, Brazil, and Florida in the United States together produce 85% of the world's orange juice. Mexico and Cuba in the western hemisphere and Italy, Spain, and Greece in Europe also produce orange juice for export. World production of orange juice by country is shown in Table 1.
The United States is the largest processed orange-consuming country in the world. Canada is also a large market, despite its relatively small population; Canada's per capita consumption rivals that found in the United States.2 The other countries of the western hemisphere, however, do not have significant consumption of orange juice. Consumers in these countries still buy oranges in fresh form and produce orange juice at home. As a result, nearly all of Brazil's orange juice production is exported. Outside of the western hemisphere, the European Union (EU) is the other major orange juice-consuming region. Consumption of orange juice in the major consuming regions of the world is shown in Table 2.
The purpose of the present article is to examine the world market for orange juice, document the existing tariff structure for orange juice, and project the possible impact of the FTAA on world orange juice trade. The analysis is conducted using a mathematical model of the world orange juice market developed at the University of Florida (McClain; Brewster and Spreen).
The Impact of Not-From-Concentrate Orange Juice
The introduction of not-from-concentrate orange juice (NFC) into the orange juice markets of the United States and Canada has been one of the most important phenomena of the 1990s. Consumption of NFC in the United States has increased from <200 million single strength equivalent (SSE) gallons in 1988-1989 to >500 million SSE gallons in the 2000-2001 season (Table 3). Much of this growth has occurred despite the fact the retail prices of NFC have remained relatively stable over that period. Widespread acceptance of NFC by North American consumers has been unexpected and requires a change in the understanding of the world orange juice market.
The growth of NFC consumption in the United States and Canada affects world trade in orange juice in that nearly all of the NFC consumed in North America is produced in Florida. Mexico has exported small quantities of NFC to the United States (<4 million SSE gallons annually), but, to date, very little NFC has been shipped from Brazil to the United States. As such, an increasing share of Florida's orange crop has been allocated to NFC. …