FCM Mutual Musings: OJ Tariff Critical To Florida Citrus

By Mike Sparks|October 24, 2011

As policymakers continue to discuss free trade pacts, and Brazil’s economy expands by leaps and bounds, it is crucial to remember the importance of the orange juice tariff on the future of Florida’s citrus industry.

The orange juice tariff was created with passage of the Smoot-Hawley Act in 1930. The Act imposed a tax of 70¢ per single strength equivalent gallon on imported citrus juice. With the rise of Brazil’s processed citrus industry, that country’s OJ exporters now pay the bulk of the tariff duties each year. Since the tariff’s inception, the Florida citrus industry has waged many battles to keep it in place. After much negotiation and legislation over the past several decades, the tariff now sits at 29¢ per gallon on frozen concentrate and 17¢ per gallon on not from concentrate orange juice.
The money derived from the tariff — up to $90 million per year depending on imports — now goes to the U.S. Treasury, although there is an ongoing effort lead by Florida Citrus Mutual to direct a portion of the dollars into a citrus research trust fund to finance worldwide citrus research.

Economic Reckoning

The citrus industry provides a $9 billion economic impact annually on the state of Florida and employs nearly 76,000 people. If the tariff is reduced or eliminated, those significant economic benefits would be lost.
Florida Citrus Mutual’s economic analysis concludes that without the tariff, Florida fruit prices would decrease by 15¢ per gallon per year at current pricing and import rates. This equates to almost $150 million in grower revenue per year.

A farm gate decrease of this magnitude would immediately reduce Florida production. Plus, higher prices to Brazilian growers would actually increase production in that country and result in the migration of world OJ production from Florida to Brazil.
Why is this bad? Because 90% of the world’s orange juice is manufactured in two locations: Florida and Brazil, making orange juice one of the most concentrated commodities in the world from a production standpoint. Eliminating the tariff would give Brazil a monopoly on the world orange juice market. Not only would this be disastrous for Florida’s economy but consumers would most likely experience soaring retail prices.
Proponents of free trade seek to increase competition, decrease cost to the consumer, and encourage additional players to enter the market. The lack of a tariff would create a cartel-like marketplace that promotes just the opposite.

Deep Impacts

Florida citrus growers are the most efficient producers in the world, implementing cutting edge agricultural techniques to maximize yields. This efficiency is achieved while adhering to expensive environmental and labor standards that are non-existent in Brazil. Consequently, the OJ tariff levels the playing field while stimulating competition that wouldn’t occur if it were not in place. Policymakers should not view this fact as rhetoric. Brazilian juice processors have a history of dumping below cost juice into the U.S. marketplace in order to undercut competitors and put them out of business. The predatory practice is a violation of international trade law. Right now, a handful of Brazilian processors are under a strict order by the U.S. government to ensure they are not continuing to dump juice in the U.S. Any reductions in the tariff would further exacerbate the inequalities that have been endemic in this market for the past 20 years.

Finally, and most importantly, hundreds of rural communities in Florida’s interior rely heavily on the citrus industry for economic stability, tax base, school funding, and social programs. These towns would suffer immensely if the tariff wasn’t in place and production waned. The 13 active processing plants in Florida require a certain amount of fruit to remain economically viable and certainly reduced production would put them at risk of closure.
At a time when the state’s economy is unsteady and jobs are a premium, the importance of a viable citrus industry cannot be understated. The orange juice tariff goes a long way in keeping us intact. Florida Citrus Mutual will continue to fight for it.