[-) BUREAU O F AGRICULTURAL ECONOMICS, CANBERRA

AUSTRALIAN CITRUS INDUSTRY

BAE Submission to Industries Assistance Commission lnquir y

INDUSTRY ECONOMICS MONOGRAPH No. 18

AUSTRALIAN GOVERNMENT P U B L I S H I N G S E R V I C E CANBERRA 1977

(C) COMMONWEALTH OF AUSTRALIA 1977

ISBN 0642 03315 3

Printed by Canberra Reprographic P r i n t e r s , Fyshwick A.C.T.

(iii)

This monograph presents economic research and analyses of the Australian c i t r u s industry carr ied out by the Bureau of Agricultural Economics and presented t o the Industries Assistance Commission. The Commission is required t o inquire in to and report on t h i s industry as a consequence of a reference of 28 Ju ly 1976 from the Minister f o r Business and Consumer Affairs.

The submission summarises and discusses data which the Bureau has collected relat ing t o the physical and economic s i tua t ion of c i t r u s producerst properties. I t also presents the r e su l t s of current and ongoing economic research which the Bureau is undertaking i n connection with the c i t r u s industry.

Preparation of the submission was by a group of Bureau of f icers comprising Herb Plunkett, Denis Hussey, Trevor Francis, Ivan Roberts, Jameel Khan, Doug Cox, W i l l Martin, Lynden Gatenby and Kym Jervois. Messrs Hussey and Roberts presented the Bureau's evidence t o the Commission on 5 October 1977.

GEOFF MILLER Director

Bureau of Agricultural Economics CANBERRA, A.C.T.

November 1977

CONTENTS

Page

Foreword

Summary

BAE Submis S ion

I: Introduction

IV:

v:

Attachments

The World Situation and Prospects for Oranges

The Australian Citrus Industry

Farm Adjustment in the Citrus Industry

Concluding Comments

World Production, Trade and Prices for Orange Juice Concentrate

Pricing of Australian Citrus

The Australian Citrus Growing Industry - BAE Survey Results for 1974-75 and Estimates for 1975-76 and 1976-77

Overall Economic Assistance to Citrus Growing and Citrus Industry Adjustment in Australia

Supply Response and Production Projections for Oranges

Size Economies in Citrus Production: Some Preliminary Results

(iii)

(v >

Over recent years Aus trazia ' S c i t rus juice imports, particular Zy orange juice, have been an important influence on both the economic situation of the Australian industry and the changes that have been made to protect the industry. The avaiZabiZity and price of imports have caused competitive d i f f i cu l t i es for the local industry.

The World Situation

Since the early 1960s world orange production has been expanding faster than growth i n demand and international prices for oranges, and orange products have, i n real terms, trended dowmrds. This price trend i s l ike ly t o continue as new plantings and expanding production i n Brazil and other developing countries result i n export supplies growing faster than the expected increase i n world import demand.

This suggests that import prices are l ike ly t o continue a t levels which will cause local producers and processors competitive d i f f i cu l t i es . As i n the past, prices can be eapected t o fluctuate, mainly i n response to short run seasonal influences, e.g. the recent Florida freeze.

Domestic S i t w t w n

Since the early 1960s the d e r of ci trus producers has been declining and average farm s ize increasing. Australian production has been expanding through increases i n both bearing tree numbers and yield per tree, with yield increases predominating i n recent

l years. !The increased production has virtually a l l been processed.

Domestic consumption has changed considerably i n recent years. Total consumption of ci trus per head has risen faster than domestic production since the mid-1960s. Most of the increase has been i n the form of juice which now constitutes, i n terms of fresh equivatent, almost SO% of to tal ci trus consumption as opposed t o 20% i n the mid-1960s.

Per caput fresh consumption has declined i n recent years. Increasing juice consumption, mainly orange juice, has been associated with increasing juice imports.

l

I Grower Prices and Price Formation

Prices for fresh ci trus i n money terms have been relatively stat ic , implying declining real prices. Until the mid-1970s, increasing money prices for processing ci trus Zargely o f f s e t inf lat ion and maintained real prices. Since then real prices have tended t o decline .

Prices for c i t f ; ~ z s in Australia are deter~qzad partly by i n s t i t u t i o m l mranyements and partly by the interaction o f free market forces. M i n i m prices for processing c i t rus are determined ins t i tu t ional ly by FISCC am: t h i s influences fresh market prices.

Bureau research suggests that orange juice consumption i n Australia i s sufficientZy price responsive t o be reduced by high import duties t o a level approximately consistent with Zocal auaiZabiZity. Import duty i q the region of 14 cents per l i t r e single strength would eur:~iently tend t o bring domestic production and ~ n " r l ~ q t i o n in te balance . However, such high prices could Zead t o increased production and probable imbalances between domestic avaiZabiZity and consumption i n the longer term.

Farm Situation

Bureau survey data indicate considerable differences i n the physical and eco~zomic characteristics o f c i t rus farms between and within regions.

Some 70% of aZZ growers have properties of less than 30 hectares. Two-thirds of the average to ta l orchard and vineyard area i s occupied by c i t rus . The Outer Metropolitan region of N.S. W. i s most speciazised and the Riverland region of South AustraZia i s Zeast specialised.

I n 1974-75, net farm income averaged $7816. Estimates ranged from an average of $12 997 i n Mid-Murray and $12 596 i n the Riverland Region t o $642 i n RobinvaZe. Overall average net farm income has been estimated a t $7345 i n 1975-76 and $8496 i n 1976-77, the increase i n 1976-77 being entirely the resul t o f higher returns from non-citrus enterprises. Although there i s considerable variation around these averages, the income si tuat ion i n the c i t rus industry as a whole compares favourably with a number of other rural industries.

Total household income i n 1974-75 averaged $7618. The highest average househoZd incomes were i n Mid-Murray ($21 670) and MIA ($10 957) Regions of N.S.W. while Robinvale had the lowest ($1932). About half the households had incomes of less than $6000. On average, s l ight ly over one-third of household income had i t s origin o f f the operator ' S property, principal Zy from o f f - farm investments.

A t 30 June 1975 the average net worth of households was $102 564. Differernes between regions indicate tha t even i n regions o f low net income, the overall economic welfare position of most households may be quite sound when account i s taken of net worth.

Economic Assistance t o Citrus Growing

The estinaates of the e f fec t ive rate of protection for the c i t rus enterprise i n 1974-75 indicate that, a t 60%, c i t rus production i s a reZativeZy 'high cost ' industry compared with many other rural and manufacturing industries. l'he resul t s also indicate there are considerabZe differences within and between regions i n the benef i ts received from exis t ing assistance measures.

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T a r i f f protection i s the major single item providing assistance to the industry. The consumer transfers resulting from th i s protection increased i n 1975-76 and remained a t the higher level i n 1976-77. This suggests that, since 1974-75, the ef fect ive rate of protection for ci trus growing has increased.

. Current welfare probZems i n the ci trus industry would be exacerbated i f assistance was suddenly removed. Even with assistance, it i s estimated that, i n 1974-75, 39% of producers received househoZd incomes of less than $4000. Without t a r i f f protection the' proportion would have been 67%.

Size Econonries

Changes which have been occurring i n the industry suggest the existence of s ize economies. Conparison of survey results for di f ferent net farm income groups, quintiZe anaZysis of f m survey data and s tat is t ical f i t t ing of average unit cost functions also indicate their existence.

Economies of s ize appear t o be avaiZabZe over a wide range of output and on both diversified horticuZturaZ and speciatist ci trus properties.

Economies of s ize were most marked up to a ZeveZ of total output i n value terms of $25 000 and were largely exhausted a t $50 000. Survey i n f o m t i o n indicates that output up t o around $30 000 i s possib Ze before there i s significant eniptoyment of non-family Zabour, mking the economies achievable on famity farms.

SuppZg Response

Citrus production i s characterised by long term investment and considerabZe Zags between planned expansion i n production and i t s fruition. ConuerseZy, a decision t o contract output can Zead t o an imediate reduction i n production.

Bureau research indicates that it requires very Zarge changes i n profitabizity to evoke naore than smZZ changes i n total tree numbers. To retain total orange tree numbers a t around present ZeueZs, processing orange prices would need t o be maintained i n reaZ terms a t around 1976-77 ZeveZs. A t th i s level continued expansion i n production from increases i n yields could be expected.

In the past, considerabZe uncertainty suxrounded Zonger term retuxns. I f protection reduced th i s uncertainty, tree numbers might expand even without an increase i n prices.

I f assistance encouraged industry expansion, the necessary regources would mainly come from other horticuZturaZ industries. AZternatiue Zy, i f assistance necessitated industry contraction, then the converse would onZy partiaZZy occur. Many dispzaced resources, especiaZZy labour, would have t o transfer t o off-farm employment. RegardZess of future assistance and returns, there w i Z Z continue t o be sh i f t s i n the production base betueen regions i n response t o differences i n reZative productivity and profitability.

(yiii)

A t one extreme, protection and hence prices could be raised t o a level which Z)aZamed domestic consumption and avai labi l i ty . This would involve large transfer pcyments from consumers t o producers and increase the industry's e f f e c t i v e protection. Citrus production would probably expand in. the longer term and exceed domestic requirements a t those prices. This could necessitate production control. Overall, t h i s would be an undesirable s i tuat ion from the viewpoint of economic ef f ic iency.

Without protection, prices would f a l l and imports would increase. A large proportgon of the existing domestic industry would become unprofitable . Pence, the k e d i a t e removal of protection would exacerbate low income and welfare problems i n the industry.

To become more competitive with imports, the industry w i l l need t o make considerabZe changes and adjustments. SubstantiaZ changes i n the recent pa;t have already markedly improved the economic ef f ic iency and prof i tabi l i ty of many c i t rus growers. Considerable opportunities. remain for further change and improvement i n t h i s direction. PO l i c i e s t o encomage and fac i l i t a t e adjustment would seem appropriate. The current RmaZ Adjustment Scheme i s aimed a t providing t h i s type of assistance. However, despite these types o f s trategies , a d d i t w w l welfare assistance i s l i k e l y t o be required by some sectors of the industry i n the short term.

BAE SUBMISSION

I n t r o d u c t i o n

This submission t o the IAC's inquiry i n t o the c i t r u s industry

has two broad objectives. The first i s to summarise and discuss data the

Bureau has col lected r e l a t i n g t o the physical and economic s i t ua t i on of

c i t r u s producers. The second i s t o present t h e r e s u l t s of current and

ongoing economic research the Bureau i s undertaking i n connection with t h e

c i t r u s industry. The data and research r e s u l t s t ha t a r e presented a r e

aimed a t contributing t o reviewing t he current s i t ua t i on i n t he industry

and enabling a broad assessment of l i k e l y fu ture trends and of how these

could b e influenced by the degree and type of protect ion/ass is tance t he

industry might receive.

The economic and physical data r e l a t i n g to c i t r u s producers have

been co l lec ted a s p a r t of the Bureau' S continuous and comprehensive farm

survey program which covers most major r u r a l i ndus t r i e s i n Austral ia. I t

has been col lected from a sample of c i t r u s producers using methods of

se lec t ion aimed a t ensuring information representa t ive of the industry a s

a whole. I t has been presented and discussed on a regional ba s i s because

of the important and often s i gn i f i c an t differences between regions i n the

c i t r u s industry. I n t h i s submission, comprehensive farm survey data a r e

presented f o r 1974- 75. Physical information avai lable f o r 1975- 76 has

been supplemented by est imation of some of t h e f inanc ia l information.

Estimation and indexing techniques have been used t o provide the IAC with

forecasts of the economic s i t u a t i o n i n t he industry i n 1976-77,

The various pieces of research reported i n t he submission r e l a t e

t o both production and pr ic ing. I n the main, the r e s u l t s a r e re levant t o

the re turns of c i t r u s producers and how these might vary a s a d i r e c t o r

i nd i r ec t r e s u l t of changes i n protect ion, p r ices , production and

adjustment i n the industry. I n some instances t he research i s of a

preliminary nature , being p a r t of t h e Bureau's ongoing program. While

t h i s means t h a t some of t he r e s u l t s must be in te rpre ted with caution they

a re able t o be used a s a ba s i s f o r considering what e f f e c t s changes i n

economic circumstances a r e l i k e l y t o have on t he industry.

Although the submission i s addressed t o a l l types of c i t r u s ,

emphasis tends t o be given t o oranges. This r e f l e c t s t he importance of

oranges i n the t o t a l industry s i t ua t i on .

Most of the data and research r e s u l t s i n t he submission have

been presented a s a s e r i e s of Attachments. The main contents and

conclusions of these Attachments a r e drawn together and summarised i n the

submission proper.

The submission does not come t o any s ingular conclusion about

appropriate po l i c i e s f o r t he c i t r u s industry. Such a conclusion i s

dependent on both pol icy object ives and t he complex in te rac t ion of a l l

factors affect ing the industry, some of which a re not considered here.

However, the material does del ineate some key considerations which w i l l be

important i n deciding the extent and nature of any protect ion/ass is tance

given t o the industry. These a r e brought together and discussed i n the

concluding sect ion of t he submission.

11: The World S i t u a t i o n and Prospec ts f o r Oranges

Over recent years c i t r u s ju ice imports, pa r t i cu l a r l y orange

juice, have been an important influence on both the economic s i t ua t i on of

the Austral ian industry and the changes t ha t have been made t o industry

protect ion. An important consideration has been the a v a i l a b i l i t y and

p r i ce of imports which have caused competitive d i f f i c u l t i e s f o r t h e loca l

industry.

In ternat ional developments w i l l continue t o be an important

influence on the Austral ian c i t r u s industry. The a v a i l a b i l i t y and pr ice

of ju ice in te rna t iona l ly w i l l influence the local industry 's a b i l i t y t o

compete with imports and, accordingly, the nature and extent of ass is tance

necessary t o p a r t l y o r completely p ro tec t the industry from import

competition.

Attachment A reviews recent trends i n the world orange s i t ua t i on

and explores l i ke ly fu ture trends i n the in te rna t iona l a v a i l a b i l i t y and

pr ice of orange juice.

World orange production has been r i s i n g a t jus t over 5% per year

s ince the ear ly 1960s. Despite r i s i n g population, income growth and

favourable t a s t e changes, demand has not expanded a s f a s t . Consequently,

in te rna t iona l p r i c e s f o r oranges and orange products i n r e a l terms have

trended downwards. The proport ion o f world orange production processed

has been r i s i n g and now accounts f o r over 40% of output.

Growth i n orange production has been marked i n both t he USA and

Brazil , the world's two l a rge s t producers. I n the USA, ju ice has been t he

predominant o u t l e t f o r oranges f o r many years. Although the USA consumes

most of i t s ju ice production i t i s nonetheless an important exporter i n

most years. About h a l f o f Braz i l ' s r ap id ly expanding orange production i s

processed i n t o ju ice concentrate and near ly a l l of t h i s i s exported.

In te rna t iona l t rade i n orange ju ice concentrate has increased

s ix fo ld s ince the mid-1960s t o about 350 000 tonnes i n 1975. Brazil

contributes some 60% of t h i s t r ade and the USA 20% i n most years. The

main markets a r e i n Western Europe and North America, including the USA,

with Oceania of l e s s e r importance. To date the growth i n demand f o r

orange ju ice has been confined t o these higher income countr ies and t h i s

i s expected t o continue t o be the case f o r some time. Many of these

markets cannot produce thei; own supplieb and t he development of frozen

concentrate has enabled countr ies l i k e Brazil t o overcome loca t iona l

disadvantages i n t h i s t r ade and export very competitively.

A s teep upward t rend i n orange plant ings i n Brazil has been

encouraged by a combination of favourable climate, abundant s u i t a b l e land

with l imi ted a l t e r n a t i v e uses, low labour co s t s and government support

measures. Similar f a c to r s have encouraged rap id expansion i n p lant ings i n

Cuba, Egypt, Greece, Turkey and Argentina. Unti l now, most production

growth i n Brazil has been through increased numbers of bearing t r e e s .

This i s expected t o continue bu t increases i n y i e ld s a r e now a l so

ant ic ipated. I n con t ras t , the recen t rapid expansion i n F lo r ida ' s

production has been l a rge ly due t o y i e l d increases. Declining bearing

area and changing age s t r uc tu r e o f t r e e s i s expected t o slow down the r a t e

of production growth i n Flor ida i n the coming years.

Nevertheless, future prospects suggest that world production

growth w i l l tend to be greater than the expansion i n demand. A s a r e su l t ,

international prices i n rea l terms fo r orange juice concentrate a re l ike ly

to continue to come under downward pressures. Broadly, t h i s suggests tha t

import prices a re l i ke ly to continue a t levels which cause local producers

and processors competitive d i f f i cu l t i e s .

A s i n the past , international prices can be expected t o

f luctuate around t h i s trend, mainly as a r e su l t of seasonally induced

fluctuations i n production. The pr ice e f fec ts of the recent freeze i n

Florida i s an example. This has caused a marked increase i n world pr ices

although l i t t l e long term damage t o t rees has been reported and current

high prices are considered a short term phenomenon.

111: The Australian Citrus Industry

There a re a number of key features which have characterised the

Australian c i t rus industry since the early 1960s. These are:

. r i s ing production through increases i n both yield and bearing

t r e e numbers i n the 1960s and predominantly y ie ld increases l since then, l

. increasing quant i t ies being processed, accounting for most of

the increase i n production,

. re la t ive ly s t a t i c , and more recently declining, per caput f resh

consumption,

. r i s ing money prices for processing c i t rus with re la t ive ly s t a t i c

r ea l processing prices un t i l the mid-1970s when rea l pr ices ~ s ta r ted t o decline, 1

. re la t ive ly s t a t i c money prices f o r f resh c i t rus and hence

declining r ea l prices,

. a declining nuniber of c i t rus producers and increasing average

farm size.

In the f i r s t instance these developments have seen a growth i n

the economic s i z e of the c i t r u s producing industry. The gross value of

Austral ian c i t r u s production was $64.2 mil l ion i n 1976- 77, approximately a

threefold increase s ince the beginning of the 1960s. I n 1976-77 the

industry accounted f o r nearly 17% of the value of a l l Austral ian

ho r t i cu l t u r a l production.

I n recent years, economic pressures on c i t r u s producers have

increased. Rising costs , associated with high r a t e s of domestic

in f la t ion , and r e l a t i v e l y low world orange ju ice p r ices and markedly

increased imports have been important i n t h i s regard. Continuous changes

and improvements i n production and productivity have helped o f f s e t t he

influence of these fac tors t o some extent . In recent years increases i n

industry protect ion have a l so been important. However, the s i t ua t i on on

individual farms has varied considerably. In pa r t i cu l a r , the economic

s i t ua t i on i n some regions has been considerably more depressed than i n

others .

Generally, p r ices p reva i l ing over recent years f o r c i t r u s and

c i t r u s products, together with income growth and changing t a s t e s and

preferences, have resu l ted i n domestic demand outs t r ipping loca l

ava i l ab i l i t y . The tendency has been f o r imports t o br idge t h i s

demand/availability 'gapt .

(a) Production --

Austral ian c i t r u s production has grown a t a trend r a t e of 5.4%

per year s ince the 1960s, to be a t a peak o f 444 000 tonnes i n 1975-76.

Orange production,which represents some 80% of c i t r u s production,has

tended t o l eve l out i n recent years.

This pa t te rn of growth arose from heavy plant ings of both navel

and valencia oranges and mandarins i n the decade ended 1965-66. Since

then, p lant ing r a t e s have declined and removals have been r e l a t i v e l y large

fo r the industry as a whole mainly a s a r e s u l t of changing market

expectations, urban encroachment and competition from other crops.

However, changes i n plant ings and removals have d i f fe red s i gn i f i c an t l y

between regions. Production growth has been maintained as these e a r l i e r

plantings have come i n t o f u l l bearing and advances i n management

techniques have l e d t o increases i n yie lds . There has been an upturn i n

plantings of valencias over t he pa s t few years resu l t ing i n an increase i n

the r e l a t i v e importance of t h i s var ie ty presumably a s a response t o

changing market circumstances. However, production growth of oranges and

mandarins i n the next f i v e years o r so w i l l be influenced largely by y i e ld

improvements.

Bearing lemon t r e e numbers have been increasing s ince 1964-65

~ along with subs tan t ia l technological improvements i n production methods.

l Non-bea~ing lemon t r e e numbers increased consis tent ly from 1964-65 t o

1 1973-74 bu t a depressed market s i t ua t i on f o r lemons over the past two

~ years has been r e f l ec t ed i n lower new plantings. Grapefruit t r e e numbers

l have a l so been increasing with an upsurge i n plant ings i n the ea r ly 1970s

l due t o a very high level of demand a r i s i ng from the popular i ty of t he

l grapefrui t d i e t . These increased plantings w i l l r e s u l t i n a sharp

l increase i n production i n t h e l a t t e r ha l f of t he 1970s and there has been a

decline i n the number of non-bearing grapef ru i t t r e e s s ince 1973-74.

(b) Consumption and Imports

Changes i n consumer demand have resu l ted i n marked changes i n

l the u t i l i s a t i o n of production f o r domestic consumption during recent

years. Austral ian t o t a l consumption of c i t r u s per head has r i s en rapidly

s ince the mid-1960s, averaging an estimated 19.47 kg f resh equivalent per

head i n 1962-63 compared with 35.76 kg per head i n the two years ended

1975-76. Most of t h i s increase has been i n t he form of juice, which now

cons t i tu tes almost 50% of t o t a l c i t r u s consumption i n terms of f resh

equivalent, against about 20% f o r several years p r i o r t o 1965-66, while

per head consumption of f resh c i t r u s has been declining s ince about

1971-72, with the decl ine apparently accelera t ing recently.

The increase i n the share of production t ha t i s processed has

occurred f o r a l l types although only small quan t i t i e s of mandarins a r e

processed. During the pas t two seasons valencias accounted fo r s l i g h t l y

over 62% of t o t a l c i t r u s processed. About one-third of navel oranges a re

now processed. This development i s a response t o t he buoyant demand fo r l processing oranges and progress i n overcoming b i t t e rne s s due t o limonin.

The proportion of lemons and grapefrui t processed has been maintained a t a

high level .

The increased demand fo r c i t r u s ju ice appears t o have occurred

largely i n response t o r i s i n g r ea l incomes and a changing t a s t e preference

fo r processed convenience goods. Growers have a l so encountered rap id ly

r i s i n g packaging and marketing cos t s f o r f resh c i t r u s . These f ac to r s have

combined t o cause processing re turns t o growers t o r i s e r e l a t i v e t o

re turns from fresh s a l e s , giving an increased incent ive t o channel f r u i t

i n to processing.

Growth i n consumption of c i t r u s ju ice , mainly orange juice, has

been averaging nearly 20% per year s ince 1969. In the pas t two years t h i s

strong growth has been susta ined despi te reduced r a t e s of income growth

and it appears t ha t subs tan t ia l increases i n demand w i l l occur i n t he

future. This development i s s imi la r t o most western countries,

pa r t i cu l a r l y USA where consumption of c i t r u s ju ice i s some 17 l i t r e s pure

f r u i t ju ice equivalent per head compared with about 9 l i t r e s i n Austra l ia .

Additionally, U.S. consumption i s s t i l l r i s i n g and hence i t i s d i f f i c u l t

to an t i c ipa t e exactly when the growth i n Austral ian consumption w i l l slow

although it w i l l be influenced by domestic p r i ce developments.

Austra l ia ' s average consum9tion i n terms of l iqu id volume intake would be

greater than the quan t i ty mentioned above, because s i gn i f i c an t and

increasing quan t i t i es of ju ice a r e consumed i n f r u i t drinks incorporating

a proportion of pure c i t r u s .

Over recent years t he a b i l i t y of t h e domestic industry t o

compete with imports has decreased subs tan t ia l ly . Between 1965 and 1975,

minimum pr ices f o r oranges s e t by FISCC doubled r e l a t i v e t o estimated

landed duty paid cost of imported orange juice. A s a r e s u l t of these

p r ice movements orange ju ice concentrate imports began t o r i s e s teep ly i n

19 73- 74.

I n 1974-75 and 1975-76 import clearances of orange ju ice had a

f resh f r u i t equivalent of some 47 000 and 79 000 tonnes respect ively , o r

21.9% and 31.5% of t o t a l orange ju ice supplies. Industry co-operation

through t h e Ci t rus Panel i n 1974 and 1975 and an apparent t a s t e preference

fo r the domestic product i s believed t o have constrained imports i n those

years. After an inquiry by t he Temporary Assistance Authority addi t ional

protect ion i n the form of t a r i f f quotas was introduced f o r t he 1976-77

season. Following an in ter im repor t from t h e IAC i n February 1977, the

government replaced ex i s t i ng protect ion with a 65% ad valorem t a r i f f on

a l l imported orange ju ice f o r 1977-78 pending IAC recommendations on

longer term ass is tance measures f o r t he Austral ian c i t r u s industry.

Pr ices and Pr ice Formation

The p r i ce s f o r c i t r u s i n Austra l ia a re determined p a r t l y by

i n s t i t u t i o n a l arrangements and p a r t l y by t he in te rac t ion of f r ee market

forces. I n the case of oranges the minimum processing p r i ce is determined

i n s t i t u t i o n a l l y by FISCC and influences t he p r i ce s a t which f resh f r e e

market s a l e s a r e made.

I n Attachment B an attempt has been made t o describe and explain

t h i s process of p r i ce formation f o r oranges by a s e r i e s of equations. The

Attachment aims t o i den t i fy t he fac tors affect ing orange pr ices and how

they i n t e r a c t i n determining t he quan t i t i e s marketed i n d i f f e r en t ou t l e t s ,

viz.processing and f resh. The r e s u l t s a s s i s t i n assessing t he e f f e c t s on

producers1 re turns of po l ic ies influencing pr ices and, i n conjunction with

the supply response analysis reported i n Attachment E , on the l eve l of

Austral ian orange production.

The fac tors considered important i n determining f resh market

pr ices and the quan t i t i e s marketed f resh and processed a re the l eve l of

production, FISCC pr ices f o r processing f r u i t and developments i n t h e

demand f o r f resh and processing c i t r u s . The model describing t he

in te rac t ion of these fac tors was f i t t e d t o data f o r t he period 1956-57 t o

1973-74. The r e s u l t s obtained were then used t o p r ed i c t a l locat ion

between processing and the f resh market and wholesale f resh market p r ices

i n 1974-75 and 1975-76. These predic t ions were then compared with actual

a l loca t ion and pr ices i n evaluating the performance of the model.

The estimates of t he quan t i t i es processed were qu i te accurate.

However, the model over estimated f resh market p r ices . This was despi te

the f a c t t h a t t he model a l so s l i g h t l y overstated the quant i ty so ld fresh.

The r e l a t i v e ' f a i l u r e 1 of t he model i n t h i s regard i s thought t o r e f l e c t

the f a c t t ha t the downtrend i n t he demand f o r f resh oranges has

i n t ens i f i ed i n recent years. Thus, while the mod61 may be used t o

estimate the e f f ec t s of changes i n processing pr ices upon quan t i t i e s

processed and consumed fresh and on growers' r e t c m s i n t he pas t ,

projections using the model are l i ke ly t o over est imate f resh market

re turns i f the i n t ens i f i ed downward trend i n f r e sh market demand continues

The model described above has a l so been used t o explore l i k e l y

changes i n un i t returns t o growers f o r a l l oranges when landed duty paid

pr ices vary e i t h e r as a r e s u l t of changes i n protect ion o r import pr ices .

The exact e f f e c t on producer re turns of changes i n import dut ies (prices)

depends on whether any difference between import and loca l p r i ce i s due t o

qua l i ty differences o r quan t i t a t ive r e s t r i c t i o n s i n recent years. There

i s no a priori bas i s f o r deciding the importance of each f ac to r so t h e

analysis has been conducted a t t h e two extreme s i tua t ions .

The r e s u l t s therefore ind ica te how producer re tu rns might vary

when the r a t e of duty on imports i s varied and depend upon whether o r not

local ju ice can command a qua l i t y premium over imports.

Assuming no qua l i t y premium, grower re tu rns f o r a l l oranges a r e

estimated at $44/tonne (1976-77 pr ices ) when no duty i s applied t o

imports. Grower re turns increase t o $65/tonne a t a duty of 4 . l c / l i t r e and

$ l l l / tonne when the duty i s 12c / l i t r e . A s would be expected, grower

re turns a r e s l i g h t l y higher a t the same duty l eve l s when it i s assumed

tha t local juice commands a qua l i t y premium.

Attachment B a l so presents an assessment of t he e f f e c t s on the

consumption of orange ju ice of changes i n p r ices a r i s i ng , f o r example,

from increases i n import duties. I t i s estimated t h a t i n 1976-77, duty

would have had t o exceed approximately 1 4 c / l i t r e before consumption would

have f a l l e n t o roughly domestic ju ice production thus removing t he need

for imports. However, t h i s estimate i s approximate only and very

dependent on the assumptions underlying it, pa r t i cu l a r l y t he assumed p r i ce

e l a s t i c i t y of demand f o r orange ju ice i n Austral ia. Furthermore, even a t

levels of duty i n the region of 14c / l i t r e some imports could be expected

because of the range of p r ices a t which imports a r e avai lable and because

of o ther shor t term fac tors such as the level of stocks and maintaining

throughput, s a l e s , e tc . i n t he processing and marketing chain.

However, the ana lys i s does suggest t ha t orange juice consumption

i n Austra l ia i s s u f f i c i e n t l y p r i c e e l a s t i c t o be reduced by high du t ies t o

a l eve l approximately consis tent with loca l a v a i l a b i l i t y . Addit ionally,

however, high p r ices might be expected t o e l i c i t increased production i n

the longer term and a r e su l t i ng imbalance between a v a i l a b i l i t y and

consumption a t such p r ices . This could r e s u l t i n the indust ry not being

able t o f u l l y u t i l i s e such high protect ion i f domestic supply and demand

were t o be kept i n balance.

(d) The S i tua t ion a t the Farm Level and Industry Protection

In 1975 the Bureau i n i t i a t e d a continuous farm survey o f

h o r t i c u l t u r a l indus t r i es . P r i o r t o t h i s , h o r t i c u l t u r a l indus t r i es were

surveyed only on an i r r egu l a r bas is . A s p a r t of the new continuous

survey, farm physical and f inanc ia l data were col lec ted fo r the c i t r u s

industry i n 1976. The survey data summarised i n t h i s submission and

presented i n Attachment C r e l a t e t o the years 1974-75 ( fu l ly survey data) ,

1975- 76 (par t ly estimated) and 1976-77 ( fu l l y estimated).

Ci t rus f r u i t s a r e grown commercially i n every S t a t e except

Tasmania, the p r inc ipa l growing areas being located i n N.S.W., South

Austra l ia and Victor ia . The Bureau's survey has co l l ec ted information

from the regions where the indust ry i s mainly concentrated, namely the

Sydney Outer Metropolitan Region, MIA, Sunraysia and Mid-Murray i n N.S.W.,

Sunraysia and Robinvale i n Victor ia and the Riverland Region i n South

Austra l ia . The survey data a r e presented on t h i s regional ba s i s because

of the considerable d i f ferences i n the physical and economic

cha rac t e r i s t i c s o f c i t r u s farms between regions.

The physical cha r ac t e r i s t i c s of farms vary considerably,

pa r t i cu l a r l y between regions. The Outer Metropolitan Region of NSW i s t he

most spec ia l i sed and the Riverland Region o f South Austra l ia i s l e a s t

spec ia l i sed as f a r a s land u t i l i s a t i o n pa t t e rn i s concerned. Except f o r

the Mid-Murray Region of N.S.W., about 70% of the farms i n a l l regions had

a farm s i z e of l e s s than 30 hectares . The average a rea planted t o c i t r u s

was 9.9 hectares , ranging from 7.9 i n the Outer Metropolitan Region t o

16.3 i n the Mid-Murray. Harvested production per farm ranged from 4836

bushels i n the Outer Metropolitan Region t o 19 398 bushels i n t he

Mid-Murray Region of N.S.W.

A number of income measures a r e a v a i l a b l e t o a s s e s s t h e economic

s i t u a t i o n i n the indus t ry and the choice o f a p a r t i c u l a r income measure

depends on t h e ob jec t ives of t h e ana lys i s . Net farm income i s t h e most

commonly used measure and i s defined a s t h e d i f f e rence between t o t a l farm

r e c e i p t s and the sum of t o t a l cash c o s t s , imputed labour (excluding

operator/manager labour) and deprec ia t ion on c a p i t a l i tems. I t measures

t h e r e s idua l r e t u r n t o t h e grower f o r h i s labour, management and c a p i t a l

used on the farm. I n 1374-75, n e t farm income averaged $7816 on a l l farms

ranging from $14 997 i n Mid-Murray and $12 596 i n t h e Riverland Region t o

$642 i n the Robinvale Region. Overal l average n e t farm income has been

es t imated a t $7345 i n 1975-76 and $8496 i n 1976-77. The inc rease i n ne t

farm income i n 1976-77 i s e n t i r e l y t h e r e s u l t of h igher r e t u r n s from

non-c i t rus e n t e r p r i s e s . Although t h e r e i s considerable v a r i a t i o n around

these averages t h e income s i t u a t i o n i n t h e c i t r u s indus t ry a s a whole

compares reasonably favourably with a number of o t h e r r u r a l i n d u s t r i e s

inc luding most h o r t i c u l t u r a l i n d u s t r i e s .

The survey a l s o c o l l e c t e d information on t o t a l household income

i n 1974-75. Tota l household income i s t h e sum of ne t income from farm,

off-farm wages, non-farm income and non-taxable income f o r a l l household

members. I n some ins t ances household income i s l e s s than n e t farm income

because it accounts f o r payments made i n s e r v i c i n g debt and pa r tne r sh ip

opera t ions where appl icable .

Average household income was $7618 i n 1974-75. The h ighes t

household income was i n Mid-fjurray (5 11 760) and MIA ($10 957) regions o f

N.S.W. while Robinvale i n V i c t o r i a had the lowest household income ($1932).

About h a l f t h e households had a household income of l e s s than $6000.

I n add i t ion t o household income, n e t worth i s a l s o an important

cons idera t ion when d iscuss ing o v e r a l l economic welfare . A t 30 June 1975

the average n e t worth o f households was $102 564. Differences between

regions i n d i c a t e t h a t even i n regions of low n e t income, t h e o v e r a l l

economic we l fa re p o s i t i o n of t h e household may be q u i t e sound when net

worth i s a l s o taken i n t o account.

Attachment D p resen t s e s t ima tes made by t h e Bureau of the

e f f e c t i v e r a t e of p r o t e c t i o n f o r t h e c i t r u s indus t ry . The b a s i s of t h e

ca lcu la t ions and t h e assumptions made a r e o u t l i n e d i n t h e Attachment.

The e f f e c t i v e r a t e o f p ro tec t ion f o r t h e c i t r u s e n t e r p r i s e i s

es t imated t o range between 33% and 88% i n 1974-75 depending on region.

The major s i n g l e i tem con t r ibu t ing t o t h i s l e v e l o f p ro tec t ion i s the

so -ca l l ed consumer t r a n s f e r a r i s i n g from t a r i f f p ro tec t ion of domestical ly

produced c i t r u s ju i ces . This t a r i f f p r o t e c t i o n increased by $4.96/tonne

i n 1975-76 and maintained t h i s increased l e v e l i n 1976-77. This suggests

t h a t i n r ecen t yea r s t h e e f f e c t i v e r a t e of p r o t e c t i o n would have increased

from t h a t shown f o r 1974-75.

The es t imates o f t h e e f fec t ive r a t e o f a r o t e c t i o n f o r t h e c i t r u s

e n t e r p r i s e i n 1974- 75 i n d i c a t e t h a t c i t r u s production i s a r e l a t i v e l y

'high c o s t 1 indus t ry comnared t o many o t h e r r u r a l and manufacturing

i n d u s t r i e s . The r e s u l t s i n d i c a t e t h a t t h e r e a r e considerable regional

d i f f e rences and difEerences between producers wi th in a region i n t h e

ex ten t and magnitude o f t h e b e n e f i t s from e x i s t i n g a s s i s t ance .

The e f f e c t i v e r a t e o f p ro tec t ion has a l s o been es t imated on a

c i t r u s farm b a s i s . However, these e s t ima tes a r e almost c e r t a i n l y biased

downwards because no account has been taken of t h e p ro tec t ion provided

through a s s i s t a n c e measures r e l a t e d t o o t h e r e n t e r p r i s e s on c i t r u s farms.

The ca lcu la t ions a l s o i n d i c a t e t h e importance of p r o t e c t i o n i n

con t r ibu t ing t o c i t r u s producers1 incomes. Survey da ta suggest t h a t t h e r e

may a l ready e x i s t regional wel fare problems i n c i t r u s production and these

problems would almost c e r t a i n l y b e exacerbated i f a s s i s t a n c e was suddenly

removed. Even wi th a s s i s t a n c e it i s est imated t h a t , i n 1974-75, 39% of

producers rece ived household incomes o f l e s s than $4000. I t i s est imated

t h a t t h i s propor t ion would have increased t o 67% if t h i s a s s i s t a n c e had

been removed.

IV: Farm Adjustment i n the Citrus Industry

(a) Recent Trends

Data on t h e number of c i t r u s holdings and t h e i r average s i z e

i n d i c a t e t h a t considerable s t r u c t u r a l adjustment has occurred i n c i t r u s

production, p a r t i c u l a r l y i n r ecen t years . For A u s t r a l i a a s a whole, t h e

number of holdings r e p o r t i n g c i t r u s f e l l by approximately 205 between

1972-73 and 1975-76, wi th s u b s t a n t i a l f a l l s occurr ing i n a l l S t a t e s . This

r a t e of dec l ine , r e f l e c t i n g t h e n e t e x i t of farms from t h e indus t ry ,

appears t o have been p a r t i c u l a r l y r a p i d r e l a t i v e t o t h e changes which

occurred i n e a r l i e r per iods .

The number o f both bea r ing and non-bearing t r e e s p e r farm

increased s t e a d i l y from 1972-73 t o 1975-76, r e f l e c t i n g t h e e x i t of sma l l e r

farms and/or the expansion of e x i s t i n g farms. The inc rease i n t r e e

numbers p e r farm of 20% over t h e four years ending 1975-76 a l s o appears t o

have been an h i s t o r i c a l l y high r a t e o f adjustment. I t i s c l e a r t h a t t h e

considerable adjustment which has occurred i n r ecen t yea r s has r e s u l t e d i n

a sma l l e r number o f farms with, on average, more t r e e s and h igher output

pe r farm.

(b) S i z e Economies

The p a t t e r n of farm adjustment over r ecen t years provides some

t e n t a t i v e evidence f o r t h e ex i s t ence of s i z e economies wi th in t h e

indus t ry . The ex i s t ence o f s i z e economies i s p a r t i c u l a r l y important i n

determining the appropr ia teness of increased farm s i z e a s an e f f e c t i v e

adjustment s t r a t e g y i n t h e c i t r u s indus t ry .

Attachment F p resen t s t h e r e s u l t s o f some pre l iminary analyses

i n t o t h e ex i s t ence of s i z e economies i n t h e c i t r u s indus t ry . The research

employs both q u i n t i l e ana lys i s o f farm survey d a t a and s t a t i s t i c a l l y

f i t t e d average un i t c o s t funct ions . The c o s t funct ions were app l i ed t o a

number of d i f f e r e n t groups o f farms, again using Bureau farm survey da ta .

Both analyses use d a t a f o r t h e year 1974-75.

I n a l l cases, economies o f s i z e were ind ica ted t o be a v a i l a b l e ,

and over a wide range o f o u t ~ u t . The a n a l y s i s a l s o suggests t h a t t h e s e

economies e x i s t f o r t h e more common case of d i v e r s i f i e d h o r t i c u l t u r a l

production a s wel l a s f o r s p e c i a l i s t c i t r u s producers.

Overal l , economies of s i z e were most marked up t o a l e v e l of

t o t a l output i n va lue terms of $25 000 and were l a r g e l y exhausted a t

$50 000. Survey information i n d i c a t e s t h a t output up t o around $30 000 i s

achievable be fo re t h e r e i s any s i g n i f i c a n t employment of non-family labour

so t h a t t h e major i ty o f the economies of s i z e appear t o b e achievable i n

the context o f a family farm. I n 1974-75, 58% of farms had gross output

of l e s s than $30 000. The main source of t h e s i z e economies observed was

t h e g r e a t e r u t i l i s a t i o n o f lumpy inpu t s (e.g. c a p i t a l equipment and

ope ra to r ' s labour) on the l a r g e r farms. The economies of t h i s type

ava i l ab le t o an ind iv idua l u n i t would depend upon t h e c u r r e n t l e v e l o f

u t i l i s a t i o n of these inpu t s .

The advantages t o be derived from employing improved technology

a r e l i k e l y t o be a d d i t i o n a l t o t h e economies i d e n t i f i e d i n t h i s

c ross - sec t iona l a n a l y s i s . The adoption o f improved technology has l

l probably been a t l e a s t p a r t l y respons ib le f o r t h e inc reases i n y i e l d p e r

t r e e and p e r hold ing observed i n r ecen t years . In the f u t u r e it i s l i k e l y

~ t h a t t he f u r t h e r adoption of technologica l advances w i l l allow producers

~ t o ob ta in a d d i t i o n a l economies through growth.

(c) Sirpply Responses

The cons iderable changes which have r ecen t ly occurred i n t h e

c i t r u s indus t ry a r e a c l e a r response t o t h e economic s i t u a t i o n being faced

by ind iv idua l producers . However, c i t r u s production i s cha rac te r i sed by

long term investment and considerable lags between planned changes i n l production and. t h e i r f r u i t i o n . The degree o f c e r t a i n t y about f u t u r e

p r i c e s and t r ends would a l s o b e important. Addit ional ly, l i k e l y supply l

response i s n o t symmetrical inasmuch a s an unprof i tab le economic s i t u a t i o n

can lead t o an immediate reduct ion i n production while a p r o f i t a b i l i t y

s i tua t ion /expec ta t ion leading t o an expansion decis ion involves delays

before production a c t u a l l y inc reases .

A s a l ready d iscussed , d i f f e r e n t l e v e l s of duty w i l l have varying

e f f e c t s on producer r e t u r n s . The l e v e l of r e tu rn , p a r t i c u l a r l y over the

longer term, w i l l i n f luence producer dec is ions and consequently t h e l eve l

of output . The research r epor t ed i n Attachment E at tempts t o explore t h e

l i k e l y supply responses i n t h e c i t r u s indus t ry when producer r e t u r n s a r e

varied.

I n undertaking t h i s research a number of d i f f i c u l t i e s have been

experienced, a r i s i n g mainly from d a t a l i m i t a t i o n s and some s t a t i s t i c a l

problems i n the ana lys i s . The r e s u l t s a r e pre l iminary and should be

i n t e r p r e t e d with caution. However, they have been used t o make t e n t a t i v e

p ro jec t ions of fu tu re production, based upon f a c t o r s a f f e c t i n g y i e l d s and

r e l a t i v e l y s t a b l e es t imates obtained f o r the response of orange t r e e

numbers t o changes i n orange p r i c e s .

Yields a r e p ro jec ted t o continue on t h e upward t r end evident

s ince t h e e a r l y 1960s although t h e r a t e o f inc rease i s expected t o

decl ine. The h i s t o r i c a l a n a l y s i s of t r e e numbers i n d i c a t e s t h a t it

requ i re s very l a rge changes i n p r o f i t a b i l i t y t o evoke more than small

changes i n t r e e numbers. This conclusion would no t apply, of course, i n

s i t u a t i o n s where p r o f i t a b i l i t y may be s o low a s t o cause resources t o

leave the indus t ry .

I t has been est imated t h a t , i n o rde r t o r e t a i n t o t a l orange t r e e

numbers a t around p resen t l eve l s , t h e p r i c e s pa id f o r processing oranges

would need t o be maintained i n r e a l terms a t around 1976-77 l eve l s . Large

inc reases i n r e a l p r i c e s would expand production i n t h e longer term bu t

such expansion would b e small r e l a t i v e t o t h e i n c r e a s e i n p r i c e s needed t o

br ing it about. With cons tant t r e e numbers i n t h e fu tu re , production

would continue t o r i s e because o f r i s i n g y i e l d s . Conversely, production

could be maintained i n t h e f u t u r e even i f t h e r e was some decrease i n t r e e

numbers .

The ana lys i s r e l a t e s t o t h e indus t ry i n aggregate and the re fo re

ignores very important regional d i f ferences . Even i f aggregate t r e e

numbers d i d not change i n t h e f u t u r e the re i s l i k e l y t o continue t o be

changes a t t h e regional l e v e l . For example, budgets ca lcu la t ed by t h e

Bureau f o r the MIA i n d i c a t e t h a t , a t j u i ce p r i c e s approximating import

p a r i t y , many e x i s t i n g producers would be a b l e t o cover cash c o s t s i n t h i s

region. However, t h e region does have low cash c o s t s compared wi th most

o t h e r regions. The MIA budgets a l s o ind ica ted t h a t the p r o f i t a b i l i t y of

a l t e r n a t i v e h o r t i c u l t u r a l e n t e r p r i s e s was very s i m i l a r t o oranges although

given cu r ren t market circumstances any s i g n i f i c a n t change i n r e l a t i v e

output l e v e l s would change t h i s s i t u a t i o n .

Fina l ly , supply responses i n the p a s t would have r e f l e c t e d the

considerable unce r t a in ty surrounding r e t u r n s i n t h e longer term. I f any

form of p r o t e c t i o n o r a s s i s t a n c e r e s u l t e d i n f u t u r e r e t u r n s being known

with more c e r t a i n t y , then t h e supply response could be d i f f e r e n t from t h e

conclusion from t h e above ana lys i s .

(d) Impediments t o Adjustment

Considerable adjustments have been occurr ing i n the c i t r u s

indus t ry and have c l e a r l y occurred i n response t o economic pressures .

These adjustments have cont r ibuted t o o f f s e t t i n g some of the e f f e c t s of

r i s i n g c o s t s and inc reas ing import competition on p r o f i t a b i l i t y and farm

incomes.

Fur ther adjustments w i l l almost c e r t a i n l y have t o occur i n t h e

fu tu re . They w i l l be inf luenced by both t h e economic s i t u a t i o n which

producers f ace and t h e scope o f o r impediments on adjustment

oppor tun i t i e s .

A s d iscussed i n Attachment D t h e r e a r e a number of a l t e r n a t i v e

h o r t i c u l t u r a l crops which a r e grown i n conjunct ion with c i t r u s and

rep resen t a l t e r n a t i v e e n t e r p r i s e s which could use t h e same resources a s

c i t r u s , e.g. canning f r u i t , winegrapes and DVF. However, t h e o v e r a l l

economic s i t u a t i o n i n these i n d u s t r i e s and longer term prospects a r e such

as t o suggest very l i m i t e d oppor tun i t i e s f o r resources cu r ren t ly i n c i t r u s

t o move i n t o these a l t e r n a t i v e e n t e r p r i s e s . I f t h e f u t u r e economic

s i t u a t i o n i n t h e c i t r u s indus t ry n e c e s s i t a t e s f u r t h e r withdrawal of

resources , then it i s l i k e l y t h a t these resources , e s y e c i a l l y labour,

would have t o move i n t o off-farm employment.

The d e s i r e and a b i l i t y o f c i t r u s producers t o ad jus t out o f

production is a l s o influenced by t h e na tu re o f t h e i r e n t e r p r i s e ( r e l a t i v e

f i x i t y of a s s e t s , l a r g e i n i t i a l investment, long investment/production

lags) and oppor tun i t i e s f o r off-farm employment. Survey information

i n d i c a t e s t h a t off-farm income cont r ibuted some 35% o f t o t a l household

income i n 1974-75, predominantly from off-farm investments r a t h e r than

wages. However, t h e survey a l s o revea led t h a t most o p e r a t o r s were over 45

years o l d and t h a t t h r e e - q u a r t e r s had not completed a h igh school

educat ion and hence a r e l i k e l y t o have d i f f i c u l t y i n f i n d i n g s a t i s f a c t o r y

a l t e r n a t i v e employment i n c u r r e n t labour market cond i t i ons .

These cons ide ra t ions sugges t t h a t if a s s i s t a n c e t o t h e i n d u s t r y

was suddenly reduced t h e r e would be a marked i n c r e a s e i n we l f a re problems

due t o reduced incomes. Tlzese problems would most l i k e l y b e concent ra ted

i n t h e reg ions which a l r eady have r e l a t i v e l y h igh p ropor t ions of low

income producers .

I f they can b e achieved and f a c i l i t a t e d , adjustments i n t h e

i n d u s t r y a r e c l e a r l y an important source of g r e a t e r p r o f i t a b i l i t y and

economic v i a b i l i t y . If impediments t o i n d u s t r y adjustment do e x i s t and

can be i s o l a t e d , then t h e i r removal o r modi f ica t ion could r e p r e s e n t a form

of a s s i s t a n c e important i n improving t h e economic s i t u a t i o n o f t h e

indus t ry .

Some f a c t o r s l i k e l y t o a f f e c t t h e f i x i t y of bo th c a p i t a l and

labour have been mentioned above. General ly , t h e s e cons ide ra t ions a r e

l i k e l y t o c o n t r i b u t e t o a producer be ing unwi l l ing o r unable t o leave t h e

indus t ry r e g a r d l e s s o f income s i t u a t i o n .

The i n s t i t u t i o n a l f a c t o r s a s s o c i a t e d w i t h land tenure , land use

and water r i g h t s a r e major i n f l u e n c e s on many forms o f adjustment , e ,g .

farm e x i t o r expansion o f i n d i v i d u a l farms. I n s t i t u t i o n a l c o n s t r a i n t s on

land use a r e p a r t i c u l a r l y p r e v a l e n t i n t h e in l and i r r i g a t i o n a r e a s where

cons ide rab le p o t e n t i a l f o r t h e f u r t h e r e x p l o i t a t i o n o f s i z e economies

would appear t o e x i s t . The p r a c t i c e of t y ing water r i g h t s t o land could

be economically j u s t i f i e d where changes would b e d i f f i c u l t o r expensive

wi th t h e e x i s t i n g d i s t r i b u t i o n system. While t i e d r i g h t s could c o n s t r a i n

adjustment through major changes i n land use , t hey need not c u r t a i l

expansion o f h o r t i c u l t u r a l crops on e x i s t i n g h o r t i c u l t u r a l a r e a s i n o r d e r

t o achieve s i z e economies. Recent ly, changes have been made t o f a c i l i t a t e

amalgamation o f h o r t i c u l t u r a l b locks and t h e e x t e n t t o which e f f i c i e n c y

ga ins may b e p o s s i b l e through t h e e l imina t ion o f r e s t r i c t i o n s on land use

needs t o b e cont inuously monitored.

Overa l l , it appears t h a t t h e impediments t o adjustment i n the

c i t r u s indus t ry de r ive from sources s i m i l a r t o those ac t ing i n o t h e r

a g r i c u l t u r a l and, p a r t i c u l a r l y , h o r t i c u l t u r a l i n d u s t r i e s . However, it i s

apparent t h a t continuing adjustment i n t h e indus t ry w i l l lead t o

improvements i n e f f i c i e n c y and p r o f i t a b i l i t y . Assistance aimed a t

encouraging and f a c i l i t a t i n g such adjustment would the re fo re seem t o be

j u s t i f i e d on e f f i c i e n c y grounds. Although changes i n indus t ry s t r u c t u r e

can be expected t o gradual ly improve e f f i c i ency and income they would no t

immediately so lve wel fare problems i n the indus t ry . There i s t he re fo re

l i k e l y t o be a need f o r some welfare a s s i s t a n c e while appropr ia te longer

term adjustments a r e tak ing p lace .

V: Concl udi ng Comments

Because o f t h e considerable regional d i f ferences i n the

Aust ra l ian c i t r u s indus t ry i t i s d i f f i c u l t t o draw general conclusions

app l i cab le t o t h e indus t ry a s a whole. Like many o t h e r h o r t i c u l t u r a l

i n d u s t r i e s , t h e regional concentrat ion of c i t r u s production and i t s

investment and production c h a r a c t e r i s t i c s mean t h a t r a p i d change i s

d i f f i c u l t and has numerous and o f t e n severe economic and s o c i a l

r ami f i ca t ions . Regardless of what f u t u r e p o l i c i e s a r e considered

appropr ia te f o r t h e indus t ry , such p o l i c i e s w i l l need t o account f o r these

indus t ry c h a r a c t e r i s t i c s and avoid sudden changes i n t h e economic

environment which would c e r t a i n l y exacerbate wel fare problems of people

c u r r e n t l y i n t h e indus t ry .

The Bureau's research sugges ts t h a t maintaining t o t a l c i t r u s

t r e e numbers i n A u s t r a l i a a t cu r ren t l e v e l s would r e q u i r e r e a l p r i c e s f o r

process ing oranges t o continue a t t he l e v e l p reva i l ing i n 1976-77. This

would s t i l l l e a d t o f u r t h e r expansion i n production a s a r e s u l t of y i e l d

increases . I f r e a l p r i c e s were s i g n i f i c a n t l y below t h e 1976-77 l e v e l

the re would be a tendency f o r t h e indus t ry t o con t rac t i n aggregate.

A l t e rna t ive ly , increased r e a l p r i c e s would lead t o expanding t r e e numbers

although t h e inc rease i s l i k e l y t o be small r e l a t i v e t o the inc rease i n

r e t u r n s necessary t o b r i n g it about.

There a r e two important q u a l i f i c a t i o n s t o t h e above conclusions.

F i r s t l y , i f f u t u r e r e t u r n s were known wi th g r e a t e r c e r t a i n t y then

maintaining r e a l p r i c e s a t 1976-77 l e v e l s may e l i c i t some expansion i n

t r e e numbers. Secondly, t hese conclusions r e l a t e t o t h e indus t ry a s a

whole. Regardless of f u t u r e r e t u r n s the re w i l l cont inue t o be s h i f t s i n

the production base between regions i n response t o d i f f e r e n c e s i n r e l a t i v e

p r o f i t a b i l i t y .

The assessment of t h e world s i t u a t i o n concluded t h a t world

orange production w i l l cont inue t o expand f a s t e r than demand, and r e a l

p r i c e s a r e l i k e l y t o tend downwards i n t h e fu tu re . I n t h i s p r i c e

s i t u a t i o n Aust ra l ian consumption of oranges and orange j u i c e would

c e r t a i n l y exceed domestic ava i lab i l i ty ,necess i ta t ing imports. However,

imports without p ro tec t ion would r e s u l t i n domestic p r i c e s which a l a r g e

propor t ion of t h e domestic indus t ry would f i n d unpro f i t ab le . This would

not be t h e case with a l l t h e indus t ry and some producers, mainly t h e

l a r g e r e f f i c i e n t operators ,would s t i l l maintain economically v i a b l e

opera t ions i n t h e absence o f p ro tec t ion . However, t o make t h e i n d u s t r y

competi t ive with unprotected imports would r e q u i r e cons iderable change and

adjustment over a long pe r iod o f time. The immediate e f f e c t of no

p r o t e c t i o n would b e t o exacerbate low income and welfare problems i n t h e

indus t ry .

A t t he o t h e r extreme,protect ion could be r a i s e d t o a l e v e l which

cons t ra ined consumption t o approximately domestic a v a i l a b i l i t y . This

would involve l a rge t r a n s f e r payments from consumers t o producers and

y i e l d t h e indus t ry a high l e v e l of e f f e c t i v e p ro tec t ion . However, t h e

inc rease i n r e t u r n s and t h e i r poss ib le g r e a t e r c e r t a i n t y could encourage

an expansion i n c i t r u s production, p a r t i c u l a r l y i n view o f t h e economic

s i t u a t i o n f ac ing t h e main a l t e r n a t i v e h o r t i c u l t u r a l i n d u s t r i e s . This

could l ead t o overproduction i n terms of domestic market requirements a t

those p r i c e s o r t h e need f o r production con t ro l and would be an

undes i rable economic s i t u a t i o n from an e f f i c i e n c y viewpoint.

Survey d a t a i n d i c a t e t h a t many c i t r u s producers do have

r e l a t i v e l y low incomes. However, average incomes i n t h e i n d u s t r y a s a

whole compare reasonably favourably wi th many o t h e r r u r a l i n d u s t r i e s ,

p a r t i c u l a r l y h o r t i c u l t u r a l i n d u s t r i e s . The cu r ren t income s i t u a t i o n i n

the c i t r u s indus t ry i s of course p a r t l y a r e f l e c t i o n of t h e increased

l e v e l s of a s s i s t a n c e af forded t h e indus t ry i n the r ecen t p a s t . lAIhen n e t

worth i s inc luded i n an ove ra l l assessment of economic welfare t h e

s i t u a t i o n i n ind iv idua l households may be l e s s acute than suggested by

income da ta alone.

The c i t r u s indus t ry h a s undergone s u b s t a n t i a l change i n t h e

r ecen t p a s t which has markedly improved the economic e f f i c i ency and

p r o f i t a b i l i t y of many c i t r u s producers. I n add i t ion t o adopting improved

technology t h e r e has been a tendency t o gain economies of s i z e through

farm expansion. The Bureau's research suggests t h a t considerable

oppor tun i t i e s remain f o r economies through expansion and a t output l e v e l s

t h a t r e q u i r e l i t t l e non-family labour. P o l i c i e s t o encourage and

f a c i l i t a t e these changes would seem i m ~ o r t a n t . They could provide

a s s i s t a n c e t o achieve g r e a t e r economies and should a l s o aim t o i d e n t i f y

and remove any e x i s t i n g impediments t o these changes.

i P o l i c i e s which encouraged a cont inuat ion of t h e t rend towards

g r e a t e r e f f i c i e n c y and competitiveness would nonetheless leave t h e

indus t ry i n a s i t u a t i o n i n the immediate f u t u r e where t h e incomes o f some

producers a r e unacceptably low without some form of a d d i t i o n a l a s s i s t ance .

I t would seem t h a t , w h i l e change i s occurring,some a s s i s t a n c e f o r t h e s e

producers i s j u s t i f i e d on welfare grounds. An important i s s u e i s how and

by whom t h i s a s s i s t a n c e should be provided. I f i t i s i n t h e form of

p r o t e c t i o n through import duty then it w i l l b e provided by t h e consumers

of c i t r u s and could p re jud ice t h e occurrence o f needed e f f i c i e n c y changes.

Direc t we l fa re payments would r ep resen t t r a n s f e r s from taxpayers

genera l ly .

In p r i n c i p l e , t he ob jec t ives of continuing t o encourage

adjustment while providing welfare a s s i s t a n c e o f a b a s i c a l l y ' i n t e r im '

na tu re i s c o n s i s t e n t wi th t h e aims and ob jec t ives of t h e e x i s t i n g Rural

Adjustment Scheme. Available information sugges ts t h a t c i t r u s producers

a r e no t p l ac ing g r e a t demands on t h e e x i s t i n g scheme e i t h e r f o r adjustment

o r we l fa re a s s i s t ance .

Given t h e economic s i t u a t i o n of many c i t r u s producers t h i s

s i t u a t i o n i s d i f f i c u l t t o expla in . I t could, f o r example, r ep resen t a

lack of knowledge and understanding amongst producers of t h e n a t u r e and

provis ions o f t h e scheme. Al t e rna t ive ly , it could i n d i c a t e a lack o f

wi l l ingness o r a b i l i t y t o a d j u s t o r leave t h e indus t ry d e s p i t e low income

and welfare problems. However, dec is ions regarding t h e na tu re and e x t e n t

of f u t u r e a s s i s t a n c e t o t h e c i t r u s i n d u s t r y should ensure t h a t maximum use

i s made of e x i s t i n g avenues f o r t h e provis ion of adjustment and welfare

a s s i s t a n c e . For example, it may be more d e s i r a b l e t o modify o r supplement

var ious a spec t s o f t h e c u r r e n t RAS than t o e s t a b l i s h s e p a r a t e d i r e c t

a s s i s t a n c e measures f o r t h e c i t r u s i n d u s t r y i n p a r t i c u l a r .

ATTACHMENTS

Attachment A

WORLD PRODUCTION, TRADE AND PRICES FOR ORANGE

JUICE CONCENTRATE *

I n t r o d u c t i o n

The a v a i l a b i l i t y of imports and l e v e l s of world p r i c e s have

important impl ica t ions f o r the Austral ian c i t r u s indust ry . Imported

products which a r e most l i k e l y t o compete with Austral ian c i t r u s a r e those

which have a high value t o weight r a t i o and a re r e l a t i v e l y e a s i l y and

cheaply transported. The main such product a t present i s frozen c i t r u s

ju ice concentrate, with orange ju ice concentrate being the main import

item.

The ob jec t ive o f t h i s sec t ion i s t o examine major developments

i n world production, t r ade and p r i c e s i n orange ju ice concentrate and t o

assess l i k e l y f u t u r e developments.

Major Developments i n the World C i t r u s Economy

Four t rends occurring s ince the e a r l y 1960s a re having important

inf luences upon t h e ex ten t and d i r e c t i o n of world orange ju ice concentrate

production and t rade . These are :

(a) much more rapid growth i n world orange production than i n

population,

(b) a marked t rend toward processing an increas ing proport ion of

t o t a l production,

(c) locat ion of an increas ing p a r t of production i n developing

countr ies which a re producing oranges increas ingly f o r export i n

processed form,

(d) a t rend toward increas ing demand f o r orange ju ice a s incomes

r i s e , r e s u l t i n g i n the main flows i n world t rade being toward

the h ighes t income countr ies .

- * Ivan Roberts was responsible f o r t h e prepara t ion of t h i s Attachment.

T a b l e A.1

WORLD : PRODUCTION OF ORANGES

( '000 Tonnes)

1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Country

(a) (a) (a) !a! ( a ) (8) (R) (a) ( a ) (a) 1975

USA 5 650 4 156 3 697 4 867 5 649 7 598 5 262 7 526 7 658 7 900 7 663 7 689 8 834 8 515 9 294

Mexico (S) 772 883 855 862 863 880 882 892 937 1 020 1 999 1 318 1 466 1 900 1 900(e)

B r a z i l 1 918 2 017 2 280 2 223 2 A85 2 544 2 701 2 933 3 126 3 344 3 150 3 300 4 929 6 232 6 299

Spa in 1 838 1 327 1 976 1 777 1 921 2 215 2 031 1 812 2 463 2 260 1 868 2 238 2 061 1 889 1 946

I t a l y 927 828 1 066 1 183 1 175 1 370 1 439 1 676 1 696 1 601 1 462 1 554 1 566 1 770 1 552

I s r a e l A25 435 604 668 685 682 812 958 878 938 1 106 1 179 1 252 1 266 1 116(c )

Egypt (ilAR) 201 341 386 384 399 567 617 562 719 680 707 683 767 819 760(c )

b:orocco 444 439 471 609 510 620 701 798 729 876 666 688 763 677 550 (e)

Sou th A f r i c a 386 436 459 516 495 522 548 677 467 506 422 562 616 632 663 ( e )

Othcr 5 556 5 806 6 164 6 873 7 149 8 009 8 042 9 123 1 0 184 9 913 6 440 7 104 6 999 7 473 7 688

World 18 834 17 352 1 8 630 20 677 21 852 25 796 23 790 27 863 29 895 30 130 26 473 27 065 30 036 32 008 32 510

ibbe: 'Veragc ~ v o r l d p r o d u c t j o n f o r o ranges f o r t h e p e r i o d 1961 t o i965 h a s r e c e n t l y bcen r c v i s e d t o 17.3 m i l l i o n t o n n e s and p u b l i s h e d s e p a r a t e l y f r o n t a n g e r i n e p r o d u c t i c n .

(2) Ir,c?udcs t n n g c r i n o s ; o v e r t h e 5 y e a r s 1961 t o 1965, t a n g e r i n e p r o d u c t i o n averaged 2 .7mi l l ion tonnes . (b) Oranges o n l y . (c) U n o f f i c i a l f i g w e . (e ) FRO estimate.

Sovzve: FiZO, Proraduction Yecr Book (var io l t s i s s u e s ) .

World orange production has r i s e n a t an average r a t e of about

5.4% per year s ince the ea r l y 1960s, t o t a l production having reached 32.5

mil l ion tonnes i n 1975 compared with an estimated average of 17.3 mil l ion

tonnes i n the 5 years ended 1965. This growth compares with world

population increases averaging 1.9% per year i n the same period. A s a

r e s u l t , average per caput a v a i l a b i l i t y has r i s e n from 5.45 kg t o 8.19 kg.

The growth i n production has been accompanied by a more rapid

expansion i n processing, mainly i n t o orange juice concentrate. Unti l t h e

ea r ly 1960s, processing i n most countries was confined p r i nc ipa l l y t o poor

qua l i t y f r u i t , cul led from f r e sh market grading operations. However,

processing had become a very important o u t l e t i n the USA where, i n 1962,

it accounted f o r 70% of t o t a l orange production. I t i s estimated t ha t

processing now accounts f o r about 40% of t o t a l world orange production.

While oranges a r e produced i n many countries, some 60% of the

world suppl ies i s grown i n the USA, Brazil , Mexico, Spain, I t a l y and

I s r ae l . The USA i s by f a r the l a rge s t , accounting f o r approximately 30%

of the t o t a l . World production, by country, i s shown i n Table A . I .

Worl d Trade in Orange Juice Concentrate

Since the mid-1960s world exports o f orange ju ice concentrate

have expanded grea t ly , the t o t a l i n 1975 being an estimated 350 000 tonnes

(actual weight) compared with about 53 000 tonnes i n 1965. The g rea tes t

increases have occurred s ince 1970, with most of such increase being from

Brazil which now accounts f o r about 60% of t o t a l world trade. During the l

1960s, the USA was the world's l a rges t exporter , and i t s exports have

continued an upward trend. However, the growth of Braz i l ' s exports

resu l t ed i n the U.S. share of world exports declining t o jus t below 20% i n

recent years. I s r a e l i s the world's t h i r d l a rges t exporter , but i t s

shipments have tended t o s t a b i l i s e i n recent years. Other s i gn i f i c an t

exporters a r e Spain, I t a l y , South Africa and, i n recent years, Mexico.

Data on exports of orange ju ice concentrate a r e scarce and i n

many ins tances un i t s and degree o f concentration a r e not c l e a r l y o r

cons i s ten t ly defined. Consequently, only a broad indicat ion of exports by

countries can be given. Data f o r 1965, 1970 and f o r the most recent year

ava i l ab le a r e shown i n Table A . 1 1 .

Table A . 1 1

ESTIMATED EXPORTS OF ORANGE J U I C E CONCENTRATE IN 1965, 1970 AND MOST RECENT YEAR AVAILABLE

('000 Tonnes Actual Weight)

Country 19 70 Most Recent Year Available

Mediterranean Region

I t a l y

Spain

I s r a e l

North and Central America

Br i t i sh Honduras

Jamaica

Mexico

USA

Others

Argentina

Brazil

South Afr ica

Total of above countries

Note: These f igures a r e estimated from information published by t he Commonwealth Sec r e t a r i a t , i n Fruit, A Revim and Fruit Intell igence; FAO, Processed Fruit and Vegetables - Trends i n World Production and Trade of Citrus Products, Canned Peaches and Apricots, and Tomato Product, No. 49, Commodity Bul le t in Ser ies ; USDA, i n Foreign Agriculture and Foreign Agriculture Circular, Citrus Fruits; and U . S. Department of Commerce, U. S. Exports. I n several ins tances est imates of exports by a country were made on the ba s i s of quan t i t i e s imported i n t o o ther countr ies from tha t country. I n o ther cases, data from the various sources were i n conf l i c t . Hence t h i s t ab l e should be in te rpre ted t o give only a general ind ica t ion of the t rend i n exports from individual countr ies and i n t o t a l world exports .

With the exception o f t h e USA, most of the orange j u i c e

concent ra te expor t ing coun t r i e s produce almost e n t i r e l y f o r export . Their

own domestic markets a r e small and v i r t u a l l y a l l t he q u a n t i t i e s exported

a r e des t ined f o r the high income i n d u s t r i a l i s e d count r ies of Western

Europe and North America. An i n d i c a t i o n of t h e major markets f o r orange

ju i ce concent ra te i s given by t h e da ta on expor ts from t h e USA and Brazi l

shown i n Table A . 1 1 1 .

1 Table A . 1 1 1

ORANGE J U I C E CONCENTRATE: EXPORTS BY BRAZIL AND THE USA BY COUNTRY I N 1970 AND 1975

('000 Tonnes Actual Weight)

Des t ina t ion

Braz i l USA

19 70 19 75 19 70 1975

Federal Republic of Germany 19.1 44.1 4.0 3.0

Netherlands 4.1 42.9 2.9 6.3

Sweden 1.0 11.8(a) 2.2 9.8

United Kingdom 0.6 5.0(b) 2.3 3.0

Canada 4.3 21.2 16.9 32.9

USA 1.0 21.0

A u s t r a l i a - 2. l (c) - 1.3

Other

To ta l

(a) Sweden's imports from Brazi l . (b) U.K. imports from Brazi l . (c) Aus t ra l i an imports from Brazi l .

Sources: Commonwealth S e c r e t a r i a t , Fruit Intell igence (various i s s u e s ) ; USDA, Foreign Agriculture Circular, Citrus Fruits, March 1976; USDA, Foreign Agr icul ture , 4 October 1976, Brazil Extends i t s Lead as Orange Juice Exporter; Austra l ian Bureau of S t a t i s t i c s .

Ju ice Concentrate Product ion

The foregoing i n d i c a t e s t h a t t h e USA and Brazi l together provide

about 80% of t h e orange ju i ce concent ra te en te r ing world t rade . Because

o f t h i s , a t t e n t i o n i s focused he re on production developments i n those two

count r ies .

The USA

The importance of the USA i n influencing world t rade and p r i ce s

f o r orange juice concentrate extends f a r beyond tha t country 's d i r e c t

contribution t o world exports. The USA produces approximately 60% of the

world's t o t a l output of orange ju ice concentrate and consumes most of i t s

own production. I t s exports i n recent years have const i tu ted only about

8% of t o t a l output. The USA i s a l so a f a i r l y large importer, i t s in take

i n recent years being equivalent t o around a t h i r d of i t s exports.

The U.S. orange ju ice concentrate industry i s dominated by

Florida, the l a rges t orange producing S t a t e and a region which produces

mainly f o r processing. Of 192 mill ion boxes of oranges processed i n the

USA i n 1975-76, 169 mil l ion were i n Florida. (1)

Flor ida 's production of oranges and quan t i t i e s processed have

both followed a r i s i n g trend. The production increases during most of the

1970s have been brought about by r i s i n g y i e ld s a s t h e bearing area has

been declining s ince 1970-71. Relevant data on the Florida orange

industry a r e shown i n Table A.IV.

An especia l ly large Florida crop was expected i n 1976-77,

i n i t i a l estimates being around 218 mil l ion boxes (of 90 lb ) . However, a

period of very low temperatures i n l a t e January 1977 caused a marked

reduction to an estimated 189 mil l ion boxes. This l a t e r est imate i s

somewhat above actual production i n 1975-76 and i s s t i l l a record.

Nevertheless, f r u i t qua l i t y was severely affected and a reduced juice

extract ion r a t e i s estimated t o r e s u l t i n orange ju ice concentrate

production f a l l i n g t o i t s lowest level s ince 1971-72. This reduction has

had a marked e f f e c t on U.S. ju ice concentrate supplies, with stocks a t 30

June 1977 being 31% below t h e i r previous year ' s level and a t t h e i r lowest

level f o r t ha t time of year s ince 1972 when the market was much smaller.

To date there have been no repor t s of s i gn i f i c an t numbers of

t r e e deaths resu l t ing from the freeze and, though it could take another

season o r so to replenish ju ice supplies, i t appears t ha t the long term

ef fec t s of the freeze could be s l i g h t .

(1) I n Florida, a box weighs 90 l b .

Table A , I V

ORANGE AND ORANGE J U I C E CONCENTRATE DATA - FLORIDA, USA

Quanti ty of Oranges Processed

Bearing Tota l Quanti ty Orange J u i c e Yield of i n F l o r i d a a s a Year Production Yield Quanti ty Used i n Concentrate J u i c e Percentage Area

Processed Concentrate Production Concentrate of Quanti ty Processed i n

t he USA

'000 m i l l i o n m i l l i o n boxes m i l l i o n m i l l i o n m i l l i o n U.S. U.S. ga l lons a c r e s boxes(a) tonnes per

% boxes boxes g a l l o n s (b) pe r box a c r e

1975-76 596.4 181.2 7.40 3 04 169.5 144.5 186.3 1.29 88.1

1976-77 na 189.0(p) 320 (c) 170 .O (p) 1 . 1 2 ( ~ ) - - -

(a ) Boxes o f 90 lb . (b) 45' b r i x . 1 U.S. g a l l o n i s equ iva l en t approx. 3 . 8 l i t r e s . (c) BAE e s t ima te . (p) Prel iminary.

Sources : USDA, Fruit Situation (various i s s u e s ) and F lo r ida Crop and Livestock Reporting Service.

Pro jec t ions c a r r i e d ou t by t h e USDA i n 1974 i n d i c a t e d continued

growth i n F lo r ida orange production, wi th p ro jec ted bea r ing a r e a s and

y i e l d s g iv ing t o t a l production of 221 mi l l ion boxes i n 1984-85. (2 ) Such

p ro jec t ions were prepared no t long a f t e r a per iod o f inc reases i n bea r ing

a reas up t o 1970-71 and ind ica ted both r i s i n g a reas and y i e l d s .

The inc reases i n bear ing a rea up t o 1970-71 were s u b s t a n t i a l ,

t he a rea i n t h a t year being 667 000 ac res compared wi th 370 000 a c r e s i n

1962-63. This growth was p r i n c i p a l l y a r e s u l t of heavy p l a n t i n g i n t h e

e a r l y t o mid-1960s, e s p e c i a l l y fol lowing a very damaging f r e e z e i n

1962-63, However, i t i s now c l e a r t h a t the continued growth p ro jec ted

e a r l i e r t h i s decade f o r bea r ing a rea , wi th t h e p ro jec ted l e v e l f o r 1984-85

be ing 776 000 ac res , w i l l no t occur and t h a t t h e marked downward t r end 1 evident s i n c e 1970-71 w i l l continue, a t l e a s t i n t o t h e e a r l y 1980s. The

reduct ions i n bear ing a reas i n t h e p resen t decade r e s u l t e d l a r g e l y from a

dec l ine i n new p lan t ings i n t h e second h a l f of t h e 1960s. Very low

p l a n t i n g l e v e l s have p e r s i s t e d t o t h e p r e s e n t t i m e and, a t 1975, only 7%

o f t h e t o t a l a r e a had been p lan ted between 1970 and 1975 inc lus ive . I t

would r e q u i r e a t l e a s t twice t h a t r a t e o f new p lan t ings t o ho ld t h e

bea r ing a rea s teady a t i t s 1975 l e v e l assuming a r e l a t i v e l y even age

d i s t r i b u t i o n o f t r e e s . I n addi t ion , urban encroachment i s repor ted i n

some important orchard a r e a s , Hence, t h e downward t r e n d i n bear ing a reas

i s expected t o continue f o r a t l e a s t t h e nex t 5 years .

While t h e p r o j e c t i o n s made i n 1974 appear t o have ove r s t a t ed

l i k e l y f u t u r e bear ing a r e a s , they have a l s o p ro jec ted y i e l d s much lower

than those l i k e l y t o b e reached i n fu ture . Those p r o j e c t i o n s ind ica ted

y i e l d s r i s i n g t o 285 boxes p e r ac re by 1985. Such y i e l d has been markedly

surpassed i n each of t h e p a s t t h r e e seasons and it i s l i k e l y t h a t f u r t h e r

advances can b e made from t h e freeze-reduced 320 boxes p e r a c r e es t imated

f o r 1976-77. I n i t i a l e s t ima tes f o r t h i s l a s t mentioned crop imply an

average y i e l d o f 380 boxes p e r acre. Such es t ima tes may have been

o p t i m i s t i c b u t i t i s c l e a r t h a t a y i e l d above 320 boxes can a l r eady b e

obta ined i n a good production year . Even so, it i s expected t h a t t h e r a t e

o f y i e l d growth w i l l s lacken i n t h e next few yea r s . During t h e 1970s, t h e

(2) See J i m L . Matthews, Abner W. Wormack and Ben W. Huang, 'The U.S. Orange Economy : Demand and Supply Prospects , 1973-74 t o 1974-75 l , Fruit Situation, USDA, February 19 74.

rapid growth i n average y i e ld s may be associated with the large number of

young t r e e s j u s t coming i n t o bearing a t the beginning of t h a t period.

Such t r e e s have been going through t h e i r r i s i n g y i e ld phase as they

matured and there have been decl in ing numbers of new bearing t r e e s s ince

the e a r l y 1970s, with t h e i r lower y i e ld s depressing average y ie lds . The

continued low leve l o f p lant ings ind ica tes t h a t the re w i l l continue t o be

very few new bearing t r e e s i nh ib i t i ng average y ie lds , a t l e a s t over the

next 5 o r 6 years. However, the bulk of bearing t r e e s has now reached, o r l i s c lose t o , maximum bearing age, 92% of bearing t r e e s i n 1975 being 10 o r

more years old. Hence, the growth f a c t o r i n y ie lds through changing age

s t ruc tu re of t r e e s , which has been evident during the 1970s t o date, i s

l i k e l y t o have been l a rge ly exhausted. A t the same time, some fu r t he r

y i e ld increases could be expected through improved technology, a s a strong

long term upward t rend i n y i e ld s not r e l a t e d t o the age of t r e e s i s

evident.

Considering the reductions i n bearing area which have already

occurred, the fu r t he r reductions which a r e expected i n t he next few years

and a slower r a t e of y i e ld increase predicted, it i s expected t h a t the

r a t e of growth i n F lo r ida ' s production w i l l be r e l a t i v e l y slow and t ha t

the 1984-85 production project ion o f 2 2 1 mi l l ion boxes w i l l not be

reached. Nevertheless, some increase i n production from present l eve l s i s

expected.

The Brazi l ian orange ju ice concentrate indust ry has had a

r e l a t i v e l y sho r t h i s to ry . An i n i t i a l stimulus was given t o p lant ings and

orange ju ice concentrate production a f t e r the 1962-63 Flor ida freeze.

Since then, orange production has increased great ly , reaching an estimated

6.3 mil l ion tonnes i n 1975 compared wi th 2 .1 mi l l ion tonnes i n 1963.

Braz i l ' s orange indust ry i s s i tua ted mainly i n Sao Paulo region

and heavy plant ings have been maintained i n recent years. A recent USDA

repor t (3) s a i d t h a t t r e e s i n production i n Sao Paulo i n 1975 t o t a l l e d 53.6

- -- - (3) See USDA, F o r e i g n A g r i c u Z t w e , 4 October 1976, 'Brazil Expands i t s

Lead a s Orange Juice Exporter1.

mil l ion, which was 37% more than i n 1973, and a f u r t he r 14% increase t o 61

mil l ion was indicated fo r 1976. Current o r expected y i e ld s average only

about ha l f those i n the USA and, a t about 150 l b pe r t r e e , a r e s imi la r t o

average y i e ld s i n N.S.W. Most production growth i s reported t o have

a r i sen from increases i n t r e e numbers, while y i e ld s have been r e l a t i v e l y

s t a t i c . Nevertheless, recent improvements i n p lant ing mater ia l and

cu l t u r a l p rac t i ces a r e expected t o r e s u l t i n s i gn i f i c an t f u tu r e y i e ld

gains, while the large number of young bearing t r e e s which have not

reached f u l l bearing age a l so gives a prospect of production growth.

About ha l f of Braz i l ' s present orange production i s processed

i n t o frozen orange ju ice concentrate, almost a l l o f which i s exported.

Production i n 1976 was 215 000 tonnes (mostly 65' b r i x ) of which 210 000

tonnes was exported. This compares with 181 000 tonnes exported i n 1975.

A t the 1976 leve l , Braz i l ' s exports were about 4 times a s l a rge a s those

from the USA, the next l a rge s t exporter , and represented an estimated 60%

of t o t a l world exports. Estimates f o r 1977 i nd i ca t e a s l i g h t l y reduced

crop owing t o adverse seasonal conditions with exports of orange ju ice

concentrate being between 200 000 and 210 000 tonnes.

Other Countries

Data on plant ings and production i n most o ther l a rge exporting

countries a r e i n su f f i c i en t t o asce r ta in f i rmly whether the re i s l i k e l y t o

be s i gn i f i c an t fu r the r expansion i n t h e i r orange ju ice concentrate

production and exports. There have been repor t s of subs t an t i a l increases

i n plantings i n several countr ies including Cuba, Egypt, Greece, Turkey,

Argentina and South Africa.(4) Many such plant ings have been made with

t he in ten t ion of supplying f r e sh f r u i t markets and the forthcoming

supplies could r e s u l t i n continuing pressures on f r e sh orange re tu rns i n

t r a d i t i o n a l large producing countries i n the Mediterranean. Cuba, i n

pa r t i cu l a r , i s indicated t o have expanded plant ings g rea t ly wi th a

reported production po t en t i a l of over 2 mil l ion tonnes (fresh) within the

next few years. This compares with actual production of only 115 000

tonnes i n 1974. That country hopes t o export large quan t i t i e s f resh t o

t h e USSR and Eastern Europe. Nevertheless, an indust ry t he s i z e of t ha t

(4) See FAO, Commodity Review and OutZook,2975-76.

developing i n Crha would a l s o be l i k e l y t o be processing s u b s t a n t i a l

q u a n t i t i e s even i f only a s a salvage opera t ion f o r c u l l s from t h e grading

operat ion.

Factors Affecti ng Location of Orange Jui ce Production --

I t i s evident t h a t t h e main a reas of new investment i n orange

growing a r e i n Latin America and the Eastern Mediterranean and no t i n the

more i n d u s t r i a l i s e d countr ies such a s t h e USA and Aus t ra l i a . Several

f a c t o r s may be hypothesised f o r t h i s o r i e n t a t i o n o f investment, including :

( i ) r e a l r e t u r n s t o producers i n countr ies such a s t h e USA and

A u s t r a l i a have been decl in ing, r e s u l t i n g i n lower l e v e l s of

investment i n c i t r u s growing than i n many o the r economic

a c t i v i t i e s ,

( i i ) r e l a t i v e changes i n exchange r a t e s and production c o s t s could

have given producers i n the more a g r i c u l t u r a l l y based economies

which a r e endowed llri t h favourable growing condit ions f o r c i t r u s

some competitive advantages over those i n more i n d u s t r i a l i s e d

producing countr ies ,

( i i i ) t he production technology which was previous ly more h igh ly

developed i n the i n d u s t r i a l i s e d producing countr ies i s becoming

more widely ava i l ab le t o those i n o ther countr ies ,

( iv ) orange production i s a r e l a t i v e l y labour in tens ive opera t ion ,

g iv ing coun t r i e s with low r e l a t i v e labour c o s t s competitive

advantages (provided they can success fu l ly apply cu r ren t

production technology and provided they a r e reasonably located

r e l a t i v e t o markets wi th high e f f e c t i v e l e v e l s of demand),

(v) production incen t ives and S t a t e production p lans have fos te red

p lan t ings i n some developing countr ies .

I n money terms t h e general l e v e l o f r e t u r n s t o U. S. growers has

hardly changed s ince the e a r l y 1960s, while r e a l p r i c e s have decl ined

markedly. The same app l ies i n Austra l ia , although the re has been some

increase i n money p r i c e s i n recen t seasons. Average re tu rns t o Flor ida

growers a r e shown i n Table A.V while Austral ian p r i c e s a r e depicted i n

Figures 1 . 1 t o 1.13 i n the sec t ion of t h i s submission e n t i t l e d 'Pricing

of Austral ian C i t r u s t .

Table A.V

FLORIDA: AVERAGE RETURNS FOR ORANGES AT PACKING HOUSE DOOR

Year $US per Box In Money Terms

- -- - - --

I n Real Terms (Deflated by Wholesale Pr ices Index 1960=100)

1973- 74 2.55 1.50

1974-75 2.62 1.42

1975- 76 3.10 1.61

-- Sources: USDA, Agricultural S t a t i s t i c s (various i s sues ) and Fruit

Situation, November 1976; Wholesale Pr ice Index ex United Nations, Monthly Bul le t in o f S t a t i s t i c s .

IVhile subs tan t ia l y i e l d increases have occurred i n the USA and

Austral ia, i t i s evident t h a t they have not ra i sed the p r o f i t a b i l i t y of

orange growing s u f f i c i e n t l y t o a t t r a c t many new plant ings during t he

1970s.

J u s t as u n i t r e tu rns t o U.S. and Austral ian producers have been

r e l a t i v e l y constant over time i n money terms, so too have been re turns f o r

i n t e rna t i ona l l y traded orange ju ice concentrate i n terms of U.S. o r

Austral ian currencies. However, depreciat ion o f the currencies of o ther

major c i t r u s producing countries r e l a t i v e t o the U.S. and Austral ian

do l la r s would have resu l t ed i n increasing money re turns t o producers i n

those o ther countries. This would have enabled them t o o f f s e t , a t l e a s t

pa r t l y , addi t ional cos ts a r i s i ng from in f la t ion . Relat ive changes i n

exchange r a t e s and i n production input cos ts a r e therefore important

determinants of changes i n competitive pos i t ions of various producing

countries.

A s Brazil has been the a rea of g rea tes t production growth and

there has been a high l eve l of investment i n t h i s industry a comparison i s

made between Brazi l , the USA and Austra l ia t o ind ica te whether t h i s growth

r e su l t ed s i gn i f i c an t l y from changes i n r e l a t i v e exchange and i n f l a t i on

r a t e s . Braz i l ' s currency has depreciated markedly agains t both the U.S.

and Austral ian do l la r s i n recent years. However, i t s i n f l a t i o n r a t e has

a l so been much higher. On the assumption t ha t the general i n f l a t i o n r a t e

as re f l ec ted i n the consumer p r i c e index i s representa t ive of input cos t s

i n orange growing and processing, an indicat ion o f changes i n competitive

I pos i t ions of various producing countr ies a r i s i ng from exchange and input

cos t changes can be obtained by dividing the exchange r a t e by the consumer

p r i c e index. Using the $US a s a base currency, comparisons a r e made i n

Table A . V I between the estimated e f fec t s of exchange r a t e and input cos t

l changes.

This comparison shows t h a t from 1972 t o 1976 the re was l i t t l e

change i n the competitive pos i t ions between U.S. and Brazil ian producers

a r i s i ng from exchange and i n f l a t i on r a t e changes. On the other hand, the

competitive pos i t ion o f producers from both these countries a r i s i ng from

these changes improved markedly agains t t ha t of Austral ian producers i n

1973. This l a s t mentioned d i spa r i t y was closed somewhat from 1974 t o

1976, espec ia l ly with t he devaluation of the $A i n November 1976. A s well

as the de te r io ra t ion i n Austral ian growers1 competitive pos i t ion from

r e l a t i v e exchange and i n f l a t i o n r a t e s , such pos i t ion would have been

eroded by t h e 25% t a r i f f cu t i n 1973. The incidence of the t a r i f f and the

level of import p r ices i n 1973-74 ind ica tes t h a t t he competitive a b i l i t y

o f Austral ian producers de te r io ra ted by some 8% a s a r e s u l t of t h a t t a r i f f

reduction. These changes would have contributed importantly t o t he

competition Austral ian producers have encountered from imports s ince

1973-74.

Table A.VI

ESTIMATED EFFECTS OF CI-IANGES IN EXCHANGE RATES AND IMPORT COSTS ON COMPETITIVE POSITIONS OF ORANGE PRODUCERS IN

BRAZIL, THE USA AND AUSTRALIA

Index of Exchange Rate Measure of Competitive Divided by Pr ice Index Posi t ion

l

Year Brazi l Bra z i l USA Relat ive Relat ive a t 31 Brazi l (a) USA@) Austra l ia(c) Rela t ive to

December t o to USA Aus t ra l i a Aus t ra l i a

(a) Brazi l ian Cruzeiros pe r $US X 100 100 X -

Brazil s consumer p r i c e index-Sao 1

Paulo a l l items 1972=100

(b 1 $l.U.S. X 100 - 100 X - U.S. Consumer P r i c e Index a l l items

1

(C) $Aust. pe r $U.S. X 100 100 X - Austra l ian Consumer P r i c e Index a1 l i tems

1

Sourczs: Derived from data i n United Nations, Monthly BuZZetin of Stat is t ics and the Austral ian Bureau of S t a t i s t i c s , Consumzr P r i c e Index.

While the competitive pos i t ion of Braz i l ' s orange producers

improved r e l a t i v e t o t h a t of Austral ian producers i n recent years, it did

not do so r e l a t i v e t o U.S. producers. Nevertheless, the re has been a high

l eve l of new investment i n orange production i n Brazil but not i n the USA.

One reason f o r t h i s would probably be a lower level of competition f o r

resources used by the indust ry i n Brazil . In t ha t country, s u i t a b l e land

fo r c i t r u s i s abundant, and more p ro f i t ab l e a l t e rna t i ve uses f o r it appear

t o be l imited. I n contras t , i n the USA, especia l ly i n Florida, t he area

of s u i t a b l e land i s l imi ted and competition f o r it from o ther indus t r i es

and f o r r e s i den t i a l purposes would be in tense . Also, i n Brazil , more

p ro f i t ab l e a l t e rna t i ve uses f o r labour would be sca rce r a t t ha t country's

s tage of i ndus t r i a l development than i n the USA with i t s highly

i ndus t r i a l i s ed economy. Another reason f o r Brazi l ' s expansion i n orange

l plant ings would be expectat ions of fu tu re product iv i ty growth, a s

increases have been reported i n p lant ings of v i rus-f ree seedlings.

However, incent ives and concessions granted by the government t o encourage

plant ings , and a 40% subsidy on f e r t i l i s e r purchases. appear t o have

promoted plant ings great ly . Such concessions include loans a t

concessional i n t e r e s t r a t e s with repayments not commencing u n t i l 5 years

l a te r . (5 ) Given the high r a t e s of i n f l a t i o n i n Brazil , averaging 26% per

year from 1972 t o 1976, and t he f a c t t h a t the t r e e s planted on t he

concessional finance would be bearing by t he time repayments came due,

such concessions would seem t o be very a t t r a c t i v e t o prospective growers

and e f f ec t i ve i n increasing plant ings .

Government sponsored plans a l so appear t o have had an important

influence upon t he heavy plant ings i n Cuba. (6)

Unti l the widespread use of concentrated c i t r u s juices, many

developing countries which had i dea l climates and s o i l condit ions f o r

c i t r u s growing were not well located r e l a t i v e t o markets i n high income

countries with high l eve l s of e f fec t ive demand. However, concentration of

ju ice has provided them with a means of conveniently and competitively

t ranspor t ing t h e i r products t o these markets, thus enabling them t o

r e a l i s e t h e i r po t en t i a l f o r orange production more fu l l y .

(5) This information i s contained i n USDA 'Foreign Agricul ture1, 4 October 1976, op. cit. The concessional i n t e r e s t r a t e s a r e 15% compared with commercial r a t e s of twice t h a t l eve l . Although such 'concessional ' r a t e i s high by standards i n many other countries, so too i s the r a t e of i n f l a t i o n i n Brazil higher.

(6) See FAO, Commodity Revim and OutZook 1975-76.

While the abovementioned f ac to r s have contributed t o the

o r ien ta t ion of orange t r e e p lant ings toward developing countr ies i n recen t

years, the production from recent p lant ings has not ye t been rea l i sed . I t

i s l i k e l y therefore t h a t the upward trend i n world orange production w i l l

continue with a g rea te r o r ien ta t ion towards the developing countries i n

the next few years.

Demand and Prices for Orange Juice

Along with t he growth i n orange ju ice production there have been

large increases i n consumption. Such increases have been confined almost

en t i r e l y t o the higher income countr ies of Western Europe, North America

and Oceania. While t he United S t a t e s and Austra l ia have drawn t h e i r

supplies mainly from t h e i r own production, most o ther major consuming

countries have r e l i e d on imports. The Federal Republic o f Germany and the

United Kingdom a r e the l a rges t Western European markets, the former

cons t i tu t ing t he world's l a rge s t import market. Trends i n apparent

consumption of orange ju ice i n se lec ted countries a r e shown i n Table

A . V I I .

The pa t t e rns of growth i n pe r caput consumption i n the United

Kingdom, the Federal Republic of Germany and Austra l ia have been s im i l a r

with steady increases during t he 1960s and accelera ted growth i n the

1970s.(7) I n the United S t a t e s the i n i t i a l period of rapid expansion i n

l consumption was e a r l i e r , there having been subs tan t ia l increases during

the 1950s, taking U.S. consumption t o l eve l s not reached i n these o ther

countries u n t i l the mid-1970s. U.S. consumption became r e l a t i v e l y s t a t i c

f o r a time i n the ea r l y 1960s when suppl ies were cu r t a i l ed owing t o the

1962-63 Flor ida freeze. However, it then resumed i t s upward t rend which

i s s t i l l continuing. In terms of s i ng l e s t reng th equivalent , U.S.

consumption i s s t i l l some 50% higher than t h a t i n Austra l ia . However, i n

terms i n ac tua l l i qu id volume of orange ju ice - l ike products, the d i spa r i t y

i s l i k e l y t o be considerably l e s s a s rap id growth has been repor ted i n

Austra l ia f o r s a l e s of orange ju ice drinks containing only a proport ion of

pure f r u i t ju ice i n recent years.

( 7 ) The above data f o r the Federal Republic of Germany i nd i ca t e some reduction i n pe r caput apparent consumption s ince 19 73. However, ac tua l consumption probably continued t o r i s e with stocks accumulated through heavy imports i n 1973 subsequently phased on t o t h e market.

Table A . V I I

ORANGE JUICE : ESTIMATED APPARENT CONSUMPTION I N SELECTED COUNTRIES

(Kg, Single Strength Equivalent Per Head)(a)

Year United Kingdom

Federal Republic USA Austral ia

of G ermany (b

(a) These est imates f o r the United Kingdom and the Federal Republic of Germany a r e based upon import data. I n many ins tances t he s t rengths of concentrate were not c l e a r l y indicated. I n o thers , del ineat ion between concentrate and s i ng l e s t reng th juice, data f o r which were combined, had t o be based upon information on source of supplies and previous market shares when separate data were avai lable . These f igures can therefore be taken only t o ind ica te the general extent o f movements and magnitudes. (b) Financial year commencing 1 J u l y of year shown.

Sources: Derived from data i n USDA, F r u i t Situation and Foreign Agricultural Circular, Citrus Fruits; Commonwealth Secre ta r ia t , Fruit Intell igence and U.K. Trade and Navigation Accounts; Austral ian Bureau of S t a t i s t i c s , Overseas Trade.

I n a l l major consuming countries, the subs tan t ia l increases i n

orange ju ice consumption can be a t t r i bu t ed t o r i s i n g incomes, f a l l i n g

p r ices and t a s t e changes.

I n the United S t a t e s i t was estimated i n 1974 t h a t the income

e l a s t i c i t y of demand was 0.97(8) fo r a l l processed oranges while, i n the

United Kingdom, the income e l a s t i c i t y of demand f o r a l l f r u i t ju ices was

est imated i n 1971 a t 1.1. (9) With an income e l a s t i c i t y of around unity,

i n both of these countries, the respect ive contributions of income growth

t o consumption increases would have been r e l a t i v e l y small, pe r caput

r e a l income growth i n both t he United S t a t e s and the United Kingdom having

averaged l e s s than 2% per annwn between 1966 and 1975. An important p a r t

of the growth i n U.S. and United Kingdom consumption must the re fore have

a r i sen through the e f f e c t s of p r i c e and t a s t e changes, there having been a

marked downward t rend i n r e a l ju ice p r ices . Such downward t rend i n r e a l

p r ices has been evident not only i n the United Kingdom but a l so i n the USA

where the p r i c e e l a s t i c i t y of demand a t r e t a i l was estimated i n 1974 a t

-0.79. (10) I t i s l i k e l y t h a t p r i c e s f o r orange ju ice i n the Federal

Republic of Germany would have f a l l e n by even more than i n these o ther two

countries as t he Federal Republic of Germany imports a l l of i t s suppl ies

and the appreciat ion of i t s currency would have placed f u r t h e r downward

pressures on import p r ices i n terms of Deutsche Marks. Although

information cannot be found on the p r i c e e l a s t i c i t y of demand f o r orange

ju ice i n countries o ther than the USA, it i s l i k e l y t h a t i n those

countries where consumption i s lower the e l a s t i c i t i e s would be above t h a t

est imated f o r the USA. A s ind ica to rs of t r ends i n world p r i c e s , average

p r ices f o r orange ju ice concentrate imports i n t o t he United Kingdom,

average U.S. export p r i c e s and U.S. wholesale p r i c e s f o r orange ju ice

concentrate a r e shown i n Table A . V I I I .

The decline i n world r e a l p r i c e s f o r orange ju ice concentrate

ind ica tes t h a t , over time, world production has been r i s i n g more rap id ly

than demand. A s consumption l eve l s r i s e toward an eventual c e i l i n g i n t he

present major consuming countr ies , t h e response of t h e i r consumption t o

income and p r i c e changes can be expected t o decline. Thus unless there

a r e commensurate reductions i n the r a t e o f increase i n production o r

increases i n demand i n o ther countries, the downward pressures on r e a l

p r ices w i l l continue. -

(8) See Matthews, Warmack and Huang, op. c i t .

(9) See Household Food Consumption and Expenditure 1970 and 1971, Ministry of Agriculture, F i sher ies and Food.

(10) See Matthews, Warmack and Huang, op. c i t .

Table A . V I I I

FROZEN ORANGE J U I C E CONCENTRATE PRICES

Year U . K . Import Pr ice (a) U.S. Wholesale Pr ice

Average U.S. Export Pr ice , .

In Money Terms Real Pr ice (b) (a1 In Money Terms Real Price(b)

U.K. pence Aust. cents U.K. pence U.S. cents Aust. cents $US per doz per l i t r e per l i t r e pe r l i t r e per l i t r e per l i t r e 6 oz cans(d)

(a) These values a r e f o r bulk frozen ju ice concentrate as indicated i n t r ade s t a t i s t i c s . No indicat ion i s given of the s t reng th of t he concentrate. (b) Deflated by wholesale p r i c e index 1965 = 100. (c) Deflated by wholesale p r i c e index 1971 = 100. (d) Unweighted average of monthly p r ices . (e) Average fo r 5 months ended May. The average fo r t he 4 months ended May, i . e . t h e 4 months following the Flor ida freeze,was $2.76. na, not avai lable .

Source: U . K . Trade and Navigation. Accounts; U . S. Department of Commerce; U . S . Exports, Comodity by Country; USDA, Fruit Situation (various issues) .

While r e a l world p r i c e s have trended downward, the re have been

s i g n i f i c a n t shor t term var ia t ions . With the recen t Flor ida f reeze and t h e

reduced s tocks i n the USA, U.S. p r i c e s have r i s e n appreciably. U.S.

import demand has increased, i t s e q o r t a v a i l a b i l i t y has declined and

world p r i c e s have r i s e n .

Recent information received through t h e Aust ra l ian o f f i c e of t h e

Department of Overseas Trade i n San Francisco ind ica ted t h a t i n l a t e March

1977, the f.o.b. U.S. West Coast p r i c e fo r 65' b r i x orange ju ice

concentrate ranged between $1~S4.80 and $uS5. 40 p e r U. S. ga l lon (i. e.

between $USl. 27 and $US1.43 p e r l i t r e ) . This compared wi th a Ipre-freeze

p r i c e 1 ranging between $ ~ ~ 3 . 6 0 and $US4.20 pe r U. S. ga l lon, This

information suggests t h a t 1J.S. p r i c e s f o r bulk concentrates had r i s e n by

about 30% following t h e F lo r ida freeze. The r i s e i n t h e wholesale p r i c e s

f o r 6 oz cans o f concentrate was aruurd 20% on t h e 1976 p r ice . Subsequent

p r i c e information received from Department of Overseas Trade o f f i c e s i n

Brazil and Mexico i s cons i s t en t with t h e post - f reeze U.S. export p r i ce . 0

I n July , t h e p r i c e f o r 65 b r i x ju ice f.o.b. Brazil was indicated t o be

$US900 per tonne o r $US4.50 pe r U.S. gal lon, while export p r i c e s from

Mexico were indicated t o be $ ~ S 6 . 1 0 pe r U.S. gal lon. I t was not u n t i l

Apri l 1977 t h a t these higher p r i c e s were r e f l e c t e d i n t h e f.o.b. values

of Aust ra l ian imports a s may be seen from Table A . I X .

Table A . I X

ORANGE JUICE IMPORT PRICES : AUSTRALIA (Average f .o .b. P r i ces )

Period Cents pe r L i t r e Single

Strength Equivalent

1973-74 19 74- 75 19 75- 76 1976- 77 Ju ly

August September October November December January February March Apr i l May June

11 .l 11.8 14.0 9.8

17.7 13.9 13.6 9.5

20.6 (a) 12.7 13.8 11.8 16.9 19.2 23.7

(a) Only very small q u a n t i t i e s were imported i n t h i s month.

Source: Austra l ian Bureau of S t a t i s t i c s .

Concl usi ons

World t rade i n orange juice concentrate has r i s en approximately

s ix fo ld s ince the mid-1960s, with t h e main increase i n shipments being

from Latin America, with Brazil now the dominant exporter. Growth i n

consumption has been correspondingly rapid, bu t i t has been mainly

confined t o the western i ndus t r i a l i s ed countries. Although consumption

has been r i s i ng , demand has not kept pace with the increases i n supplies,

causing r e a l p r i ce s i n the major consuming countries t o decline markedly

over time.

The upward trend i n orange ju ice concentrate production i n

Brazil i s l i k e l y t o continue while subs tan t ia l new orange t r e e plant ings

i n several o ther developing countries a re l i ke ly t o increase export

a v a i l a b i l i t y of both f resh and processed oranges within the next few

years. On the o ther hand, t he rapid growth which has occurred i n Florida,

the world's l a rge s t producer, i s l i k e l y t o slacken though some fur ther

increases a r e s t i l l expected.

The r a t e of growth i n world orange and orange juice concentrate

output i s expected t o be approximately maintained i n the next few years

with i n t ens i f i c a t i on of a trend of greater o r ien ta t ion toward t h e lower

cost developing producing countries. A t the same time, world demand

growth i s expected t o continue a t around recent levels . Hence, t he long

term downward trend t ha t has occurred i n r e a l world p r ices fo r orange

juice concentrate i s expected t o continue. Nevertheless, shor t term

f luc tua t ions such as the recent marked p r i ce increases a r i s i ng from the

Florida freeze w i l l occur per iodical ly .

Attachment B

PRICING OF AUSTRALIAN CITRUS "

In t r oduc t i on

Prices f o r oranges and other c i t r u s i n Austra l ia a r e determined

by t he in te rac t ion of i n s t i t u t i o n a l arrangements and f ree market forces .

The i n s t i t u t i o n a l arrangements apply p r inc ipa l ly t o t h e processing s ec to r

which now takes almost hal f of the oranges produced, approximately half of

the lemons and grapefrui t and a small proportion of t he mandarins. These

i n s t i t u t i o n a l arrangements a l s o affect t he quan t i t i e s so ld f resh and

hence, through market forces, influence f resh market p r ices .

This Attachment aims t o i den t i fy t h e fac tors a f fec t ing pr ices

and how they i n t e r a c t i n determining t he quan t i t i e s t h a t a re marketed i n

d i f f e r en t ou t l e t s . This should a s s i s t i n assessing t h e e f f ec t s of policy

measures on producers ' re turns and, i n conjunction with supply response

analyses reported elsewhere i n t h i s submission, on t h e l eve l of Austral ian

production.

Because of t h e i r r e l a t i v e dominance of Austral ian c i t r u s

production and because most imports have been of orange ju ice t he research

reported i n t h i s Attachment i s confined la rge ly t o oranges. The

Attachment is i n four main pa r t s . The f i r s t i l l u s t r a t e s trends which have

occurred i n pr ices and quan t i t i e s sold i n a l t e rna t i ve out le ts ,and i n

imports. The second i s a general descr ipt ion of how the market operates

and t h e t h i r d i s a model which s e t s out t o show how pr ices f o r oranges

have been formed and quan t i t i es a l loca ted between a l t e rna t i ve o u t l e t s .

The f i n a l sect ion is devoted t o using the model developed i n t he t h i r d

sect ion i n order t o estimate the e f f e c t s of changes i n t he l eve l of

protect ion on producer re turns and orange ju ice consumption.

Trends i n Production, Prices, U t i l i s a t i o n and Imports

There are several underlying t rends i n Austral ian production,

u t i l i s a t i o n and pr ices f o r c i t r u s s ince the ea r ly 1960s. These include :

( i ) r i s i n g production;

* Ivan Roberts was responsible fo r t he preparation of t h i s Attachment.

( i i ) increasing quan t i t i es being processed, accounting f o r most of

the increase i n product ion;

( i i i ) r e l a t i v e l y s t a t i c o r declining per caput f resh consumption;

I ( iv) r i s i n g money pr ices f o r processing c i t r u s with r e l a t i ve ly s t a t i c

r e a l processing pr ices u n t i l the mid-1970s s ince when there has

been a decline i n r e a l processing pr ices ; l

(v) r e l a t i v e l y s t a t i c money pr ices f o r f r e sh c i t r u s but declining

~ r e a l pr ices .

Trends i n production, consumption and pr ices a re shown in

Figures B . 1 t o B.XIII a t t he end of t h i s Attachment.

The trends indicated f o r u t i l i s a t i o n la rge ly r e f l e c t changes i n

consumer t a s t e s and incomes with an increasing preference f o r t he

convenience good - c i t r u s ju ices . One important influence on Australian

production, u t i l i s a t i o n and pr ices i n recent years is t he incidence and

pr ices of ju ice imports. The proportions of orange and grapefrui t t o t a l

avai l ab i l i t i e s and juice supplies provided by imports s ince 19 73- 74 a re

shown i n Table B . I .

These imports have varied widely i n p r i ce according t o qua l i ty

and source, with a large proportion being imported a t duty paid laqded

pr ices below the average costs of producing Austral ian ju ice . However,

t he costs of producing ju ice concentrate i n Austra l ia would probably a l so

vary f a i r l y widely between regions and between processors a s t h e f r u i t

processed is subject t o absolute minimum pr ices i r respec t ive of ju ice

y i e ld and qua l i ty . Such fac tors as s i z e of the processors operation

could a l so influence un i t production costs . Hence, though quan t i t i es of

imports may have been a t landed pr ices below Austral ian average cos t s ,

some Austral ian processors would have been more successful i n competing

against imports than others . A comparison between t h e Austral ian p r ice

f o r processing oranges i n terms of an average ju ice y ie ld , estimated

average annual landed duty paid import pr ices and the range of monthly

average import p r ices is shown i n Table B.11 . The Austral ian p r ice does

Table B. I

AUSTRALIA : ORANGE AND GRAPEFRUIT JUICE IMPORT CLEARANCES AS AN ESTIMATED PERCENTAGE OF AUSTRALIAN SUPPLIES

Orange Grapefruit

Year Import Clearances as Import Clearances as

'Fort 'learances as Proportion of Fresh l-m~Ort as Proportion of Fresh Proportion of Total Proportion of Total Equivalent of Total Equivalent of Total Juice Availability(a) Orange Supplies Juice Availability(a) Grapefruit Supplies

1976-77 (b) 2 2 . 2 11.83 11.52 6.73

(a) Import clearances as recorded in terms of single strength by the Australian Bureau of Statistics. (b) Import clearances for the full year were estimated on the basis of clearances in the 11 months ended May 1977.

Sources: ABS and ACGF.

Table B.11

AUSTRALIA : ESTIMATED AVERAGE PRICES PAID BY PROCESSORS FOR AUSTRALIAN GROWN ORANGES AND GRAPEFRUIT PER LITRE OF SINGLE STRENGTH JUICE PRODUCED, ESTIMATED AVERAGE LANDED DUTY PAID PRICES FOR IMPORTED JUICE, AND ESTIMATED

RANGES OF MONTHLY AVERAGE LANDED DUTY PAID PRICES FOR IMPORTED JUICE

(Cents per Litre)

Oranges Grapefruit

Estimated Estimated Estimated Monthly Range

Average Price Average Landed of Average Year Paid for Duty Paid Landed Duty

Oranges by Import Price Paid Import Processors for for Orange Price for

Juice (a) Juice (b) Orange Produced Juice (b)

Estimated Average Price Paid for

Grapefruit by Processors for

Juice Produced (c)

Estimated Average Landed Duty Paid Import Price for Grapefruit

Juice (b)

Estimated Monthly Range of Average Landed Duty Paid Import Prices for Grapefruit Juice (b)

1975-76 16.7 21.1 14.2 to 24.7 21.7 20.2 15.5 to 39.5

1976-77 (d) 16.7 20.1 16.6 to 27.7 21.7 20.9 18.3 to 29.6

(a) Juice equivalent of minimum FISCC price, country factories, for Australian valencia oranges at 455 litres single strength per tonne. Does not include processing or transport costs. (b) ABS, average f.o.b. value of imports plus 4.1 cents per litre single strength duty, plus 3.0 cents per litre ocean freight and handling. (c) Juice equivalent of minimum FISCC price, country factories, for Australian grapefruit at 350 litres per tonne. Does not include processing or transport costs. (d) 10 months ended April 1977.

not include t h e processors ' cos t s and margins and is the re fo re no t

d i r e c t l y comparable with the import p r i ces f o r t h e manufactured product.

As imports have entered a t duty paid p r i c e s below t h e production

cos ts of many Aust ra l ian processors, t h e r e would probably have been some

downward pressure on the q u a n t i t i e s processed. The extent of such

pressures could, however, have been l imi ted by severa l f a c t o r s including:

- taste preferences f o r loca l ju ice enabling it t o command

premiums, e spec ia l ly over t h e lower p r i ced imports;

- t h e opera t ion of the c i t r u s panel vo lun ta r i ly r e s t r a i n i n g t h e

volume imported up t o and including p a r t of 1975-76 f i n a n c i a l

year;

- adoption of the Temporary Assistance Authori ty recommendation of

a t a r i f f quota of 2 8 . 3 m l i t r e s s i n g l e s t r eng th on imports of

orange j u i c e f o r the year ended 30 June 1977;

- a decl ine i n t h e r e a l p r i c e , though not t h e money p r i c e , f o r

Aust ra l ian valencia oranges and g r a p e f r u i t i n 1975-76 and

1976-77 and f o r navel oranges i n 1976- 77.

World p r i c e s f o r orange ju ice Concentrate a r e repor ted t o have

r i s e n markedly during 1977 as a r e s u l t of a f r e e z e i n Flor ida , and t h i s

has been r e f l e c t e d i n Aust ra l ian import p r i c e s s ince Apri l 1977. (1) This

increase, i n addi t ion t o the ad valorum duty of 65% f o r 1977-78, is

r e s u l t i n g i n increased duty paid import p r i c e s , a t l e a s t i n t h e s h o r t

term.

Pricing for Processing Citrus

A t p resen t , minimum p r i c e s f o r processing c i t r u s a r e determined

by t h e F r u i t Industry Sugar Concession Committee (FISCC). These p r i c e s

have been s e t each year during t h e per iod of r a p i d expansion i n Aust ra l ian

(1) See Attachment A.

c i t r u s ju ice production s ince the mid-1960s, annual determinations having

been made f o r lemons s ince 1963, f o r valencia oranges and s e v i l l e s s ince

1965, and f o r navel oranges and grapef ru i t s ince 1967. Before t h e 1960s,

only one such determination had been made - f o r lemons i n 1935.

The FISCC p r i ce determining system has two in t e r r e l a t ed f ace t s ,

namely t h e s e t t i n g of minimum pr ices fo r processing f r u i t and t h e payment

l of a rebate on sugar used by processors i n Austral ian f r u i t products.

Payment of the reba te is subject t o processors paying t he minimum p r i ce

and so t he rebate ac t s as an incentive f o r processors t o observe the

~ s t i pu l a t ed minimum pr ices .

~ The FISCC is a s t a tu to ry body s e t up under t he Sugar Agreement

between t h e Commonwealth and Queensland Governments. I t consis ts of

representa t ives of the Commonwealth Government, the Queensland Sugar

Board, growers of canning f r u i t s , growers of non-canning f r u i t s ,

co-operative and S t a t e manufacturers of f r u i t products and proprietory

manufacturers of f r u i t products. The l a s t two agreements signed i n 1969

and 1975 respect ively provide f o r a reba te of $15 per tonne of Austral ian

ref ined cane sugar used i n the manufacture of Austral ian f r u i t products.

Payment of such rebate t o a processor i s only made i f a l l the f resh f r u i t

f o r which FISCC determines minimum pr ices is purchased a t o r above the

declared pr ices . Most major processing f r u i t s with notable exceptions of

apples, cherr ies and grapes have t h e i r minimum pr ices s e t by the FISCC,

the main categories being berry f r u i t s , deciduous t r e e f r u i t s , pineapples

and c i t r u s f r u i t s .

A t l e a s t two pr ices a r e s e t f o r each category of c i t r u s - one

f o r f r u i t del ivered t o country f ac to r i e s and another f o r f r u i t delivered

t o metropolitan f ac to r i e s . I n some instances there a re a l so intermediate

p r ices t o be paid within spec i f ied distances of metropolitan areas . The

FISCC minimum pr ices a re payable, i r respec t ive of f r u i t qua l i ty , with a

proviso t h a t valencia oranges should contain a t l e a s t 33% by weight of

ju ice . The minimum pr ices determined s ince 1965 and t he quan t i t i es

processed a r e shown i n Tables B . 1 1 1 and B . I V respect ively .

The sugar rebate does not represent a large proportion of t o t a l

c i t r u s processors ' costs as it reduces t h e cost of added sugar by only

Table B . 1 1 1

CITRUS: PRICES DECLARED BY FISCC FOR FRUIT DELIVERED TO FACTORIES IN SPECIFIED ZONES : AUSTRALIA

($ per long ton t o 1973-74, $ per tonne from 1974-75)

Item

Oranges Navel Metropolitan fac tory - .. 81 - 201 km - - Over 201 km -

Valencias, e t c . Metropolitan fac to ry 48 48 81 - 201 km 44 44 Over 201 km 38 38

Lemons Western Aus t ra l i a t o 1970 56 A l l S t a t e s

( i n c l . W.A. from 1971) 54 60 Country f a c t o r i e s 48 54

Grapefrui t Metropolitan - - 81 - 201 km - Over 201 km - -

S e v i l l e s Metropolitan fac to ry 50 50 Country f a c t o r i e s 44 44

Table B. I V

CITRUS : FACTORY FRUIT DELIVERIES : AUSTRALIA

(Tonnes)

Item 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974-75 1975-76 1976-77

Navel oranges 1 733 4 239 3 841 7 389 6 104 1 7 770 19 507 35 560 27 174 47 822 45 829 36 604

Valenciaandother seed oranges 27 013 42 607 45 381 65 014 44 434 94 800 45 246 127 000 84 696 119 021 125 695 119 840

Total oranges 28 746 46 846 49 222 72 403 50 538 112 570 64 753 162 560 111 870 116 843 171 524 156 444 I

m Lemons 8 612 10 246 14 591 12 985 12 101 17 204 15 545 19 684 22 594 28 323 19 829 20 805 h)

i

Grapefruit 3 236 2 096 3 911 3 923 2 516 3 373 7 909 6 843 11 606 9 629 10 753 12 212

Sevi l les 958 756 84 9 608 653 599 7 39 522 786 l 000 810 498

Mandarins - - - - - - - - 2 74 215 1 066 1 330

Tot a1 41 552 59 944 68 573 89 919 65 808 133 746 88 946 189 609 147 130 206 010 203 982 191 289

Source: Austral ian Ci t rus Growers1 Federation.

some 6% a t present wholesale p r i c e s and sugar i s an important input i n

only some c i t r u s products, such a s cordia ls and f r u i t dr inks . The

incent ive t o observe t h e minimum p r i c e s would, therefore , not be very

g rea t i f t h e reba te were r e l a t e d t o the sugar added i n c i t r u s products

only. However, such incent ive is g r e a t l y increased when t h e f i n s

involved a l s o produce high sugar using non-ci t rus products such a s canned

f r u i t s , non-c i t rus based c o r d i a l s , syrups and jams, because t o pay below

t h e FISCC minima f o r c i t r u s would endanger t h e reba te on sugar used i n

o the r products . For some firms which process c i t r u s only f o r pure f r u i t

ju ice , the d i r e c t benef i t of the reba te would be n e g l i g i b l e . Observance

of the minimum p r i c e s by such firms would be based upon t h e need t o

compete with t h e higher sugar using firms f o r fruit supp l ies . Such pure

f r u i t j u i c e f i r m s , e s p e c i a l l y those requ i r ing a r e l a t i v e l y constant

throughput, could p lace a high value on the goodwill which comes from

observing t h e minimum p r i c e s , while the re could a l s o be an element of

moral suasion f o r t h e processors t o observe ' o f f i c i a l ' minimum p r i c e s .

Determination o f Fresh Market Prices

Within a season, f r e s h p r i c e s of Aust ra l ian c i t r u s a r e

determined a s a r e s u l t of competition f o r a l a rge ly predetermined amount

of f r u i t between the f resh , processing and export o u t l e t s and f a c t o r s

influencing f r e s h market demand d i r e c t l y .

( i ) Total production i n any year i s l a r g e l y predetermined by

previous p lant ings , t r e e age, t h e s t a t e of technology, a l t e r n a t e

cropping and seasonal condit ions .

( i i ) P r i o r t o the season, the FISCC determines minimum pr ices f o r

processing c i t r u s probably taking i n t o account expected supply

and demand f a c t o r s f o r both f r e s h f r u i t and ju ice producers

c o s t s , and p r i c e s and a v a i l a b i l i t y of imported ju ice .

( i i i ) A s the season progresses growers, co-operatives and p r i v a t e

marketing firms a l l o c a t e suppl ies between t h e processing,

domestic and f r e s h and export o u t l e t s . I n s o doing, they take

i n t o account t h e r e l a t i v e cos t s involved i n producing f o r , and

marketing i n , t h e a l t e r n a t i v e o u t l e t s as well as t h e p r i c e s they

receive from each o u t l e t . In t h i s a l loca t ion process t h e

growers and marketers would consider whether they were b e t t e r

o f f sending more t o f resh o u t l e t s , export o r processing. If

expected re tu rns from the f resh market o r export were higher

than those f o r s im i l a r qua l i t y f r u i t from processing, t h i s would

encourage growers t o market more f r e sh , thus placing downward

pressures on f resh p r i c e s . Similar ly , i f r e tu rns from

processing, the minima f o r which a r e predetermined, a r e above

those from the f r e sh market, growers would tend t o send more f o r

processing, thus reducing f resh market suppl ies and r a i s i ng

f r e sh market p r ices . Hence, the re is a tendency f o r market

re tu rns from a l t e rna t i ve o u t l e t s t o equal ise , subject t o

cons t ra in t s applying t o the quan t i t i e s which processors a r e

prepared t o accept. This mechanism is , of course, imperfect

owing t o such f ac to r s as growers committing themselves over

extended periods t o supply ce r t a i n quan t i t i e s of f r u i t t o

processors o r f r e sh f r u i t marketing agents, and a l so because of

imperfect knowledge of a l t e rna t i ve re turns i n some ins tances .

Examination of p r i c e s f o r f r e sh and processing oranges over the

pas t decade shows t h a t f resh p r i c e s have declined r e l a t i v e t o

processing p r ices . I f the re had been cons i s ten t ly strong

competition between the two o u t l e t s f o r suppl ies , s im i l a r p r i c e

l t rends could have been expected from t h e two o u t l e t s . I t i s

the re fore f a i r l y c l e a r t h a t the re have been changes i n t he l e v e l

of competition f o r suppl ies , with it increasing as processing

has become more important. The change i n o r ien ta t ion of

suppl ies from f r e sh toward processing could a l so have encouraged

changes i n production and marketing methods which previously had

been o r ien ted t o servic ing the f r e sh f r u i t t r ade .

( iv ) The extent t o which processors a r e prepared t o accept f r u i t w i l l

i n tu rn depend upon expected s e l l i n g p r ices and sa les volume

prospects f o r ju ice , the p r i c e of f r u i t f o r processing, f r u i t

qua l i t y , processing and handling cos t s , ju ice storage capacity,

ju ice stocks and a v a i l a b i l i t y and p r i c e of a l t e rna t i ve ju ice

suppl ies such as imports and subs t i t u t e s .

(v) Limitations upon the quan t i t i e s t h a t processors a re prepared t o

take a t t he minimum pr ices could ac t t o break t he tendency f o r

re turns ne t of marketing costs t o equal ise between t h e f resh and

processing sec tors , as the balance of supplies avai lable f o r

f r e sh s a l e o r export could depress f resh pr ices below the

minimum processing pr ice under some circumstances.

The Model - P r i c e Formation f o r Oranges

From the above discussions, it is evident t h a t several key

fac tors , namely the level of production, t he FISCC pr ices f o r processing

f r u i t and developments i n the demand f o r f r e sh and processing c i t r u s , ac t

t o influence f resh market pr ices and t he quan t i t i es marketed f resh and

processed. The object ive of t h i s pa r t of t he submission is t o simulate

how these f ac to r s have operated i n the past i n t h e orange market and

quantify t h e i r individual contributions t o movements i n market p r ices and

quan t i t i es so ld i n f resh and processing ou t l e t s . The r e s u l t s reported

here and t he conclusions drawn a r e preliminary, as t h e model is being

fu r ther developed.

The model is based upon the proposit ion t h a t t h e FISCC

determines t he minimum processing pr ices , taking i n to account i t s

expectations of the l eve l of production, f resh market p r i ce s , s tocks and

s a l e s of ju ice , and the degree of competition from imports. I n doing so,

it would need t o assess t h a t t he f resh p r i ce would not f a l l appreciably

below the processing pr ices s e t . I f it did , competitive pressures would

a r i s e f o r processors t o purchase quan t i t i es a t below the minimum p r i ce s ,

i f the di f ference between the f r e sh and the FISCC minimum were g r ea t e r

than t h e incent ive provided by t he sugar rebate. Conversely, i f f r e sh

market p r ices r i s e much above the FISCC processing minimum pr ice ,

competitive pressures would tend t o r a i s e processing pr ices above t he

minimum through diver t ing quan t i t i es away from processors t o f r e sh

ou t l e t s .

After the processing p r i ce has been determined, it i n t e r a c t s

with the a v a i l a b i l i t y of oranges and juice stocks t o determine the

quan t i t i es t h a t a re processed and so ld f resh . The quan t i t i e s a l loca ted t o

the f resh market i n turn i n t e r ac t with other f r e sh market fac to rs such as

income growth and pr ices f o r subs t i t u t e s , t o determine t he f resh market

p r ice .

For s impl ic i ty the model has been taken t o explain only t h e

a l loca t ion of supplies between the domestic f resh and processing o u t l e t s .

Exports a r e assumed t o be exogenously determined. A s t h e volume exported

is small, accounting f o r only 5% t o 8% of orange production during t he

l period analysed, t h i s assumption i s not expected t o s i gn i f i c an t l y

1 influence the r e s u l t s .

The mechanism f o r a l loca t ing supplies and determining f r e sh

market p r ices described above may be expressed as follows :

where :

g = quant i ty of oranges processed (endogenous).

~ Qf = quant i ty of oranges so ld f r e sh (endogenous).

P = the FISCC minimum processing p r i ce determined before t he season P (exogenous) .

= quant i ty of oranges so ld f resh per head (endogenous).

S = orange supplies avai lable f o r f r e sh s a l e and processing, i .e.

production l e s s exports (exogenous).

A = dummy var iab le f o r a l t e rna t e cropping (0 f o r a l l years o ther than 19 70- 71 and 19 72- 73, f o r which t he value i s 1. )

Pf = f r e sh market p r i ce f o r oranges a t wholesale, def la ted by consumer

p r i ce index (endogenous)

T = time t rend (1,2,3 ......... t ) inse r ted t o take account of changes i n t a s t e a f fec t ing demand f o r f resh oranges (exogenous).

In t he above model most of the var iables a r e s e l f explanatory,

except t h e dummy var iab le f o r a l t e rna t e cropping (A) . It is postula ted

t ha t processors would tend t o purchase g rea te r quan t i t i e s of oranges i n

'on1 years than they would normally purchase, given t he a v a i l a b i l i t y of

f r u i t . They would thus be ab le t o ensure ju ice suppl ies t o the market i n

the subsequent expected 'o f f ' year. No information i s pub l ica l ly

ava i l ab le on ju ice stocks, however, t o ve r i f y t h i s asse r t ion . For years

p r i o r t o 1970-71, the e f f e c t s of a l t e r n a t e bearing on processors ' in take

appeared t o be minor and (A) was given a value of 0. However, with the

g r ea t e r s i z e of the market s ince the l a t e 1960s and the need of processors

t o assure ju ice suppl ies , a l t e r n a t e bearing appears t o have had an

increased impact on processors ' intake. Hence (A) was given a value of 1

for the two 'on' years 1970-71 and 1972-73.

Relationship 1 i n the above system was then estimated over the

period 1956-57 t o 1973-74,giving the following equation: ( f igures i n

parenthes is a r e t-S t a t i s t i c s )

~ i - ~ = 0.93 D.W. = 1.45

The est imates f o r the quant i ty processed (Q ) were then i n se r t ed P

i n t o t h e Iden t i t y 2 t o derive estimates f o r t he quant i ty marketed f r e sh

(Qf). These est imates were then divided by population t o give estimated r\

per caput orange consumtion (Q ) and regressed along with t h e t a s t e t r end fp

t o est imate Pf i n Relationship 3. The r e su l t an t equation is as follows:

( f igures i n parenthes is a r e t - s t a t i s t i c s ) .

-2 R = 0.70 D.W. = 2.35

Both the equations estimated gave s a t i s f ac to ry s t a t i s t i c a l f i t s .

A l l coe f f i c ien t s had t he expected s igns and were s i gn i f i c an t a t t he 5%

leve l o r l e s s .

It is estimated from the second equation t h a t t h e p r i ce

f l e x i b i l i t y of demand f o r f resh oranges a t wholesale i s -2 .l, i . e . a 1%

change i n quant i ty so ld f resh r e s u l t s i n a 2 . 1 % change i n r e a l wholesale

p r ices i n t h e opposite d i rect ion, o ther f ac to r s being constant.

While the coef f ic ien t f o r t he t rend is s ign i f i c an t , it i s l i k e l y

t h a t t h a t va r iab le would r e f l e c t changes i n several factors, including

competition between oranges, o ther f r u i t s and f r u i t products. I n i t i a l l y ,

t he p r i ce of bananas, the p r ice of apples and per caput household income

were incorporated a s causal var iables . However, t he coef f ic ien t s f o r a l l

of these var iab les l o s t s ignif icance when t he t rend var iab le was

incorporated, and they were subsequently omitted from the analysis . The

negative s ign of the coef f ic ien t f o r the t rend var iable suggests

declining demand f o r f r e sh oranges over time. Such decline was exhibited

throughout t h e 1960s by subs tan t ia l reductions i n r ea l p r ices while

consumption per head rose only marginally. During t h e 1970s, however,

consumption l eve l s have been f a l l i n g while r e a l p r ices have a l so declined.

Such trends have a l so been observed f o r o ther f r u i t s , e spec ia l ly apples,

and appear t o be r e l a t ed t o increasing competition from processed f r u i t ,

especia l ly f r u i t ju ices , as incomes r i s e and consumers seek grea te r

convenience.

The above model gave a simulation of supply a l loca t ion between

the processing and t he f resh orange market, and of p r i ce determination f o r

f r e sh oranges from 1956-57 t o 1973-74. It could a l so be used t o p ro jec t

quan t i t i es a l located and pr ices i n subsequent years. The main var iables

influencing the a l loca t ion of supplies are ; t h e largely predetermined

leve l of t o t a l orange supplies; t h e FISCC processing p r i ce which i s s e t

t o take i n to account expected s a l e s of Austral ian ju ice and the t rend i n

demand f o r f r e sh oranges. Any appraisa l of t he expected s a l e s of

Austral ian ju ice would, i n tu rn , take account of t he expected volume and

pr ice of imported juice. Hence,though orange juice imports have been a

r e l a t i ve ly recent phenomenon on t he market, they should not have bas ica l ly

a l t e r ed the supply a l loca t ion and p r i ce formation re la t ionships estimated

i n t he model t o have applied previously. In order t o t e s t t h i s l a s t

mentioned proposit ion, the model was used t o p ro jec t supply a l loca t ion and

wholesale f r e sh market p r ices f o r 19 74- 75, 19 75- 76. The estimates

obtained from the model f o r the period 1956-57 t o 1973-74 and t he

project ions f o r l a t e r years are compared with actual quan t i t i es and pr ices

i n Figures B . X I V t o B . X V I .

The actual quan t i t i es processed i n both 1974-75 and 1975-76 were

s l i g h t l y above the project ions f o r those years, and i n i t i a l indicat ions

f o r 1976-77 a re tha t t h i s would occur again. This supports t h e

proposit ion t h a t the imports i n those years d id not a l t e r the supply

a l loca t ion and p r i ce formation re la t ionsh ips estimated i n t he model, t h e i r

impact being made through t h e i r e f f ec t on t h e FISCC processing p r i ce .

However, it i s observed from Figure B.XVI t h a t t h e project ions f o r f resh

market p r ices i n both 19 74- 75 and 1975- 76 were above t h e ac tua l p r i ce s .

This was desp i te the proj ected quan t i t i e s consumed f resh , which were used

t o estimated t he p r ice , being above the actual quan t i t i e s consumed f r e sh .

I n i t i a l indicat ions f o r 1976-77 a re t h a t t h i s w i l l apply again, suggesting

t h a t t he downward t rend i n f r e sh market demand i s intensi fying. Thus,

while t he model may be used t o est imate t he e f f e c t s of changes i n

processing p r i ce s upon quan t i t i es processed, consumed f resh and upon

grower re tu rns i n the pas t , fu ture project ions obtained could over est imate

f resh market re turns i f the in tensi fed downward t rend i n demand continues.

Effects of Changes in Protection

The objective of t h i s sec t ion i s t o assess t he e f f e c t s of

changes i n t he l eve l of import dut ies upon Austral ian orange growers1

re turns . I n p r inc ip le , i f imports of orange ju ice were very c lose

subs t i t u t e s f o r domestically produced suppl ies , Austral ian processing

firms could not compete with imports i f , i n t h e longer term, t h e i r input

and operating costs exceeded the landed duty paid import p r ice . However,

qua l i t y differences can l i m i t t he extent of subs t i tu t ion . Also, i n

recent years, r e s t r a i n t s on quan t i t i e s imported, e i t h e r voluntary as i n

1974- 75 and 1975- 76 o r through government act ion as i n 1976- 77, have

l imi ted t he degree of d i r ec t p r i ce competition.

The e f f ec t of changes i n t he l eve l of du t ies on c i t r u s ju ice

imports upon overal l producer re tu rns depends importantly upon t h e extent

t o which t h e di f ference between the re tu rn from processing oranges and t h e

equivalent import p a r i t y p r i ce f o r ju ice r e f l e c t s qua l i t y di f ferences and

quan t i t a t ive r e s t r i c t i o n s . A s no accurate assessment of the d i f f e r en t

e f f ec t s can be made on a priori grounds, two a l t e rna t i ve assumptions

representing the extreme posi t ions a r e used t o explore t he e f f ec t s of

changes i n the l eve l of du t ies on orange ju ice imports. The first,

analysis 'A ' , i s t h a t a l l the di f ference between average grower re turns

from oranges processed and the equivalent average duty paid p r i ce of

imports i n 1976-77 was en t i r e ly due t o qua l i ty di f ferences . The second,

l analysis 'B l , is t h a t the p r ice di f ference i n 1976-77 was en t i r e ly due t o quan t i t a t ive r e s t r i c t i o n s , implying t h a t removal of the quan t i t a t ive

r e s t r i c t i o n s would have resu l ted i n t he re tu rns from oranges processed

equalising with duty paid import p r ices . Results of analyses under these

a l t e rna t i ve assumptions f o r d i f f e r en t levels of duty a r e presented i n

Tables B.V(a) and B.V(b) , the ' a1 and 'b ' corresponding with t he

a l t e rna t i ve assumptions mentioned above. The r e s u l t s were derived using

t he model of orange pr ice formation given above.

Both analyses assume t h a t the differences i n duty a r e r e f l ec t ed

e n t i r e l y ill the re tu rn from processing oranges and tha t t h i s i n turn

a f f ec t s f r e sh c i t r u s p r ices and hence the overa l l l eve l of p r ices received

f o r oranges. The tables are based on the assumptions t h a t t h e processing

and marketing margins a r e held constant and t h a t orange production ne t of

imports i s held constant a t i t s average level f o r 1974-75 and 1975-76. (2)

A ju ice conversion r a t i o of 455 l i t r e s s ing le s t reng th ju ice per

tonne of oranges has been used and t h i s implies a change of 1 cent per

l i t r e i n t h e import pa r i t y p r ice of ju ice is equivalent t o $4 .55 per tonne

i n producer re turns from processing oranges. Hence, as indicated i n

Tables B.V(a) and B.V(b),under processing p r i ce a 2 cents pe r l i t r e change

i n duty r e s u l t s i n a $9.1 per tonne change i n processing pr ice . The

e f f ec t of t h i s on overa l l average re tu rn t o growers is shown i n the l a s t

column of Tables B.V(a) and B.V(b).

I n analysis A, the actual base p r ice taken f o r t h e analysis of

re turns t o processing oranges was $72.9 per tonne, the weighted average of

navel and valencia country FISCC p r i ce s f o r 1976- 77. In analysis B , t he

actual base p r i ce taken f o r the average import p a r i t y p r i ce f o r orange l --- -----p

(2) In t he IAC Interim Report on Orange Juice , 28 February 1977, t h e range of processing and marketing cos t s and margins considered was from 4 cents per l i t r e t o 8 cents.

Table B.V(a)

A. BASIC ASSUMPTION : Difference between average import parity orange juice price and Australian orange juice price has been due entirely to quality differences between Australian and imported juice

ESTIMATION OF EFFECTS OF CHANGES IN IMPORT DUTIES ON PRICES FOR PROCESSING AND FRESH ORANGES AND ON QUANTITIES

PROCESSED AND SOLD FRESH

Estimated Estimated Estimated

Assumed Quantity Quantity Processing Wholesale Grower Price Average

Duty Processed Sold Fresh Price Fresh Price in for Fresh Oranges Grower boxes at 1976-77 at Pack House Return for Money Values Door all Oranges

cents per litre

l000 tonnes

' 000 tonnes

$ per tonne

$ per tonne

$ per tonne

$ per tonne

Other assumptions : - import prices excluding duty are at their 1976-77 level - production of oranges net of exports is the average applying in 1974-75 and 1975-76. - average packing and marketing costs in 30 litre boxes in 1976-77 = $2.00

per box which includes 10% commission on the wholesale price received.

Table B.V(b)

B. BASIC ASSUMPTION : Difference between average import parity orange juice price and Australian orange juice price has been due entirely to quantitative restrictions on imports.

ESTIMATION OF EFFECTS OF CHANGES IN IMPORT DUTIES ON PRICES FOR PROCESSING AND FRESH ORANGES AND ON QUANTITIES PROCESSED AND SOLD FRESH

Estimated Estimated Estimated Wholesale Grower Price Average

Assumed Quantity Quantity Processing Fresh Price for Fresh Grower Duty Processed Sold Fresh Price in Boxes at Oranges at Return

1976-77 Pack House for All Money Values Door Oranges

cents per ' 000 ' 000 $ $ $ $ litre tonnes tonnes per tonne per tonne per tonne per tonne

Other assumptions: - f.o.b. import prices are at the average value for clearances for the 11 months ended May 1977 i.e. 13.7 cents per litre single strength (s.s.).

- costs of importing from f.o.b. into store Australian port = 3 cents per litre (s.s.). - costs and margins for processing and marketing Australian orange juice are 7 cents

per litre S.S. - production of oranges net of exports is the average applying in 1974-75 and 1975-76. - average packing and marketing costs in 30 litre boxes in 1976-77 = $2.00 per box

which includes 10% commission on the wholesale price received.

ju ice was 20.8 cents pe r l i t r e s i n g l e s t r e n g t h . This comprises a 13.7

cents pe r l i t r e average f .o .b . import p r i c e , t h e average f . o . b . import

clearance p r i c e from J u l y 1976 t o May 1977 inc lus ive ; c o s t s of 3.0 cents

p e r l i t r e from f .o .b . t o i n s t o r e a t major Aust ra l ian por t s ; and import

duty of 4 .1 cents per l i t r e . I t was a l s o assumed t h a t Aust ra l ian

processing and marketing cos t s were 7.0 cents pe r l i t r e , g iv ing an

equivalent import p a r i t y p r i c e f o r processed oranges of $62.8 p e r tonne,

( i . e . (20.8-7.0) cents p e r l i t r e X 455) . This ind ica ted by comparing

Tables B .V(a) and B.V(b) t h a t the re could have been a q u a l i t y d i f fe rence

applying f o r Aust ra l ian oranges f o r processing of up t o $10.1 p e r tonne

( i . e . $72.9-$62.8 pe r tonne) i n 1976-77. If t h e r e had been no q u a l i t y

d i f fe rences applying between Aust ra l ian and imported ju ice , a f u r t h e r

comparison between Tables B.V(a) and B.V(b) of t h e average r e t u r n t o

grower f o r a l l oranges a t an import duty of 4.1 cents pe r l i t r e i n d i c a t e s

t h a t q u a n t i t a t i v e r e s t r i c t i o n s increased grower r e t u r n s o v e r a l l by $15.4

p e r tonne ( i . e . $80.0-$64.6 p e r tonne). The e f fec t s f o r d i f f e r e n t l e v e l s

of duty a re shown by s i m i l a r comparisons of t h e r e s u l t s given i n Tables

B.V(a) and B.V(b).

Ef fec ts o f Import Duties on Consumption of Ju ice

The q u a n t i t i e s processed est imated from t h e above ana lys i s a r e

w e l l below t o t a l market supp l ies of j u i c e est imated a t 215 000, 252 000

and 200 000 tonnes f r e s h equivalent i n 1974- 75, 1975- 76 and 1976- 77

respec t ive ly . However, as d u t i e s change, s o too do p r i c e s and

consumption. I n t h e following, an appra i sa l is made of t h e e f f e c t of duty

changes on consumption.

I t has not been poss ib le t o es t imate a r e l a t i o n s h i p between

q u a n t i t i e s of orange j u i c e consumed and p r i c e s , because of d a t a

l i m i t a t i o n s and c o l l i n e a r i t y between ju ice p r i c e s and income. Hence, i n

order t o assess t h e e f f e c t s of duty induced changes i n p r i c e s on

consumption, sub jec t ive judgments have had t o be made of t h e p r i c e

e l a s t i c i t y of demand f o r orange ju ice , based on inference from e l a s t i c i t y

est imates i n o the r countr ies . A t r e t a i l , t h e e l a s t i c i t y i n the United

Kingdom has been estimated a t -1.1 and t h a t i n t h e USA a t -0.8. (3) I t ---------p-------

(3) See 'U.K. Household Food Consumption and Expenditure, 1970 and 1971' - Ministry of Agr icul ture , F i s h e r i e s and Food, and 'The U.S. Orange Economy: Demand and Supply Prospects 1973-74 t o 1984-85' by J i m F. Matthews, Abner W . Womack and Ben Huang, USDA,Fruit S i t u a t i o n , February 1974.

could be expected t ha t the e l a s t i c i t y i n Austra l ia would be higher a t

r e t a i l than t ha t i n the USA where consumption l eve l s a r e higher. On the

o ther hand, the e l a s t i c i t y would probably be lower delivered i n t o bulk

s t o r e a t major markets than a t r e t a i l . Taking these f ac to r s i n t o account

it i s assumed tha t t he p r i ce e l a s t i c i t y of demand i n t o s t o r e , major

o u t l e t s , is within the range -0.5 to -1.0.

Without separate data on stocks it is not poss ible t o estimate

ac tua l current consumption, but t rends i n supplies suggest ju ice

consumption i n 1976-77 a t some 230 000 t o 240 000 tonnes f r e sh equivalent.

Assuming a l eve l of 235 000 tonnes i n 1976-77 and duty of 4.1 cents per

l i t r e a t t h a t time, the e f f ec t s of changes i n import p a r i t y due t o changes

i n duty r a t e s on ju ice consumption a r e estimated i n Table B-VII.

Table B.VI

ESTIMATED EFFECTS OF CHANGES IN IMPORT DUTY RATES ON AUSTRALIAN CONSUMPTION OF ORANGE J U I C E

Estimated Average Pr ice f o r Imported Austral ian Consumption of Orange

Import Duty Rate and Austral ian Ju ice Juice a t Assumed Pr ice E l a s t i c i t y ( a )

i n Store Major of Demand of

Out le ts , 1976- 77 -0.5 -1.0

- 7 cents per l i t r e cents per l i t r e '000 tonnes f r e s h equivalent

(a) E l a s t i c i t y i n bulk s t o r e a t major ou t l e t s .

Assumptions - f.o.b. import p r i ce = 13.7 cents per l i t r e SS-average value of import clearances, 11 months ended May 1977

- current duty r a t e (1976- 77) = 4.1 cents per l i t r e SS - costs f o r imported ju ice from f.o.b. por t of

shipment, i n t o s t o r e major Austral ian por t s = 3.0 cents per l i t r e SS

- pr i ce f o r Austra l ian ju ice i n s t o r e major ou t l e t s = 26.5 cents per l i t r e

- imports' share of t o t a l ju ice s a l e s i n 1976-77 = 18% - there a re no quan t i t a t ive r e s t r i c t i o n s on imports.

From the r e s u l t s shown i n Tables B .V(a) , B .V(b) and B . V 1 it i s

estimated t ha t , i n 1976-77, consumption of ju ice would have f a l l e n t o

around the f resh equivalent of the quant i ty processed i n Aus t ra l i a only

a f t e r t he import duty was ra i sed t o 14 cents per l i t r e o r more depending

upon t he ac tua l l eve l of the p r i ce e l a s t i c i t y of demand f o r ju ice . That

is, there would have been no need t o import. However, even a t those duty

r a t e s some imports would s t i l l have been l i k e l y given t ha t quan t i t i es a t

t h e lower end of the import p r i ce range would s t i l l have an absolute p r i ce

advantage over Austral ian produced juice assumed here t o have been pr iced

i n r e l a t i on t o the mean import p r i ce f o r ju ice .

The above analyses have been based upon quan t i t i e s and pr ices

f o r imported and local ju ice as estimated t o have applied i n 1976-77

before the influence of a s teep r i s e i n import p r ices i n mid-1976

associated with the Florida f reeze . Given t h e form of the analysis , a

r i s e i n import p r ice from the l eve l of 1 3 . 7 cents per l i t r e assumed f o r

Table B.VI, would have the same e f f ec t upon quan t i t i es estimated t o be

consumed and upon a l loca t ion of supplies and grower re turns as a

commensurate change i n import p r i ce level . For example, a r i s e i n average

import p r i ce by 4 cents per l i t r e would have t he same e f f e c t as r a i s i ng

import du t ies by 4 cents per l i t r e .

Conclusions - Pricing of Oranges

The quant i t i es of oranges so ld f r e sh and processed and the

pr ices received fo r them are influenced importantly by t h e p r ices

determined by the FISCC f o r processing oranges.

The analyses cover the period s ince the mid-1950s and show t h a t

processing pr ices , domestic a v a i l a b i l i t y of oranges and a t a s t e t rend

largely explain movements i n f resh market p r ices and s a l e s of oranges and

quan t i t i es processed. The analyses a l so ind ica te t ha t demand f o r f resh

oranges has a p r ice f l e x i b i l i t y of about 2 . 1 , showing t h a t a 1% change i n

f resh market supplies causes a 2.1% change i n r e a l f resh market p r ices i n

the opposite d i rect ion. This high p r i ce f l e x i b i l i t y means t h a t , within

l i m i t s , t h e l e s s the quanti ty sold f resh t h e higher w i l l be t h e gross

value of producers1 re tu rns . Also, i n the context of processing being the

a l t e rna t i ve to f r e sh s a l e , it means t h a t t h e g rea te r the quanti ty

processed the higher w i l l be Grower re turns from the f r e sh market. A t t h e

same time there has been a pos i t ive re la t ionsh ip between the quant i ty of

oranges processed and processing pr ices , indicat ing t h a t t he higher the

p r ices determined the more wi l l ing have growers been t o make g rea t e r

quan t i t i e s avai lable f o r processing.

Conversely, the demand f o r oranges by processors depends

importantly upon the import p a r i t y f o r ju ice , a f t e r allowing f o r

processing and t ranspor t costs and qua l i ty d i f f e r e n t i a l s . I f the

processing p r i ce is s e t above duty paid import pa r i t y plus o r minus

poss ible d i f f e r e n t i a l s f o r qua l i t y and convenience, as i n the longer term

~ the quant i ty processed would decl ine g r ea t l y , processors could not compete

with imports unless the re were spec i f i c quan t i t a t ive r e s t r i c t i o n s on ju ice

imports. The r e s u l t of t h i s would be d i rec t ion of increasing quan t i t i es

t o t he f resh market which, given t he p r ice f l ex ib l e demand, would mean

reduced aggregate f r e sh market re turns as well as lower aggregate re turns

from the reduced quant i ty processed. Hence, the pr ic ing decisions of the

FISCC should be constrained by a need f o r t h e loca l product t o remain

competitive with imports. Of course the p r i ce s a t which Austral ian ju ice

can compete with imports w i l l vary with changes i n t he p r i ce and

a v a i l a b i l i t y of imports. I t is concluded i n Attachment A t ha t the

downward pressures on r ea l world and import pr ices f o r orange ju ice

concentrate evident i n the past decade should p e r s i s t although shor t term

f luc tua t ions such as the recent increases a r i s i ng from the Florida f reeze

w i l l occur per iodical ly .

The model developed t o explain p r i ce formation provides a means

of est imating the e f f ec t s of import duties on quan t i t i es processed and

so ld f resh , and on grower re tu rns . A t import and domestic pr ices f o r

ju ice and estimated pr ices f o r oranges applying i n 1976-77, it i s

estimated t ha t a r i s e i n import duty of 2 cents per l i t r e s ing le s t rength

from 4.1 cents per l i t r e would r a i s e orange growers' r e tu rns by about $14

per tonne while a reduction i n duty by 2 cents per l i t r e would reduce

grower re turns by between $11 and $14 per tonne depending upon the exact

competitive re la t ionsh ip between domestically produced juice and imports.

I t i s a l so estimated t ha t it would require a duty r a t e of a t l e a s t 14

cents per l i t r e t o reduce Austral ian ju ice consumption t o around the l eve l

of domestic production.

FIGURE 8.1 '000 Tonnes AUSTRALIA: PRODUCTION OF CITRUS

FIGURE B.II '000 Tonnes AUSTRALIA: QUANTITY OF CITRUS PROCESSED 200-

150 -

100 -

50 -

FIGURE B.IV AUSTRALIA: PER CAPUT APPARENT CONSUMPTION OF CITRUS JUICE

FIGURE 8.111 AUSTRALIA: PER CAPUT FRESH CITRUS CONSUMPTION

Kilogram 20-

Total Citrus

/

Kilogram 20- (fresh equivalent) Total Citrus Juice

15 -

10 -

Australian Orange Juice

5-

Apparent Consumption = Production & Import Clearances

10

0.

-

yL.

I I I I I I I I I I I I I I 1 1960-61 '63-64 '66-67 '69-70 '72-73 '75-76

FIGURE B.V

$ per Tonne COUNTRY FACTORY PRICES FOR PROCESSING CITRUS

NAVEL ORANGES

60

Actual Prices up to 1 966 -67 FlSCC Minimum Price after

4 Money -

FIGURE B.VI

9 COUNTRY FACTORY PRICES FOR PROCESSING CITRUS

80- VALENCIA ORANGES

Actual Prices up to 1 964-65 FlSCC Minimum Price after ' Money

----- \ '\

., P e a l /---C--- ----- ---/ L. . . .... .. ...

I I I I I I I I I I I 1 I I I I J 1960-61 '63-64 '66-67 '69-70 '72-73 '75-76

20

p*.... Real ' " a ..

-

FIGURE B.VII COUNTRY FACTORY PRICES FOR PROCESSING CITRUS

per Tonne 100-

LEMONS

80 -

6 0 - \

\\

'\ \-----

40 - '+F .. Real

I I I I I 1 I I I I I I 1 965- 66 '68-69 '71-72 '74-75 '77-78

FIGURE B. VIII COUNTRY FACTORY PRICES FOR PROCESSING CITRUS

$ per Tonne 8

6 0

40

0' GRAPEFRUIT

' Money

-

- ~ e a l -. . -.

a.

FIGURE B.X

$ SYDNEY WHOLESALE FRESH MARKET PRICES

VALENCIA ORANGES

FIGURE B. IX

S SYDNEY WHOLESALE FRESH MARKET PRICES 4 r NAVEL ORANGES

$ per Bushel to 1973-74 $ per 3 0 Litre Pack after

Money i 4

-- -----

Source: New South Wales Weekly Marketing Notes

1

\ '---H Real

-

FIGURE B.XI SYDNEY WHOLESALE FRESH MARKET PRICES

MANDARINS

Emperor $ per Bushel to 1 973 - 7 4 Emperor $ per 3 0 Litre pack in 1974-75 and 1975-76

FIGURE B.XII

$ SYDNEY WHOlESALE FRESH MARKET PRICES i Money LEMONS 4-

Coastal $ per Bushel to 1 973-74 Coastal $ per 3 0 Litre Pack after

3 -

.

Source: New South Wales Weekly Marketing Notes

Source: New South Wales Weekly Marketing Notes.

FIGURE B.XIII

$ SYDNEY WHOLESALE FRESH MARKET PRICES

4- GRAPEFRUIT

MIA $ per Bushel to 1 973 - 7 4 Queensland $ per ?4 Bushel in 1 974-75 Murray Valley $ per 3 0 Litre Pack in 1975-76

3-

2 \ i

FIGURE B.XIV ORANGES: ACTUAL AND ESTIMATED QUANTITIES AND VALUE: AUSTRALIA

,000 Tonnes QUANTITIES PROCESSED

l

1

Real i \ i v

-

FIGURE B.XV ORANGES: ACTUAL AND ESTIMATED QUANTITIES AND VALUE: AUSTRALIA

'000 Tonnes QUANTITIES SUPPLIED TO THE FRESH MARKET 2 0 0 r

FIGURE B.XVI ORANGES: ACTUAL AND ESTIMATED QUANTITIES AND VALUE: AUSTRALIA

S per Tonne REAL FRESH MARKET PRICES AT 1966-67 PRICES

100 -

Appendix 1

SOURCES OF INFORMATION USED IN ALLOCATION AND DEMAND MODEL

1. Qp - Quantity Processed - ---- -

Quantity of navel and valencia oranges supplies f o r processing

('000 tonnes) .

S m c e : Austral ian Ci t rus Growers' Federation.

2. S - Supplies

Austral ian production of oranges Less t h e quan t i t i e s exported

( '000 tonnes) .

Source: Austral ian Bureau of S t a t i s t i c s .

3. Pp - Processing Pr ice

Pr ices of processing navel and valencia oranges weighted by t he

quan t i t i es of the two v a r i e t i e s processed ($/tonne). From 1965-66 f o r

valencias and 1967-68 f o r navels, weighted FISCC minimum pr ices a re used.

Source: FISCC f o r years s ince 1965 - ACGF f o r previous years.

4. A - Alternate Cropping Dummy Variable - -

Alternate cropping var iab le t o take account of the separate

e f f ec t of a l t e r n a t e cropping upon the quant i ty processed. In the model, A

is given a value of 0 f o r a l l years except 1970-71 and 1972-73 when it i s

given a value of 1.

5. Pf - Fresh Market P r i ce

Real p r ices of f resh marketed oranges i n $/tonne. Pr ices a re

the mean of navel and valencia orange pr ices ($/bushel) from N.S . W .

coas ta l areas and the MIA. Converted t o $/tonne using a conversion f ac to r

of 45.9296 bushels per tonne and deflated by t he quar te r ly Sydney Consumer

Pr ice Index ( a l l groups).

Source: New South Wales Weekly Marketing Notes.

This is the per caput predic ted quant i ty of oranges supplies t o

the f resh market. This was obtained by subtract ing from S the predicted

quant i ty processed. The resu l tan t est imate of f resh market s a l e s was

brought t o a per caput bas is using Austral ian population f igures as a t 31

December each year.

Attachment C

THE AUSTRALIAN CITRUS GROWING INDUSTRY:

BAE SURVEY RESULTS FOR 1974-75 AND ESTIMATES FOR 1975-75 AND 1975-77*

In troducti on

In t h i s Attachment i s presented a b r i e f summary of the main

preliminary findings and analysis of the Bureaut S economic survey of

c i t r u s growers f o r the 1974-75 f inanc ia l year. I n addi t ion est imates of

the income s i t ua t i on of growers fo r 1975-76 and 1976-77 a r e presented.

Survey' Design

In 1975 the Bureau i n i t i a t e d a program t o continuously monitor,

by farm survey, the economic s i t ua t i on of growers i n the major

ho r t i cu l t u r a l indus t r i es . P r io r t o t h i s , surveys had been conducted on an

ad hoc bas i s i n response t o spec i f i c requests. ( l ) The survey i n i t i a l l y

included the apple and pear, deciduous canning f r u i t and dr ied vine f r u i t

industr ies . In 1976 the survey w a s enlarged t o include c i t r u s growing i n

the major c i t r u s producing areas and the r e s u l t s reported i n t h i s

Attachment a re from t h i s sample and r e f e r t o the 1974-75 f inanc ia l year.

The major producing areas surveyed were as follows:

. New South !Vales - Outer Metropolitan, P.lurrmbid,aee

I r r i ga t i on Area, Sunraysia and

Mid-bkrray Regions

. Victor ia - Sunraysia and Robinvale Region

. South Austral ia - Riverland Region

--

* The mater ia l i n t h i s Attachment was prepared by Jameel Khan, Lynden Gatenby, K y m Jervois ,

(1) Tie previous BAE Citrus Industry Survey covered t he f inanc ia l years 1960-61, 1961-62 and 1962-63; see B A . , The Citrus Industry: An Economic Survey i n the Major Producing Areas of AustraZia, Canberra, 1965,

- 78 -

The e l i g ib l e population fo r the survey was defined by a minimum

c i t r u s a rea by f a r m f o r each region as shown i n Table C . I . This area was

chosen so t h a t the e l i g i b l e population would account fo r 90% or more of

the t o t a l production of the region. While t h i s a rea c r i t e r i o n excludes a

proportion of c i t r u s producers i t represents the bulk of 'commercialt

growers.

Table C.1

ELIGIBILITY CRITERION: BY STATE AND REGION

Citrus Sample

Region Minimum Area of Citrus

a t 1975 Harvest

ha

New South Wales

Outer Metropolitan Murrumbidgee I r r i ga t i on Area Sunraysia Mid-Murray

Victor ia

Sunraysia Robinval e

South Austra l ia

River land 2 . 8

Farms i n the e l i g ib l e population were grouped according t o the

area planted t o c i t r u s f r u i t . These groups, ca l l ed s t r a t a , var ied between

regions depending upon the s i z e d i s t r i bu t i on of c i t r u s plant ings . A t o t a l

of 203 sample farms was obtained from an a l loca t ion designed t o give

r e l i a b l e est imates of important physical and economic variables a t Sta te

and nat ional levels . Sample farms for each region were se lected a t random

within each stratum.

The extent of sample coverage of the e l i g i b l e population is

shown i n Table C.11. The population l i s t i n g s were derived from

information col lected from S t a t e Departments of Agriculture and industry

organisations and modified on the bas i s of actual survey response.

- 79 -

Table C. I 1 DISTRIBUTION OF SAMPLE AND ELIGIBLE

POPULATION : BY REGION AND STATE

Area of Ci t rus Number of Percentage of Percentage of Number i n Growers Total Growers Total Area Sample

ha no. % % no. NEW SOUTH WALES

OUTER METROPOLITAN 2.0 and under 2.9 196 42.1 14.2 10 3.0 " " 4.9 113 24.2 22.8 7 5.0 I ' " 6.9 58 12.4 18.0 5 7.0 I t ' I 9.9 53 11.4 15.6 4

10.0 and over 4 6 9.9 29.4 10

Total 466 100.0 100.0 36

MURRUMBIDGEE IRRIGATION AREA 4.0 and under 7.7 218 52.2 na 2 5 7.8 I ' v 14.1 184 44.0 na 19 1

14.2 and over 16 3.8 na 3

Total 418 100.0 4 7

SUNRAYSIA 2.0 and under 6.0 112 32.3 5.5 1 0 6 .1 " " 9 .3 99 28.5 8.0 9 9.4 l' 15.3 4 8 13.8 14.6 7

15.4 and over 88 25.4 71.9 4

Total 347 100.0 100.0 30 l MID-MURRAY

2.0 and under 7.7 6 17.1 4.6 2 7.8 " " 18.2 9 25.7 11.2 3

18.3 " " 32.3 8 22.9 11.8 2 32.4 and over 12 34.3 72.4 7

Total 35 100.0 100.0 14

1.2 and under 3.6 90 29.0 12.4 1 3 3.7 " " 8.5 49 15.8 17.4 9 8.6 " 'I 20.2 122 39.4 24.4 3

20.2 and over 4 9 15.8 45.8 2

Total 310 100.0 100.0 2 7

ROBINVALE 1.2 and under 2.8 6 5.5 0.6 4 2.8 l' " 8 . 1 4 2 38.5 5.3 2 8.2 " " 14.9 4 6 42.2 5.2 3

15.0 and over 15 13.8 88.9 3

Total 109 100.0 100.0 1 2

SOUTH AUSTRALIA RIVERLAND

2.8 and under 5.2 374 52.2 10.0 15 5.2 " " 9.3 194 27.1 20.1 9 9.4 " " 21.4 128 17.9 38.5 4

I 21.5 and over 20 2.8 31.4 9

Total 716 100.0 100.0 3 7

R e l i a b i l i t y o f Survey Estimates

Estimates of farm cha rac t e r i s t i c s based on a sample of

proper t ies may d i f f e r from the t rue s i t ua t i on fo r a l l farms, These

di f ferences a r e cal led 'sampling e r ro r s t and, while a var ie ty of

procedures were used t o minimise them, no procedure can completely

el iminate them. Information from the sample on the va r i a t i on between

individuals included and number sampled may be used t o ind ica te the

r e l i a b i l i t y of survey r e su l t s . These measures of sampling errors ca l l ed

' r e l a t i v e standard e r rors ' have been estimated for key var iables and a re

s e t out i n Table C .111 . In general, the smaller the r e l a t i v e standard

e r ro r , the more r e l i a b l e the estimate.

1 Relative standard e r ro r s may be in te rpre ted i n the following

manner. Table C . 1 1 1 shows t h a t in 1974-75, the estimate f o r N.S.W. of

Total Cash Costs was $17 068 with a r e l a t i v e standard e r r o r of 11.7%.

This means t h a t there a r e about nineteen chances out of twenty t ha t , i f a

f u l l population census r a the r than sample survey had been undertaken, the

census est imate of Total Cash Costs would l i e within 2 X 11.7% e i t h e r s ide

of the survey est imate; t h a t i s between $13 075 and $ 2 1 063. In addit ion

t o sampling e r rors there may occur bias i n the choice of the sample and

mistakes i n obtaining and handling data.

1 Survey Res u l t s

The major r e su l t s from the survey have been summarised i n Table

C.IV. I n the Appendix a r e l i s t e d addi t ional tabula t ions t h a t have been

made from survey information.

Land Uti l i sa t ion : The r e s u l t s indicate t h a t the average t o t a l

area of c i t r u s proper t ies i s 232 hectares, but t ha t some 70% of a l l

growers have proper t ies of l ess than 30 hectares. The average t o t a l

orchard and vineyard area i s some 15 hectares and about two-thirds of the

t o t a l orchard and vineyard a rea i s occupied by c i t r u s crop. I n terms of

land u t i l i s a t i o n fo r c i t r u s production, the outer Metropolitan Region of

New South Wales is the most spec ia l i sed and Riverland Region i n South

Austra l ia is the l eas t .

Table C . 1 1 1

RELATIVE STANDARD ERRORS (RSE) OF KEY VARIABLES

Variable Unit N.S.W. Vic. S.A. Total

Area planted t o valencias

- mean

- RSE

Harvested production of valencias

- mean boxes 5 142 4 764 5 263 5 103

- RSE % 14.2 26.2 11.4 9.4

Citrus processing r ece ip t s

- mean

- RSE

Total farm r ece ip t s

- mean $ 29 313 28 960 50 540 35 480

- RSE % 10.0 17.2 15.7 8.2

Total cash cos t s

- mean

- RSE

Net farm income

- mean

- RSE

Production: The average harvested production of c i t r u s was 9626

bushels. Again, regional d i f ferences a r e apparent, with harvested

production ranging from 4836 bushels i n Outer Metropolitan Region t o

19 398 bushels i n the Mid-Murray Region of N.S.W. Regional d i f ferences i n

area planted t o c i t r u s , area of c i t r u s harvested and c i t r u s y ie ld are

re f lec ted i n the wide range of c i t r u s production.

Yields: The average y ie lds per harvested hectare and per

bearing t r e e were 1082 and 3.9 bushels respect ively . The Outer

Metropolitan Region of New South Wales had the lowest y i e ld according t o

both measures, with y ie lds being l e s s than ha l f of those i n the highest

y ie ld area , i .e . Sunraysia Region of New South Wales. Variat ions i n

yie ld may be p a r t l y explained by di f ferences i n qua l i t y of s o i l ,

i r r i g a t i o n and leve l of inputs.

Outlets: The r e l a t i v e importance of f resh and processing market

sa les var ied i n d i f f e r en t regions. For A l l Regions covered i n the survey

the processing market accounted f o r 61% of t he t o t a l . As would be

expected from i ts location, the f resh o u t l e t was dominant i n t h e Outer

Metropolitan Region of N.S.W. The Fresh market was a l so dominant i n the

Mid-Murray and Robinvale Regions. Net rece ip t s per bushel of c i t r u s sold

i n the f resh market were generally higher than i n processing market except

i n the MIA Region of New South Wales. For A l l Regions, ne t rece ip t s per

bushel of c i t r u s sold fo r f resh market were 16.8% higher than f o r the

processing market.

Receipts: Although c i t r u s i s generally grown on mixed

en te rpr i se farms, rece ip t s from c i t r u s accounted f o r 55% of t o t a l farm

I rece ip t s f o r A l l Regions. The MIA and Riverland Regions, which are the

two leading c i t r u s producing areas i n Austra l ia , were a l so the l e a s t

specia l ised. The Sunraysia and Mid-Murray Regions of N.S.W. were the most

I specia l ised i n terms of importance of c i t r u s rece ip t s t o t o t a l rece ip t s on

an average farm.

Income : A number of income measures have been derived t o assess

the economic s i t ua t i on of t he industry. The choice of income measure

depends upon the objective of the analysis . -- Net farm income i s the most

commonly used measure of economic performance fo r rural producers, and is

defined a s the di f ference between t o t a l farm r ece ip t s and the sum of t o t a l

cash costs , imputed family labour (excluding operator' s/managerl s labour)

and depreciat ion of c a p i t a l items.

Net operating income is defined as the di f ference between t o t a l

farm r ece ip t s and t o t a l cash cos t s and ind ica tes the cash operating

pos i t ion of t h e farm.

Household income is defined a s the share of farm income accruing

t o members of the household, p lus the income obtained by household members

from off-farm employment (off-farm wages) and use of t h e i r c ap i t a l o f f

~ farm (non-farm income) and from g i f t s , t r an s f e r s , e t c . (non-taxable

income). As such, it provides a b e t t e r indicat ion of welfare than do the

above two. However, i f the re i s a par tnership and/or the proper ty is heavily

indebted, household income may be l e s s than ne t farm and operating

incomes.

As shown i n Table C.IV ne t farm income, which represents the

res idua l re turn t o the grower fo r h i s labour, management and cap i ta l used

on the farm, averaged $7816 f o r A l l Regions. The highest average ne t

farm incomes were $12 997 i n the Mid-Murray Region of N.S.W. and $12 596

i n t h e Riverland Region of South Austra l ia while the lowest was $642 i n

Robinvale, Victoria.

In 1974-75, about 38% of the farms had ne t farm income of l e s s

than $4000 and 46% had income of l e s s than $6000. The M I A Region of

N.S.W. had the lowest percentage of farms with incomes l e s s than $4000 and

the Riverland Region had the lowest percentage of farms with ne t farm

incomes of l e s s than $6000. Robinvale (74%) and Outer Metropolitan Region

of N.S,W, (64%) had the highest and major proportions of t h e i r farms

earning ne t farm incomes of l e s s than $4000.

Average ne t operating income of c i t r u s growers was $13 731 i n

1974-75. However, the re were considerable regional d i f ferences .

The Mid-Murray and Riverland Regions had the highest average ne t operating

incomes and the Outer Metropolitan Region of N.S.W. and Sunraysia of

Victor ia had t he lowest average net operating income.

Farm Costs: A s indicated i n Table C.V on income s t ruc tu r e , cash - costs comprise the bulk (30%) of t o t a l farm cos t s of $27 665, with

approximately equal proportions of the balance being imputed labour f o r

non-operator family labour and depreciat ion allowances. Again there i s

considerable var ia t ion between regions, with the highest cos t s i n the

Mid-Murray Region of N.S.W. and the lowest i n the Outer Metropolitan and

MIA Regions of N.S .W.

Rate of Return: While net farm income i s the commonly used

measure t o assess the economic performance of farm en te rpr i se , another

measure of farm p r o f i t a b i l i t y i s the re tu rn t o cap i t a l and management

which is defined a s ne t farm income l e s s allowance f o r t he operator 's

labour and indicates the r e tu rn t o the operator f o r h i s management input

and cap i t a l employed i n the farming enterpr ise . This measure is of ten

expressed a s a r a t e of r e tu rn t o t o t a l c ap i t a l so as to permit comparisons

fo r d i f f e r e n t levels of c ap i t a l investment. A s shown i n Table C.V, the

average r a t e of r e tu rn was 3.5% and ranged from 8.5% i n Mid-Yurray N.S.W.

t o -2.2% i n Robinvale.

Household Income: Household income provides a guide t o the

welfare of the farm family. As shown i n Table C. I V the average household

income was $7618 i n 1974-75. The highest household income was i n

Mid-Murray ($11 670) and MIA ($10 957) Regions of New South Wales, while

Robinvale had the lowest household income ($1932). About ha l f the

households had a household income of l e s s than $6000. Robinvale had the

highest proportion of farms (91%) with household income of l e s s than

$6000, and the MIA Region of New South Wales had the lowest (25%).

More than one-third of the household income had i t s or ig in

outside the farm. Off-farm wages, non-farm income and non-taxable income

were the components of income from other than farm i n household income.

There were, however, s i gn i f i c an t regional differences i n the r e l a t i v e

importance of income from farm i n t o t a l household income. In Victoria the

share of income from the farm i n household income was a s low a s 1 2 % .

Farms i n Outer Metropolitan Region of N.S.W. had about 49% of the

household income or iginat ing from non-farm sources.

Table C.V AUSTRALIAN CITRUS GROWING INDUSTRY

INCOME STRUCTURE : 1974-75 (Average per Farm)

Item Unit A1 l Regions

A Total farm rece ip t s $ B 1 Total cash cos t s $ B2 Imputed labour (excl.

op. /manager) 8 B3 Depreciation $ B Total cos t s [Bl+B2+B3) $ C Net operating income

(A-B1) $ D Net farm income (A-B) $ E Labour by operator/

manager $ F Return t o c ap i t a l and

management (D-E) $ G Total c ap i t a l (excl.land] $ H Land I Total c ap i t a l (G+H)

$ $

J Rate of re tu rn t o c ap i t a l and management (excl. land) (FxlOO/G) %

K Rate of re turn t o c ap i t a l and management (Fx100/ I) %

L Ratio receipts /cash costs (A/Bl) %

M Ratio r e ce ip t s / t o t a l cos ts (A/B) %

New South Wales Vic to r ia

Out e r South

Sun- Mid- S t a t e Sun- Robin S t a t e Austra l ia

Metro- r ay s i a Murray po l i t an raysia -vale

Net Worth: A family 's economic welfare cannot be accurately

assessed by money income alone. Since a family 's ne t worth influences i ts

t o t a l command over goods and services , ne t worth of a family household i s

a l so an important considerat ion fo r d iscuss ing economic welfare.

A s shown i n Table C . I V the average net worth of households was

$102 564. This f igure i s as a t 30 June 1975. Farms i n Robinvale had a

net farm income of only $642, but the average net worth was $59 132. The

Outer Metropolitan Region i n New South Wales was another a r ea with

r e l a t i ve ly low ne t farm income, bu t the average ne t worth of the household

was $99 239. The inference t o be drawn is t h a t even i n regions of

r e l a t i v e l y low net income, the overa l l economic welfare pos i t ion of the

household may be qu i t e sound when ne t worth is a l s o taken i n to account.

Characteristics o f Farms Belonging to Different Income Groups

As indicated i n Attachment A, the Austral ian Ci t rus Industry

faces increased competition from r e l a t i v e l y cheaper supplies of overseas

orange ju ice concentrate. I t has been indicated i n the previous sec t ion

t ha t , even with ex i s t ing l eve l s of protect ion, i n 1974-75 more than

one-third of the farms had a net farm income and household incomes of l e s s

than $4000. To examine why some c i t r u s growers a r e worse o f f and others

be t t e r o f f than average a q u a r t i l e analys is was undertaken i n which

se lected cha rac t e r i s t i c s of the top 25% of growers se lected on the ba s i s

of net farm income was compared with the bottom 25%. This may allow some

limited inferences t o be drawn about the type of adjustment t h a t may be

necessary within the industry. The r e s u l t s of t h i s analys is a r e shown i n

Table C . V I .

To ensure t h a t the r e s u l t s of the comparison were not

unnecessarily compounded by the e f f e c t s of other enterpr ises on the net

farm incomes of c i t r u s producing p roper t i es , the analys is was r e s t r i c t e d

t o p roper t i es where c i t r u s was t he dominant en te rpr i se . 'Dominant1 f o r

the purposes of t h i s analys is was taken a s farms with c i t r u s contr ibut ing

more than 50% of t o t a l farm r ece ip t s and being more than 50% of the t o t a l

orchard and vineyard area. Consequently, a sub-sample of 105 farms out of

a t o t a l c i t r u s sample of 203 was se lected.

Table C.VI

CHARACTERISTICS OF CITRUS FARMS IN DIFFERENT INCOME GROUPS : AUSTRALIA

(Average Per Farm)

Level of Confidence Item Unit

Q; Q; That Difference Exis ts

Total number of t r e e s

Number of bearing t rees /ha

no. l 1

Percentage of c i t r u s area non-bearing o r over 35 years

Percentage of i r r i g a t e d area under spr ink le rs

Valencia yield/ha harvested bus.

1 1 Navel yield/ha harvested

Extent of spec ia l i sa t ion (returns) N.S.

Percentage of c i t r u s production sold f r e sh

Total rnaterials/ha

Total services/ha

Total cash costs/ha

Depreciation cos t /ha

Labour input /ha weeks

$ Total farm rece ip t s

Total farm rece ip t s / t o t a l cos t r a t i o

$ Net farm income

Rate of re tu rn t o cap i t a l and management

Cash operating surplus

Net worth H 91870.0 132256.0 99

Debts a s percentage of a s se t s % 14.2 12.7 N. S.

X Farms i n t h e lowest 25% ne t farm income group. ** Farms i n t he highest 25% ne t farm income group. N.S. Non-significant.

I t i s evident from Table C.VI t ha t there a r e s ign i f ican t

differences between the proper t ies i n lowest and highest qua r t i l e s (25%)

of net farm income with respect t o a l l the selected var iables shown except

for the extent of spec ia l i sa t ion and debts /assets r a t i o . The extent of

spec ia l i sa t ion was defined i n terms of the proportion of re turns from

c i t r u s t o t o t a l farm rece ip t s .

Overall these r e s u l t s a r e consis tent with the analysis of

economies of s i z e reported i n Attachment F. The farm s ize , as measured by

t o t a l farm rece ip t s , was 4.4 times l a rger i n the highest quar t i l e . Farms

i n the lowest q u a r t i l e had an average net farm income of -$3508 compared

with $18 606 fo r farms ill the highzst qua r t i l e , The irvexge wxber of

c i t r u s t r e e s i n the !ligheat q u a r t i l e was moye than double the vxnber i n

lowest. Contrary t o expectations, the p l a n t i ~ l g densi ty of bearing ci'crus

t rees was higher i n the lowest qua r t i l e . Also, t h e lowest q u a r t i l e hsir a

higher proportiox of t o t a l c i t r u s area of t rees which were non-bearing o r

more than 35 years old. A s f a r a s the system of i - r iga t ion i s concernefd,

the farms i n the highest q u a r t i l e had r e l a t i v e l y larger propctrtions m ~ d e r

spr inkier imiga2ion.

An outstanding di f ference between the qua r t i l e s was i n y ie ld per

harvested hectare. The valencia and navel y ie lds i n the highest q u a r t i l e

were 2.4 and 3.6 times the respect ive yie lds fo r the lowest qua r t i l e .

Farms i n the highest q u a r t i l e a l so had r e l a t i v e l y higher expenditure on

pest ic ides , f e r t i l i s e r , t o t a l materials and t o t a l services per hectare,

with the r e s u l t t ha t t o t a l cash cos t s per hectare o-F orchard and vineyard

area were about 27% higher than the correspondinq f igure for lowest

quar t i l e . However, t h e i r depreciat ion and labour input per hectare were

s ign i f ican t ly lower.

The analysis has shown tha t farm s ize , c i t r u s y ie ld and

proportion of i r r i g a t e d area under spr inklers and cash costs a r e higher on

farms i n the highest q u a r t i l e and the proportion of c i t r u s a rea

non-bearing or with old plantings, labour input and depreciat ion cost a r e

lower. Care is needed i n drawing inferences about adjustment from the

analysis presented above a s there are differences i n management a b i l i t y of

operators, water r i gh t s , and other i n s t i t u t i o n a l and f inanc ia l r e s t r a i n t s

tha t d i f f e r e n t i a l l y a f f e c t the a b i l i t y of growers t o ad jus t .

Estimates o f the Economic S i t u a t i o n o f C i t r u s Growers

f o r 1975-76 and 1976-77

In order t o provide more up-to-date information on the overa l l

economic s i t ua t i on of c i t r u s growers, the preliminary information from a

subsequent survey of c i t r u s growers, together with industry information

on output and re turns and other p r i ce data col lected by t he Bureau, has

been used t o derive the income s t ruc ture of the c i t r u s growing industry

fo r 1975-76 and 1976-77. The r e s u l t s of t h i s work a re sum~narised i n

Tables C . V I I and C.VII1.

The information given i n Table C . V I I i s based p a r t i a l l y upon

information obtained i n the subsequent survey of c i t r u s growers and

p a r t i a l l y on estimates derived by a va r i e ty of indexing procedures and

hence may be considered t o be r e l a t i v e l y more accurate than the

information given fo r the 1976-77 f inancia l year, which i s based more

extensively upon indexing procedures. The delays i n f i n a l i s i n g growersf

f inanc ia l accounts necessar i ly mean t ha t there a r e delays i n accurate ly

determining t'ie f inxncia l posi t ion of growers :->y silrve>r. T t i:;

an t ic ipa ted t ha t cemplezed survey information f o r the 1975-76 f i l x ~ n c i a l

year w i l l he avai la5le 5:. ear ly 1978.

The Infornation i ~ l d i c a t e s That average grower t o t a l farm

rece ip t s increased from $35 481 i n 1374-75 t o $38 202 (7.7%) i n 1975-76

md t 3 $42 616 i n 197!'j-7'7, a f u r the r increase o f 11.6%, l a rge ly as a

consequence o f increased un i t r e tu rns . The increases i n t o t a l farm

rece ip t s were o f f s e t by increases i n t o t a l farm costs from $27 662 i n

1974-75 t o $30 857 (11.6%) i n 1975-76 and t o $34 120 i n 1976-77, a fu r ther

increase of 10.6%. The increases i n c i t r u s producersf cos t s may be

compared with the Bureau's overal l est imates of increases i n p r ices paid

by farmers of 17.2% and 11.9% i n 1975-76 and 1976-77 respectively. The

r e s u l t i s t h a t overal l average net farm income i s estimated t o have

decreased 6.0% from $7816 i n 1974-75 t o $7345 i n 1975-76 and subsequently

increased by 15.7% t o $8496 i n 1976-77.

The estimated increase i n ne t farm income i n 1976-77 i s due

e n t i r e l y t o increased re tu rns from crops other than c i t r u s , especia l ly

d r ied vine f r u i t and canning f r u i t . In 1976-77 the gross value of

Table C.VII

AUSTRALIAN CITRUS GROWING INDUSTRY PARTIALLY ESTIMATED INCOME STRUCTURE : 1975-76

(Average per Farm)

Item A 1 l

Unit Regions

A Total farm rece ip t s $ B 1 Total cash costs $ B2 Imputed labour (excl.

op. /manager) $ B3 Depreciation $ B Total cos t s (Bl+B2+B3) $ C Net operating income

(A-B1) $ D Net farm income (A-B) $ E Labour by operator/

manager $ F Return t o c ap i t a l and

management (D-E) $ G Total c ap i t a l (excl.

land) $ H Land $ I Total c ap i t a l (G+H) $ J Rate of re turn t o c ap i t a l

sand management (excl . % land) (Fx100/G)

K Rate of re turn t o c ap i t a l and management % (Fx100/ 1)

-

New South Wales

Victor ia South Out e r Sun - Mid-

S t a t e Austra l ia Metropolitan rays ia Murray

Table C . V I I I

AUSTRALIAN CITRUS GROWING INDUSTRY

ESTIMATED INCOME: 1976-77

(Average pe r Farm)

Item

New South Wales A 1 l South

Regions Outer Vic to r i a Australia MIA Sun- Mid- State

Metropolitan r a y s i a Murray

A Tota l farm r e c e i p t s $ 42 616 20 451 31 372 45 237 66 709 32 191 36 343 61 917

B 1 Total cash c o s t s $ 26 533 11 365 14 438 33 019 50 619 19 395 26 258 37 686 I

l B2 Imputed labour (excl. U)

op./manager) $ 3 344 2 441 5 331 1 840 4 680 3 289 3 784 m

2 651 l

B3 Depreciation $ 4 243 2 636 4 373 3 836 4 749 3 599 4 498 5 106

B Tota l c o s t s (Bl+B2+B3) $ 34 120 16 442 24 142 38 695 60 048 26 283 33 407 46 576

C Net opera t ing income (A-B1) $ 16 083 9 086 16 934 12 218 16 090 12 796 10 085 24 231

D N e t farm income (A-B) $ 8 496 4 009 7 230 6 542 6 661 5 908 2 936 15 341

t o t a l c i t r u s production was approximately the same as i n 1975-76; however,

the increases i n u n i t cos t i n t h a t year would have reduced r e tu rns

a t t r i b u t a b l e t o the c i t r u s en te rpr i se alone.

Separate estimates have been made f o r a l l regions except those

i n Victor ia f o r 1975-76 and 1976-77. The estimates fo r individual regions

should be in terpreted with care a s the methods and information used f o r

est imating income s t ruc ture a re l e s s consis tent on a regional ba s i s than

i n aggregate.

Appendix C . 1

TABLES AVAILABLE FROM THE SURVEY OF CITRUS GROWERS FOR

1974-75 BUT NOT REPRODUCED I N THIS SUBMISSION

Dist r ibut ion of Farms: By Total Farm Area

Dis t r ibut ion of Farms: By Total Hor t icu l tu ra l Area

Land Use - Total Farm Area: By Type of Land Use

Land Use - Total Area: By Major Hor t icu l tu ra l Crop

Land Use - Total Area Harvested: By Major Hor t icu l tu ra l Crop

Production - Harvested Production of Hor t icu l tu ra l Crops

Sales - Disposal of Ci t rus : By Outlet

Sales - Oranges: Average Receipts per Bushel at Agent's Door

Source of Income - Farm Receipts

Source of Income - Farm Receipts as a Percentage of Total Farm Receipts

Costs - Total Cash Costs

Costs - Imputed Costs

Income - Percentage Dis t r ibut ion of F a r m s : By Net Farm Income

Capital - Capital St ructure

Capital - Net Investment

Labour - Number of Hours Worked on F a r m : By Trpe of Labour

Household - Percentage Dis t r ibut ion of Operators: By Age

Household - Percentage Dis t r ibut ion of Operators: By Education and

Income Level

Household - Percentage Dis t r ibut ion of Operators: By Type of

Of f-Farm Work

Household - Percentage Dis t r ibut ion of Operators: By Weeks Worked

Off Farm

Household - Percentage Dis t r ibut ion of Operators: By Off-Farm Wages

Household - Percentage Dis t r ibut ion of Household Members: By Type

of Off-Farm Work.

Household - Income of Household: By Source and Number

Household - Total Net Worth of Household

, Household - Percentage Dis t r ibut ion of Household: By Net Worth,

A t t a c h m e n t D

OVERALL ECONOMIC ASSISTANCE TO CITRUS GROWING AND

CITRUS INDUSTRY ADJUSTMENT I N AUSTRALIA "

I n t r o d u c t i o n

The nature, l e v e l and e f f e c t of economic ass i s t ance already

afforded c i t r u s growing i s an important p re - requ i s i t e t o assess ing f u t u r e

ass i s t ance needs of t h e indust ry , i f considerat ion i s t o be given t o

overa l l na t ional e f f i c i ency of resource use. The aim of t h i s Attachment

i s t o present est imates of e f fec t ive r a t e o f p ro tec t ion ca lcu la t ions f o r

c i t r u s growing and t o d iscuss these es t imates and t h e i r l i m i t a t i o n s i n t h e

context of con??eti t i o n f o r resources between c i t r u s growing and o the r

indus t r i e s .

The e f fec t ive r a t e of protec t ion, a measure of the net amount of

a ss i s t ance given t o c i t r u s growing, i s defined a s t h e percentage change i n

re tu rns from value added t o non-tradeable inpu t s i n c i t r u s production by

the n e t e f f e c t of a l l p ro tec t ion measures, t h a t is :

(Value Added with Protec t ion - Value Added without Protect ion) X 100

1 Value Added Without Protec t ion

Explanation o f t h e underlying theory of t h e concept of e f f e c t i v e

r a t e of protec t ion with respec t t o a g r i c u l t u r e i n Aus t ra l i a i s given by

Motha and Plunkett [S]. Other examples of es t imates f o r a g r i c u l t u r a l

i n d u s t r i e s a r e contained i n previous Bureau submissions and publ ica t ions

Cl], C21, C31 and C41.

Tradeable inpu t s used i n c i t r u s production a r e considered t o

include: fue l and o i l ; r e p a i r s and maintenance (mater ia ls component

only); f e r t i l i s e r ; purchased mate r i a l s and deprecia t ion on t radeable

inputs. The measures a f f e c t i n g re tu rns from value added t o non-tradeable

inputs i n c i t r u s growing may be categorised under th ree headings. These

a r e :

* Jameel Khan, Lynden Gatenby, Kym Je rvo i s were responsible f o r the research repor ted i n t h i s Attachment.

( i ) measures t h a t increase o r decrease the re turns from commodities

produced by c i t r u s producers. As noted i n Attachment B t he

major measure has been protect ion f o r domestically produced

c i t r u s juices from import competition v ia import du t ies and

t a r i f f quotas. These measures have influenced t he l eve l of

re tu rns received by producers and pr ices paid by consumers f o r

f resh c i t r u s and c i t r u s juices, with consequent changes i n the

domestic t r ans f e r of revenue between producers and consumers, or

' consumer t r ans f e r t a s i t has been termed below;

( i i ) measures t h a t a f f ec t the cost of tradeable inputs t o c i t r u s

producers. These include t a r i f f s t h a t add t o the cost of

tradeable inputs and input subsidies, l i k e f e r t i l i s e r bounties,

which reduce the cost of tradeable inputs; and

i ( i i i ) measures t h a t d i r ec t l y influence t he re turns from value added

l with c i t r u s production, such as t a x concessions, p r e f e r en t i a l

c r ed i t and Government financing of research and promotion.

Ernpi ri cal Res ul ts

Estimates of e f fec t ive r a t e s of protect ion were made on a 'whole

farmf and ' c i t r u s en te rpr i se ' ba s i s using per farm regional and nat ional

averages f o r the c i t r u s producing industry a s derived from data obtained

from the Bureaut s survey of Hort icul tura l Industr ies f o r 1974-75. A

summary of the r e s u l t s i s presented i n Tables D . 1 and D . 1 1 . The impact of

in tervent ion measures on c i t r u s ne t farm income i s given i n Table D . 1 1 1 .

The treatment of items f o r deriving the estimates of e f f ec t i ve protect ion

and net protect ion i n ne t farm income was e s sen t i a l l y s imi la r t o t ha t

deta i led i n previous Bureau publications [l] and [2]. However, f o r the

major item, the procedure used i n estimating the nature and extent of

domestic t rans fe rs of revenue between producers and consumers (or consumer

t r ans f e r as it has been termed i n Tables D . 1 and D.11) i s described i n

greater d e t a i l l a t e r .

The est imates of e f fec t ive r a t e of protection f o r the c i t r u s

en te rpr i se given i n Table D . 1 1 ind ica te t ha t , when compared with estimates

Table D.1

ESTIVATES OF EFFECTIVE RATE OF PROTECTION : AUSTRALIAN CITRUS GROWING INDUSTRY (CITRUS FARV)

(Average Per F a n , 1974-75)

New South Wales V ic to r i a

Item South A1 l

Cuter Metropolitan Sunraysia Mid-blurray S t a t e Sunraysia Robinvale S t a t e Aus t r a l i a Regions

-- p

$ $ $ $ $ $ $ $ $ S 1. Donestic va lue o f f a r n produce 18 456 29 156 40 488 64 962 29 514 31 219 26 142 28 955 50 541 35 481 2. Tradeable inputs - mater ia ls 6 692 6 012 10 071 16 118 7 657 S 305 7 410 7 837 12 214 9 031 3.

t 1 f - dcprcc i - t i o r 2 153 3 495 3 125 3 877 2 921 3 539 4 663 3 855 3 660 3 522 4. P re fe ren t i a l c r e d i t - 240 179 91 504 1 658 569 SS2 329 5. Rosearch and p r ~ m o t i o n 549 792 1 770 2 204 l 009 1 376 715 1 113 1 227 1 094

6 . Protec ted value added 1 0 130 20 681 29 241 47 171 19 836 21 255 1 6 442 18 945 36 476 24 551 I

(1 - Sus 2,s + 3~11 4 , s ) a 1 787 3 261 7 443

W 7. C~nsrlncr t r a n s f e r 8 507 4 008 4 779 2 557 3 890 5 119 4 S i l E. Researcl1 and pro;rotion 549 792 1 770 2 204 1 009 1 S76 715 1 113 1 227 1 094 I

9. P re fe ren t i a l c r e d i t 240 179 - 9 1 504 1 658 569 582 329 10. F e r t l l l s e r bounty-nitrogen 5 20 169 150 332 356 l18 54 9 5 247 217 11. -phosphate 129 34 37 83 82 29 13 24 S5 54

12. Tota l sum (7 t o 11) 2 985 4 496 9 579 11 126 5 546 6 806 4 997 5 691 7 230 6 005

13. Ta r i f f - spray and chemicals 5 0 61 39 76 5 1 3 5 2 5 3 1 8 6 5 8 14. - r c p a l r s and maintenance 105 185 157 329 149 172 169 167 281 191 15. - packing ~ a t c r i a l s 185 101 823 1 030 356 54 7 425 491 772 595

16. Tota l t a r i f f on ,na ter ia ls (sum 13, 14, 15) 34 0 347 1 019 1 435 556 754 619 689 1 139 7 54

17. Ta r i f f on c a p i t a l items 352 581 479 607 470 S57 739 609 SS5 531

18. Tota l t a r i f f on t radeables (16 + 17) 692 928 1 498 2 042 1 026 1 311 1 358 1 298 1 724 1 285

19. Non-protected value added (6 - 12 + 18) 7 837 17 113 21 160 37 997 1 5 316 15 760 12 S03 14 552 50 970 19 S31

20. Lff@c:ivc r z t e of p ro t ec t ion % p S. % 0, % :6-19) - 19 X 100 29.3 20.8 38.2 24.1 29.5 34.9 28.4 30.2 17.8 23.8

Table D.11

ESTIMATES OF EFFECTIVE RATE OF PROTECTION : AUSTRALIAN

CITRUS GROWING IIL'DUSTRY (CITRUS ENTERPRISE)

(Average Per Farm, 1974-75)

New South Wales Victoria

Item South All Out er

Metropolitan MIA Sunraysia Mid-Murray State Sunraysia Robinvale State Australia Regions

$ $ $ S S $ $ $ $

1. Dorestic value of citrus production li 317 11 715 32 454 53 477 18 409 24 261 12 993 19 744 21 716 19 642 2. Tradeable inputs - materials 6 502 2 597 8 522 14 550 5 552 6 555 3 932 5 506 5 876 5 592 3. I I " - depreciation 2 185 2 003 2 622 3 292 2 278 2 792 2 798 2 733 1 812 2 179 4. Preferential credit - 138 150 71 398 995 403 288 216 5. Research a:~d prc~s~otion 549 792 1 770 2 204 1 009 1 376 715 1 113 l 227 1 094

6. Protected value added 3 181 8 045 23 230 37 139 11 653 16 688 7 973 13 021 15 543 13 181 (1 - st.11 2,3 + sum 4 + 5)

7. Consvn-r transfer 1 787 3 261 7 443 8 507 4 008 4 779 2 557 3 890 5 L19 4 311 S. ilcscarch and prcri~otion 549 792 1 770 2 204 1 009 1 376 715 1 113 1 227 1 094 I

9. Preferential crzdit 138 150 7 1 398 995 403 288 216 10. Fertiliser bounty - nitrogen 520 97 126 282 278 93 32 67 122 142 W

CO 11. - nhosphate 129 19 31 70 64 2 3 8 17 2 7 35

I 12. Total sum (7 to 11) 2 985 4 307 9 520 11 063 5 430 6 669 4 307 5 490 6 783 5 798

13. Tariff - sprays arid chemicals 50 35 33 65 40 28 15 22 4 3 38 14. - repairs and maintenance 105 106 132 279 116 136 101 118 l39 125 15. - packing materials 185 58 690 874 278 432 255 348 362 351

16. Total tariff on naterials (sum, 13, 14, 15) 540 199 855 1 218 434 596 371 488 564 494

! 7. Tariff c11 capital itens 352 333 402 515 367 439 643 432 290 348

18. Tcta: tariff on tradeables (15 L 17) 692 532 1 257 1 733 801 1 035 814 920 854 842

19. Non-~rotected salue Added (6-:?+?S) 888 4 270 14 967 27 809 7 030 11 054 4 480 8 451 9 614 8 225

20. Effective rate of protection 9 9 0, 0, % % 0 % %

(W) l(,o 88.4 55.2 53.6 65.8 51.0 19 78.0 54.1 61.7 60.3

fo r o ther ru r a l and manufacturing indus t r i es , c i t r u s production i s a

r e l a t i v e l y 'high cos t' industry. ( l ) The r e s u l t s ind ica te t ha t a major

component of the ass is tance i s t h e 'consumer t r ans f e r1 t ha t derives from

t a r i f f protect ion of domestically produced c i t r u s ju ices , notably orange

juice. A s indicated by Tables D . 1 1 1 , D . I V , D.V and D.VI , removal of t h i s

protect ion would have a s i gn i f i c an t e f f ec t upon c i t r u s producers' net farm

and household incomes. The r e s u l t s a l so ind ica te t h a t there a re

considerable regional differences and di f ferences between producers i n t h e

one region i n the extent and magnitude of t he benef i t s from ex is t ing

ass is tance measures.

Discussion o f the Ef fect ive Rate o f Protection Calculations

The r e s u l t s should be in te rpre ted wi th caution, f i r s t because

there a r e inherent dangers i n using assessments based on only one year ' s

r e s u l t s and second because, i n order t o derive t he est imates, it was

necessary t o use many simplifying assumptions. There i s s i gn i f i c an t

production var ia t ion between seasons i n c i t r u s production and t h i s i s

ref lected i n the re tu rns t o value added and hence e f fec t ive r a t e o f

protection calculations. The 1974-75 year was an 'on' season with respect

t o y ie lds and, o ther things being equal, t h i s would r e s u l t i n an increase

i n value added and the actual e f fec t ive r a t e of protect ion calculated

being lower than 'average1. Also as indicated i n Table D . V I I , the

consumer t r ans f e r per tonne from t a r i f f protect ion from orange ju ice

imports, the major source of industry ass is tance, increased by $4 .96 per

tonne o r 21% i n 1975-76 and maintained t h i s increased leve l i n 1976-77.

This a l so indicates t h a t i n recent years t h e e f f ec t i ve r a t e of protect ion

would have increased from tha t shown f o r 1974-75.

The estimate of ass is tance from measures t h a t increase re turns

from the c i t r u s en te rpr i se and other commodities produced on c i t r u s farms

included only the est imate of the 'consumer t r ans f e r1 associated with

(1) For estimates of the e f fec t ive r a t e s of protect ion applying t o indus t r i es i n the ru r a l s ec to r see Motha and Plunkett [S] and BAE, [l], [2], C33 and [4]. For estimates of e f fec t ive r a t e of protect ion i n the manufacturing s ec to r see IAC [S] and [6]. I t w i l l be noted t ha t the estimate of the e f fec t ive r a t e of protect ion fo r t he c i t r u s en te rpr i se i s only ha l f t h a t indicated by a comparable analysis by the IAC [7] f o r 1976-77.

Table D.111

IMPACT OF INTERVENTION MEASURES ON CITRUS FARM INCOME

[Average Per Farm, 1974-75)

New South Wales Victor ia South A 1 l

Item Outer Sun- Mid- Sun- Robin- S t a t e Austra l ia Region5 Metropolitan rays ia &rray State rays ia va l e

$ $ $ $ $ $ $ $ $ $ 1. Non-protected value

of production 16 669 25 895 33 045 56 455 25 306 26 440 23 585 25 065 45 422 3 1 170 2. Plus protect ion

on production 1 787 3 261 7 443 8 507 4 008 4 779 2 557 3 890 5 119 4 311 3. Gross value of

production (including

18 456 29 156 40 488 64 962 29 314 31 219 26 142 28 955 50 541 35 481 protect ion) (1+2) I

t-L 4. Less - non protected o

0 value of cash cost

11 996 11 179 26 409 42 982 16 572 2 1 559 17 142 19 226 30 314 2 1 065 l

5. Plus - ca s t subsidies 64 9 443 366 415 5 29 651 1 725 688 884 600

6. Less - imposts 692 928 1 498 2 042 1 026 1 311 1 358 1 298 1 724 1 285 7. - imputed

labour 1 905 3 569 1 386 3 479 2 357 1 660 4 062 2 403 3 131 2 593 8. - depreciat ion

provision 2 183 3 495 3 125 3 877 2 921 3 539 4 663 3 855 3 660 3 322 9. Net farm income 2 329 10 428 8 436 12 997 6 967 3 801 642 2 860 12 596 7 816

10. Net protect ion i n income (2+5-6) 1 744 2 776 6 311 6 880 3 511 4 119 2 924 3 280 4 279 3 626

11. Net protect ion i n % % % % % % % % % % income as percentage of ne t farm income

Table D. IV

PERCENTAGE DISTRIBUTION OF HOUSEHOLDS: BY INCOME

1974-75

Income

New South Wales Victor ia A1 l South

Regions Outer Sun- Mid- Sun- Robin State Austra l ia Metropolitan rays ia hlurray State r ays i a -vale

$ ' 000 % % % % % % % % % %

under 1 21.7 20.9 4.2 39.4 11.3 20.1 20.2 54.5 33.8 17.4

1 and " 2 4.6 4.2 4.1 - 5.4 3.1 6.2 - 3.4 7.5

2 4 12.3 20.9 2.2 16.4 - 13.4 17.8 1.1 10.3 11.6

4 " t r 6 12.4 17.4 15.0 3.6 11.1 13.1 .7 33.6 18.7 7.8

12 " " 16 10.7 12.6 23.1 - 24.8 13.0 27.8 .3 15.3 4.7

16 and over 12.6 8.1 15.4 35.0 27.7 17.6 3.1 4.7 3.7 9.9

I-' 0 I-'

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Table D.V.

ESTIMATED PERCENTAGE DISTRIBUTION OF HOUSEHOLDS : BY INCOME WITH CITRUS PRICE EQUIVALENT AT 20% AD VALOREM DUTY

1974-75

New South Wales Victor ia

Income A 1 l

Outer South

Regions Metro- MIA Sunraysia Mid- S t a t e Sunraysia s t a t e Austral i a

po l i t an Murray -vale

Under 1 44.9 37.4 18.7 81.0 58.2 43.8 64.0 54.5 60.8 36.2

1 and under 2 3.1 12.1 - m - 4.5 5 . 1 1.1 3.7 .3

16 and over 5.6 2.9 7.6 2.2 10.5 4.4 2.1 4.7 3.0 9.4

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Table D . V I

ESTIMATED PERCENTAGE DISTRIBUTION OF HOUSEHOLDS : BY INCOME AT IMPORT PARITY PRICE FOR CITRUS

1974-75

New South Wales Vic to r i a

Income A l l Out e r South

Regions Metro- MIA Sunraysia Mid- S t a t e Sunraysia Robin s t a t e Aus t ra l i a

p o l i t a n Murray -va le

Under 1 53.1 47.3 33.0 81.8 63.2 52.5 66.2 56.6 62.5 48.0

1 and under 2

2 " lt 3

3 " I t 4

4 l' lr 6

6 " It 8

8 " 10

10 If " 12

12 " 14

16 and over 5.2 2.9 6 .1 1.7 3.5 2 . 1 4.7 3.0 9.4

Tota l 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

ESTIMATES OF CONSUMER TRANSFER PER

UNIT OF ORANGES SOLD I N AUSTRALIA

Item Unit 1974-75 1975-76 1976-77

1 Weighted average of FISCC minimum p r i ce f o r valencias and navels $/tonne 65.73 72.54 72.96

2 Pr ice of oranges containing one l i t r e of ju ice (1/455 X

100) cent S 14.45 15.94 16.04

3 Austral ian cos t and margin cents/ f o r processing and marketing l i t r e * 5.0 6.0 7.0

4 Domestic ju ice p r i c e C2 + 3)

5 F.o.b. Value o f import clearance II 12.2 13.1 13.7

1 6 Freight and handling cost 2.0 2.5 3.0 I t

7 Import p a r i t y p r i c e (5 + 6 )

8 Consumer t r a n s f e r (4-7)

9 Consumer t r a n s f e r pe r tonne of oranges (8 X 455/100)

* Single s t rength .

t a r i f f protect ion from orange ju ice imports. However, as indicated i n

Attachment C , orange production was some 86% of t o t a l c i t r u s production

and income from c i t r u s comprised some 55% of t o t a l farm income. Canning

f r u i t and multi-purpose grapes were the only other commodities t ha t

individual ly contributed more than 10% of t o t a l farm receipts . Also,

other information suggests t h a t the l eve l of ass is tance t o t h e re turns

from o ther commodities,apart from canning f r u i t , i s r e l a t i v e l y minor.

Hence, the re i s a s t rong presumption t h a t the ass is tance from measures t o

increase re turns from non-orange c i t r u s and other commodities produced on

c i t r u s farms has been under estimated, but t h a t the under-estimate i s

small r e l a t i v e t o t h e ass is tance measured.

I t should be noted t ha t , contrary t o t he above, the ass is tance

t o orange re turns by protect ion from juice imports was measured d i r ec t l y

as t he di f ference between the FISCC minimum pr ices f o r processing and the

equivalent duty f r e e inrport pa r i ty . Thus t he measured orange ass is tance

may be over estimated depending upon the extent t o which pr ices f o r

domestically produced oranges f o r ju ice could command a p r i ce premium. I t

could a l so be under estimated i f processors paid subs t an t i a l l y above the

FISCC minimum pr ices . A s t h e discussion and analysis i n Attachment B

points out, it i s not poss ible t o determine t he exact magnitude of any

pr ice premium there may be f o r domestically produced oranges f o r juice.

However, as i s a l so pointed out i n Attachment B, the e f f e c t of changes i n

the import p a r i t y p r ices on producer re tu rns may be magnified, i f

allowance i s made f o r a l loca t ion of avai lable domestic orange supplies

between f resh and processing.

Overall, and i n the absence of addi t ional information, there i s

a presumption t h a t the est imates of ass is tance given i n the accompanying

Tables D.1 and D . 1 1 f o r measures t h a t increase re tu rns from the c i t r u s

en te rpr i se and other commodities produced on c i t r u s i s under estimated,

but t h a t the magnitude of the e r r o r may not be large .

The measures t h a t d i r e c t l y influence the cost f o r producers of

tradeable inputs and re turns from value added have not taken account of

the extent , i f any, of the subsidy i n water and i r r i g a t i o n charges and

general taxation concessions t o farmers, due t o def ic iencies i n avai lable

information. However, the magnitude of any ass i s tance associa ted with

these measures i s thought t o be small and would r e s u l t i n only a very

small marginal upward revis ion of the est imates shown.

Despite the d i f f i c u l t i e s associated with a l loca t ion of farm

costs between en te rpr i ses , separa te est imates of the e f f ec t i ve r a t e o f

protect ion f o r the c i t r u s en te rpr i se and c i t r u s producing proper t ies have

been derived. These ind ica te t h a t the major p a r t of ass i s t ance received

by the c i t r u s en t e rp r i s e derives from c i t r u s production and, despi te

r e f l e c t i ng the weaknesses i n measurement discussed above, ind ica te the

r e l a t i v e l y 'high c o s t t nature of ass is tance measures f o r c i t r u s

production.

The r e s u l t s shown f o r individual regions should be in te rpre ted

with care as t he importance of weaknesses i n measurement va r i e s between

regions. For example, i n the M I A some 34% of t o t a l farm income of c i t r u s

producers was derived from canning f r u i t and omission of t he ass is tance t o

canning f r u i t r e tu rns i s l i k e l y t o have resu l t ed i n a s i gn i f i c an t

under-estimate of the e f f ec t i ve r a t e of protect ion t o c i t r u s producers i n

t ha t region. Also, c i t r u s growers i n the Outer Metropolitan Region o f New

South Wales tend t o be s p e c i a l i s t s and have a l t e rna t i ve crop and l ivestock

en te rpr i ses f o r which only a very a rb i t r a ry ba s i s ex i s ted f o r a l loca t ing

costs t o derive c i t r u s en te rpr i se r e su l t s . This i s r e f l e c t ed i n the high

e f f ec t i ve r a t e o f protect ion t o the c i t r u s en te rpr i se i n t ha t region.

Assistance to Farm and Household Incomes

I n Tables D . 1 1 1 , D . I V , D.V and D . V I est imates a r e given of the

e f f ec t s of changes i n ass is tance on t he l eve l and d i s t r i bu t i on of c i t r u s

producer farm and household incomes. The est imates have been derived by

assuming a l l o the r cos t s and re tu rns remain a t t h e i r 1974-75 level . A s

such they represent the gross l i k e l y e f f e c t of the changes. The ne t

e f f e c t would be l ess , as producers would make adjustments i n response t o

changes of t h i s magnitude .

Household income i s derived by adding t o t he household share of

net farm income the income derived by household members i n off-farm use of

t h e i r labour and cap i t a l and r ece ip t s of non-taxable income such as g i f t s ,

t r ans fe r s , e t c .

The r e s u l t s ind ica te t h a t the ass is tance given has made a

s ign i f ican t contribution t o c i t r u s producer incomes, bu t t h a t , even a t t he

levels of ass is tance per ta ining i n 1974-75, some 39% of producers received

household incomes of l e s s than $4000. I f t he protect ion from orange ju ice

imports i n t h a t year had been halved as indicated by the r e s u l t s given i n

Table D.V f o r re turns with a c i t r u s p r i ce equivalent a t 20% ad valorem

duty, o r had been removed, the proportion of producers with household

incomes of l e s s than $4000 would have increased t o 58% and 67%

respectively. A s indicated, the r e s u l t s vary considerably between

regions, both with respect t o the l eve l of income derived from ass is tance

and with respect to t h e proportion of households receiving l e s s than some

s t a t ed minimum.

Despite i t s inherent weaknesses, the above analysis confirms

t ha t there may already e x i s t regional welfare problems i n c i t r u s

production and t ha t these problems a r e l i k e l y t o be exacerbated i f

ass is tance i s suddenly removed. A s t h e analysis of orange supply response

given i n Attachment E ind ica tes , large differences i n r e l a t i v e

p r o f i t a b i l i t y of orange production need t o occur before there a re

s i gn i f i c an t changes i n the supply of oranges.

Citrus Indus try Assistance and Resource Adjustment

As indicated e a r l i e r , c i t r u s production i s a high cost industry.

With poss ible changes i n ass is tance t o c i t r u s growing t h i s r a i s e s

questions as t o the l i k e l y d i rec t ion of resource movements between

ho r t i cu l t u r a l indus t r i es and i n t h e economy generally.

In the absence of industry survey data f o r a s e r i e s of years, an

assessment o f the d i rec t ion and magnitude of resource movements i s only

possible on the ba s i s of highly aggregated S t a t e and nat ional s t a t i s t i c s .

The number of holdings growing c i t r u s t r e e s has declined by about 20%

between 1972-73 and 1975-76. The bearing t r e e numbers f o r oranges, which

are the dominant c i t r u s var ie ty , have declined s ince 1970-71, while

non-bearing t r e e numbers declined continually between 1965-66 and 1973-74

with a s l i g h t upturn i n 1974-75 and 1975-76. An appraisa l of t he

s i t ua t i on i n each S t a t e suggests a decl ine i n bearing orange t r e e numbers

i n New South Wales, with increases i n Victor ia and, t o a l e s s e r ex ten t , i n

South Austra l ia . The decl ine i n New South Wales i s predominantly due t o

urban expansion i n the Outer Sydney Region; o ther regions made minor

gains. The t r e e numbers f o r o ther c i t r u s v a r i e t i e s have increased i n a l l

S t a t e s s ince the mid- 1960s.

A s the d i s t r i bu t i on of the number o f c i t r u s growing holdings by

number of c i t r u s t r e e s pe r holding given i n Table D.VIII indicates , the

number of holdings with c i t r u s t r e e s declined i n a l l S t a t e s between

1972-73 and 1975-76. The l a rge s t declines i n number o f holdings occurred

i n the small s i z e ca tegor ies , which would accord with t h e evidence given

i n Attachment F of there being s i gn i f i c an t economies o f s i z e i n c i t r u s

production.

The o ther h o r t i c u l t u r a l indus t r i es competing f o r resources with

c i t r u s a r e usually region spec i f i c but , i n a rough order o f importance,

would be wine grapes ( in MIA), dr ied vine f r u i t (Murray River Regions),

and canning f r u i t (MIA and Riverland). Of these a l t e rna t i ve indus t r i es

wine grapes has j u s t undergone a period of rap id expansion and the re i s

emerging over-supply o f some red va r i e t i e s . Dried vine f r u i t i s cur ren t ly

receiving r e l a t i v e l y high world p r ices , but t h i s i s considered a temporary

phenomenon and, with recovery i n world suppl ies , pressure on p r ices i s

expected. With a f a l l i n export p r ices , t h e consumer t r an s f e r from the

domestic marketing arrangements w i l l g rea t ly increase t he r e l a t i v e l y low

level of ass is tance current ly received. Deciduous canning f r u i t p r i ces

a re s i gn i f i c an t l y supported by the FISCC mechanism, with ' surplus1

suppl ies being exported f o r r e l a t i v e l y low re turns .

Thus c i t r u s i s i n a d i f f e r en t pos i t ion from most of the other

major a l t e rna t i ve h o r t i c u l t u r a l crops i n t h a t domestic demand i s g r ea t e r

than indigenous supply. Hence, it could be considered as an a l t e rna t i ve

t o crops with export marketing d i f f i c u l t i e s and r a i s e s questions a s t o the

continued a v a i l a b i l i t y of world supplies. A s discussed i n Attachment A,

world suppl ies of c i t r u s ju ice a r e l i k e l y t o increase rapidly i n t he

fu tu re with associa ted downward pressures on the r e a l p r i c e s of c i t r u s

ju ice imports. In these circumstances it i s unlikely t h a t the Austral ian

Ci t rus Industry could expand and compete wi th foreign suppl ies without

continuing, and l i k e l y increasing, protect ion.

Table D.VIII

DISTRIBUTION OF NUMBER OF CITRUS GROVZRS : EY N W B t X OF CITRUS TREES (BEARING AND NON-BEARING) PER

HOLDING : 1972-73 and 1975-76

Trees N.S.W. Vic. Qld S.A. W.A.

% of No. % o f No. % of % of No. No. % of

t o t a l t o t a l t o t a l t o t a l t o t a l No.

Tota l 100 2311 100 1032 100 464 100 1702 100 1281

Total -p- -p

Source: Special Tabulations ABS .

I f the level of ass is tance f o r c i t r u s production was such t ha t

it encouraged an expansion i n c i t r u s growing it i s l i k e l y t ha t t he major

source of resources f o r t he expansion would be from those current ly used

i n o ther ho r t i cu l t u r a l exjjorting indus t r i es , the exact indus t r i es

depending largely 11pon geographical region. Alternatively, i f t h e level

of ass is tance f o r c i t r u s production was such t h a t it encouraged a

contraction of c i t r u s growing, then it i s considered t h a t t he converse

would only p a r t i a l l y occur a s the capacity of these a l t e rna t i ve

ho r t i cu l t u r a l indus t r i es t o absorb addi t ional resources i s l i ke ly t o be

l imited and many o f the resources, espec ia l ly labour, would be di rected t o

off-farm employment.

I t should be recognised t h a t mobility of resources between ~ hor t i cu l t u r a l indus t r i es i s l imi ted by t he r e l a t i v e f i x i t y of a s se t s , t h e

~ large i n i t i a l investment required and the long gesta t ion period of

non-bearing between plant ing and f r u i t bearing. Hence a reduction i n the

level of ass is tance t o c i t r u s production is l i ke ly t o increase t h e numbers

with low farm incomes and, given resource f i x i t y , t o increase welfare

problems. In t h i s regard it i s perhaps noteworthy t h a t the survey

information indicates t h a t off-farm income contributed some 35% of t o t a l

household income i n 1974- 75, predominantly from off-farm investments

ra ther than wages. However, t he survey information a l so revealed t h a t

most operators were over 45 years o ld and t ha t three-quarters had not

completed a high school education and hence are l i k e l y t o f ind it

extremely d i f f i c u l t t o be redeployed i n current labour market conditions.

REFERENCES

[lf BAE , Protection t o Dairy Farming i n Australia, Indus t ry Economics Monograph No. 8, Canberra, 1975.

[2] BAE, Protection to the AustraZian Dried Vine Fruit Growing Industry, Indus t ry Economics Monograph No. 11, Canberra, 1975.

[3] BAE, Ths Australian Beef Cattle Industry : Submissions t o the Induskries Assistance Commission Inquiry, Indus t ry Economics Monograph No. 13, Canberra, 1975.

[4] BAE, 'Submission t o t h e I n d u s t r i e s Assistance Commission Inqui ry : Wheat S t a b i li sa t ion ' (mimeographed) Canberra, 19 77.

[S] IAC, Annual Report, 1973-74, Canberra.

[6] IAC, Annual Report, 19 75- 76, Canberra.

[7] IAC, Interim Report : Orange Juice, Canberra, 1977.

[8] Motha, G. and Plunket t , H., 'The E f f e c t i v e Rate o f P ro tec t ion : An Inves t iga t ion i n t o t h e Applicat ion o f t h e Concept t o t h e Aus t ra l i an Rural S e c t o r q , Quarterly Revim of AgricuZturaZ Economics, Vol. X X V I I , No. 3, J u l y 1974.

Attachment E

Introduct ion

Changes i n the l eve l of protect ion and/or import p r ices f o r

orange ju ice w i l l influence the p r o f i t a b i l i t y of orange growing and hence

a f f e c t the fu tu re s i z e of the industry. This Attachment examines the

f ac to r s a f fec t ing pas t changes i n supply i n order t o appraise the e f f e c t s

of changes i n protect ion on future production levels . The r e s u l t s a r e l then considered, along with the r e s u l t s shown i n Tables B.V(a) and B.V(b)

of Attachment B , t o p ro j ec t orange production under various assumptions

regarding the l eve l of protect ion (o r import p r ices ) . Although t h i s

analys is i s only preliminary and there a re l imi ta t ions on da ta

a v a i l a b i l i t y , it provides a t en t a t i ve bas i s f o r assessing the e f f ec t s of

changes i n the l eve l of protect ion on production i n the longer term.

Analysis o f Yields and Tree Numbers

Changes i n quant i ty produced are dependent upon changes i n t r e e

numbers and i n y i e ld pe r t r ee . Consequently, t r e e numbers and yie lds have

1 been considered separate ly .

Average y ie lds pe r t r e e f o r Austra l ia have been analysed over

the period 1957-58 t o 1973-74 f o r navels and valencias separate ly , In

~ these analyses y ie lds were regressed against a time trend, a dummy

var iable f o r a l t e rna t e cropping and a var iable t o denote the percentage of

young t r e e s which had no t ye t reached maximum bearing age.

The r e s u l t s obtained a r e as follows : ( f igures i n parentheses

a r e t - s t a t i s t i c s )

Nave 1s Y = 2.238 - 0.020A + 0.240D + 0.084T

(9.93) (1.97) (2.84) (5.62)

* This Attachment was prepared by Ivan Roberts with ass i s t ance from Doug Cox.

Valencias Y = 1.544 - .012A + .483D + .1126T

where Y = average y i e l d pe r t r e e ( i n bushels)

A = percentage of bearing t r e e s aged from 6 t o 11 years

3 = dmmy var iab le f o r a l t e r n a t e bearing (1 f o r 9orllP years 0 f o r ' o f f ' years)

T = time t rend (1, 2,. . . , t )

These equations were used t o p r o j e c t y ie lds t o 1982-83 by

assuming t h e percentage of bearing t r e e s , A, constant a t the proport ion of

t o t a l t r e e s i l l 1975-76(1) and ex t rapo la t ing T. No attempt was made t o

es t imate y i e l d s i n individual 'on1 and 'of f ' years, 'normalf y ie lds being

projec ted with the dummy var iab le a t 0.5. For the purpose of t o t a l orange

production p ro j ec t iuns , t h e p ro jec ted navel arld valencia y i e l d s were

averaged and a r e shown i n Table E , I ,

Table E , I

AUSTRALIA: ORANGES : ACTUAL AND PROJECTED YIELDS

(Kg p e r Tree)

Yield Year

Actual Projected -

- (1) The percentage of non-bearing t o t o t a l orange t r e e s remained v i r t u a l l y

constant from 1971-72 t o 1975-76 and hence f o r projec t ion of average y ie lds such a percentage should provide a reasonable i n d i c a t o r of the percentage of t r e e s i n t h e age group 6 t o 11 years during the period 1976-77 t o 1972-83 provided the re are no t la rge changes i n t o t a l bearing t r e e numbers.

Analysis of changes i n and project ion of bearing t r e e numbers is

d i f f i c u l t as, i n addit ion t o da ta l imi ta t ions , severa l s t a t i s t i c a l

problems have been encountered. However, preliminary r e s u l t s from ongoing

research within the Bureau suggests t h a t there has been a f a i r l y s t ab l e

re la t ionsh ip between changes i n re turns f o r oranges and t o t a l t r e e

numbers, This re la t ionsh ip has been used t o p ro jec t t r e e numbers under

various assumptions regarding the l eve l of import duty f o r orange juice,

The re la t ionsh ip has been estimated from aggregated da t a of navel and

valencia orange t r e e numbers f o r t he period 1959-60 t o 1975-76. (2)

The re la t ionsh ip estimated postula ted t ha t changes i n t o t a l

orange t r e e numbers a re determined by changes i n the p r o f i t a b i l i t y of

oranges and o ther f r u i t s which compete f o r land, namely other c i t r u s ,

canning peaches, wine grapes and sul tanas , (3) For the Sydney region,

where urban encroachment has been making large and consis tent inroads i n t o

t r e e numbers, allowance has been made f o r a continuation of t h i s trend as

well as f o r the e f f e c t of orange p r o f i t a b i l i t y .

To obtain est imates f o r p r o f i t a b i l i t y of orange and other f r u i t

production, composite var iables , o r p r o f i t a b i l i t y fac to rs , were

constructed f o r each f r u i t a s follows

own p r i c e X own y i e ld p r o f i t a b i l i t y f a c t o r f o r fruit =

input cos t s (prices paid index)

For oranges and other c i t r u s the p r o f i t a b i l i t y fac to r was

constructed from pr ices received i n t he most recent th ree years and yie lds

i n the most recent two. The two most recent pr ices were weighted t o have

a g rea te r impact than the previous one, the weights being 0.4, 0.4 and 0.2

respectively. The choice of weights f o r p r ices and t h e incorporation of

(2) Over time, movements i n valencia and navel orange t r e e numbers have been very similar and separate analyses encountered mul t i co l l inear i ty problems .

(3) For t h i s analys is two a l t e rna t i ve spec i f i ca t ions were considered, with the change i n t o t a l orange t r e e numbers being expressed i n

3

absolute and percentage terms respectively. A comparative R'

analys ls f o r t o t a l t r e e numbers es tabl ished absolute changes i n t r e e numbers as the more appropriate f o r analysis .

two years f o r y ie lds was t o account f o r t he e f f e c t s of t he 'onf and ' o f f f

cropping hab i t of orange t r e e s . Input cos t s of the current year were

employed, Similar p r o f i t a b i l i t y f a c to r var iables were constructed f o r the

abovementioned a l t e rna t i ve f r u i t s .

Regression of changes i n orange t r e e numbers against these

estimated p r o f i t a b i l i t y f a c to r var iables produced a s t a b l e and highly

s i gn i f i c an t coef f i c ien t f o r orange p r o f i t a b i l i t y , ind ica t ing an e l a s t i c i t y

of t r e e numbers with respect t o changes i n orange p r i c e s ( a t grower level )

of 0,09. However, s t a t i s t i c a l problems were encountered with the

est imation of the influence of o ther var iables and emphasise the t e n t a t i v e

nature of the r e s u l t s a t t h i s s tage ,

Assuming the p r o f i t a b i l i t y of o ther f r u i t s remained constant ,

the above analys is was used along with the r e s u l t s shown i n Tables B,V(a)

and B.V(b) of Attachment B t o p ro j ec t t r e e numbers and production. In

order t o do t h i s , projected bearing t r e e numbers had t o be r e l a t ed t o

t o t a l t r e e s through adjus t ing the bearing percentage f o r changes i n t o t a l

t r e e numbers. (4) These project ions a r e shown i n Table E , I I ,

These project ions ind ica te t ha t , i f p r i ces were maintained a t

the 1976-77 l eve l f o r processing oranges i n real terms, the t o t a l number

of orange t r e e s i n Austra l ia would remain approximately constant, except

f o r erosion due t o urban encroachment i n the a rea around Sydney.

Nevertheless, f u r t he r growth i n production i s projected as a r e s u l t of

r i s i n g yie lds .

A t the high p r i c e assumed ($99.70 a t 1976- 77 values) , t he number

of t r e e s increases as a r e s u l t of increased plant ings encouraged by the

p r o f i t a b i l i t y of orange growing, However, the increase i s r e l a t i v e l y

small owing t o the low e l a s t i c i t y of t r e e numbers with respect t o p r i c e ,

I t is considered t h a t the project ions derived when the grower p r i c e i s s e t

a t the f resh equivalent of t h e duty f r ee import p a r i t y p r i c e f o r orange

ju ice i n 1976-77 ( i , e . $44,10 per tonne) a re above l eve l s which would

(4 j This adjustment was necessary as large changes i n t o t a l t r e e numbers a r e usually accompanied by changes i n the proport ion of bearing t o t o t a l t r e e s . The adjustment used was determined by regressing annual changes i n t o t a l t r e e numbers against changes i n the proportion which i s bearing, during the period 1959-60 t o 1975-76.

Table E . 1 1

ORANGES : AUSTRALIA : PROJECTED TREE NUMBERS AND PRODUCTION AT VARIOUS ASSUMED GROWER PRICES

Year

A t Fresh Equivalent of (a) Duty Free Import Par i ty Pr ice f o r Orange Ju ice Concentrate i n 1976-77 ( i . e . $44.10 per tonne

a t 1976-77 Values)

A t Actual Pr ice fo r (a ) Processing Oranges i n

1976-77 (i. e . $72.90 per Tonne a t

1976-77 Values)

A t Estimated Processing (a) Pr ice had a Duty of 10 cents per L i t r e s.s. Applied i n

1976-77@) (i.e. $99.70 per Tonne a t

1976-77 Values)

Total Bearing Total Bearing Total Bearing Tree Tree Production Tree Tree Production Tree Tree Production

Numbers Numbers Numbers Numbers Numbers Numbers

' 000 ' 000 ' 000 ' 000 ' 000 ' 000 '000 ' 000 ' 000 tonnes tonnes tonnes

Actual

Pro j ected

1976-77 (e) 5045 4360 34 7 5045 4360 34 7 5045 4360 347

1982-83 4428 4014 3 84 4884 4274 4 09 5333 4496 431 (a) Throughout these project ions , t h e estimated a v a i l a b i l i t y of oranges f o r f r e sh s a l e s was i n i t i a l l y such a s t o

reduce f resh pr ices t o below the s t ipu la ted processing p r ice . In t u rn t h i s necess i ta ted a re-a l locat ion of quan t i t i e s between f r e sh and processing which resu l t ed i n f resh market p r ices r i s i n g t o t he s t i pu l a t ed processing p r ices . (b) This p r i c e i s taken from Table B.V(a)Attachment B, and i s t he p r i c e estimated f o r processing oranges a t a duty o f 10 cents per l i t r e i f t he premium received f o r Austral ian ju ice above import p a r i t y i n 1976-77 was due t o qua l i ty d i f ferences alone. (e) Estimated.

a c t u a l l y occur a t t h a t p r i c e , This i s because, unl ike the p ro jec t ions a t

higher p r i c e l eve l s , the p r i c e assumed is well outs ide the range o f a c t u a l

observations over t h e per iod analysed, Producer income d a t a f o r 1974-75

and est imated f o r 1975-76 (see Attachment C) i n d i c a t e t h a t , if o ther

f a c t o r s a re held constant , a reduction i n grower p r i c e s t o the equivalent

of import p a r i t y f o r ju ice would reduce grower incomes s i g n i f i c a n t l y and

r e s u l t i n negative n e t farm incomes f o r many producers. Such p r i c e s could

the re fo re be expected t o r e s u l t i n withdrawal of many resources from

orange growing over a per iod of years.(5)

While it can be est imated t h a t t h e l e v e l of r e a l producer p r i c e s

necessary t o maintain t r e e numbers(6) is around t h a t i n 1976-77, t h e l e v e l

of duty required t o support such a p r i c e cannot be ascer ta ined from these

analyses, A s mentioned i n Attachment B , t h e p ro tec t ion given i n 1976-77,

which underpinned t h e p r i c e s applying i n t h a t year, consisted of two

elements, namely the t a r i f f and t a r i f f quotas and i t has n o t been poss ib le

t o determine t h e respect ive contr ibut ions of these two measures t o t h e

l eve l of p ro tec t ion at t h a t time. The ex ten t of p ro tec t ion necessary t o

support a given r e a l p r i c e would a l s o vary over time with changes i n world

p r i ces , I n t h i s context the conclusion from Attachment A, t h a t t h e long

term downward t r end i n r e a l world p r i c e s would continue, is re levant .

A fu r the r f a c t o r t o consider when determining l e v e l s of

protec t ion i s the l ike l ihood of the protec t ion given being f u l l y u t i l i s e d

and r e f l e c t e d i n growers1 and processors ' r e tu rns . The above examples a r e

based upon changes i n duty being f u l l y r e f l e c t e d i n grower re tu rns ,

However, i f import duty were r a i s e d t o very high l eve l s , thus increas ing

production, competitive forces a l loca t ing f resh and processing supp l ies i n

Aus t ra l i a could prevent f u t u r e processing p r i c e s r i s i n g t o the equivalent

of import p a r i t y f o r juice. This was no t est imated t o be an important

considerat ion i n the examples shown i n Attachment B a t 1976-77 values.

However, if production r i s e s , and if the apparent i n t e n s i f i e d decl ine i n

(5) I$ i s est imated t h a t , f o r Aus t ra l i a as a whole i n 1974-75, a reduction I n grower p r i c e s ok oranges t o $44.10 p e r tonne a t 1976-/7 r e a l values would have reduced average n e t tarm income by approximately $5500 t o about $2300.

(6) The use of the words ' t r e e numbers' i n t h i s paper can be considered here i n terms of the types and s i z e s of t r e e s grown i n recent years. Changes i n the t r e e s i z e s and d e n s i t i e s a re l i k e l y i n the fu tu re but these could not be incorporated i n the projec t ions .

- 118 -

f resh market demand continues, t h i s consideration could ar ise . Under such

circumstances the quant i ty which t he f resh market could absorb a t the

f resh equivalent of import p a r i t y f o r juice might be so small as t o r e s u l t

i n juice surpluses a t the import p a r i t y p r ice , thus forcing processing

pr ices t o below duty paid import pa r i ty .

Although it i s concluded from the above supply response analysis

t h a t orange t r e e numbers na t iona l ly have responded t o a l imited extent t o

changes i n orange pr ices , there can be marked differences i n p r o f i t a b i l i t y

between regions which can cause re-or ienta t ion of production areas. To

inves t iga te fu r the r the e f f ec t s of changes i n the protect ion current ly

afforded c i t r u s production deta i led budgets of orange growing i n the MIA

were constructed using 1976-77 pr ices . (7) This work ind ica tes t ha t l r e l a t i ve ly e f f i c i en t producers with double plantings can produce

prof i t ab ly a t present p r ices and would be able t o meet cash costs even a t

the Australian f resh f r u i t equivalent of duty f ree import pa r i t y f o r ju ice

a t 1976-77 values. This r e l a t i v e p r o f i t a b i l i t y i n t ha t region would have

encouraged the expansion which has occurred, the t o t a l a rea under

valencias having r i s en from 2113 hectares i n 1970 t o 2590 hectares i n

1976. I t appears t ha t const ra ints on production i n the MIA through water

a v a i l a b i l i t y o r qua l i t y and urban encroachment are l e s s than i n several

other areas. Nevertheless, t he p r o f i t a b i l i t y of oranges r e l a t i ve t o other

crops would influence the extent of growth. The budgets analysed showed

s imi la r p r o f i t a b i l i t y f o r valencia oranges, Trebbiano wine grapes and

canning peaches. Consequently small changes i n the p r o f i t a b i l i t y of

oranges r e l a t i v e t o these a l t e rna t e crops is l i ke ly t o influence the

extent of f u tu r e changes i n orange production.

Summary and Conclusions

Although s t a t i s t i c a l problems have prevented a comprehensive

supply response analysis , i t has been possible t o make ten ta t ive

project ions based upon fac tors a f fec t ing y ie lds and r e l a t i v e l y s t a b l e

est imates obtained f o r t he response of orange t r e e numbers t o changes i n

(7) These budgets were based upon information from the N.S.W, Department of Agriculture on yie lds , costs and production prac t ices f o r valencia oranges, Trebbiano grapes-and canning peaches. Returns used were those f o r t he 1976 and 1977 seasons.

- 119 -

orange pr ices . The l imi ta t ions imposed by these problems, however,

preclude account being taken of the e f fec t s of changes i n p r o f i t a b i l i t y of

crops which compete with oranges f o r land, i r r i g a t i o n f a c i l i t i e s , e t c .

The orange y ie ld project ions ind ica te a continuation of the

marked upward trend evident s ince the e a r l y 1960s but t h e r a t e of increase

i s expected t o be lower than i n the 1970s t o date,

Analyses o f changes i n t r e e numbers ind ica te t ha t , within t he

range of observations s ince the l a t e 1950s, it requ i res a very large

change i n p r o f i t a b i l i t y t o evoke more than small changes i n t o t a l t r e e

numbers. This, of course, needs t o be qua l i f i ed by the response which

could be expected i f p r ices f e l l t o unprofi table l eve l s f o r a sustained

period.

I t has been est imated t h a t , i n order t o r e t a i n t o t a l orange t r e e

numbers at around present l eve l s , t he p r i c e paid f o r processing oranges i n

1976-77 would need t o be maintained i n r e a l terms. I t was a l so concluded

t h a t large increases i n r e a l p r ices would expand production i n the long

term but such expansion would be small r e l a t i v e t o the increase i n p r ices

needed t o br ing it about. Limitations on the analys is precluded f i rmly

based est imates of t he e f f e c t s of withdrawal of protect ion on t r e e

numbers. However, inspection of survey r e s u l t s on ne t farm income, grower

p r ices and quan t i t i e s so ld per farm ind ica tes t h a t complete withdrawal

of protect ion would reduce grower incomes, some t o very low leve l s , and be

l i ke ly t o r e s u l t i n a marked reduction i n the s i z e of t he indust ry over a

period of years (see Attachment C). The e f fec t s of such a reduction i n

protect ion would, however, vary considerably between individual regions.

Although t he e l a s t i c i t y of orange t r e e numbers with respect t o

p r i c e f o r oranges i s est imated t o be low f o r Aus t ra l i a as a whole, the

e f f ec t s of changes i n p r ices upon t r e e numbers and production would vary

markedly between areas. Budget s tud ies fo r the MIA ind ica te t ha t orange

production would s t i l l be a p ro f i t ab l e investment f o r e f f i c i e n t producers

a t re turns somewhat below those obtained i n 1976-77. However, t h i s would

not be the case i n areas such as Outer Metropolitan i n N.S.W. and

Robinvale and Sunraysia i n Victoria.

While i t has been concluded from the supply response analys is

t h a t marked increases i n p r ices would evoke a r e l a t i v e l y minor production

increase f o r Austra l ia as a whole it is no t possible t o be categor ical

about t h i s conclusion under conditions of assured higher fu tu re re tu rns

which could a r i s e from some pro tec t ive measures. Uncertainty about fu ture

p r ices appears t o have been an important f a c to r r e s t r a i n ing supply

responses, and removal of such uncer ta inty could t r i g g e r a production

response.

The extent t o which import dut ies or o ther p ro tec t ive devices

can r a i s e producer p r ices i s l imi ted by the degree of production response

t o such p r ices and l i m i t s on Austral ian demand f o r f r e sh and processed

oranges. Emce g r a t i n g of very h j gh proT.5ctj-on l ev s l ? could ? . e c ; ~ l t i n a

s ~ p p l y responco/consumption e f f e c t i n the longer term which would prevent

the indust ry from f u l l y u t i l i s i n g the protection.

Attachment F

S I Z E ECONOMIES I N CITRUS PRODUCTION : SOME PRELIMINARY RESULTS*

In t h i s Attachment some preliminary r e s u l t s of an inves t iga t ion

of the re la t ionsh ip between farm s i z e and average u n i t cos t s of production

f o r c i t r u s growing farms a r e presented. This re la t ionsh ip gives an

indicat ion of t he competitiveness of d i f f e r en t s i z e s of c i t r u s producing

farms. The measure of s i z e used i n t h i s study was Tota l Farm Receipts, a

measure of output i n value terms.

For analys is of s i z e economies two d i f f e r e n t methods were used,

namely :

( i ) q u i n t i l e analys is and

( i i ) s t a t i s t i c a l f i t t i n g of average u n i t cos t functions,

Quin t i l e ana lys i s d ivides t he t o t a l number of p roper t i es i n t o

f i v e groups on the ba s i s of t o t a l farm s i z e . Then, f o r each group, cos ts

a r e derived as a percentage of output value and comparisons a r e made

between groups.

Analysis by s t a t i s t i c a l f i t t i n g of average u n i t cos t functions

involves deriving average u n i t cos t s of production, f i t t i n g s t a t i s t i c a l l y

curves t h a t ' bes t ' explain the var ia t ion i n u n i t cos t s i n terms of s i z e

and then i n t e rp r e t i ng the shapk of the curves with the a i d of f igures

graphing the r e su l t s .

In each case, two measures of t o t a l cos t and hence average u n i t

cos t were used, The f i r s t t o t a l cos t measure, TC*, was defined t o include

cash costs , c a p i t a l depreciat ion and t he imputed labour of a l l household

members. The second, TC**, included a l l the components of TC* and a l so an

opportunity cos t f o r c a p i t a l (other than land) at an i n t e r e s t r a t e of 10%.

Data - Information f o r the analys is was derived from the Bureau's

survey of h o r t i c u l t u r a l indus t r i es . Included was information f o r a l l

* This Attachment r epo r t s research undertaken by W i l l Martin.

s p e c i a l i s t c i t r u s producers sampled on a whole farm basis f o r t h e 1974-75

season. The da ta were divided i n to three sub-samples f o r separate

analysis . These were:

1. Outer Sydney Region

Citrus Spec i a l i s t s - farms which received over 80% of t h e i r

t o t a l re turns from the c i t r u s en te rpr i se (16 farms).

2. I r r i ga t ed Regions

Citrus Spec ia l i s t s - farms which received over 80% of t h e i r

t o t a l re turns from the c i t r u s en te rpr i se (37 farms).

3. I r r i ga t ed Regions

Hor t icu l tu ra l Sample - farms which received over 90% of t h e i r

t o t a l re turns from major ho r t i cu l t u r a l crops ( l ) (131 farms) .

A s 1974-75 was an 'on1 year i n terms of c i t r u s y ie lds , the

absolute l eve l of per un i t costs would tend t o be lower than 'averaget .

However, t h i s i s unlikely t o have s i gn i f i c an t l y affected the ranking

between d i f f e r en t property s i ze groups.

Results

1. Outer Sydney Region

Table F,I shows the s t ruc ture of average costs per do l la r of

output f o r c i t r u s producers i n Outer Sydney Region ranked i n groups by the

value of t o t a l output. I n the t ab le , costs a re expressed as a percentage

of output value.

(1) Apples and pears, canning f r u i t , c i t r u s , wine grapes, multi-purpose grapes and dr ied vine f r u i t were included i n t h i s category.

Table F.1

COSTS AS A PERCENTAGE OF OUTPUT VALUE OUTER SYDNEY - SPECIALIST CITRUS FARMS(a)

Quint i les Ranked by Tota l Farm Receipts Cost I tem

1 2 3 4 5

1. Cash cos t s

2. Imputed family labour (b)

3. Depreciation

5. Total costse(d)

6. Capital cos ts(e)

7, Total costs**(f)

Average t o t a l farm rece ip t S 1 321 4 973 8 150 14 088 40 706

(a) Defined as those farms which received over 80% of t h e i r t o t a l r e ce ip t s from c i t r u s . This group contained 16 farms from a t o t a l sample of 36. (b) Labour supplied by farm family members (o ther than the operator) imputed a t award ra tes . (c) Operator's labour imputed at award ra tes . (d) Total Costs* is the sum of cost ca tegor ies (1) t o (4) . (e) Capital Costs = 0.1 X Capi ta l Value (excluding land). (f) Total Costs** is the sum of cos t categories (5) and (6)

Both measures of t o t a l cos t suggest a subs t an t i a l l y lower per

un i t cos t a t higher l eve l s of output. The most marked decl ine occurred

between the f i r s t and second q u i n t i l e s desp i te the r e l a t i v e l y small

absolute d i f ference i n s i z e between these groups, Most of the s i z e

economies appeared t o have been exhausted by the four th q u i n t i l e with t he

much higher output l eve l s of the f i f t h q u i n t i l e y ie lding r e l a t i v e l y l i t t l e

reduction i n pe r u n i t cos ts . The cost ca tegor ies i n which the most marked

economies ex i s ted a r e operator ' s labour, depreciat ion and t h e opportunity

cos t of cap i ta l . This suggests t h a t the major source of s i z e economies

f o r these farms was f u l l e r use of r e l a t i v e l y i nd iv i s i b l e c ap i t a l and

labour inputs.

Table F.11

ESTIMATES OF COST FUNCTIONS FOR

OUTER SYDNEY REGION

Dependent Independent Coefficient t Eqn' No Variable (b) Variable (c) S t a t i s t i c

R

1. Log AC* Constant 1.42 5.31 .59

Log (TFR) - .31 -4.75

2 . Log AC** Constant 1.57 6.19 .65

Log CTFR) - .34 -5.39

1 (a) A s defined f o r Table F . I . (b) Average Cost* i s Total Cost* a s defined , f o r F.I . divided by Total Farm Receipts. Average Cost** corresponds

t o TC** as defined f o r Table F . 1 divided by Total Farm Receipts. (c) TFR = Total Farm Receipts.

Figure F.1: OUTER SYDNEY REGION

Log AC* = 1.42 - .314 (Log TFR)

Total Farm Receipts ( $ 1

The most s a t i s f ac to ry estimates of the average cost function a re

presented i n Table F,II. Figure F,I contains a p l o t of Average Cost*

against Total Farm Receipts. The functional form chosen(2) was the power b function (AC = A(TFR) ) which was estimated a s the logarithmic function

log AC = a + b log (TFR)

where a = log A

The average Total Farm Receipts f o r t he region was $18 454. For

t h i s region the operator1s family contributed 91% of t he t o t a l farm labour

and many of t he smaller farms were e s sen t i a l l y part-time operations which

had wide var ia t ions i n per un i t costs of production.

The analysis indicates t h a t the re a r e s i gn i f i c an t economies of

s i z e achievable up t o a level of output of around $25 000 and t h a t beyond

t h i s level economies of s i z e a r e l e s s marked. Analysis of the survey

information a l so indicates t h a t output l eve l s of up t o around $30 000 a re

achievable before there is s ign i f i c an t input of non-family labour,

indicat ing t h a t the suggested economies of s i z e a re achievable from t h e

family f arm1 .

In t h i s region it seems l i ke ly t h a t t he expansion of smaller

farms would be hampered by a shortage of land a t p r ices allowing i t s long

term use f o r c i t r u s production,

2. I r r i ga t ed Areas - Citrus Spec ia l i s t s

The s t ruc tu r e of average costs per do l l a r of output f o r

s p e c i a l i s t c i t r u s producers i n i r r i g a t e d areas, ranked i n groups on the

ba s i s of t h e t o t a l value of output , i s shown in Table F.111.

(2) Quadratic, semi-log and inverse functions were a l so f i t t e d but were found t o be l e s s s a t i s f ac to ry than the power function i n terms of overal l f i t and/or t he s ignif icance of var iables . The inclusion of var iables f o r t r e e density and t he proportion of c i t r u s harvested proved t o be s t a t i s t i c a l l y ins ign i f ican t and have not been reported.

Table F.111

COSTS AS A PERCENTAGE OF OUTPUT VALUE

IRRIGATED REGIONS - SPECIALIST CITRUS FARMS(a)

Quint i les Ranked by Total Farm Receipts Cost Item

1 2 3 4 5

% % % % % 1. Cash costs 78.5 54.1 69.1 72.3 60.6

2. Imputed family labour 5.2 6.2 10.1 4.0 2.1

3. Depreciation 19.7 9.7 11.3 8.6 4.7

4. Operator S labour 54.6 17.4 8.0 9.7 5.5

5. Total cos t s *

6. Capital cos t s 21.2 10.1 13.5 11.5 7.5

7 . Total cos t s ** 179.2 97.4 111.9 106.2 80.5

Average t o t a l farm $ $ $ $ $

rece ip t s 9 509 25 712 36 577 45 531 91 236

(a) A l l t h e terms used i n t h i s t ab l e a r e a s defined i n Table F.I.

The r e s u l t s i n Table F , I I I provide evidence of s i z e economies.

m i l e the re is a not iceable reduction i n un i t cos t s o f production between

the f i r s t and second q u i n t i l e s and t he four th and f i f t h q u i n t i l e s i n

almost a l l ca tegor ies , the t h i r d and fourth quan t i l e s had higher average

un i t cos ts than the second. (3) Very subs t an t i a l s i z e economies were again

observed f o r operator ' s labour, depreciat ion and c a p i t a l cos ts , but the

decreases were no t consis tent across q u i n t i l e groups.

(21) S ta t i s t i ca l Analysis

The r e s u l t s of cos t function est imation fo r t h i s group of c i t r u s

farms a r e presented i n Table F,IV, Figure F, I1 shows a p l o t of Average

Cost* agains t Total Farm Receipts. An inverse function was found t o give

t he bes t representa t ion of t he re la t ionsh ip between Tota l Farm Receipts

and Average Costs and hence the r e s u l t s presented use the re la t ionsh ip (4)

AC = a + be (m)

The r e l a t i v e l y good ' f i t ' of the est imating equations and the

s ign i f i cance of t h e coef f i c ien t s provide s t rong evidence f o r t he existence

of s i z e economies i n s p e c i a l i s t c i t r u s production, The poorer f i t of the

AC** function, a s wel l a s t he q u i n t i l e analys is , suggests t h a t reductions

i n c a p i t a l co s t s made a l e s s e r contribution t o s i z e economies than they

d id i n the Outer Sydney region. OveralL, economies associated with s i z e

were c l e a r l y very subs t an t i a l a t t he lower l eve l s of re tu rns , e spec ia l ly

up t o a l eve l of output of around $25 000, and appear t o have been largely

exhausted a t an output l eve l of approximately $50 000,(5)

(3) Cost l eve l s f o r ca tegor ies 1, 3, 4, 5, 6 and 7 were s i gn i f i c an t l y lower ( a t the 99% leve l of confidence) i n the f i f t h q u i n t i l e than in the f i r s t . Imputed f an i l y laSour was lower a t the 95% level .

(4) Linear quadratic, semi-log and power function representat ions were a l so est imated but re jec ted a s i n f e r i o r i n terms of s ignif icance and f i t . Dunlmy var iables were a l so used t o t e s t f o r regional differences between farms but it was not poss ible t o r e j e c t t h e hypothesis t h a t regional d i f ferences i n slope and constant were ins ign i f i can t ( a t the 5% level) .

(5) A t t h i s l eve l the e l a s t i c i t y of Average Cost* with respect t o output is -. 09 (based on Eqn. 1) . A t output l eve l s of $25 000 and $75 000 the corresponding e l a s t i c i t i e s were -0.17 and -0.065 respectively.

Table F.IV

ESTIMATES OF COST FUNCTIONS FOR

IRRIGATED REGIONS

Eqn. No. t Dependent Explanators Coefficient Statistic

Variable R

Constant

(TFR) -l (a)

Constant

(TFR)

(a) Inverse o f Total Farm Receipts.

3. I r r i g a t e d Areas - H o r t i c u l t u r a l Sample

(a) Quinti Ze Analysis

Table F.V shows the average cost s t r u c t u r e pe r d o l l a r of output

f o r h o r t i c u l t u r a l producers i n i r r i g a t e d areas ranked i n groups by the

value of t o t a l output, The r e s u l t s f o r t h i s analys is must be i n t e r p r e t e d

with some care because of the heterogeneity of output.(6) However, t h i s

disadvantage must be weighed aga ins t the g r e a t e r representa t iveness and

s i z e of the sample and the l ike l ihood t h a t s i z e economies a r e associa ted

with h o r t i c u l t u r a l e n t e r p r i s e s as a whole r a t h e r than simply with t h e

c i t r u s en te rp r i se .

Tai3la F, V provides evidence f o r the sxister ,ce of s i z e econom i.es

i n the l z r g e r s:ungle of horti.cultu:cai fzmls, (7) Again, a s with the

s p e c i a l i s t c i t r u s producers, t h e r e a r e not iceable reductions i n u n i t cos t s

between the first and second and, t o a l e s s e r ex ten t , t h e four th and f i f t h

q u i n t i l e s i n a l l cos t ca tegor ies and t h e average cos t s i n the t h i r d and

four th q u i n t i l e s a re h igher than the second. Operator 's labour was the

only cos t component which showed a regu la r decl ine over a l l groups

although Imputed Family Labour, Depreciation and Capi ta l Costs a l l showed

a considerable decl ine over t h e whole range of q u i n t i l e groups.

(6) The t a b l e below shows t h e d i f ferences i n output s t r u c t u r e f o r each Quin t i l e Group.

Proport ional Returns: By Enterpr ise : Quin t i l e Groups

Parcentage o f Tota l Returns from

Q u i n t i l e (By '"l'otal. ?arm Receipts)

Apples Pears Canning f r u i t Multipurpose

grapes Other grapes Ci t rus

-

While c i t r u s production did not d i f f e r s i g n i f i c a n t l y ( a t the 1% leve l ) between t h e 1st and 5 t h q u i n t i l e s , canning f r u i t and grape production did.

(7) Each cos t category was lower i n t h e f i f t h than i n the first q u i n t i l e and s i g n i f i c a n t l y d i f f e r e n t ( a t the 99% l e v e l of confidence).

Table F.V

COSTS AS PERCENTAGE OF OUTPUT VALUE

IRRIGATED REGIONS - HORTICULTURAL SAMPLECa)

Quinti les Ranked by Total Farm Receipts Cost I tem

1 2 3 4 5

b % % % % 1. Cash costs 64.8 49.7 60.7 61.9 56.3

2. Imputed family labour 13.4 8.6 6.9 7.2 4.4

3. Depreciation

4. Operator's labour 39.1 18.6 12.0 10.0 5.5

5. Total costs ** 134.5 87.4 90.9 87.6 71.3

6. Capital costs 18.7 11.5 14.7 10.4 8.0

7. Total cos t s ** 153.2 98.9 105.6 98.0 79.4

$ $ $ $ $ Average t o t a l farm

rece ip t s 12 846 24 055 32 289 43 713 87 439

(a) Defined a s farms from the c i t r u s growing sample which derive over 90% of t h e i r t o t a l farmsreceipts from the production of apples, pears, canning f r u i t , c i t r u s , wine grapes, multi-purpose grapes o r dr ied vine f r u i t .

The most s a t i s f ac to ry est imates of cos t functions obtained f o r

t h i s group of farms a re presented i n Table F.V1.(8) The r e s u l t s suggest

t h a t savings i n c ap i t a l cos t s do no t make a major contr ibut ion t o the

achieved s i z e economies s ince the est imates of ACX* a r e l e s s s i gn i f i c an t

than those f o r AC*.

The var iable f o r t h e proport ion of h o r t i c u l t u r a l crops

harvested, PH, as would be expected, was s i gn i f i c an t and had a negative

s i gn ind ica t ing the higher the proportion of crops i n bearing phases, the

lower the average cos t s of production, This va r iab le was s i gn i f i c an t and

improved the overa l l f i t of. the re la t ionsh ip and i t s inclus ion d id no t

g r ea t l y a f f e c t the coef f i c ien t on the s i z e term.

The r e s u l t s a l s o provide some t en t a t i ve evidence of there being

s i gn i f i c an t d i f ferences i n u n i t cos t s of production between regions.

These di f ferences were only measured when average costs including an

element of c ap i t a l , AC**, were used. They i nd i ca t e t h a t the MIA and

Riverland regions had s i gn i f i c an t l y lower average un i t cos ts than the

Sunraysia region.

The function est imated fo r t h i s group corresponded c lose ly with

t h a t estimated f o r s p e c i a l i s t c i t r u s producers (see Figure F , I I I ) , The

ana lys i s ind ica tes t h a t there a r e s i gn i f i c an t economies of s i z e

achieveable up t o a l eve l of output of around $25 000 and t h a t they have

been l a rge ly exhausted a t around $50 000. (9)

(8) Linear, quadratic, semi-log and double-log formulations were a l so used t o est imate the re la t ionsh ip between Average Cost and Total Farm Receipts. The inverse function was found t o be the most s a t i s f ac to ry i n terms of f i t and s ign i f i cance of coef f i c ien t s .

(9) Using Equation 1, t h e e l a s t i c i t y of Average Cost* with respect t o output i s -0.11 a t m output l eve l of $50 000, -0.20 a t an output l eve l of $25 000 and -0.08 a t an output l eve l of $75 000.

Table F.VI

ESTIMATES OF COST FUNCTIONS FOR IRRIGATED REGIONS

HORTICULTURAL SAMPLE

Eqn. No. Dependent Explanators Coeff ic ient t S t a t i s t i c Variable ii

1. AC* Constant 0.76 28.7 0.62

(TFR) - l 4753.2 14.6

2. AC** Constant 0.87 27.1 0.59

(TFR) - 5375.9 13.6

3. AC * Constant 1.14 7.6 0.63

(TFR) - l 4553.6 13.9

pH (a) - .41 -2.6

4. AC** Constant 1 .33 7.3 0.60

(TFR) - 5135.2 12.9

Constant 1.50

(TFR) - l 5035.6 12.4

PH -.S7 -2.8

M 1 A - .087 -1 .3

Riv . -. 15 -1.8

MM -. 04 -0.4

Rob. .04 0.4

(a) This va r iab le represents the proport ion of the t o t a l ho r t i cu l t u r a l area harvested i n 1974-75. I t is intended t o measure the cos t increasing e f f ec t s f o r farms with p a r t of t h e i r area non-bearing. (b) This equation was included t o t e s t f o r the s ignif icance of cos t differences, between regions-Using the cost measure, AC*, no s i gn i f i c an t regional cos t differenceswere observed. The di f ferences were measured r e l a t i v e t o the Sunraysia region only by t he use of dummy var iab les where MIA = Murrumbidgee I r r i g a t i o n Area Dummy; Riv = Riverland (S.A.); MM = Mid-Murray Region; and Rob = Robinvale.

Figure F.111: IRRIGATED/HORTICULTURAL REGIONS

AC* = 0.76 + 4753.2/TFR

Total Farm Receipts ( $ )

The analyses i n d i c a t e t h a t , f o r a l l regions, s i g n i f i c a n t

economies of s i z e a r e achieveable up t o a l e v e l o f output of around

$25 000 and t h a t they a re l a rge ly exhausted a t around $50 000, The survey information a l s o reveals t h a t output l e v e l s of up t o around $30 000 a r e

achieveable before t h e r e is s i g n i f i c a n t employment of non-family labour,

ind ica t ing t h a t the economies of s i z e a r e l a rge ly achievable from 'family

farms I . The s i z e economies observed were derived from a cross sec t iona l

ana lys i s of 1974-75 da ta alone and should be i n t e r p r e t e d cautiously. In

the fu tu re it i s l i k e l y t h a t adoption of improved technology w i l l allow

producers t o obta in add i t iona l economies through growth.

In the Outer Sydney Region, t h e cost curves sloped s t e e p l y

downwards over nea r ly a l l the range of observations, ind ica t ing

s u b s t a n t i a l s i z e economies which few farms were s u f f i c i e n t l y large t o

achieve. The cos t s t r u c t u r e of the majori ty of small farms was extremely

high bu t it appears unl ikely t h a t expansion t o achieve the observed s i z e

economies would b e f e a s i b l e f o r many of these farms.

I n the i r r i g a t e d regions, t h e observed cost-output r e la t ionsh ip

was genera l ly L-shaped, ind ica t ing an i n i t i a l decl ine i n cos t s with s i z e ,

followed by a range i n which cos ts decl ine more slowly. Some ind ica t ion

of regional cos t d i f fe rences was observed and t h i s suggested somewhat

lower u n i t c o s t s i n t h e South Austral ian Riverland Region and the MIA,

than i n o the r regions.

The cost functions obtained were very s i m i l a r f o r both the

s p e c i a l i s t c i t r u s producing sample and t h e more d i v e r s i f i e d h o r t i c u l t u r a l

sample. While most of the s i z e economies were exhausted within t h e range

of observations, many farms were operat ing a t low output l e v e l s at which

considerable s i z e economies remained t o be exploited. The p o t e n t i a l fo r

expansion of h o r t i c u l t u r a l farms i n the i r r i g a t e d regions would be much

g rea te r than f o r t h e Outer Sydney farms, provided i n s t i t u t i o n a l

cons t ra in t s were no t unduly r e s t r i c t i v e and it was poss ib le t o maintain

adequate labour u t i l i s a t i o n . Thus, the exp lo i t a t ion of s i z e economies

appears t o provide an avenue f o r increas ing the competitiveness of

Austral ian c i t r u s production i n the maj o r producing areas.

~ 7 6 / 1 4 4 8 ( 3 ) Cat No 77 6926 4