Global demand for orange juice has been declining, particularly in the main consuming regions of Europe and North America, with global imports falling from 1.5 million tonnes in 2008/2009 to a forecasted 1.1 million tonnes by 2019/2020, affecting the long term prospects for the industry.

This trend is starting to take its toll on Brazil, the largest producer which currently supplies some four-fifths of world exports.

According to a new report by Rabobank, this waning demand has driven a reduction in investment and the exodus of independent producers, both of which signify a considerably diminished Brazilian harvest, which will be reflected in an increase in prices in 2014.

Andres Padilla, Rabobank analyst commented: "The Brazilian orange juice sector is heavily dependent on exports, with the country accounting for 80 percent of all the global export market. This makes it especially vulnerable to changing demand in the key export markets of Europe and North America, which are currently witnessing a consumer shift towards less expensive drinks with lower sugar and acidity content.

"This shrinking global demand combined with large Brazilian orange crops in 2011 and 2012 has led to record high stocks of frozen concentrate orange juice (FCOJ), causing the price to tumble in late 2012. Low prices for orange producers, and a lack of long-term contracts with juice processors has resulted in a large number of smaller independent Brazilian producers reducing their exposure or exiting the sector".

The area under orange cultivation in São Paulo state continues to decrease, as low-efficiency producers turn to planting sugarcane which has the potential to secure better margins. Reductions in area are currently estimated to be as much as 9 percent of the total planted area. The crisis for orange producers in São Paulo will lead to a 2013/14 harvest that is at least 20 percent smaller than in 2012/13.

With a smaller crop predicted this year, Rabobank believes that highly efficient medium and large producers will come out stronger when demand picks up and that low fruit availability will cause upward pressure on prices once global stocks return to normal levels.

Further opportunity for Brazilian growers could be found in exploiting the weak crop in Florida, where the impact of bad weather is expected to result in a reduced harvest incapable of meeting domestic demand in the US.

Whilst there is potential for Brazil to play a larger role as an exporter to the US, for now, other export opportunities to developing countries seem limited.

www.rabobank.com