Fruit and Retail Orange Juice Prices in the 1980s

Price volatility created by freezes

Changes in fruit prices quickly translated into changes in retail prices

In competition with each other, private label and brands were quick to change selling prices in response to changes in fruit prices

Correlation between retail and fruit prices: 83%

A Comparison of Processed Orange Prices and Retail OJ Prices in the 1980s

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Fruit and Retail Orange Juice Prices in the 1990s

Oversupply of oranges and resulting low fruit prices

No significant freezes

Relatively stable fruit and retail prices

Fruit and Retail Orange Juice Prices in the 1990s

Only change was gradually increasing retail prices

Because NFC increased market share from 19% in 1991/92 to 39% in 2000/01

NFC 10-yr. average price was $1.15/gal. higher than all OJ

Correlation between fruit and OJ prices: 10%

Because there was little change in prices

A Comparison of Processed Orange Prices and Retail OJ Prices in the 1990s

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Fruit and Retail Prices Over the Last 10 Years

The relationship between fruit and retail prices appears to have changed

That first became apparent between the 2003/04 – 2006/07 seasons

Florida orange crop reduced by 47%

Tree losses to canker eradication program and a-typical high-priced real estate market

Yield loses due to effects of hurricanes

Fruit and Retail Prices Over the Last 10 Years

Fruit prices more than doubled in response to reduced supplies

Increased OJ cost of goods

Florida Orange Production and Prices

Season Production Delivered-In Price Million Boxes $/LB. Solids 2001/02 230 0.84 2002/03 203 0.94 2003/04 242 0.71 2004/04 150 0.91 2005/06 148 1.33 2006/07 129 2.11 2007/08 170 1.39 2008/09 163 1.07 2009/19 133 1.45 2010/11 139 1.67

Sources: Florida Agricultural Statistics Service; Florida Citrus Processors Association

Retail OJ Market Behavior During Past 10 Years

Retail prices increased to cover higher fruit prices and reduce market in line with reduced supplies

Retail price increased a total of 32% between the 2003/04 and 2006/07 seasons

Retail market volume declined a total of 19% between the 2003-04 and 2006-07 seasons

U.S. Retail Orange Juice Market and Prices

Volume Change Price Change Season Million SSE Gal. % $/Gal. % 2009/10 608.1 -3.3 5.51 -1.7 2008/09 628.6 -0.8 5.61 -5.1 2007/08 623.2 -3.9 5.91 +3.5 2006/07 648.2 -12.8 5.71 +21.7 2005/06 743.3 -6.3 4.69 +6.3 2004/05 792.9 -1.2 4.41 +1.6 2003/04 802.4 -4.2 4.34 -1.4 2002/03 836.4 -2.9 4.40 +0.3 2001/02 861.2 -3.1 4.39 +.05 2000/01 887.7 - 4.37 -

Source: AC Nielsen

Fruit and Retail Prices Over the Last 10 Years

In 2007/08, Florida orange production recovered

Not to pre-canker/real estate levels

But 32% above 2006/07 level

Florida fruit prices also declined

Not to pre-canker/real estate market levels–but 34% below 2006/07 level

Retail OJ Market Behavior During Past 10 Years

But even though orange production had increased by 32%, retail OJ prices continued to increase

Market volumes continued to decline

As Orange Juice Prices Increased, Consumption Decreased

As Orange Juice Prices Increased, Consumption Decreased

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$4.40

$4.34 $4.41

$4.69

$5.71

$5.91

U.S. Orange Juice Inventories and Florida Processed Orange Prices

Ending Inventory Orange Price Season Million SSE Gal. $/Lb. Solids 2003/04 791 0.71 2004/05 675 0.91 2005/06 492 1.33 2006/07 363 2.11 2007/08 619 1.39 2008/09 673 1.07 2009/10 548 1.45 2010/11 391 1.67 Sources: AC Nielsen, Florida Citrus Processors Association

Prices Offered by Processors for Valencia Oranges on the Cash Market in 2008

Month $ Per Lb. Solids January 1.65 February 1.55 March 1.40 April 1.30 May 1.25 June 1.05

Source: Florida Citrus Mutual

During The 2006/07 Season, OJ Brands Were Sourcing Fruit on 3-Yr. Floored Contracts

Brands needed to insure future fruit supply to protect distribution and valuable shelf space

Floor prices were much higher than the $1.07 that processed orange prices dropped to in 2007/08 on the cash market

The cash market represents only 20-30% of the oranges bought for processing

Small residual market that a large buyer can impact dramatically

During The 2006/07 Season, OJ Brands Were Sourcing Fruit on 3-Yr. Floored Contracts

Brazilian bulk concentrate prices from December of 2007 to November 2008 averaged $1.52/lb. solids

Less expensive than juice made from fruit on high-priced floors

Result was slower use of inventories from high-priced Florida fruit

Market Share Among Major U.S. Food Retailers in 1998

Company Share

Kroger 9.6

Alberston’s 8.0

Wal-Mart 7.1

Safeway 5.6

Ahold USA 4.4 Top 5: 34.7 %

Supervalu 4.0

Fleming 3.4

Winn-Dixie 3.1

Publix 2.7

A & P 2.3 Top 10: 50.4 %

Source: Supermarket News

Market Share Among Major U.S. Food Retailers in 2008

Company Share

Wal-Mart 29.0

Kroger 8.6

Costco 8.1

SuperValu 5.0

Safeway 5.0 Top 5: 55.7 %

Loblaw Cos. 3.5

Publix 2.7

Ahold USA 2.4

Delhaize America 2.1

C&S Wholesale 2.1 Top 10: 68.5 %

Source: Supermarket News

A Comparison of Processed Orange Prices and Retail OJ Prices Over the Past 10 Years

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What Happens If Fruit Prices are Lagged by One Year?

The correlation goes to 86%, just a little higher than the 83% in the 1980s when retail and fruit prices both changed in the same year

A Comparison of Processed Orange Prices and Retail OJ Prices Over The Past 10 Years

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Does Lagging Fruit Prices by One Year Improve the Correlation in the 1980s?

No. The correlation drops to 30%

A Comparison of Processed Orange Prices and Retail OJ Prices in the 1980s

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Summary

In the price-volatile 1980s, retail OJ prices adjusted up or down with changes in fruit prices – within the same year

Private label and brands competing for market share

Fruit and retail prices were stable in the 1990s

Few changes to measure correlation

Retail prices increased as NFC increased its market share

Summary

During the past 10 years the relationship between fruit prices and retail OJ prices might have changed

Retail prices still increase in response to increased fruit prices - during the same year

But it took a year after fruit prices declined in 2007/08 for retail OJ prices to decline

At the same time, the brands had high priced inventories due to sourcing fruit on high floor-priced three year contracts

Conclusions

This changed relationship may or may not be permanent

It could be due to increased consolidation among retailers

If so, its likely permanent

In 1998, the biggest 5 food retailers were 35% of the market

By 2008, they were 56% of the market

Or it could be due to fruit sourcing strategy during this period by the OJ brands

If so, that depends on future fruit sourcing strategy of the brands