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Mon. Jul 22nd, 2024

The global orange juice crisis is caused by disease and bad weather

By Vaseline Jun10,2024
The global orange juice crisis is caused by disease and bad weather

Just as the world emerges from the tea crisis, another breakfast food, orange juice, is in the spotlight. Supply restrictions have led to prices rising by more than 20% in a year.

The main cause of this orange juice shortage is the significant hit to Brazil’s orange crop, which accounts for almost 70% of the world’s orange juice supply. This year’s harvest is expected to be down 24% compared to last year – and this is the third consecutive harvest that has been difficult.

Orange trees in Brazil, as well as in the US, are affected by citrus greening disease. This incurable disease is caused by sap-sucking insects that make the fruit bitter before killing the tree.

Trees in Florida have been hit by a series of hurricanes and greening disease, both blamed on climate change. In terms of diseases, trees are believed to be most vulnerable in areas where temperatures remain around 25°C for most of the year.

Short-term solutions bring major challenges

Producers have considered blending the new crop with frozen juice, which will last about two years. And the International Fruit and Vegetable Juice Association has lobbied for a relaxation of UN food regulations to allow the addition of other citrus fruits, such as mandarins, to orange juice.

But these ‘solutions’ would pose major challenges for the industry in the longer term. Blending juices requires additional processing, and the logistics and transportation of tangerines and other fruits to processing facilities would increase costs, ultimately increasing the price of the juice.

At the same time, consumers may expect lower prices for blended juices. This discrepancy between expected and actual prices could therefore suppress demand, which in turn would limit investment in new orange trees.

Labor costs in states like Florida are already high, and the lack of further investment would make manual labor unaffordable. Taken together, these factors could even lead to market failure for one of the world’s most important beverages.

How to keep orange juice on the table

Addressing this problem requires long-term strategic thinking. The orange juice supply chain includes sourcing and harvesting, cleaning and sorting, juicing, pasteurization, packaging, and sometimes additional processing.

Several companies are involved: growers, food processors, fruit processors, blending houses, juice packers and soft drink manufacturers. They all work differently. For example, in Florida, orange growers are diversifying into agricultural businesses, while in Brazil large processors still source part of their harvest from their own land.

In the short to medium term, retailers and wholesalers need to look within their networks. This could mean identifying untapped suppliers to develop alternative sources. For example, Europe has started importing part of Egypt’s orange production.

And current supplier contracts need to be amended to lock in prices for the duration of the deal. In anticipation of shortages, companies like Coldpress Juices held safety stock in 2023 and secured contracts with suppliers until December 2024. Such agreements create certainty for everyone in the supply chain.

In the long term, retailers and wholesalers must develop new approaches to improve the resilience of their supply chains against climate threats.

First, investments in agricultural research to develop more resilient orange varieties would help soften the impact. Infrastructure research and development – ​​including water-saving technologies, better soil management practices and improved processing methods – would also help protect against disruptions.

Second, digital technologies such as drones for monitoring crops and harvests, transparent data sharing within the network and improved forecasting would strengthen governance, control and coordination in the supply chain. However, the need for investment in research and technology has been a barrier to innovation in the supply chain.

Recent evidence shows that downstream companies (wholesalers and retailers) in the agri-food chain invest more in digital and other technologies than smaller upstream companies such as farmers, small and medium enterprises, cooperatives and smallholders. But innovation in the supply chain requires progress across the entire network. This means that wholesalers and retailers in particular would have to bear the initial costs of any investments.

Finally, supply chain transparency and visibility could be increased by purchasing companies forming consortia and buying clubs, where they share information to help gauge customer demand. This approach helps prevent the “bullwhip effect,” reducing unintentional overproduction and waste.

This strategy where competitors work together – also called ‘coopetition’ – can also help them jointly absorb the costs of logistics and innovation.

By implementing these types of long-term strategies, retailers and wholesalers can create a more resilient and efficient food supply chain. With climate change posing increasing challenges to harvests, this will be crucial if we are to ensure a stable supply and keep orange juice on the breakfast table.

Jas Kalra, associate professor of Operations and Project Management, Manchester Metropolitan University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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