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Blog: Challenging trading conditions for the global fruit juice industries

01 February 2020 Neil Murray

As January closed, there was little change in the global fruit juice market and global trading. The whole industry is in a sort of stasis, immobile as a result of a combination of circumstances. These include the tariffs imposed last year in the trade war between the US and China and, to a lesser extent, between the US and the EU; the generally dwindling global demand for fruit juices; weather issues; Brexit; and the fact that most buyers are comfortably covered for the moment.

Orange juice

This is relatively easy to call. Consumption in the EU and US is still either stagnant or in slow long-term decline, by maybe one or two percentage points per year. There was a flurry of activity at Anuga, prompted by the good Brazilian orange harvest and the perceived threat to the established Brazilian processors from (first) the rapidly-expanding Prodalim Group and (secondly) the Chinese.

Prodalim is now an orange juice processor in Brazil and has also acquired storage and blending operations in the US and elsewhere. It represents a direct challenge to the hegemony of the Big Three processors.

China is more of a long-term potential challenge. A joint venture deal by Louis Dreyfus Commodities (LDC) to produce orange juice in China for a chain of Chinese coffee shops, and LDC's well-publicised desire to get out of the orange juice market, means there is a possibility that it will let China into the Brazilian industry by the back door.

The Prodalim threat is immediate, but largely depends on who has the deeper pockets should it come to a battle for markets, while the Chinese potential is latent but, in the opinion of IEG Vu, a greater long-term threat. China has successfully secured its long-term need for raw materials of all kinds from China and is quite capable of doing the same on another continent. And China has money: lots of it.

Apple juice

IEG Vu still thinks that the present price of Polish product is too high. China had hoped for a successful return to the US market, following weather damage to the Polish apple harvest, but Trump's tariffs have meant that Chinese processors have has to slash their margins is order to compete with Polish prices, and the large Polish apple juice carry-over from last season has meant that European processors have been able to blend it with new season production and maintain very competitive prices while actually increasing their own profit margins.

Poland also exported far more juice last season than was first reported. Customs figures originally reported around 370,000 tonnes for the 2018/19 season: that figure has now been revised to 400,000 tonnes.

There is no big shortage of AJC in Europe. Stocks are plentiful and while there was a small dip in Polish prices before Christmas, it was insignificant and short lived. IEG Vu had originally expected a gradual drift down in prices. This is looking more unlikely now. If buyers find they need to cover for the second half of the year and come to market, then that would probably have the effect of holding prices up.

NFC apple juice is a different story. Prices are very hard to obtain and offers even harder. IEG Vu has heard of EUR300/tonne ex works in bulk, but suspects this is for very low acid product. It looks likely that the big European supermarkets will have to, once again, accept a slightly sweeter juice from blenders and bottlers simply because of the shortage of high acid NFC juice.

This problem is not going away - it will probably worsen over the years.

At the time of writing, Latin American pricing is uncertain. It should at least be competitive with European and Chinese. There has been some cheap product out of Turkey, but buying from some Turkish suppliers could be risky, as the trade figures show clearly that China and Iran have been selling AJC to Turkey, where it seems to have vanished. IEG Vu and its contacts believe that juice is being re-labelled as of Turkish origin and then exported to the US.

Pineapple juice

The situation here has gone from bad to worse. Prices were at historically low levels a couple of years back, but demand had simply evaporated. When you cannot sell a product at any price, it is time to panic. Poor harvests in Thailand resulted in higher raw material prices which in turn led to higher prices both for canned fruit and juice concentrate, and that did nothing to stimulate demand.

Costa Rica has been locked in a sort of internecine price war between its processors and what was generally regarded as the best quality origin simply managed to devalue its own product. There are also signs that Costa Rica's long, long expansion of its pineapple growing area is coming to a halt, mainly from environmental pressures. No matter: Costa Rica is sorting itself out and should be able to push through price increases for its juice. Other origins such as Kenya, Indonesia and the Philippines are also likely to have a slightly better year.

IEG Vu thinks that Thailand may be sidelined this year. Quality product at competitive prices will be available from other sources, and the smaller market will easily cope with a smaller general supply of juice. For those who want cheap juice, especially for multivitamin or juice blends, Vietnam is likely to make further inroads into the market.

For the moment, though, the European market is at a standstill. Buyers are covered and there is plenty of product in store.

Others

Lemon juice is absurdly cheap, with Argentina offering at as little as USD2,000 per tonne fob. Buyers see no need to hold inventory while there is so much product available in Argentina or Spain and are preferring to let the sellers bear the cost of holding inventory.

At this sort of price level, though, even with EU duty added, Argentine lemon juice is competitive with Spanish: that sort of situation does not happen often.

Processors are pinning their hopes on the burgeoning organic market, and Argentina's recently introduced new quality standards for its lemons will help here. More recently, there has been some very heavy rain in Argentina after a long dry spell, and the first estimates are for a lemon harvest that would be 10-15% smaller than anticipated. This would help lift prices.

Finally, the early indications for Indian mango are positive, but the weather can wreck hopes very quickly. Stocks of quality purée are very low in India and Europe, and demand will be strong for early season production. Assuming the weather holds good in India, prices should then be lower than they were last season.

Global Orange Juice Production (tonnes) bar graph

Posted 01 February 2020 by Neil Murray, Editor, IHS Markit




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