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This summer, the world is being scoured for supplies of fresh
lemons as demand has spiked. This is due, of course, to the
Covid-19 pandemic. Lemon juice, like all citrus fruit juices and
some others, is being sought because its vitamin C content boosts
immune systems and thus may provide some form of protection against
the coronavirus.
A year ago, Spain's lemon industry was facing disaster because
of a massive crop which depressed prices. The sector lost an
estimated EUR200 million (USD174 mln) and half a million tonnes of
fruit were left to rot in the fields. Now, it faces competition
from Argentina.
Argentine lemon production
Argentina produces about 1.6 mln tonnes of fresh lemons
annually, of which about 300,000 tonnes are exported, earning the
country more than USD800 mln from this segment. However, Argentina
majors in processed lemon (mainly juice and essential oil), made in
14 lemon processing plants and exporting industries situated in
Tucumán, Salta and Jujuy. This year, about 1.12 mln tonnes of fruit
should have been processed.
Along with the wine industry, lemon is one of the country's key
agro-industries and (like the wine industry) is very well managed
and able to compete effectively on global markets. "Unique among
Argentine fruit and speciality crop sectors is its ability to
weather the economic and financial crises which have affected the
country," the USDA commented earlier this year.
Paradoxically, lemon juice remains extremely cheap. Huge
Argentine production last season (1.8 mln tonnes or 200,000 tonnes
more than expected) has left the country holding large stocks and
these are pushing prices down. Argentina's new season's harvest is
approaching, but the country really needs to clear inventory, and
it is doing this. Its juice exports were the second-highest in
history at some 61,600 tonnes. So far this year, exports are only
slightly lower over the January-June period (the latest data
available).
Juice pricing
Spain is worried because Argentine lemon juice concentrate is
now cheap enough to compete in Europe against Spanish production.
And so it should: 5,280 tonnes of Argentina juice have come into
the EU up to end April (the most recent data) , more than double
the volume in January-April last year. Its lemon juice is subject
to a 14.4% duty into the EU, which acts as a constraint, but this
year is different. Even with duty and port charges added, Argentine
lemon juice is presently priced around USD2,000 per tonne duty paid
ex-dock Rotterdam.
Nevertheless, something has to be done to bring the country's
juice inventory down and prices up. Only a few years ago, Argentine
400gpl concentrate was over USD3,000/tonne fob. That was during a
period of shortage and so the prices were unnaturally high but,
realistically, Argentina needs to add another USD500/tonne to its
present minimum export price of around USD1,650/tonne fob.
IHS Markit expects a production cut in the coming season. This
will come from two directions. The first is that processors are
very likely to limit the amount of juice they produce, even to the
extent of closing processing plants. The second is that they are
finding the fresh lemon industry much more lucrative.
Citrusvil from Tucumán has announced that it expects to export
35,000 pallets of lemons this season, especially as its groves this
year are carrying higher quality fruit. So far this season, the
citrus company has already made its first shipments to many markets
including Russia, Ukraine, Canada, as well as to buyers in the Far
and Middle East.
Luckily for Citrusvil, its export campaign has coincided with a
slowdown in fresh lemon exports from Spain. It is also selling more
fresh fruit into the US and expects to triple its exports from last
year's 2,000 tonnes. Granted, 6,000 tonnes is not a vast volume,
but the company is supplying from a newly FDA-approved plant that
has been upgraded and is now dedicated to supplying the US
only.
Half a dozen years ago, Argentina decided to focus attention on
its fresh fruit export markets and started a programme to improve
its lemon quality and the attractiveness of the fruit to foreign
markets. This has turned out to be a far-sighted decision. Its 'All
lemon' promotion and export quality certification now covers about
85% of the country's lemons and has been a great success.
Consider the situation of Spain now. Here, its lemon production
is mostly intended for the fresh market. Last year, it exported
about 31,500 tonnes of juice concentrate, about half what Argentina
managed. On the other hand, Spain is much more effective in not
from concentrate juice: it exported 32,730 tonnes of NFC lemon
juice in January-April this year, while Argentina is just not in
this market: it exported a handful of tonnes, mostly to Chile. NFC
juice is probably more profitable for Spain than concentrate,
too.
Its fresh fruit exports dwarf those of Argentina. In 2018, Spain
exported just short of 600,000 tonnes of fresh lemons. Last year,
its exports rose to 734,000 tonnes. In January-April this year, it
has sold 311,840 tonnes, an increase of about 15% over 2019.
Rising competition
Spain's position in the fresh sector is probably unassailable,
but any competition that nibbles away at its juice market share
deserves to be taken seriously. Italy is a niche producer of lemon
concentrate now (exports of a few thousand tonnes annually) but it
actually sells more NFC juice than Spain: 57,000 tonnes in 2009 and
the same amount in 2018, and a consistent increase over the years
from 22,000 tonnes in 2004. With Argentina applying pressure in the
concentrate market and Italy doing the same in NFC juice, Spain
needs to consider what it can do to fight back.
Last year, the EU agreed on a promotional support package for
Spanish citrus to help it fight against competition from other
lemon suppliers such as Turkey, Argentina, and South Africa.
The increased global demand for citrus means that other
countries are also looking at ways of supporting their industries
through the pandemic. Juan Manzur, governor of Argentina's
north-western Tucumán province, has met with Argentina's citrus
growers' and industry association Asociación Citrícola del Noroeste
Argentino (ACNOA) to discuss emerging problems and financing
options for the local citrus processing industry. One project is to
secure sufficient resources to set up a 'counter-cyclical' fund for
the citrus industry, to cope with the global recession that looks
set to follow the pandemic. Argentina does not want to see its
industry damaged.
Chile, while it does not produce lemon juice, has negotiated a
bilateral phytosanitary agreement with China that allows its fresh
citrus fruit to be sold there. Chile exported some 90,000 tonnes of
fresh lemons, mostly to the US and Japan, last year, but the world
knows how focused its agro-industry is and Chile will surely
increase its export tonnage. Uruguay has announced that it intends
to increase its citrus exports to the US by a up to a quarter this
year - the US already takes most of its lemon oil. It has also
recently signed an agreement to export fresh lemons to Vietnam.
With production cutbacks in Argentina and a smaller harvest in
Spain (down to around 1.0 mln tonnes), prices for both processed
and fresh lemon should strengthen. At a time of increased demand,
this is good news.