South Australian Fresh Citrus: Issues and Prospects

September 2005

Prepared by

Industry Strategy and Structure Team,

Corporate Strategy and Policy Branch

Primary Industries and Resources South Australia

Acknowledgements

The authors of this report acknowledge the contributions made by the various industry participants whom we name in Appendix 1.

We also acknowledge the assistance of PIRSA officers, David Pocock, Rural Solutions SA and Peter Gallasch, Senior Research Scientist (Citrus), SA Research and Development Institute.

In addition, we are grateful for assistance provided by Dr Glenda Mather (Department of Further Education, Employment, Science and Technology) and Mr Leon Mills (Office of Regional Affairs at the Department of Trade and Economic Development).

Table of Contents

• Executive Summary
• 1.1 Scope and purpose
• 1.2 Some basics of the citrus industry
• 2: Global trends in citrus production, consumption and trade/export
• 2.1 Global production
• 2.2 Global Consumption
• 2.3 Global Trade
• 2.4 Australian Trends
• 2.5 South Australian Trends
• 3. Understanding the Industry: the links along the citrus supply chain
• 3.1 How global trade works
• 3.2 The local citrus industry: understanding the first links in the supply chain
• 3.3 People, regions and communities
• 4. Prospects and Options
• 4.1 Projections for world citrus
• 4.2 Extrapolating trends for Australia and South Australia
• 4.3 The Economics of Production Systems: options facing growers
• Organic
• 5. Elements of the Strategy
• 5.1 Improving the supply chain at home and abroad
• 5.2 Maintaining competitiveness
• 5.3 Increasing scale
• 5.4 Introducing new technology
• 5.5 Workers and skills
• 5.5 Environment and planning
• Appendix 1: Contacts made in preparing report
• Appendix 2: The method for calculating trends and projection estimates
• Appendix 3: Definitions of Regions
• Appendix 4: Tables of supporting data
• Appendix 5: Cost comparison of OHT and AFS

Executive Summary

The citrus industry presents a series of economic contrasts. There is evidence of disadvantage in citrus growing areas and financial distress among growers and yet the industry is internationally competitive in the world’s best markets and it is increasingly attracting large-scale investors. Look deeper at the fresh sector and more contrasts emerge:

• output is static but exports are growing
• less fresh fruit is being consumed in developed countries and more of it is premium product (by contrast, more juice is being consumed but increasingly its made from imported concentrate)
• the local industry is strong in the US, the best export market, but is losing ground across a range of Asian markets
• some citrus varieties are in strong demand while others are in equally quick decline.

This report aims to make sense of those and other facts. The central point is that the industry is changing rapidly. There are adjustment difficulties and there is a need for reform and assistance. The industry needs improved transparency, more collaboration, new entrants and some institutional change. That needs support from the local community and assistance from government but PIRSA believes that, with the right structural adjustments in place, the prospects for growth are excellent.

We report on some critical aspects of the global and local industries that are influencing the choices facing local participants. Preliminary economic modelling of 3 growing systems, conventional, organic and advanced fertigation (open hydroponic), shows that each is currently profitable, with profitability increasing along that list. While further work around the issue can be undertaken at the instigation of industry, especially regarding the influence of scale, it is already known that, with the industry increasingly dependent on exports, our competitors will not let us stand still. As a result PIRSA expects long-term decline in the small, traditional orchard and our on- going work program with the industry aims in part to develop a strategy which provides viable transition paths for those in this segment of the industry.

The choices growers make will be fundamental to the industry outcome but this report identifies another, related matter, as critical to success: collaboration along the supply chain from grower to premium fruit consumer. The citrus industry is inherently variable and therefore risky. It also relies on long-term assets and deeply sunk capital, like the trees themselves and infrastructure of their farms. That is a difficult combination and PIRSA has formed the view that the current means of handling it - meaning the contracts, the information flows, the institutional arrangements, etc found in the industry - fall short of ideal.

The principles for reform are simple: develop transparency and trust within long-term relationships and underpin that development with appropriate contracts and institutions. The current lack of these is the critical factor which explains how the losses of last season came about but it is more important to realise that these are the critical ingredients needed to match the best competition in the most lucrative markets.

Action is needed in 3 dimensions - vertical, horizontal and cross-sectoral. Along the vertical, the link from growers to packers is primary. Current arrangements are open to opportunism and can compromise quality control. They can also cause confusion and resentment and all of this can damage the industry’s or the region’s reputation.

In the first instance, providing quality assurances requires contracts or agreements which specify, monitor and enforce arrangements with growers regarding orange production. That is the critical and irredeemable step.

Reforms are also needed in the link from packers to retailers; especially along the export chain where best practice in the supply of premium fruit is to have tightly programmed sales through a centrally coordinated agency – arrangements the local industry lacks in all but the US, its best market.

Instead of trading on spot markets with incomplete contracts and no price or quality assurances, the industry needs to develop long-term relationships that share the risk of price and yield variability and the costs of marketing and promotion and on- going R&D.

In the horizontal dimension, the industry is already served by some strong organisations but there is a need for new forms of collaboration. The most vulnerable players in the industry are mostly growers, especially the small orchardists.

At the instigation of industry, PIRSA can complete a financial analysis of the 3 production systems and make them available to growers to assist in their decision-making.

Whichever production system they employ, growers need to cooperate more with others doing the same: those moving to advanced fertigation will need to share some fixed costs with their neighbours; those moving to organics will need information, accreditation and coordinated marketing, probably in a new organisation; and, those staying with conventional techniques, the most vulnerable of all, will need to cooperate more fully to meet the requirements of an evermore demanding supply chain.

Much of what is required is to develop the contracts and supporting structures that allow the many small growers in the industry to collaborate so as to achieve the benefits of scale.

The cross-sectoral dimension involves collaboration at a regional level, especially with other horticultural industries. Restructuring the citrus industry has major implications for local land use and for other, linked industries. The same is true of the major changes in winegrape production and other horticultural industries. By analysing each sector, PIRSA aims to propose a process of integrated adjustment that will extend and make better use of the synergies and complementarities in cross- sectoral adjustment. Not only will this ease the adjustment pressures, it is also expected to have superior social and environmental outcomes.

This report sets out a range of initiatives open to the industry. As well as assisting the efforts of industry, government has important roles to play in dealing with issues of labour and skill availability and environment and planning implications. PIRSA will work with other government agencies to bring whole-of-government coordination to bear. It will also use its Triple Bottom Line monitoring of economic, environmental and social outcomes to assess and monitor the industry’s strategic direction.

The efforts of industry and government will be linked through a process of consultation and strategy development which begins with the release of this and the accompanying reports.

1. Introduction

1.1 Scope and purpose

This and other recent reports on the South Australian industry, respond to problems in the Riverland citrus industry which, in the 2004-05 season, led to significant quantities of fruit remaining unsold. 1 But they are also part of a larger process to assist the South Australian citrus industry in determining its future directions. This report is intended as an agreed statement about the position of the fresh fruit segment of the industry and the issues which need to be addressed.

While there were some peculiar issues in the last year 2, the problem arose when, after crops of Valencia oranges had been lighter than anticipated for two seasons in succession, the forecasts for the 2004-05 season were initially pessimistic but were later increased to reflect the emerging evidence that yields would be better than first thought. The early talk of shortages and expectations of high prices had tempted some growers to hold back their uncontracted fruit. Some processors responded by increasing their frozen juice imports to ensure they could meet their commitments. At the same time, leaving oranges on the trees meant that yields and fruit sizes increased further, adding to the emerging glut. The end result was a large quantity of initially unutilised fruit, despite processors honouring all contracts (Berri alone purchased an additional 30% above contract obligations). 3

The experience of the last year shows the importance of key, strategic issues:

• how variations in each year’s crop and, therefore uncertainties about its size and quality, make the price for uncontracted fruit (the so-called spot market) highly variable and subject to opportunism;
• how good information flows and long term contracting can improve decision making ;
• the importance of social networks and relations within the Riverland.

1 Our latest information is that most if not all of the fruit not left to fall or already dumped has since been sold (Andrew Green, EO of Citrus Board of South Australia, personal communication, 27 July 2005).

2 These include:

• Cool stored summer navels were marketed later in the season within the traditional timeslot for early Valencia
• Sales of fresh premium orange juice declined. This was partly due to price increases and partly due to the lower quality in this category because of the addition of concentrate.

3 Some imported concentrate remains in store because processors have continued to take fresh fruit and have also recontracted to normal levels for the coming season.

The previous report regarding the juice industry argued that the causes of these recent problems are linked to the strategic issues facing the industry. By focussing on what determines success in the high quality, high margin fresh fruit industry (the segment most relevant to the South Australian industry), this report develops those links further.

The critical issues are well known: for growers they are yields and pack-out rates and for packers, processors and agents they are the logistics of programming the quantities and qualities of sales on domestic and export markets. For the industry it is how well it links growers’ decisions to those programmed sales. This report develops the idea that the essential ingredient of the response is collaboration: among growers, with packers, right along the value adding chain to collaboration among marketers.

To support the efforts of the industry, the report addresses issues of regional development assistance and planning, the availability of labour and skills and the synergies between the citrus industry and the development of the broader economy.

1.2 Some basics of the citrus industry

Much of this section will be well known to the industry but not necessarily to all those in the policy development process.

The differences between citrus varieties are important. Valencia oranges are not well suited to the fresh market (hard to peel and seedy); they are better suited to juice. Navel oranges have better characteristics for fresh consumption while also being less suitable for juice. Returns are much greater (anything from 2-20 times greater) for fruit sold as fresh rather than juice. This fact also favours the so-called easy-peel varieties, like mandarins.

Citrus are seasonal fruit and unlike crops such as apples they are difficult to store. This makes the time of crop maturity critical in supplying the premium, fresh market. It makes the logistics of supply to fresh markets a major factor. It also makes it possible to sell citrus into other nations where it is also grown by doing so during their off-season.

Juice is the fastest growing kind of citrus consumption in Australia (most of it made from imported frozen juice concentrate, against which local producers are uncompetitive). By contrast, fresh juice, which is nearly all made from local fruit, commands a significant price premium and in that market segment Australia is a recognized world leader.

The environmental and climatic characteristics of the South Australian citrus growing region make this State one of the nation’s premium locations for producing high quality fresh fruit. That makes it one of the best locations in the world. 4

South Australian produced fruit have the colour, sweetness and other characteristics particularly prized in fresh consumption markets. This is the fundamental fact about orange production in South Australia: it is predominantly a business aimed to supply fruit suitable for sale on fresh markets. Hence, quality is the key issue. A recent survey shows that oranges, in particular, are “universally accepted and consumed” by Australians and yet many consumers, as many as one in five, were dissatisfied with their last purchase (Aurora, 2001b, p 3). By contrast only 1 in 20 consumers were dissatisfied with their most recent juice purchase, despite that the taste of juice varies across the year. Those facts underline the potential for hidden characteristics and inconsistent quality to damage permanently the reputation of fresh fruit and the prospects of the local industry. Quality control is critical.

Citrus production varies significantly and somewhat unpredictably from one year to the next and this can mean that there is a relative shortage of fruit in some years and a relative abundance in others. One outcome of this is that the proportion of total production going to the 3 uses; fresh domestic consumption, juice or exports, varies from year to year. However, typically around 1/3rd is consumed fresh in the domestic market, as much as 1/4 is exported and the remainder, nearly half, is processed or left over as surplus.

4 For example, DNE fruit, which accounts for nearly all of Australia’s citrus trade with the US says that local fruit are “praised by many as the best tasting navels in the world” and that they are “America’s favourite summer orange”.

The variability inherent in citrus production makes it difficult to supply demanding markets with high quality fruit at the right price and time. Those difficulties are explained in more detail in Section 3.2. They exist right along the chain of production.

The citrus production chain starts with land, the labour of the owner and other, mostly purchased inputs. When the fruit is ripe it is sorted and packed, sometimes in the grower’s own packing shed but more often (and increasingly often) at larger, off-farm packing operations. The chain runs on from packers to domestic retailers or to export agents and foreign importers and, for juice, through processors to retailers. The chain is relatively short (meaning the ratio of value added to turnover is very high and the multipliers are low) reflecting the fact that this primary industry product ends up as a high value final consumption item in only a few steps. Understanding those few steps is a primary task of this report.

The structure of the report is straightforward: section 2 analyses global production, consumption and trade; section 3 describes how the industry works, globally, nationally and within South Australia; section 4 presents prediction for the industry and analyses some critical choices facing growers concerning production systems; section 5 consolidates the various issues into the elements of a strategy.

2: Global trends in citrus production, consumption and trade/export

Global citrus data are presented in this section by volume for both fresh and processed fruit. Data are sourced from the Food and Agriculture Organisation of the United Nations (FAO, 2004) and are presented in a series of figures, with supporting information presented in tables referred to in the text and reproduced in Appendix 4.

2.1 Global production

Citrus fruit is grown in 140 countries, with the majority (70%) grown in the northern hemisphere. Between 1980 and 2004, global production grew at an average annual rate of around 2% p.a.

Figure 2.1 shows that oranges, the most common citrus type, make up a declining share of global production, while easy-peeler types are increasing. There has been little change in the share of overall production volumes in other varieties over the last 24 years.

Figure 2.1: Global citrus production by type, 1980 and 2004

Data in the accompanying Table 2.1 show that this trend towards easy-peel types is accelerating.

Figure 2.2 shows how production is different in developing and developed nations.

It shows that

• growth rates are higher in developing countries, where the focus is on citrus varieties other than oranges
• the trend to easy peelers is particularly evident in developing nations

Figure 2.2 is based on data for regions in Tables 2.2-2.4 of Appendix 4, which show further that

• Latin America and the Caribbean remains the largest citrus producing region (32.6% of the total)
• the Far East comprises 22.8% of total global production and is the fastest growing citrus producing region with China now nearly equal to the USA as the second largest citrus producing nation after Brazil
• Oceania, which includes Australia, is growing most slowly
• South Africa, one of Australia’s primary competitors, has the second highest annual growth rate in citrus production; while growth has accelerated in recent years, South Africa remains a relatively small producer.

2.2 Global Consumption

World citrus consumption is changing, reflecting changing consumer preferences. Table 2.5 below shows global growth for various citrus types, both for processing and fresh consumption. It shows strong growth overall and confirms the growing prevalence of easy peelers and an overall trend to processed fruit, especially for oranges.

Table 2.5: Global citrus consumption by type (volume, growth rate)

Figure 2.3 (based on Table 2.6) presents consumption growth rates by region and data by type for fresh citrus and processed citrus.

Figure 2.3 Growth rates for fresh and processed citrus consumption by region 1987 and 1999

The figure shows that the principal markets for fresh fruit are the developing countries, where consumption is growing very quickly (although per capita consumption remains low). Annual consumption of fresh citrus is actually falling in developed nations (by 0.3% pa). By contrast, processed citrus consumption is growing quickly in developed regions and a little less quickly in developing.

According to FAO data, fresh consumption of oranges is declining in developed countries for two reasons:

• it is being replaced by orange juice consumption
• improvements in transportation and storage are making a wider range of substitute fruits available over a longer period of time.

Table 2.6 in the Appendix gives more detail on individual regions. It shows that:

The fastest growing region for consumption of both fresh and processed citrus is the Far East, with China being the dominant contributor within the region.

Figure 2.4 show data by type.

Figure 2.4: Growth rates for fresh citrus consumption by type by income region 1987- 1999

As well as confirming the shift towards easy-peeler types, the figure (and accompanying Table 2.7) also shows that:

• while oranges are the predominant citrus type consumed in developed nations, they are also the type experiencing the strongest decline, with growth of minus 1.3% p.a.
• in developing nations, oranges comprise a much larger percentage of total fresh citrus consumption (62.6%) and the growth rate is accelerating. However, growth in the consumption of easy-peelers and lemons and limes in developing countries is even stronger.

2.3 Global Trade

Figure 2.5 (and Tables 2.8 and 2.9 in the Appendix) shows major exporting nations in 1980 and in 2004.

Figure 2.5: Global citrus exports by region, 1980 and 2004

Of particular interest to the South Australian industry is that:

• oranges are the most traded citrus type
• developed nations account for more than 2/3rds of total export volumes but Europe is the principal exporting region
• the strongest export growth in regional terms has been from the Far East and the rate is accelerating (to 5.1% p.a.)
• Oceania’s (predominantly Australia) share of global exports is small (1%), although it is greater than the region’s share of global production
• South Africa has an annual export growth of 4.88%.

2.4 Australian Trends

This section presents data for Australian production and trade. Data have been sourced from Australian Citrus Growers (ACG, 2005) and are categorised as follows:

• Processing or “Factory”: domestic processing of Australian citrus into juice, mostly as blends of local fruit with imported juice concentrate
• Domestic fresh: domestic consumption of fresh citrus
• Export: export of fresh citrus fruit (including small quantities of dried citrus fruit exports).
• Total fresh production: domestic fresh production plus fresh export.

Trends in Australian citrus categories are summarised in Figure 2.6 (supported by Table 2.10 in the appendix).

Figure 2.6 :Australian fresh citrus production – total citrus and export volumes growth rates by type 1995 - 2005

The figure and table show:

• Australian production of citrus is growing slowly but exports are growing almost 10 times as fast
• mandarin production has grown fastest, as have mandarin exports
• Navel volumes are growing and Valencias have been in long term, accelerating decline
• exports are growing faster (or declining less quickly) than production for all varieties. 5

It is important to note that while Australia accounted for only 1.6% of global exports in volume terms, it is highly priced, making up 3% of global exports by value.

Turning now to the destinations for Australian citrus exports, Figure 2.7 shows data since 1996-7. The figure shows:

• Asia is the major export destination for Australian citrus
• the US is the largest single export market for Australia, roughly equal to the rest of the world, excluding Asia
• the trends in export values to both the USA and Asia are increasing but exports to Asia have declined in recent years.

Figure 2.7: Australian citrus export values by selected destination 1996-2004

Data by country in the appendix show:

• exports declined to all Asian destinations
• the sharp declines in exports to Hong Kong are due to the end of the “grey trade” ie unauthorised entry to China via Hong Kong
• declines are greater still in Malaysia and Singapore
• exports to the US are growing steadily
• there are modest declines in exports to the rest of the world.

5 This is not to say that growers intend their Navel crop to be used for juice. Nonetheless more Navels are being juiced in Australia. From Table 2.9 in the Appendix, the growth rate is nearly 3%pa since 1995 cf a decline of nearly 5% pa for Valencias used as juice.

With regard to the exports to Asia, it is important to recognise that some of these nations have been destinations for Australia’s lower priced fruit, especially Valencias. As Australian Valencia production has declined, so sales to these markets have declined. However, it is not clear if production has responded to demand or if sales have fallen because of declines in production. The appreciation of the $A in recent years against the $US has also made locally produced fruit less price competitive on the global market and this might have had a more pronounced effect in the more cost-conscious export markets.

2.5 South Australian Trends

Data for South Australia have been obtained from the Citrus Board of South Australia. Figure 2.8 shows South Australian total and fresh production by type. Note that data marked 2005 are for the crop picked during financial year 2004-05.

Figure 2.8: South Australian citrus production by type, total and fresh, 1994- 2005

The figure shows that:

• total South Australian citrus production has been declining at an annual rate of 3.9%
• most of the decline is because less fruit is being juiced, creating the juice gap that is the subject of the associated PIRSA report on the citrus juice industry
• the decline in orange production is almost entirely due to declines in Valencias
• only easy-peeler types have grown over the period.

Figure 2.9 below shows how the division of the citrus crop among its uses has changed.

Figure 2.9: Growth in South Australian Citrus by market category, 1995-2005

Note: Domestic (SA) is South Australian fruit consumed as fresh in South Australia. Domestic (Australia) is South Australian fruit consumed as fresh in Australia.

The figure confirms the significant decline in total factory processing and the increasing role of exports.

Data in Table 2.13 of the Appendix show the same data as in Figure 2.9 but break it up by type of citrus. The table shows:

• total citrus production is declining overall, due to the reduction in juicing production, especially Valencias
• total production for fresh is relatively stable, with growth in some varieties (Navels, easy-peelers and limes) offset by declines in others (Valencias, grapefruit and lemons)
• total processing is decreasing due to declines in Valencias, grapefruit, lemons and limes but there is some increase in processing of easy-peeler varieties.

Exports are clearly the main area of interest for the South Australian industry. Figure 2.8 presents citrus export data by market destination and type in 2005, which includes citrus sold for both fresh consumption and processing.

Figure 2.8: South Australian citrus exports volumes and varieties by selected destination, 2005

Figure 2.9 gives more data on trends in export markets.

Figure 2.9: South Australian citrus export volumes by destination (2001-2005)

The figure (and Table 2.14 in the Appendix) shows:

• the USA and Malaysia are the top export destinations
• the UAE is emerging quickly as an important new market
• exports to Japan are in decline, largely due to sharp falls in exports of lemons
• Navels and easy-peelers are predominantly exported to developed nations (particularly to the US, New Zealand, Singapore and Hong Kong)
• Valencias are the more prevalent exports to developing nations (like Malaysia and the UAE), but Japan is an exception.

3. Understanding the Industry: the links along the citrus supply chain

To understand the citrus industry it is necessary to understand how the various parties are committed to it. When people are committed, so that they can’t just walk away and start some other business without loss, they become vulnerable. They are in a position where other parties they deal with can harm their interests by acting opportunistically, imposing costs or extract benefits without payment.

The contractual arrangements, the firms and organisations found in an industry can all be thought of as creating links among the parties with the aim of controlling that opportunism. (They can also have other, less benign purposes, as is discussed below.)

This way of looking at the industry is central to PIRSA’s view of the citrus industry and it deserves an illustrative example. Consider a grower who plants trees of a particular type and quantity because they believe that will produce the fruit the end user will want and hence the fruit that will be sorted and packed for fresh consumption. Once the trees begin to bear, the grower initially achieves good packout rates and returns but some time later the buyer finds a cheaper source. If the buyer has no contract with or other enduring arrangement that links them through the packer to the grower, they might act opportunistically and switch partners. Of course, the grower cannot change their orchard so easily and must look for another buyer. Even if one can be found, the switch can be costly: any money spent developing the first relationship is lost and additional costs will arise in establishing a relationship with a new partner. That can all be expensive. Worse still, if no new buyer can be found, the money spent in establishing the original orchard is also at risk.

This all says that the links which form within an industry are important in dealing with the problems that can arise once commitments have been made. In the example, the link might be simply to have written contracts between growers, packers and buyers. But the links required could also be formed within a single firm so that the grower might decide to take over the operation of the packer or the buyer or they might take over him. Another way of forming links would be for the grower to collaborate with other growers and establish a cooperative to buy the fruit or to sell it directly to retailers according to a negotiated program.

In short, there is a range of possible links running from a simple market relationship whereby there is no on-going relationship between the parties (this is what economists call spot market relationship), through contracts with various terms and degrees of detail, to links formed within an institution like a cooperative or within a firm by one party taking over or merging with another.

It is critical to add that PIRSA is fully aware organisations can have less desirable purposes. In particular, private companies or individuals sometimes link together not because it is efficient but because it can be an effective way to limit competition. In the example above, the link formed between growers and buyers might not guard against opportunistic switching but be aimed to make one party put up with on-going uncompetitive behaviour such as poor delivery or high prices, etc. When this is the case, the behaviour would be illegal under Australia’s Trade Practices Legislation.

3.1 How global trade works

Citrus is the most traded horticultural product. 6 140 nations are involved. Citrus products flow from nations well suited to producing them - basically temperate and sub-tropical countries with sufficient water - to the rest of the world. They are also traded among the producing nations themselves so that many nations are both importers and exporters. This is because citrus production is seasonal and the fruit is perishable, meaning that no nation can supply its citizens from domestic sources all year ‘round. The fact that many first world consumers are able to purchase fresh citrus year ‘round demonstrates that “the citrus industry has become globally integrated” (UNCTAD, 2003).

The global citrus trade is subject to government influences. Many nations apply tariffs, regional preferences, export credits and subsidies. Most of these activities are being reviewed under the Doha Round of negotiations, part of the push for free and fair trade under the auspices of the World Trade Organisation. Tariffs levied on citrus imports are already subject to the so-called Marrakech Agreement on agriculture which, in 1994, committed leading importing nations (the EU, the US and Japan) to reduce tariffs in the period to 2000 and then refrain from increasing them. Those reductions are in place, leaving a US tariff on citrus juice (US$0.2971/gallon) and European and Japanese tariffs levied against the value of the product (at 15.2%). The current bound (ie maximum) tariff under the WTO is 24%.

6 Information for this section comes from FAO (2003) unless otherwise stated.

By contrast to tariffs, other forms of government support for the citrus industry are often poorly reported. In the EU citrus is regulated under the Common Market Organisation for Fruit and Vegetables which was part of the 1996 reforms of the Common Agricultural Policies. Assistance is worth some US$478m pa for oranges, US$204m pa for Clementine producers and $71m for mandarins. These funds are channelled to producers through their organisations. In addition, the EU conducts generic promotional campaigns to encourage citrus consumption.

While some governments are deeply involved with the citrus industry, the general trend is towards freer trade. Some nations, such as Israel and South Africa, have vigorously liberalised their citrus sectors. Others, such as the US, have partially liberalised trade through bilateral free trade agreements and by preferential agreements such as the African Growth and Opportunity Act which benefits South African citrus in particular. The recently signed US-Australia Free Trade Agreement eliminates the previous tariff of US1.9c which applied to mandarins so that all fresh citrus fruit is now imported duty free into the US. The Agreement also re-confirmed both government’s commitment to determining all quarantine and food safety decisions based only on science.

That aspect of the US-Australia FTA is increasingly the standard applied to all Sanitary and Phytosanitary Measures (SPM). These are technical regulations designed to prevent adverse impacts on human, animal or plant life health. An agreement over SP Systems came into force under the WTO in 1995 which sets out basic rules for applying SPM. That too commits nations to determine these matters by applying science. However, the citrus industry in particular has seen on-going friction over the issue of SPM. For example, the decision by the US to ban Spanish citrus because of concerns over fruit fly was hotly contested. There is a perception that some nations use these measures as an ersatz means of restricting imports or subjecting them to unnecessary delays or treatment that make the trade unviable.

One critical aspect of global trade is how best to market premium grade fresh fruit on export markets. PIRSA has reviewed 3 successful examples: the Sunkist cooperatives of California, the Capespan arrangement in South Africa and the Riversun cooperative currently operating in the Riverland.

Sunkist is a well known, global brand. It is a cooperative formed as a collection of cooperatives, known together as the Californian Citrus Growers Association. It was established more than a century ago by, “a group of citrus growers who realized the benefits of a cooperative approach to marketing their fruit.” (Sunkist web site)

Sunkist has approximately 6000 growers and domestic sales of US$587 m, export sales of US$229m. More than one-third of production is comprised of oranges; more than half is lemons.

Sunkist’s US growing region is broken up into a number of District Exchanges, the members of which are growers who work with licensed packers. Sunkist exists primarily to control quality. Its central documents are “a matter of written rules and regulations to which all Sunkist-affiliated packinghouses strictly adhere”. The organisation also plays a key role in dealing with downstream customers, including especially importing agents in foreign nations.

A review of literature provided by Sunkist makes clear that the organisation and the Californian industry deal with matters very similar to that which face the local industry in South Australia. These are primarily concerned with quality control and with lessening the tendency toward opportunistic behaviour. In the most recent season there was an expectation that good prices offered early in the season would not last (the opposite of what happened in the recent Riverland season). Some growers accelerated picking. This led to a letter to growers of 28 May 2005 which stated: “Regardless of the temptation, picking faster won't result in selling more, it will just lower returns … discipline and unity - both with Sunkist growers and packers and with independents - are vital components in maximizing returns to growers”.

In a similar vein, the Chairman of Sunkist wrote last year:

“Just a few years ago in our industry, it was every marketer or packer for himself. We fought each other. We refused to collaborate …(and) it was the grower who lost.”

That quote comes from the “Sunkist Newslink: Keeping Growers Informed”, an important means of improving transparency and information flows within Sunkist.

Sunkist shows that, in some cases at least, the best way to guard against opportunism and the consequent volatility in prices and damage to a brand and a region’s reputation, is to form an organisation of local growers and packers, focussed on collaborating down the value adding chain.

Capespan is an organisation similar to Sunkist. It operates in South Africa, a major, emerging southern hemisphere competitor to Australia. 7 Unlike Sunkist, only 8.5% of the company is controlled by growers (under the Capespan Growers Trust) and the majority rests with various corporations.

The divisions within Capespan are clustered around the themes of marketing and procurement. One particularly important division is the related company, Fisher Capespan, which markets fruit into the US and describes its activities as focused on marketing “direct to the retail chain”.

Citrus makes up slightly less than half of Capespan’s operation, which includes grapes, stone fruits, etc. In 2004, nearly 75% of exports were to the EU, 11% each to the Middle East and the Far East and only 4% into the US. Capespan is becoming global, sourcing nearly 25% of its fruit from outside South Africa, mostly from Chile.

As with Sunkist, Capespan is focussed on the logistics of collaboration along the supply chain. It describes the ideal as a “symbiotic relationship between suppliers and retailers” and says that success “is about the total package: having committed, best quality supply, target- market needs, and the best service providers in-between (sic)”.

The message from Capespan is that local interests, growers and packers especially, must recognise the extent of their mutual interests in addressing the difficulties of servicing distant, demanding markets.

7 Information on Capespan comes from Capespan (2004) and their web site: http://www.capespan.com

The Riversun organisation was formed in 1992 and plays a key role in exporting citrus and other horticultural products to the US, handling 97% of Australian exports to that market, worth some $39m pa. It is a cooperative of packers and exporters, all of whom must hold a licence to export to the US.

Riversun coordinates the export of fruit but does not buy and sell fruit. Ownership of citrus exported via Riversun is retained by the individual exporters, who all contract with local fruit suppliers. Riversun’s revenue comes from commissions. Under an arrangement formed under the Australian Horticultural Corporation Act, Riversun deals with a single, licensed importer in the US, DNE World Fruit Sales. 8

The critical aspect of the Riversun arrangement is that higher prices mean higher returns for all parties. In other words, Riversun transmits the market signals for quality up the chain to growers. It provides a set of incentives that favour quality control.

This brief review of the role of these 3 organisations shows that such groups can play a key role in overcoming some of the difficulties associated with the high quality, fresh citrus trade. Their operation is in contrast to current arrangements for exporting South Australian citrus to other important export markets, especially in East Asia, as is described in the following section. Section 5.1 also revisits this issue and argues for an expanded role for similar organisations.

8 DNE is associated with Bernard Egan and Company, a major US fruit wholesaler. It was formed in 1968 and, since 1999, has pursued a strategy of developing non-US sources of citrus supply so that it can be a year ‘round supplier to the US market. In 2001 it began importing citrus fruit from South Africa.

3.2 The local citrus industry: understanding the first links in the supply chain

This section follows the local citrus production chain and describes how it operates in Australia and South Australia.

The production chain starts with the inputs which orchards use to grow citrus. The following table is based on work by PIRSA and the Productivity Commission. It is not a precise listing of costs but is intended to indicate the relative importance of various inputs. (In any case, given the variations in citrus growing, a single, precise listing is impossible.)

Item	% of total inputs
Fertiliser	3 – 4
Chemical	4 – 5
Fuel	2 – 3
Repairs and maintenance	5 – 6
Water	3 – 4
Other costs	3
Owner’s labour	10
Hired labour	40 – 45
Overheads	8 – 20
Depreciation	10 – 12
TOTAL	100.00

Table 3.1 The Relative Importance of Inputs to Australian Citrus Growing

Sources: PIRSA analysis; PC, 2003

The Table says that labour inputs are critical – get that wrong and the enterprise will falter. Overheads too are large enough to be strategically important and their prevalence suggests that citrus might be grown more cheaply in larger orchards. This is consistent with previous work which has claimed that as many as 2/3rds of all Australian orchards are of insufficient size - and South Australian orchards are generally smaller than the national average (PC, 2003, p 81). The great bulk of Riverland orchards are quite small: 75% are less than 10 ha and 90% are less than 20 ha; the average is 11.7 ha. 9

9 The average hides important differences within the Riverland. Average orchard size varies from 19.9 ha in Renmark, to 11.8 ha in Waikerie and 7.5 ha in Berri.

The following figure shows how important is scale in citrus growing (activities further downstream are discussed below). It is a long run average cost curve 10 showing the costs of producing Valencia and Navel oranges from orchards of various sizes.

Figure 5: Production Costs of Navel and Valencia Oranges

Figure 3.1: Production costs by orchard size

There are two curves each for Navels and Valencias. One shows total operating costs, including all overheads (such as depreciation of plant and installations and the orchard itself), administration costs and a salary allowance for a manager. The second curve adds the cost of having money tied up in the industry (assumed to be 8% of the total operating costs). 11 Other assumptions also apply, including especially that the orchard uses conventional growing techniques. 12

10 The idea behind the long-run curve is that it describes the costs incurred at different output levels using the technology most appropriate to each level. In other words, it allows for change in production technologies as a farm increases in size and these changes can only be made in the long-run – hence the name of the curve.

11 In some cases, much of this will be paid as interest on loans, but the rest is based on the assumption that 8% is an acceptable rate of return on their own capital to many orchard investors.

12 Other assumptions include:

• A yield of 40 tonnes/ha for Navels
• yield of 47 tonnes/ha for Valencias
• A high, professional standard of management expertise
• An averaging of costs and yields over a series of seasons
• Technology that is common in most mature orchards currently in the Riverland, that is, tree density below 500/ha and drippers or under-tree sprinklers
• does not assume more recent innovations because, in this study, we are focussing on juice and therefore Valencias, of which most are mature and few new trees are being planted.

The fundamental message of Figure 3.1 is that economies of scale in conventional citrus growing are significant and it is broadly consistent with other studies which have shown that larger orchards are generally lower cost, more profitable operations. 13 Further, Figure 3.1 probably understates the importance of scale because it does not show the effect of scale on quality. Larger scale can allow for the use of technologies and the application of expertise which enhance yields, quality and consistency. That matter is also explored further in Section 4.3 below. Larger scale also makes it easier to institute the deeper and closer contractual and other relations with downstream citrus users which PIRSA sees as critical, as discussed in Section 5.1.

However, the importance of scale can be overemphasised. It is also clear from the figure (and by comparison with other activities such as many manufacturing operations) that the scale economies in citrus production are quite modest. 14 Conventional citrus growing operations must get very much larger to secure the scale economies - as much as 10-100 times current operation for 12-15% decline in costs. Increases in scale of one or two orders of magnitude are possible for large corporations entering the industry but are probably unrealistic for small growers for whom a doubling or tripling of scale is the largest increase that is likely. The figure shows that this would have only a small impact on costs.

The central message is that many smaller growers can look at options other than just get big or get out, even though getting out is the choice some will be forced to make.

Some of the greatest benefits of increased scale can be achieved through collaboration, acting as if the group were one big unit. Collaborating can also spread the costs of deepening links downstream along the production chain.

13 For example, it has been shown that 30% of growers produce 90% of citrus output (86% in SA). Further, profitability is highly correlated to the size of the operation, again emphasising the importance of scale (PC, 2002).

14 In, say, machinery making, the curve is very much steeper so that being too small by an amount as little as 50% will make the plant unviable.

The small size of South Australian orchards is reflected also in the fact that many growers undertake more than one activity, often combining horticultural crops in the “fruit salad” operations of grapes, citrus and stone fruits. Some estimates are that 80% of orchards are of that sort (PC, 2004, p 43). Many growers also supplement their income by including non-farm or off-farm sources. It is said that both diversification paths are more prevalent among small growers.

The issue of scale is important also from a social viewpoint. Small growers are more likely to live in the region and hence to spend money there and support the local community. Their mix of operations can also add significantly to the bio-diversity of the region.

Scale is a significant issue not just in growing citrus but also in downstream activities. In general, the further along the chain, the larger is the scale required. Ideally, packers operate on a scale larger than growers; exporters and local retailers operate at a larger scale again.

The scale of packing operation varies greatly in South Australia from very large sheds packing millions of cartons to others packing tens of thousands. The general observation is that Australia has relatively high cost packing operations, even when compared with the US where labour costs are similar (PC, 2003, p 68). Although the work is now dated, there has been no dispute over the 1993 conclusion of the Industries’ Commission that Australian packers are more labour intensive, face higher materials costs and are less capital intensive than global best practice. Those are all characteristics of enterprises operating at less than the scale of their competitors.

The importance of scale in packing is further reinforced by the fact that there has been considerable rationalisation in the sector. Over the period 1993-2001, there was a 40% reduction in the number of packers nationally, even while tonnages were increasing. That suggests packers are getting bigger, quickly. The rationalisation process appears to be slower in South Australia 15 but it also appears that the average scale of packing operations is larger in South Australia. 16

15 The Productivity Commission present data that show SA lost 21.3% of packers in the period 1991-2001 cf 40.4% reduction in the Murray valley region.

16 Using CBSA data on packer numbers in SA for 2001 (37) and for the Murray Valley (62) and comparing these to total output from SA and Victoria it appears that packing operations in this State are on average bigger by 3-4 times.

The packing operation is critical to the industry because it is the primary quality control step. Therefore the nature of the links between packers and growers and packers and buyers are also critical. Packing sorts fruit, with the best going to the high margin fresh fruit sector and the remainder to processing for juice. This process gives the so-called packout ratio – the proportion of delivered fruit that is packed for eating as fresh. The packout rate is critical to growers’ returns. It is also the primary determinant of the ability of wholesalers to satisfy their customers and, in the long term it determines the reputation of the fruit itself.

In general, only class 1 or class 2 fruit are suitable for fresh consumption (only class 1 fruit will enter the most lucrative US market) but the proportion of the crop placed in these classes varies greatly from season to season and even within a single season.

Annual crop variations affect the quantity and quality of fruit but, of course, retailers need a certain amount of the best fruit in store even in a year when it is scarce. This means that the cut off point between classes is sometimes varied according to the relative availability of fruit. But it is not simply the actual variation that causes shifts in the classifications and variations in packout rates. In addition, whether any given year will see shortages or not becomes clearer only as the season progresses so that expectations of quality and quantities can also shift the cut off points. The situation is more problematic still; the availability of fresh fruit depends also on how quickly it is being delivered to packers during the picking season and how quickly packers are sorting it. This can make prices and packout rates vary almost on a daily basis. A final complication is that retailers in different markets can have different classification systems, meaning the packout rate for a particular delivery can depend on where the fruit is going.

This all means that the packout rate, one of the critical matters facing industry participants each season, can vary for reasons beyond growers’ control. Too often it is also beyond their information to interpret. The result is that growers have difficulty understanding what has determined their returns. The problem is partly that some of the critical quality characteristics of oranges are invisible and undetectable at the time of sale but it is also that the inherent uncertainties can lead to a reliance on rumour and a vulnerability to purposeful provision of misinformation. Such opportunism sometimes pays off for the individual practising it but it is a poor long - term strategy, especially for an industry whose future depends on its reputation for consistent, high quality output.

From the discussion above, it will be clear that improved orchard management is not the only way to improve packout rates. The problem can also be addressed in part by improving the information flows and other links between growers and packers. Currently, the most usual arrangement is that packers sell the fruit for a fee with the growers having little or no contact with the buyer. Some packers combine packing and juice processing and, in that case, it is more usual for the packer to buy the fruit from the grower. Often long-standing arrangements exist between packers and their growers and a mixture of verbal and formal contracting is used. These arrangements rarely specify all aspects of supply, such as quality parameters, to the extent that is common in, for example, the wine grape industry and the timing of delivery is rarely explicit. However, even incomplete contracts such as these are unusual and in most cases: “There are no future contracts or other means of locking in price outcomes or ensuring against price risk … Growers are forced for the most part to take spot prices” (ACG, 2001, p 20). The Productivity Commission has a similar view, that “a large proportion of transactions involving packers occur on a ‘spot’ or opportunistic basis” (PC, 2002, p 66).

One critical element in the usual arrangement is that packers are paid only for the fruit that is passed as suitable for packing. In other words, instead of being paid for the fruit they sort, packers are paid for the fruit they pack. They are able to recover some costs on unpacked fruit but they do not profit from it. It means that packers have a strong incentive to pass fruit as suitable. That seems to coincide with what growers want. However, misclassifying fruit can be disastrous.

The least poor result is that fruit is unnecessarily downgraded (eg sold as class 2 when it could have been sold as class 1), which can reduce growers’ returns very substantially. However, the opposite is worse: when fruit is inappropriately upgraded it can be rejected or downgraded at some point closer to the final user. That can be costly for growers. Packers and retailers also lose out. Repeating that mistake can make the result very much worse again: it can permanently harm the reputation of the parties, the region, the industry and the fruit itself.

The variable and difficult-to-detect quality of citrus provides opportunities for unscrupulous participants to benefit themselves, again by acting opportunistically.

PIRSA has been told of cases where foreign importers have downgraded good fruit because they know it is expensive for local exporters to confirm quality on delivery. There are also cases where small exporters have packed poor quality fruit, expecting that their share of the shipment will not be checked on delivery.

As the focus shifts downstream, for processors too scale of operation is important and, as with packers, this has resulted in a fall in their number in recent years. In the Murray Valley region the decline has been 44% but the CBSA reports a reduction of only one among 8 processors in South Australia. The reduction is related to scale but appears to have been triggered by price discounting.

Historically, the link between packers and retailers have typically involved wholesalers and brokers who have acted as agents. However, restructuring in the Australian retail sector has meant that large retail chains now make up an increased part of the total and retailers are now increasingly buying directly from packers, usually under long term contracts. Packers also have contracts for supply of juice to processors.

Regarding the export chain, Section 3.1 has already described best practice arrangements. Currently, South Australian exports are most commonly organised by export agents, many of whom do not specialise in citrus but rather service a number of products into a number of markets. These have been described by one industry member as small, city-based operations. This situation can limit the prospects for more single desk arrangements because some agents will resist having growers make alternative arrangements in lucrative foreign markets. 17

One of the most important and visible developments of recent years has been the entry by some major corporations into the South Australian citrus industry. In particular, the operation of Chiquita Brands South Pacific brings a new set of organisations and contractual arrangements to the local citrus industry. Chiquita Brands South Pacific operates the Yandilla Park orchard and packing shed and it also manages other major local orchards, including Kangara, owned by SAI Teys McMahon, and Solora, owned by Timbercorp Orchard Trust. Both owners are large investment companies specialising in agriculture.

17 PIRSA understands that an attempt has been made to coordinate exports to Japan only to find that some growers were told by their agents that if they directed some of their crop to Japan in that way, the agents would handle none of their crop, in citrus or other products.

Yandilla Park also provides a range of services including contract harvesting, pest monitoring, irrigation services, etc. The company is closely associated with Vitor Marketing, a unit trust arrangement under which members, who are growers, commit to supplying next season’s production through the marketing cooperative but without a prior commitment on price. Shares are held in relation to each growers’ size but the Group is effectively controlled by Chiquita BSP.

Another important, recent development in the local industry has been the reform of the Citrus Board of SA. The Board undertakes a range of collective functions including collecting information and promoting sales 18 and it funds its operations from industry levies. The CBSA will be reformed under the Citrus Industry Act 2005. The changes have their genesis in the industry’s response to the review of the act undertaken as part of the National Competition Reforms. They focus the Board on core activities judged to provide key public benefits, including the provision of information, food safety and integrity management, biosecurity arrangements and export market development. The new Act simplifies previous regulations regarding the preparation and packing of fruit. 19 It removes the power of the Citrus Board of SA to regulate the handling and movement of fruit and to make so-called marketing orders.

Finally it is important to note that the citrus industry has become more environmentally aware in recent years, in part due to the increasing importance of the US market which has strict specifications regarding use and residues of chemicals. This awareness is also reflected in changes to irrigation methods. Irrigation channels in the Riverland have been progressively replaced with sealed pipes. Flood and overhead irrigation systems have been largely replaced by under-tree systems. Drip irrigation is progressively replacing under-tree sprinklers. The water-inefficient system of flood irrigation persists in only a few small areas.

18 The similar organisations are: Murray Valley Citrus Board, Murrumbidgee Irrigation Area Citrus Fruit Promotion Marketing Committee (trades as Riverina Citrus), Growcom (ex Qld Fruit and Vegetable Growers).

19 Fruit must meet minimum standards with respect to its being sound, clean, intact and meet minimum maturity standards.

3.3 People, regions and communities

The significance of changes currently underway in the South Australian citrus industry must be understood in relation to those directly affected, the people of the citrus growing areas.

That significance can be partly understood by describing the industry’s place in the South Australian regional economies where it is found; primarily the Riverland region where nearly 90% of production takes place but also in other parts of the Murraylands. One way to do so is by means of the data from the following table which shows the proportion of total value added provided by various industries, including the citrus industry, in the Riverland in 2002-03.

Table 3.3: The Contribution of Citrus Production to the Riverland Economy 21

The Table shows that the citrus industry makes up about 4% of the Riverland economy. However, the full economic significance of the citrus industry is greater than that. Citrus production links to a range of other local activities so that if citrus expands or contracts, the other industries linked to it amplify the impacts. There are techniques to establish the full effects and these calculate the so-called industry multipliers. Those techniques have been applied to South Australia as a whole and to the region of the Murraylands but not to the Riverland. Nonetheless, if some simplifying (but justifiable) assumptions are made, it can be estimated that the multiplier associated with citrus production is approximately 1.1, meaning that the total impact is more than double the initial impact. In other words, the full effect of the presence of the citrus industry in the Riverland is not $39m but more like $82m.

Important facts about the people and region of the citrus industry can be obtained from information in the Regional Profile of the Riverland complied by the Department of Further Education Employment, Science and Technology (2004). The Profile compares the Riverland to the rest of the State. It also reports ABS data (the so- called Socio-Economic Index for Areas) which shows that the Riverland region is relatively disadvantaged, especially in terms of income and educational attainment (the same is even more true for the Murraylands). However, the picture is not simple and the region does relatively well on a number of measures.

Of the people themselves, the Profile shows:

• the population is stable with natural increases off-set by net migration, both about 0.4% (by comparison, the State as a whole is growing at about 0.4%)
• relatively more young people (0-14) and middle-aged people (40-54)
• less culturally diverse, with fewer born overseas and fewer speaking other than English at home (but there is some evidence that there is more diversity within the group born overseas or speaking other than English)
• a low proportion of the population finishing high school
• more than 2/3rds of people with no formal qualification (cf 58% for the State) and only 1 in 20 with a degree or higher qualification (about half that for South Australia).

21 The figure for citrus is unavailable and has been derived using PIRSA data. We estimate, from farm gate and processing turnover data, that citrus accounts for 14% of all Agriculture, Forestry and Fishing turnover in the Riverland region (GRP is a measure of value added not turnover). We assume that the ratio of value added to turnover is the same for all Agriculture and, as it is 24.5% of regional value added, citrus is then 4%.

The Profile also gives information about the region’s prosperity: It has:

• income levels which are lower than the State average, by 13.4% (and lower again, by 17.2%, in the Murraylands)
• incomes that are more equal – there are fewer low income people and fewer high income people. All that is even more true when we look at household rather than individual income
• a higher prevalence of youth at risk 22
• a higher incidence of indigenous people (among who unemployment is greater than average for indigenous people).

Finally, the Profile describes the employment situation:

• strong employment growth in recent years, especially among women and for part-time jobs. DFEEST note that the data are “indicative of under-utilisation of the male labour force”
• an unemployment rate well below the State average (5.6% cf 7.6% at the time. In the Murraylands it was 8.0%)
• more reliant on private sector employment - there is particularly less than average employment in Commonwealth government jobs
• employment concentrated in agriculture but also in food processing and wholesale trades (significantly less in many parts of manufacturing and in services to business and culture)
• employment focussed on labourer occupations and manager classifications. Both are related to the predominance of agriculture on family farms
• employment growth has been strongest in labourer and manager/administrator classes and is likely related to the growth of horticulture, particularly wine
• employment growth also in clerical, sales and service workers which might be related to growth in tourism.

22 Defined as 15-24 year olds who are not studying nor employed and who receive New Start or Youth Allowance

The scan of inputs to the citrus industry (see Table 3.1 above) showed that the supply of labour is a critical matter. Demographic data show that the Riverland population is ageing and that the number available for work is a declining portion of the total. Not only are there relatively fewer potential workers within the region, there is also a widespread perception that young people do not want to do the manual work that has historically been required in the citrus industry in particular. PIRSA is also aware of comments from industry that workers in more urban-oriented occupations, such as marketing staff, are particularly scarce in the Riverland.

The skills requirements in the citrus industry vary a great deal. Much of the labour is provided by the family which owns the orchard. Much of the rest is short-term and casual in nature, with no formal qualifications and only small amounts of on-the-job training. Employment is seasonal. It is also variable because activity is “subject to the vagaries of the weather … (and) … world commodity prices” (DFEEST, 2004, p 25). This makes the Riverland labour market more volatile than is usual. There is a greater portion of full time and permanent employment on larger orchards, which sometimes also operate packing sheds throughout much of the year. On some larger orchards, employing new advanced technologies:

“the industry … requires a range of highly skilled and technically competent people who can innovate and … use new technology across horticulture, accounting and management areas” (Training and Skills Commission, 2005).

The introduction of new technologies to citrus horticulture can also be expected to ease the labour shortage by increasing the capital intensity. This means that there is a “possibility of major losses in (low skill agricultural) occupations is high” (DFEEST, 2004, p 26). That might be so in the long term but at present the problem is in getting enough labour. That matter is revisited in Section 5.5 below.

The final matter for this section is to report the views of the Riverland Rural Counsellor, regarding the financial circumstances of local citrus growing families. The Counsellor believes that as many as half the citrus familles are currently receiving some form of social security support. Although many of them have high equity in their orchard and there are currently few if any forced sales, the recent poor prices for citrus and winegrapes (remembering that many are “fruit salad” blocks) have caused financial distress. The pain is not just with small orchardists but with medium sized growers as well. Some of these growers are now resisting using hired labour to pick fruit, making it difficult to keep to a schedule of picking and delivery. That has obvious implications for packout rates.

Overall, the Riverland is highly dependent on horticulture and citrus is the second largest horticultural sector. The region is disadvantaged in a number of respects and growth in citrus production can play an important role in redressing that disadvantage.

4. Prospects and Options

This section looks to the future. Firstly, it provides projections for the global industry. Then it extends the trends currently evident in the local industry to show how Australia and South Australia might fit into those global developments. That gives a view about the opportunities and threats facing the local industry. Secondly, this section explores some of the choices facing growers regarding production techniques to give a sense of where the industry might go in future.

4.1 Projections for world citrus

Production and consumption projections have been analysed using various sets of growth rates obtained from the FAO of the UN, the most reliable and comprehensive source available. 23 They are presented largely as figures with any additional data included in the tables in Appendix 4.

World total citrus production will continue growing but at a decelerating rate. Total world production is projected to grow at an annual rate of 1.14% (cf 2.03% from 1980 to 2004 and 1.91% from 1990 to 2004), as is shown in Figure 4.1 which also shows projections by type.

Figure 4.1: Global Production Projections, by type, 2004-2015

23 FAO projection growth rates are developed utilising a mathematical model of the world citrus market developed at the University of Florida modified by expert opinion and other citrus outlook studies. Detailed Information on trend and projection calculations can be found in Appendix 2.

The most quickly growing regional grouping is expected to be Oceania, which includes Australia, although by 2015 this will still represent only 0.5% of estimated world production.

Table 4.1: Global Citrus Production Projections, by region 2004-2015

Notes: FAO total production for all the regions does not quite equal total world figure

Table 4.1 displays those key points. It shows that, by region, citrus production in developing countries will grow more quickly than in developed nations, indeed almost twice as fast (1.3% in the period 2004-2015, cf 0.7% in developed nations). Note that both figures represent a slowing of growth – from 1.19% for developed and 2.18% in developing (1990-2004).

The dominant citrus producing region will continue to be Latin America & the Caribbean where production is projected to increase at an annual rate of 1.1%, just the same as for the global industry, keeping the region at about 1/3rd of world total citrus production in 2015.

The local industry is also interested in global projections by type, as is summarised in the following table.

Table 4.2: World Citrus Consumption Projections, by type, 2004-2015

Notes: FAO consumption figures have a slight discrepancy. The sum of varieties is slightly higher than reported figure for total citrus in processing. This fact has impacted our projections in the same way. The discrepancy however is very slight.

World consumption of citrus is expected to:

• grow more slowly
• continue focussing on fresh fruit
• comprise mainly oranges, both fresh and processed.

Figure 4.2 provides more detail, reporting data by region.

Figure 4.2: Consumption Growth Projections, by type, use and region, 2004- 2015

It shows growth in fresh and processed consumption is projected to be higher in developing countries (1.4% and 6.9% respectively). By comparison, consumption growth in developed countries is much more modest, 0.2% for fresh and 1.0% for processed.

These data can also be broken down by geographic grouping, as is summarised in Table 4.5 in the Appendix which shows that within modest, overall growth, the Far East is projected to be the fastest growing area for fresh (2.2%pa) and processed consumption (12.9%).

4.2 Extrapolating trends for Australia and South Australia

The following projections for Australia describe what the citrus industry will look like if current trends continue. Firstly, Table 4.4 shows what would happen to citrus production by type.

Table 4.4: Projections for Australian Citrus Production by type, 2005-2015

Within the context of relatively slow decline in total production, the table shows continued decline in Valencia production, modest growth in Navels 24, strong growth in Mandarins. It also shows the increasing importance of exports.

As to the two main varieties of oranges: for Navels, an increasing proportion of fresh production will go to export markets, with only modest increases in production for the domestic fresh market. However, it is possible that those projections understate future Navel production. There have been extensive plantings of Navel oranges in particular, so that the number of trees is increasing sharply. Nonetheless, PIRSA has formed the view that this will not impact significantly on growth rates because of the trend toward higher density plantings. 25 For Valencias, there are projected to be decreases in production for all market channels. However, it is important to note that recently there have been extensive plantings of Valencias on large, Eastern State orchards. Most of the trees are yet to bear fruit but the numbers of budwood trees sold are sufficient to suggest a break with current national trends.

24 The growth in Navels is largely due to plantings of varieties which will extend the season for fresh fruit, especially Navelinas (early maturing) and late maturing varieties such as Lane Late.

Turning now to projections for South Australia, the following table shows estimates by broad type of citrus.

Table 4.8: Projections for South Australian Citrus, by type & market, 2005-2015

The table shows that if current trends continue:

• Citrus production will concentrate increasingly on oranges and, even more so, on easy peelers
• Juice production will decline further and the focus will be increasingly on fresh fruit
• An increasing portion of the total crop will be consumed as fresh fruit
• Juice production from easy peeler varieties will increase
• Total citrus production will decline

25 This is because the closer plantings will tend to reduce the yield per tree. However, there is no simple consensus regarding this matter. Some industry sources have argued that the number of trees planted will outweigh any reduction in yield per tree. Because of the uncertainty we have shown projections as a band of possible values.

These points are confirmed and given further definition in the following table which shows projected production figures for selected varieties and their market destinations. It highlights the increasing importance of exports.

Table 4.9: Projections for South Australian Citrus, by type & market, 2005-2015

Considerable uncertainty attaches to those projections for South Australia. Hence the following figures for individual varieties show a band of possible outcomes bounded by one standard deviation pertaining to past years’ data and shown as the hatched area about the extrapolated trend line.

Figure 4.3: Projections for South Australian Citrus production by type, 2005- 2015

The principal message from this analysis is that the South Australian citrus industry will become increasingly reliant on the production of high quality fruit for fresh markets, and in particular the export markets, from which almost all major growth in production is likely to emerge.

4.3 The Economics of Production Systems: options facing growers

There is a wide array of production systems operating in the South Australian citrus industry. Scale ranges from several hectares to several thousand hectares; systems range from open hydroponic, through conventional methods to organic.

Individual circumstances will determine the feasibility of different production systems. Importantly, for the future of the industry, there appear to be viable, alternative technical and management strategies and within those there are a variety of options to upgrade citrus enterprises.

The CSIRO has conducted a research project which categorised several strategies (Colloff et al; 2003). The project was part of broader research into sustainability and best practice in the Riverland citrus industry research and involved an exploratory ‘triple bottom line’ analysis i.e. of economic, social and environmental outcomes, for eight case farms (two per system). The report considered systems grouped as conventional, high-tech, organic and pesticide-free. The conclusion was that:

“there is considerable flexibility within citrus production systems towards achieving ecological and economic sustainability … varying degrees of flexibility (are) dependent on the constraints of existing production methods and ethos, business plans and financial status and willingness to adopt new practices.” (Colloff et al, 2003, p8)

The report also commented favourably on the prospects for organic production. In discussions with PIRSA, an organic grower in the region, Mr Humphrey Howie (who is cited as a participant in the CSIRO project), is confident that growers could convert conventional plantings to an organic accredited orchard. 26

The CSIRO report presents an input/output summary of the 1999 data from the eight case study farms in the comparison of the four systems. Financial performance was reported as profit per hectare and cost per tonne. This indicated that, on both scores, the difference between farms in the same system was greater than the difference between systems, emphasising the importance of management expertise. The results for the top four case farms in the project suggest that it is possible for well- managed ‘high-tech’, ‘organic’ and ‘pesticide-free’ orchards to be significantly more profitable than conventional orchards.

A private research trial conducted by Yandilla Park on Farm 8 (south of Mildura) provides a comparison of Conventional, Advanced Fertigation Systems (AFS) and Martinez Open Hydroponic Technology (MOHT) on 100 hectare blocks. Outcomes of those trials are summarised in feasibility analysis tables in Appendix 5. The trial was terminated after several years and the conventional block converted to MOHT when it became obvious to the company that money was being lost by continuing with the less profitable systems.

The analysis is included in this report to give an indication of the potential long-run return to the additional capital invested in AFS and MOHT. Some capital costs are assumed to be common and are excluded from the comparisons. The costs excluded are:

• Land, water rights and delivery of pressurised water to the property boundary;
• Buildings, pumps and filters; and
• Machinery that is common to all systems, including monitoring equipment.

As these are substantial capital costs, the returns calculated are on additional capital only. Returns on total capital are the more informative figures. They have not been calculated for this report but will be significantly lower than those for additional capital.

26 Mr Howie will be presenting a paper with Social Accountant and Sustainable Systems Analyst, Dr Kala Saravanamuthu of New England University to a workshop at the International Organic Congress being held in Adelaide this month. That paper will outline Mr Howie’s experience in converting from ‘conventional’ to organic and should be referred to in conjunction with this report.

The results, for 100-hectare developments of each system, are shown in the table below.

Table 4.10: Comparison of Additional Capital* and Internal Rates of Return for Conventional, AFT and MOHT

This analysis is incomplete in a number of respects:

• While it is compatible with opinions of other people who have investigated or had experience with the systems, it has not been validated by PIRSA.
• Exclusion of the capital costs listed above and restricting the analysis to ten years, rather than to the productive life of the orchard, limits the relevance of the data.
• It does not take into account other issues (which are listed towards the end of this section).

Despite these limitations, these are the best data available to PIRSA and are therefore included to provide a basis for industry discussion of orchard technology issues.

Table 4.10 presents separate data based on estimates made by PIRSA in consultation with growers. It is a simplified economic comparison based on an annual average for an established orchard. It supports the results from the CSIRO and Yandilla Park trials, showing the same ranking of systems from AFS through organic to conventional. MOHT is excluded because it is PIRSA’s understanding that growers can convert conventional orchards to AFS or organic but not to MOHT. Capital costs are not included in this comparison.

The table includes some data for organic production of citrus. However, because there are few growers who operate this system, more than usual uncertainty attaches to the cost data, hence the question marks appearing in that column.

Table 4.10: Some economics of alternative production systems

The key points to make are that:

• AFS has higher yields than both the others because it is better at providing the plant what it needs when it needs it
• AFS delivers higher packout rates than traditional systems (but note the discussion below)
• organic is a low yield, high packout rate combination
• the higher the class, the greater the price but note that organic production always commands a price premium
• while no cost data are included for organic, costs are understood to be lower than for other systems, making average profits higher than from conventional management systems.

It is also critical to understand that the quality of organically grown fruit is judged differently from fruit produced using other techniques. The critical characteristic is not size or colour but guarantees about the production process which translates to expectations of high, invisible qualities inside packed fruit.

Table 4.10 summarises a complicated comparison and some industry comment has been to the effect that it over-simplifies the analysis. Comments have included that:

• the quality of OHT output is lower than with other systems. This is not related to the characteristics which determine packout rates (size, colour, etc) but to the “invisible” characteristics of flavour, colour and texture of the flesh, which are critical to attracting repeat purchases.
• OHT and AFS trees are vulnerable to break-down in the fertigation systems that feed them. These systems require back-up equipment on the farm.
• the vulnerability of the trees also arises in their dependence on water supplied by the various irrigation Trusts. Current practices do not provide backup generators to run pumps during electricity blackouts
• the expected life of OHT and AFS trees might be significantly shorter than that of conventionally grown trees.

PIRSA has been unable to resolve these issues fully. However, the overall message from Table 4.10 is that, based on PIRSA’s preliminary comparisons, each system appears to be viable with the ranking running from conventional, to organic to AFS. However, that picture is also missing the critical matter of capital costs, critical because they determine the importance of scale. It is expected that these costs are lower for conventional and organic over AFS, partly because of the need for backup equipment with the advanced systems.

Informal discussions with orchardists currently employing organic techniques suggest that there will be little difference in total capital costs between conventional and organic production, although the components of the two systems do vary.

A further, important consideration for many growers is the time it would take to convert from one system to the next. In the case of OHT, advice to PIRSA is that there is no transition path from an existing conventional orchard. The change would require up to a decade because all trees and existing infrastructure would firstly be removed. However, it appears that moves to AFS or to organic production can be accomplished without replanting. The move to organic in particular appears to require little initial capital spending within the orchard. However, there are significant costs in learning about the operation of an organic orchard, in gaining accreditation as an organic farmer and in developing the market for organic citrus fruit.

The comparison among these techniques should not stop at the economic matters. Each has a set of social and environmental implications and the choices made by growers will determine the broad impact of development of the industry. PIRSA intends to include inputs to the strategy development process that will take account of these matters. At this stage, it is possible to make the following points:

• AFS and organic production require more and new skills among growers and suppliers
• AFS and OHT in particular require major consolidation and replanting of land from existing orchards
• the move to organics has few land use and planning implications
• AFS and organic appear to offer environmental improvement compared with conventional production
• AFS in particular appears to be a water minimising technique
• other environmental spillovers are likely to be lower with AFS and organic production.

The importance of this section has been to show that growers have a number of viable choices and that the choices have different financial, social and environmental outcomes. It is important to reiterate that each individual grower must assess their own particular circumstances to make the optimal choice.

5. Elements of the Strategy

The key facts about the fresh citrus industry are that a considerable price premium attaches to oranges sold as fresh fruit and that premium is higher still for highest quality, fresh fruit. Securing those premia require that quality assured fruit is provided to users. This report has described a number of factors that make that difficult and each difficulty exposes members of the industry to potential harm from the opportunistic behaviour of others.

Opportunism is a critical consideration in many economic undertakings and some academic writers have described the institutions of a modern economy, its firms and industry organizations, legal systems, etc as attempts to control opportunism (Williamson, 1985). Those institutions which survive are those that control opportunism most efficiently.

That means the strategy is primarily about finding efficient means to assure quality, means that will not be undermined by opportunistic behaviour. It is about improved contracting, better collaboration and organisational innovation, all of which require transparency in dealings and long term relationships built on trust.

That central message is repeated below in examining each of the elements of the strategy.

5.1 Improving the supply chain at home and abroad

Controlling quality is the central theme of this report.

In the first instance, providing quality assurances requires contracts or agreements which specify, monitor and enforce arrangements with growers regarding orange production. That is the critical and irredeemable step.

Subsequent steps must ensure that the fruit is properly handled once picked, appropriately stored and shipped to the retailer. That too requires contractual arrangements that specify, monitor and enforce quality control procedures. The key is to ensure that the packout rate is increasing and that subsequent links deliver premium fruit in the right quantities and at the right time.

Our review of global trading arrangements also fits with that strategy. It says that centrally coordinated sales into export markets is an efficient means of promoting quality control and of constraining opportunism.

To put it briefly, the aim is to reverse the description previously provided:

instead of trading on spot markets with incomplete contracts and no price or quality assurances, the industry needs to develop long- term relationships that share the risk of price and yield variability and the costs of marketing and promotion and on-going R&D.

Improving the supply chain links will be a complicated and long term process . An indication of the kind of developments which would be valuable are set out in the recently released draft Horticulture Code of Conduct. Documents released with the code describe current arrangements as making it “difficult, if not impossible, for traders who wish to do business on a clear and transparent basis … “ (CIE, 2005, p ix). Current arrangements are said to also lack clear terms and to reduce the incentives to maximise quality. Some details of the draft Code have been criticised by the citrus industry but the direction set out by the draft has been welcomed. 27

It is also important to emphasise that the contractual arrangements required need not be written by each individual grower and packer but can be developed and operated within organisations run by citrus growers. That is the common mode of operation in the so-called New Generation Cooperatives that are playing an important role in some US horticultural industries (Plunkett, 2005).

27 Objections have been raised regarding the draft Code disallowing pooling arrangements because they involve cross-subsidies among fruit sellers and because of the apparent threat the Code poses to the single desk arrangement currently operating for exports to the US.

5.2 Maintaining competitiveness

South Australia has some of the world’s best citrus growing regions. The future competitiveness of the industry relies on capitalising on the natural advantages, primarily by developing the contractual and institutional arrangements that promote quality control.

Competitors in other nations are also actively developing their industries and it is possible to be displaced from export markets and local retail chains because other nations step up. And once a market is lost, it is difficult to regain. Maintaining competitiveness means forcing the pace of change.

PIRSA is also aware that maintaining competitiveness is about the right kind of government support. It is also about the competitiveness of related support industries and about access to critical inputs.

5.3 Increasing scale

The preliminary economic analysis in Section 4.3 showed that scale is important in organic production, significant in conventional citrus growing and critical in the choice to apply AFS. Scale is also important in downstream operations where the cost minimising size is greater again.

The critical point is that scale economies can be achieved in various ways but according to one of 2 broad options. By:

• increasing the size of the ownership unit by mergers, takeovers or greenfield developments; or,
• combining units within a cooperative or trust arrangement so that ownership remains separate but critical parts of the operation are combined.

Much of what is required is to develop the contracts and supporting structures that allow the many small growers in the industry to collaborate so as to achieve the benefits of scale.

It is also about the specific, practical details. In citrus growing, the option of collaboration might extend to ownership of some irrigation assets or specialised equipment or greater use of specialist contractors. Packing operations might also benefit from rationalisation and collaboration. However, the biggest gains are likely to be in aggregating individual efforts in supplying retail chains. Activities such as forward contracting, risk management, programmed deliveries into each market, especially into export markets, etc are more easily handled in one centralised coordinating agency.

5.4 Introducing new technology

The essential message regarding new technology is the same as that for the issues above: the adjustment will benefit from greater collaboration.

The new technologies canvassed in Section 4.3 especially will benefit from advanced collaboration. In the case of AFS, where scale is critical in defraying higher set up and management costs, shifting from conventional production is likely to require a sharing of some costs for it to be viable. Without that, replanting the orchard on a larger scale might be the best way to introduce the technology. Critical considerations therefore include whether the collaborating properties must be adjoining and whether it helps if they produce the same varieties and have the same mix of varieties.

Regarding moves to new organic technologies, the critical need is to collaborate over marketing. Organic citrus promotion must separately brand that fruit and it must also be generic. Those facts make the beneficiaries of the promotion readily identifiable and the logical consequence is for these growers to develop an organic marketing cooperative among Riverland citrus growers. Currently no such organisation exists.

This issue and that of increasing scale both require further economic analysis.

At the instigation of industry, PIRSA can complete a financial analysis of the 3 production systems and make them available to growers to assist in their decision making.

5.5 Workers and skills

An adequate supply of appropriately skilled workers requires action by government and industry.

The citrus industry must make itself more attractive to employees if those people are to be available at critical times. With the current low unemployment, hoping for enough casual labour to pick ripening fruit is a high risk strategy. Employers need to consider new contractual arrangements for employment which improve the likelihood of retaining workers.

PIRSA will be working with other government agencies to help address the labour issues confronting the industry. It is currently discussing the issue with:

• Immigration SA to determine if it can help industry with the administrative burden of arranging to employ temporary residents and illegal immigrants on temporary visas
• the Department of Further Education, Employment, Science and Technology to link a skills development program to the industry development strategy.

5.5 Environment and planning

Addressing the issues discussed in this report might result in significant expansion of as well as changes to existing plantings. This has major implications for land use, especially within the Riverland. This is even more true when the changes currently underway in other horticulture industries are added.

In addition, the strategy for citrus will have implications for the people of the Riverland and Murraylands, for their skills and opportunities and their incomes; and for the size of their towns and schools and hospitals.

The use of Triple Bottom Line monitoring allows economic social and environmental outcomes to be assessed. This might be useful to the citrus industry and other stakeholders in citrus growing regions to develop a means of assessing and monitoring the broad impacts of its development strategy.

PIRSA is aware that this document is proposing significant change for the South Australian citrus industry. While government is willing to assist in meeting the challenges, the drive and leadership required to take advantage of the opportunities must come from the industry itself.

PIRSA is also aware that change, especially on the scale required to meet the potential of the citrus industry, inevitably means that people must commit new capital into revitalising the industry. It also means that some capital sunk into current arrangements will cease to provide economic returns and some people will be forced from the industry. That is inevitable because of developments in the global industry and the difficulty of change. However, the analysis of this report suggests that the industry has excellent prospects and the potential to continue contributing greatly to South Australia.

Bibliography

1. ACG (2005) “Australian Citrus Growers Incorporated – Annual Reports”, 1999-2005. Accessed on [http://www.austcitrus.org.au]
2. Aurora, 2001a: “New South Wales Citrus Development Strategy” prepared for NSW Department of Agriculture and Commonwealth Department of Transport and regional Services
3. Aurora, 2001b: “Report on Citrus Consumer Survey: Sydney and regional NSW. November/December 2001” prepared for NSW Agriculture
4. Capespan 2004: “Annual Report”
5. CBSA (2005): “Varietal Production by Percentage and Tonnes”, Annual Publications 1994-2005
6. CIE 2005: “
7. Colloff, M; Fokstuen, G; and, Boland, T 2003: “Toward the Triple Bottom Line in Sustainable Horticulture: Biodiversity, Ecosystem Services and an Environmental Management System for Citrus Orchards in the Riverland of South Australia.” CSIRO, Canberra
8. DFEEST, 2004: “Regional Profile of the Riverland 2004”
9. FAO 2002: “Agricultural commodity projections to 2010”
10. FAO 2003: “Improving the Value and Effective Utilisation of Agricultural Trade Preferences” Commodities and Trade Division, FAO, United Nations
11. FAO 2004: “FAO STAT: Agricultural statistics database”, Accessed on [http:///faostat.fao.org/]
12. Martinez-Valero R. and C. Fernandez 2004: “Preliminary results in citrus groves grown under the MOHT system”, Proc. Int. Citricultura, Agadir. P130, pp1-10
13. Plunkett, B 2005: “The Portfolio Problem in Agricultural Cooperatives: An Integrated Freamework” PhD dissertation, University of Missouri
14. SARDI, 2003 “Citrus Page: QA” web page
15. SARDI, 2004 “Packer Newsletter” 74, April
16. Training and Skills Commission (2005): “Profile of Yandilla Park”
17. UNCTAD 2003: “INFOCOMM Market Information in the Citrus Area” [http://r0.unctad.org/infocomm/anglais/orange/ecopolicies.htm]
18. UNCTAD (2004) “Citrus production and consumption” Accessed on 02/08/05 [http://r0.unctad.org/infocomm/anglais/orange/market.htm]
19. Williamson O 1985: "The Economic Institutions of Capitalism. Firms, Markets and Relational Contracting." The Free Press, New York

Appendix 1: Contacts made in preparing report

Tony Adams
Irrigation Crop Management Services
Rural Solutions SA
Primary Industries and Resources SA
Loxton Centre
Berri Road LOXTON SA 5333
Ph: 08 8595 9100
Email: tony.adams@sa.gov.au

Chris Barrie
Managing Director
bp fruit
PO Box 791, LOXTON SA 5333
Ph: 08 8584 6831
Mob: 0418 800 269
Email: bpfruit@riverland.net.au

Steve Burdette
General Manager
Vitor Marketing Pty Ltd
Chowilla Street, RENMARK SA 5341
Ph: 08 8586 4624
Mob: 407 390 861
Email: sburdette@vitor.com.au

Arthur Edwards
Senior Horticultural Officer
Yandilla Park Ltd
Chowilla Street, RENMARK, SA 5341
Ph: 08 8586 1232
Mob: 0409 609 300
Email: aedwards@yandillapark.com.au

Humphrey Howie
RENMARK SA 5341
Ph: 08 8595 1597
Mob: 0408 842 506
Email: howie@riverland.net.au

Dan Meldrum
River Murray Catchment Water Management Board
Ph: 08 8582 4477
Mob: 0438 827 257
Email: dmeldrum@rivermurray.sa.gov.au

Richard Roberts
General Manager – Packing
Yandilla Park Ltd
Chowilla Street, RENMARK, SA 5341
Ph: 08 8586 1270
Mob: 0412 839 675
Email: rroberts@yandillapark.com.au

Richard Hamley
General Manager - Production
Yandilla Park Ltd
Chowilla Street, RENMARK, SA 5341
Ph: 08 8586 1200
Mob: 0428 303 352
Email: Richard.hamley@chiquita.com.au

Peter Gallasch
Senior Research Scientist – Citrus
SA Research and Development Institute
Loxton Centre
Berri Road LOXTON SA 5333
Ph: 08 8595 9100
Email: peter.gallasch@sa.gov.au

David Pocock
Horticultural Consultant
Rural Solutions SA
Primary Industries and Resources SA
Loxton Centre
Berri Road LOXTON SA 5333
PO Box 411 LOXTON SA 5333
Ph: 08 8595 9100
Email: david.pocock@sa.gov.au

Ingrid Sumner
Citrus Board of South Australia
148 Hindley Street, ADELAIDE 5000
Ph: 08 8211 8056
Email: citrusboard@adelaide.on.net

Mr Max Baker,
Rural Financial Counsellor,
Central Riverland Rural Counselling Service Inc.,
PO Box 411,
Loxton,
5333

Dr Kala Saravanamuthu,
New England Business School,
University of New England,
Armidale, NSW
2351
ksaravan@pobox.une.edu.au

Appendix 2: The method for calculating trends and projection estimates

Global Trends & Projections:

All production, consumption and export data presented in this section of the report refer to metric tonnes of citrus fruit.

Production:

• historical figures were sourced from the online Statistical Database of the Food and Agriculture Organisation of the United Nations (FAOSTAT 2005)
• growth trend percentages were calculated by PIRSA, on data from 1980-2004
• projections were estimated by applying growth rates obtained from the FAO (2002). FAO base their projection growth rates on a mathematical model of the world citrus market developed at the University of Florida, modified by expert opinion and other citrus outlook studies
• for individual countries, information on growth rates on which to base projections were unavailable and as such, projections were instead based on trend growth rates from 1980-2004

Consumption:

• consumption growth rates and actual figures for 2001 were obtained from the FAO
• projections to 2015 were calculated by PIRSA, through the application of these growth rates to actual figures for 2001.

Exports:

• citrus export data was sourced from FAOSTAT from 1975-2003 and growth rates were calculated from these historical sets of data.
• projections from 2004-2015 were calculated by PIRSA, and were based on trend growth rates from 1980-2003.

Australian Trends & Projections:

• Australian citrus production and market allocation data were all sourced from the Australian Citrus Growers Incorporated (ACG)
• for Navels, 2005 figures have been estimated by PIRSA by undertaking a trend analysis on the production figures for the previous 10 years
• all projections from 2005 onwards have been calculated by PIRSA, through the extrapolation of growth trend rates. Growth trend rates were applied to production figures for each market
• as these projections are not based on plantings data, they are estimates of what the citrus industry will look like in coming years if current trends continue
• for Mandarins and for Total Citrus, only total production and export figures could be obtained. Hence, PIRSA has calculated projections by applying average growth trend rates to these figures.

South Australian Trends & Projections

• All South Australian citrus data has been obtained from the Citrus Board of South Australia (CBSA 2005). Data have been provided from 1994-2005.
• South Australian citrus exports by destination figures refer to volumes of citrus fruit exported. All been sourced from the CBSA (2005).

Appendix 3: Definitions of Regions

Appendix 4: Tables of supporting data

Table 2.1: Global citrus production by type (volume, share, annual growth rate)

Table 2.2: Global citrus production by region (volume, share, annual growth rate) 28

Note: Sum of selected regions do not equal that of developed or developing. Sum of Developed and Developing do equal total world

28 See Appendix 3 for FAO definitions of regions and the countries in the developed and developing income regions.

Table 2.3 Citrus production in selected countries

Table 2.4: Global citrus production by type by income region

Table 2.6: Fresh and processed citrus consumption by region (volumes, growth rates)

Note: There is a slight discrepancy in FAO data between the regions total and global total for processed consumption in 200; reason has not been provided by the FAO, however it is likely to be attributable to wastage.

Table 2.7: Fresh citrus consumption by type by income region 1987-2001 (volume, share and growth rates)

Table 2.8: Global citrus export volumes 1980-2003

Table 2.9: Citrus exports by selected regions and selected countries, 1980-2003

Table 2.10: Australian citrus production by type and category (volume, share, annual growth rate)

Note: Table does not include figures for Grapefruit, Pomelos, Lemons & Limes. Growth rates for Mandarins and Total citrus for the period 1989-2005 could not be calculated.

Table 2.11: Australian citrus exports by market destination 2000-2004

Table 2.12: South Australian citrus production by type and category, 1994-2005

Table 2.13: South Australian citrus production by type and market channel, 1994-2005

Table 2.14: Citrus export volumes by type and destination market 2000 - 2005

Table 4.1: Global citrus production projections by variety 2004-2015

Table 4.5: World Citrus Consumption Projections, by region, fresh and processed, 2004- 2015

Appendix 5: Cost comparison of OHT and AFS

PIRSA has been provided with data by Yandilla Park Ltd of the cost and income differences that might apply in a comparison of MOHT and conventional systems. The data relate to the first 10 years of orchard life. Unfortunately, it is presently incomplete. PIRSA officers are currently discussing with Yandilla Park the assumptions that underlie the comparison with a view to comparing the 3 systems in more detail. This might make it possible for growers to benchmark their operations by comparing their own data with that which will be presented by PIRSA.