ECONOMIC SUSTAINABILITY OF SP CITRUS PRODUCTION. Margarete Boteon Agricultural Economic Researcher/Cepea

Transcription

1 ECONOMIC SUSTAINABILITY OF SP CITRUS PRODUCTION Margarete Boteon Agricultural Economic Researcher/Cepea

2 CEPEA Center for Advanced Studies on Applied Economic - Brazil

3 cepea.esalq.usp.br/english/

4 PRESENTATION OUTLINE SP Citrus Production Costs of production (study case) Economic sustainability (discuss)

5 The uncertainty of the economic sustainability of Sao Paulo citrus production may rise

6 2009/10 Season (jul/jun) (SP CITRUS PRODUCTION) For the 2009/10 season (July and August), the price received by the SP citrus growers (weighted average price of spot and contract) was 37% lower than previous season. The costs of production remain high. The incidence of greening disease is rising. Many growers have yet not fixed their contract ( season) with the processors.

7 SP COST OF PRODUCTION (general outcomes) Several issues have contributed to raise the cost of SP citrus production such as price of fertilizer, labor costs and phytosanitary diseases expenses. In average, the growers evaluated that the ideal price to keep up the business is around 6 dollars per box (90 lbs) in 2008 including the return of the investment. The lower prices of the fertilizer and pesticides in 2009 may help the growers spend less to manage their groves in this season. Source: Hortifruti Brasil (2009)

8 PETROLEUM DERIVED AND HARVEST COSTS BOOSTING THE CITRUS EXPENSES PETROLEUM DERIVED AND HARVEST COSTS BOOSTING THE CITRUS EXPENSES The price (in dollar) of the Fertilizer, Diesel, Defensive and the cost harvest were turned into indicators. Indicator 100= DIESEL + 150% FERTILIZER + 170% HARVEST + 120% PESTICIDE 0% Source: Cepea (harvest cost), IEA (diesel, defensive and fertilizer) Pesticide = Cyhexatin ; Fertilizer = (Formulate); * 2009: July, preliminary. 20th All the prices (Brazillian Citrus currency) Expo 2009 were deflated by Braziilian Inflation Index. After adjustment the inflation, the prices were converted to US dollar *

9 Harvesting costs in São Cost Paulo Picking Oranges - US$/box 90lbs * Source: Cepea ; 2009: preliminary; All the prices (Brazillian currency) were deflated by Braziilian Inflation Index.

10 THE GROWERS' IDEAL PRICE TO KEEP UP THE CITRUS BUSINESS The growers' point of views on the ideal price per box (delivred in the citrus plant) to keep up the citrus business. Prices per box in dollar The ideal price in dollar Source: Cepea 2001/ / / / / / / / /10* Note: the value of the contract shown in this chart did not reflect the effective price received by SP citrus growers. All the data were deflated by CPI Inflation Index; 2009/10: preliminary Fonte: Hortifruti Brasil(05/09)

11 THE IDEAL PRICE VERSUS THE EFFECTIVE CONTRACT THE IDEAL PRICE VERSUS THE EFFECTIVE CONTRACT Ideal Price (growers' point of views) and the contract price in São Paulo. All the prices were deflated by CPI Inflation Index Contract (Min) Contract (Max) IdealPrice / / / / / / / / /10* 2009/2010: preliminary Source: Cepea

12 THE LAND PRICE APPRECIATION IN SÃO PAULO APPRECIATION IN THE PRICE OF LAND IN SÃO PAULO Price evolution Evolution of price orange, for orange, sugar sugar cane cane and land land in main main SP orange region production of orange regions production. in SP in dollars. The prices The prices were turned were turned into na into indicators. All the prices were were deflated deflated by Inflation by Braziilian Index. Indicator Inflation 100= Index. 2001/2002 Indicator season. 100= 2001/2002 season trend Sugar Cane Land Orange Source: Consecana (sugar cane), Cepea (orange) and IEA (land). Price land refers the average price on SP citrus growing regions. 2009: preliminary

13 Brazilian currency (Real) to U.S. dollar Brazillian Currency (R$ = real) per US Dollar - Exchange Rate All the data were deflated by Brazillian Inflation Index R$ 5.00 R$ 4.50 R$ 4.00 R$ 3.50 R$ 3.00 R$ 2.50 R$ 2.00 R$ Source: Central Bank of Brazil 2009: January - August

14 Conclusion The projection for 2009/2010 season is that most citrus growers will stop to invest on new groves, because: High cost of production The shrinkage of the international FCOJ prices Weak dollar Greening disease

15 ECONOMIC SUSTAINABILITY CHALLENGE To Protect the groves (greening disease) Clear economic information (statistic data)

16 ECONOMIC SUSTAINABILITY OF SP CITRUS PRODUCTION Cepea has developed CARP - an indicator to evaluate the sustainability of citrus production. CARP stands for: Annual Costs of Asset Renewal.

17 SUSTAINBILITY The citrus production business, by the way, is economically sustainable if the grower can get net revenue, at least, equal to CARP. Otherwise; in medium term, they could lose their main livelihood.

18 ECONOMIC SUSTAINABILITY The citrus production is economically sustainable if the net revenue accumulated along the years is enough to renew the growers assets in the future. Otherwise; in medium term, they could lose their main livelihood.

19 TOTAL COST OF PRODUCTION TOTAL COST = OC + CARP OPERATIONAL COST CARP Depreciation

20 REVENUE NET REVENUE = GROSS REVENUE OPERATIONAL COST PROFIT = GROSS REVENUE OPERATIONAL COST - CARP

21 Study Case 1 & 2 Farm 1 Farm 2 Profile Farm 1 Farm 2 Location Center of SP Southeast of SP Área with orange production (acre) Área with non bearing trees (acre) 0 0 Total of boxes harvested in 2008 (90 lbs) 176, ,783 Yield: box/ acre in Number of bearing trees 58,321 55,538 Distribution of the trees per age and variety: - Up to 4 year 6% 19% - 5 to 10 years old 62% 6% - 11 to 15 years old 32% 47% - 16 to 18 year (pêra, valência) 0% 28% Total area with irrigation (acres) 1 416,94 311,96 Total area without irrigation (acres) 65,70 0 Source: Hortifruti Brasil/Cepea 1 Irrigation system - Farm 1:microsprinkler irrigation; Farm 2: sprinkler irrigation

22 Operational costs - study case (2008) Note: This study case does not represent the average costs of production in São Paulo. The grove maintenance July, 20th costs for a specific Citrus grove Expo site 2009 may differ depending upon tree age, tree density and the grove practiced performed Farm 1 Farm 2 Delivered-in cost for processed oranges. Farm 1 Farm 2 Araraquara-SP Limeira - SP Item US$/acre US$/box US$/acre US$/box A. Labor B. Machinery C. Fertilizers D. Chemical E. Tree replacement F. Microsprinkler irrigation Main expenses on tree (A+B+...F) , G. General expenses (management, taxes) H. Working capital costs I. Harvest and Freight Labor cost (total cost) Freight OPERATIONAL COSTS (A+B+..+I) - delivered in 1, ,

23 Total cost of production in delivering in (Farm 1, Farm 2 - study case). Farm 1 Farm 2 Farm 1 Farm 2 Araraquara-SP Limeira - SP Item US$/acre US$/box US$/acre US$/box OPERATIONAL COSTS (A+B+..+I) - delivered in 1, , J. CARP GROVE (bearing production 17 years) MACHINERY IMPLEMENTS FACILITIES IRRIGATION L. Land oportunity costs TOTAL COSTS (A+B+C+...L+M) 2, , Exchange rate: 1,93 (2008) Note: The items in the C A R P table are those considered for annual savings to compensate the depreciation along the time.

24 GREENING CONTROL IN FARM 1 in 2009 (budget)*: Greening inspection: 6 times per year: The cost of each inspection is US$ 0.03 per tree Spraying : every 30 days: The cost is: US$ 0.08/tree per year (labor, pesticide and hour-machine expenses). The eradication cost is US$ 0,05/tree (labor, hour-machine) AVERAGE COST TO CONTROL (Farm 1): US$ 0.30 to US$ 0.60/box* *The expenses can vary due the level of eradication of the plants and the number of pulverizations and of inspections

25 Greening disease rises in SP - (2009/2008) West North west North Center 24% of the citrus blocks were infected with greening disease in SP South Source: Fundecitrus (may, 2009) This chart shows the greening incidence (%) per citrus block

26 CITRUS FARM SUSTAINABILITY DEPENDS JOINT EFFORT: GROWERS+PROCESSOR Lower incidence of greening disease High yield Better prices of the orange juice/ increasing the demand Improvements of the exchange rate

27 Thank you! Contact info: 55 (19) Special thanks to Citrus Industry Magazine / Southeast Agnet and Ron Muraro

28 CARP formula CARP = frcpat M Frc is Capital Recovery Factor frc (1 + (1 + r) = z r) z r 1 PATM: Value of the Assets frc: capital recovery factor r: interest rate z: useful life in years