I am sure I was not alone in being surprised by the USDA’s initial Florida citrus crop forecast of 80 million boxes down substantially from the 2014-2015 crop of 96.7 million boxes. More surprising, the following crop forecast was lowered again to 74 million boxes. And even more surprising was the latest drop to the estimated crop. Unfortunately, it has become apparent the impact of HLB and its powerful negative effect on the health of citrus trees in Florida.
Two clear economic-related effects is grower profitability and reduction of economic activity related to the production and marketing of citrus products. Even though acres planted to citrus continues to decline, the main driver of smaller crops is lower yields. The same quantity of inputs is being applied, but less fruit is being produced. Rising prices help offset this phenomenon. But in recent years, industry revenue has been declining.
Smaller crops mean few workers being employed in a wide range of activities from harvesting, packing of fresh fruit, grove care, and transportation. This has a negative economic spillover effect on local communities.
Money Talks
Let’s turn our attention to prices. In years past, a major event such as a freeze or hurricane that reduced crop size had the reverse effect of increasing prices. In some short crop years, industry revenue actually rose as price increases more than offset smaller crops.
In economics, we use a concept known as elasticity. Elasticity of demand is defined as the percentage change in quantity divided by the percentage change in price. Since prices and quantities move in opposite direction, elasticity of demand is a negative number. If elasticity is equal to -1, then the percentage change in quantity is equal to the percentage change in price and revenue is unchanged.
I am not going to give the mathematical formula for elasticity, but as prices increase because of smaller crops, demand elasticity becomes smaller; the FDOC estimates the current demand elasticity is closer to -1.5. This means the percentage change in quantity is larger than the percentage change in price and revenue goes down.
Watching The Clock
This last point is important because although there has been much fanfare about the decline in demand for orange juice, and there is some evidence that the demand for citrus products has declined, much of the decline in OJ consumption has been driven by smaller crops in Florida. Unlike the past, smaller crops mean less industry revenue. Lower industry revenue does not bode well for the Florida grower.
Several promising developments regarding solutions for HLB have been made public. A transgenic tree has been developed at the UF/IFAS Citrus Research and Education Center in Lake Alfred that has shown resistance to the disease. It will be several years, however, before this tree will be commercially available. Short-run solutions such as heat treatment, antimicrobials, and methods to disrupt the breeding cycle of the psyllid need to be implemented today. Time is growing short.