“Naranja” is an orange grove farm, where Jane Cortez grows navel and valencia oranges. Cortez wants to incorporate new varieties of oranges, but she has to invest in experimenting with these varieties. Cortez has two options: to agree to a five-year contract with a juice factory and sell oranges at $350 per tonne or to partner with a broker for a potential profit of $150 per tonne. Upon evaluating the two options, the consultant will outline the best solution for Cortez. This report will evaluate the domestic and international orange market and offer a consultant’s opinion on this issue.
Evaluating the Arguments
The first option is high-risk with great potential since the partnership with an overseas broker will bring Cortez a profit of $500 per tonne. The overall indication is that the demand in the citrus market is increasing on the global level. The citrus industry in Australia has had a good year, which means that there is a sufficient amount of fruit. According to Schremmer and Isa (2018), “prices and global demand predicted to hit new records” (para. 1).
The exports are increasing steadily, and the price per is $700-900 per tonne for navel oranges. This price is much higher than the $500 that Bill and Bob discussed initially. Hence, Cortez may be able t obtain profits that are much higher when compared to those from a contract with a juice factory. Also, in terms of exports, China and Australia have a ChAFTA agreement, which makes exports easier (“Free trade agreements,” 2018). ChAFTA means a reduction of tariffs and better clarity with the export process, and it stimulated the trade between China and Australia.
One potential issue here is that reports and news articles cite that there is a high demand for navel oranges, while Cortez also has valencia oranges. Also, Schremmer and Isa (2018) note that China and Japan are the key export markets for navel oranges. However, this report was issued in 2018, when the COVID-19 pandemic did not begin, and overlooking the potential consequences of it on the demand and export opportunities is dangerous. Next, Lewis (2020) reports that the currency is stabilizing after some turbulence in the market due to the pandemic. Hence, concerns about the Australian dollar shifts and the market value of the oranges becoming too are not valid at this moment.
However, it appears the government recognizes the importance of exports and works towards supporting this industry during the pandemic. According to the recent report by Citrus Australia (2020), the organization’s members were assured that the government recognizes the importance of preserving its partnership with China and works towards ensuring that exports of citrus are maintained. Moreover, NPR reports that the citrus industry in Florida has suffered because the crops were destroyed by disease (“Exotic Australian fruit,” 2020). This means that there is less competition for fruit from Australia on the global market.
The second option is selling oranges to the juice factory at $350 per tonne, which is a low-risk option. The Citrus Australia organization reports that the manufacturers are reverting to the production of 100% sugar-free juices (“Fresh Australian juice,” n.d.). This type of juice can be sold in supermarkets and stored in chill places. However, this is not the type of product that the juice factory manufactures, which means that the demand for juice is under question. Next, Beilharz (2020) notes that the local market offers low prices to the growers, and the land dedicated to growing valencia oranges has decreased by 30% in recent years.
Hence, a better alternative is selling these oranges as fresh fruit because it generates better returns. According to the GlobalTrade report, the global juice market has already decreased by -6.0% (“The pandemic hampers the growth,” 2020). Therefore, the decrease in juice production is a trend that is present globally and not only in Australia.
The only option that makes the alternative of a contract with a juice factory attractive is if the factory begins manufacturing fresh juices with shorter shelf life. Although this type of juice cannot be replaced with imported products due to its short shelf life, other types of juices imported from Brazil made from frozen concentrate will become available (Beilharz, 2020). The implication here is that a juice market is an attractive option for orange growers.
Overall, the owner faced a dilemma since this endeavor requires additional investments, and currently, the profits are allocated to pay off the mortgage for this farm.
Hidden assumptions of the proposed solution include the implicitly stated indication that Corteze’s oranges are Class 1. The consultant’s recommendation is to choose the partnership with a broker and export the oranges, not only due to higher prices and increasing demand for but also because the local and global juice markets are plummeting. Moreover, there is a potential of earning more than $500 per tonne, and the Australian government is supporting the exports, for example, by maintaining negotiations with China to minimize the consequences of the pandemic for growers, making the option of exporting oranges more attractive.
Therefore, by choosing to cooperate with a broker, Cortez will minimize the potential risks that are present in the juice market and will be able to earn higher profits to try and grow other varieties of oranges.
Beilharz, N. (2020). Fresh Australian orange juice demand dips and growers look to better returns from fresh fruit. Web.
Citrus Australia. (2020). COVID-19 (Coronavirus) update #8. Web.
Free trade agreements. (2018). Web.
Fresh Australian juice. (n.d.). Web.
Lewis, C. (2020). AUD/USD price forecast – Australian dollar stabilizing. Web.
Schremmer, J. & Isa, N. (2018). Australia’s citrus industry set for another record year but nurseries run short of tree stock. Web.