Economics of
Texas Citrus
CONTENTS
• Descriptive Stuff
 citrus industry facts
 citrus supply & demand situation
 citrus prices & production costs
• Economic Decisions
 orchard investment/disinvestment
 managing risks
Basic Point to Remember:
• The important economic issues about
citrus involve the long-term, perennial,
fixed asset nature of orchards
• Examples
 The supply of citrus is relatively unresponsive to
short-run changes in citrus prices
 The profitability of citrus operations must be
measured in a multi-year investment framework
Where does
citrus fit
within the
LRGV
agricultural
economy?
15%
24%
15%
2%
7%
18%
8%
11%
Out of a total crop value of $600 million
Vegetables
Cotton
Feed Crops
Livestock
Fruits
Other Crops
Nursery
Ag. Related
Prices & Income
• Fresh Market
 grapefruit
 oranges
 insert graph
• Juice Market
 grapefruit
 oranges
 insert graph
Supply/Demand Shifts
• Demand can shift from
changes in consumer income
 changes in consumer preferences
 changes in price of substitute or
complementary commodities
• Supply can shift from
 changes in technology (prod. costs)
 changes in input prices (prod. costs)
 changes in no. of producers
Who Are Our Competitors?
FLORIDA
California/Arizona
Other Countries (Israel, Cuba)
Florida has
the corner
on both the
Juice and
Fresh
Markets for
Grapefruit
Grapefruit: Florida vs. Others
Florida
has the
corner on
the Juice
Market,
but
California
owns the
Fresh
Market
Juice
Market
fruit is
heavily
discounted
compared
to Fresh
Market
Prices & Income
• Fresh market citrus gets higher
price per box (or per acre) than
juice market
• Since consumption is fairly
stable, and acreage is fixed in
short run, changes in prices
result from supply shifts due to
weather, for example…
Florida Supply & Prices
Thought Questions
• Grapefruit prices are higher every
winter & lower every spring. Is this a
function of Supply or Demand?
• Would new information about citrus
health benefits affect Supply or
Demand? How?
Industry Strategies
• TX Industry strategy is to differentiate Texas
grapefruit via trademarks, brands, advertising,
to create a separate (and hopefully higher)
demand for our specific product
• Another strategy is to aggressively market in the
times/locations where TX citrus is most available
• Another strategy is to regulate (via federal
marketing order) the packaging and labeling of
TX citrus
Grower Level Economics:
Production Costs
• Orchard Establishment
• Young Bearing Trees
• Mature Bearing Trees
(Year 1 - Year 3)
(Year 4 - Year 8)
(Year 8 and older)
Production Costs
Investment Decisions
• Orchard investments require upfront commitments of land &
financial capital for many years
• Orchards have annual costs &
returns over a number of years
• How can you decide today whether
an orchard investment will pay over
it’s lifetime?
Grapefruit Investment Summary:
=========
=========
=========
=========
=========
Break-even Year: 7 years
Year 2 Costs
Net Present Value: $352 per acre
discounted at
5%
Grapefruit Investment Analysis: Gross Returns,
Variable Cost, Fixed Cost, Allocated Items, and
Net Returns, Year 1 - 20.
=========
=========
=========
=========
=========
=========
GR
VC
FC
AL
NR
Year 1
$0
$1,491
$47
$150 ($1,688)
Year 2
$17
$660
$257
$150 ($1,050)
Year 3
$225
$675
$257
$150
($857)
Year 4
$450
$741
$257
$150
($698)
Year 5
$675
$741
$257
$150
($473)
Year 6
$930
$741
$257
$150
($218)
Year 7
$1,350
$741
$257
$150
$202
Year 8
$1,775
$774
$257
$150
$594
Year 9
$1,775
$774
$257
$150
$594
Year 10
$1,775
$774
$257
$150
$594
Year 11
$1,775
$774
$257
$150
$594
Year 12
$1,775
$774
$257
$150
$594
Year 13
$1,775
$774
$257
$150
$594
Year 14
$1,775
$774
$257
$150
$594
Year 15
$1,775
$774
$3
$150
$848
Year 16
$1,775
$774
$3
$150
$848
Year 17
$1,775
$774
$3
$150
$848
Year 18
$1,775
$774
$3
$150
$848
Year 19
$1,775
$774
$3
$150
$848
Year 20
$1,775
$774
$3
$150
$848
Urban Growth Projections in 2050
Managing Risk
• Natural Risks
 tropical wind damage
 water shortages
 Hard freezes (avg. every 11 years!!)
• Economic Decisions
Purchasing insurance
Investing in protective technology
How much can I afford to pay for these?
How does risk affect investment scenario?
Losses Attributable to Inadequate
Irrigation Water in 1998 Drought
Commodity
Lost Crop Sales
Full Time Job
Equivalent Loss
Cotton
$
7.8 Million
318
Other Row Crops
$
1.9 Million
97
Citrus
$
5.1 Million
368
Sugarcane
$
7.9 Million
517
Fall Vegetables
$55.0 Million
1,984
TOTAL
$77.7 Million
3,284
Conclusion
• Texas citrus can be a good investment, but
only with careful consideration of alternative
investments and risks
• The Texas citrus industry will likely endure,
both as a hobby activity as well as a small (low
acreage), input intensive, high tech enterprise