Economics of
Texas Citrus
Dr. Patil’s Class
Nov. 24, 2004
CONTENTS
• Big Picture Stuff: Supply & Demand, Prices, and Price
Determinants of Citrus
• Orchard Level Economic Picture: Discussion of costs of
production and investment framework. Demo of Excel
templates and tips on keeping/managing orchard information
with Excel. Revision of A&M budgets to fit your own numbers.
• Evaluating simple on-farm choices: Alternative greasy spot and
arthropod management
• Considering Alternative Technology, Example One: Topworking
Orchards
• Considering Alternative Technology,
Example Two: Microbudding
• Discussion of Risk and Risk Management
Basic Point to Remember:
• The important economic issues about citrus
involve the long-term, perennial, fixed asset
nature of orchards
• Implications:
 The supply of citrus is relatively unresponsive to short-run
changes in citrus prices
 Orchard profitability (or evaluation of alternative
technologies) must be measured in a multi-year investment
framework
 Risk issues involve the TIMING of unexpected losses or costs
Citrus Industry Value of Output
Table 1. 2001-2002 Texas Citrus Aggregate Wholesale Values.
Fresh Shipment Sales
$61,073,646
Juice Shipment Sales
$16,102,000
Gift Fruit Sales*
$3,668,000
Local Fruit Shipment Sales
$1,422,222
TOTAL
$82,265,868
Notes: Shipment data obtained from TVCC Final Report, June 15, 2002
Wholesale values obtained from industry sources, and represent
conservative estimates.
Gift Fruit Shipment Sales represent retail sails.
Impact of Citrus and Other RGV Crops
Table 2. Measures of Economic Impacts of Rio Grande Valley Crops, 2001
REGIONAL GROSS
REGIONAL VALUE
REGIONAL
PRODUCTS
VALUE OF PRODUCTION ADDED INCOME
EMPLOYMENT
Corn
$6,427,200
$5,524,630
196.6
Cotton
$18,658,400
$13,804,271
456.1
Grain Sorghum
$32,372,683
$27,826,597
990.3
Oilseeds
$387,000
$353,387
14.7
Sugar Cane
$44,908,432
$37,056,883
1,208.0
Vegetables
$152,753,625
$119,719,228
4,946.6
Citrus
$82,265,868
$38,865,862
2,495.3
Livestock
$57,336,000
$46,136,396
3,166.5
Hay/Alfalfa
$4,253,000
$2,999,860
340.3
Nursery
$53,340,000
$45,497,306
2,831.8
Other
$23,312,000
$19,884,387
1,237.6
TOTAL
$476,014,207
$357,668,808
17,883.7
Notes: The employment numbers are in FTE job equivalents, and represent roughly three part-time jobs
Value of production data are from USDA NASS; impact multipliers are from IMPLAN
The sugar cane value of production is extrapolated from 2000 NASS data
The citrus value of production represents the 2001-2002 wholesale shipments value of juice, fresh fruit, gift fruit, and local fruit sales.
Citrus and Total RGV Ag Value
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
Florida's Loss, Texas' Gain
October 15, 2004
By Lana Robinson
In the best of all worlds, every agricultural producer would prosper. But
much of the time, due to crop failures, natural disasters, and other
factors, farmers in one region benefit from the misfortune of those in
another. With Florida's citrus industry in shambles following four
treacherous hurricanes over a six-week period, Texas citrus growers are
expecting a stronger market for their product this season. "Given the
shortfall this year, we would expect a little higher demand and the No. 2s
(Choice) grapefruit may be easier to move. That's why we're excited,"
said Dr. Julian Sauls, professor and Extension horticulturist in Weslaco.
Sauls said 70 percent of the grapefruit in Texas are grown for the fresh
market. Of those, 45 to 50 percent are No. 1s (Fancy) and 20 to 30
percent are Choice. In a normal year, Fancy grapefruit make money and
Choice does well to break even. In the aftermath of the Florida disasters,
California's summer grapefruit sales also surged and FCOJ (frozen
concentrated orange juice) prices rose dramatically. Florida boasts
close to 800,000 citrus acres, compared to the Rio Grande Valley's
approximate 28,000 acres. Florida supplies 75 percent of all U.S.
grapefruits. The Sunshine State specializes in white and pink grapefruit,
while Texas focuses on the red grapefruit varieties.
Florida
has the
corner on
both the
Grapefruit
Juice and
Fresh
Markets
Grapefruit: Florida vs. Others
Florida
has the
corner on
the Orange
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 up-front, long-term commitment of land & financial capital
• 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?
• Financial planning involves the Three R’s
Records
Rates of Return
Risk
Records for Financial Planning
• Need a system to store, organize, and
retrieve records of resource inventory &
usage, production, expenses, income &
assets
• Need a system to summarize records into
performance measures and reports, and to
easily play with the numbers
• Computerized Examples: Excel templates,
Accounting Programs (e.g., Quickbooks),
or custom ag software programs
Rates of Return
• Most things you do in an orchard
setting involve long-term investment
decisions
 land
 nursery stock
• Must consider time value of money, e.g,
today’s dollars are worth more than
future dollars
• Should consider alternative uses of that
capital
• Evaluate investments by discounting
future calculations that discount future
rev. streams
Risk Management Strategies
• Likelihood of big, destructive,
random events like hurricanes
and severe freezes
• Insurance products and costs
• Technology effects and costs (in a
risk premium sense)
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
EXAMPLE ONE: Top Working vs.
Conventional Orchard Replacement
Preparation Cost:
$ /acre
Labor Expense:
$ /acre
Materials
Cost: $ /acre
One Year Old Top-Worked Trees
(ca. 3.5’ to 4’ tall)
Three Year Old Valencias
Worked onto Grapefruit
Yield=ten tons per acre
Top-