Publication of The College of Agriculture Vary UNIVERSITY OF CALIFORNIA Oranges and Orange Products CHANGING ECONOMIC RELATIONSHIPS SIDNEY HOOS and J. N. BOLES Million Boxes — Fresh Fruit Equivalent 150 125 100 USES OF ORANGE PRODUCTION J — I I I I I I I I I I I I L_J I I I I I I I I I I I I L IF Total Other Uses 1925 1930 1935 1940 1945 1950 CALIFORNIA AGRICULTURAL EXPERIMENT STATION BULLETIN 731 T ±H .he orange industries, since the end of World War II, have experienced marked changes. Those changes may be lead- ing the industries into a new era. Those changes, also, raise many questions in the minds of producers, processors, distribu- tors, and consumers. Will recent and current trends in the level of production, its geographical distribution, and its utilization continue? What does the future hold for the fresh-shipping in- dustries compared with orange products? What are the prob- lems and potentials facing the orange industries? This bulletin discusses the above and related questions in light of changing economic relationships and the changing marketing scene. Its purpose is to provide economic and mar- keting information helpful in appraisal of the current situation and outlook for the orange industries. THE AUTHORS: Sidney Hoos is Professor of Agricultural Economics and Economist in the Experiment Station and on the Giannini Foundation. J. N. Boles is Assistant Specialist in the Experiment Station and on the Giannini Foundation. CONTENTS INTRODUCTION 4 SUMMARY 5 REVIEW OF ECONOMIC TRENDS 11 Production 11 Acreage 16 Yield 19 Relations between Acreage, Yield, and Production .19 Utilization 21 Fresh Shipments 26 Orange Exports 28 Costs, Cultural and Marketing 29 Returns, Fresh and Processed 30 DEMAND CHARACTERISTICS OF ORANGES AND ORANGE PRODUCTS 35 What is "Demand"? 35 Seasonal f.o.b. Demand for California Fresh Oranges 37 Winter Oranges 37 Summer Oranges 40 Consumer Demands for Oranges and Orange Products 41 Consumer Uses of Oranges and Orange Juice Products 46 CHANGING ECONOMIC RELATIONSHIPS 49 Major Shifts in Production-Marketing 49 Frozen Concentrated Orange Juice 49 Canned Single-Strength Orange Juice 51 Hot Concentrate 52 Changing Attitudes of Consumers 52 Production for Fresh Shipment and Processing 54 California Fresh Shipment Prorate 57 Problems and Potentials 62 ORANGES AND ORANGE PRODUCTS Changing Economic Relationships* SIDNEY HOOS and J. N. BOLES INTRODUCTION The orange industries in California have long been an important part of the state's economy. Until the recent upsurge in cotton acreage and production in Cali- fornia, oranges for many years were the leading agricultural crop in the state. And even now, after the many postwar changes which have occurred in Califor- nia's agricultural and general economy, the orange industries are a major con- tributor to the state's agricultural wealth and income. Orange production and marketing de- velopments in the postwar years, and effects of changing economic relation- ships, have directed new attention to the economic status of the orange industries. Interregional competition and interprod- uct competition have magnified old prob- lems and introduced new problems and potentials. The present is an opportune time to review and appraise the course of eco- nomic developments in the orange indus- tries. The blush of early and spectacular success in the growing of oranges for use in frozen concentrated juice has begun to fade. The outlook for the future of the orange industries in California, Florida, and other producing areas is not as clear as some believed a short time ago. To appraise the current situation, and have a basis for considering the potentials for the future, this bulletin presents an analy- sis of the changing economic relation- ships and their impacts on the orange industries.! The third section of this report, to pro- vide necessary background information, reviews the more significant economic trends in the orange industries. It deals with the different trends in the major producing areas. It considers acreage, yield, production, utilization, shipments, prices, costs, and returns. This section tells what has happened. The fourth section of the report is con- cerned with the nature of the demands for oranges and orange products. Atten- tion is given to the demand characteristics for winter and summer fresh oranges and how those characteristics have tended to change over time. Competitive consumer demands for fresh oranges, canned single-strength orange juice, and frozen concentrated orange juice are considered. These demand characteristics and relation- ships also reflect what has happened; but they provide some information necessary to understand why various developments have occurred — and to weigh their effects. The fifth and final section of the re- port is titled "Changing Economic Re- lationships." It discusses the effects of technological developments in processing orange products and their marketing alongside fresh oranges. Earning levels of California and Florida growers are ex- * Paper No. 130. The Giannini Foundation of Agricultural Economics. f For a comparable analysis of the changing economic relationships in the lemon industries see Exp. Sta. Bui. 729, Lemons and Lemon Products; Changing Economic Relationships, 1951-52, by Sidney Hoos and R. E. Seltzer. [4] amined in light of the changing market relationships, and the role and operations of the California fresh orange shipment prorate are reviewed. The report closes by setting forth significant problems and potentials facing the orange industries in California as they adjust to and take ad- vantage of changing economic relation- ships. The "Summary" indicates the highlights of sections mentioned above. SUMMARY During the period between the two world wars, the annual orange produc- tion of the United States more than doubled. During World War II and since then, production continued to increase. Three decades ago, the United States ac- counted for about 30 per cent of the world's orange production. Now this country accounts for 40 per cent. The growth in national production of oranges, especially in Florida in recent years, has been reflected by the increas- ing pressure of orange supplies. This pressure induced the search for new markets and outlets. In the 1930's, the fresh orange market, long the only chan- nel from orange producer to consumer, was supplemented by canned single- strength orange juice. This introduced the outlet for orange-juice products. Al- though the canned single-strength orange juice market expanded, the product did not attain the position of a close substitute for juice from fresh oranges. The pressure of orange supplies con- tinued and, not long after the end of World War II, frozen concentrated orange juice was introduced. This new product could be manufactured as a close substitute for juice squeezed from fresh oranges and gained consumer acceptance quickly. The market for frozen concen- trate expanded tremendously. These de- velopments left marked impacts on the orange industries; these impacts differ in Florida and in California, and they also differ for California Valencias and for California navels. In Florida, where frozen concentrate was first manufactured, orange growers for several years benefited greatly from competition for the fruit among proces- sors and between processors and fresh shippers. Greatly increased returns ac- crued to Florida growers, and further plantings were induced. The pressure of increasing crops and the accumulation of inventories of orange juice products, however, resulted in much lower returns to Florida growers by early 1952. In California, where the fresh ship- ment market has been and still is the mainstay, frozen concentrate was not manufactured in significant volume until 1949-50. It still is at a much smaller volume than in Florida. The growth in orange juice products, especially frozen concentrate, has faced the California grower and fresh shipper with competi- tion from a close substitute. This applies more to California Valencias than to Cal- ifornia navels. Returns to California growers have been affected. These chang- ing economic relationships, related to technological developments, are having repercussions on marketing institutions and practices. In the meantime, the na- tional production and consumption of oranges, in terms of fresh and total prod- ucts, have reached higher levels than ever before. The following pages set forth what has happened and why, revealing the crosscurrents of developments in both the fresh and juice-products markets. Orange production in the United States has not grown at the same rate in the various producing areas. During the past thirty years, production of oranges has increased in each of the major areas, but the increase has been neither steady nor proportional. A marked shift has oc- curred. During the 1920's, California's share of national production averaged near 60 per cent and Florida's share av- [51 eraged near 35 per cent. Now, in per- centage terms, the positions of California and Florida have just about reversed as a result of developments over the past three decades. When only the past decade is considered, there has been a downward trend in California-Arizona orange pro- duction, but the trend continued up in Florida. In the California-Arizona area, trends in orange production have varied among the several districts. The production trends have declined in recent years in all of the districts in the area. Southern California, the largest district, has ex- panded its proportion from 75 to 85 per cent of the area total. The increase was largely at the expense of the central- northern California district. As total production trends in recent years have differed in California and Florida, so have the varietal production trends varied within each state. Since 1934, more than 55 per cent of the Cali- fornia orange crop has been Valencias, the remainder being navels and miscel- laneous. The Valencia proportion has in- creased during the past two decades; the current percentages are near 65 per cent Valencias and 35 per cent navels and mis- cellaneous varieties (hereafter referred to only as navels). Since 1943-44, the central-northern California district's proportion of Valen- cias in the annual crop has declined from 35 to about 25 per cent; navels increased from 65 to 75 per cent. In the central- northern district of California, not only has total production dropped since 1943, but Valencias have lost ground to navels. In the southern California district, Valencias have been the dominant vari- ety, constituting about two-thirds of the annual output. In recent years, Valencias have continued their percentage increase — if only slightly. In the Arizona-Desert Valley district, however, the proportion has been more evenly divided, although in the past several years navels have tended to make up the larger proportion. The freezes in some of the recent years in California have reflected on the variety proportions. But over the past dozen or fifteen years, the state's increased per- centage of Valencia production resulted from the situation in southern California, whose relatively large volume tends to dominate the state's picture. In both the central-northern and Arizona-Desert Valley districts, Valencias had given way to navels. The Valencia orange attained greater relative volume in Florida during the past fifteen years. Valencias amounted to over 30 per cent in 1934--35, rose to a peak near 50 per cent in the middle 1940's and now are near 45 per cent. Early and midseason varieties presently make up about 55 per cent of the Florida orange crop. These production and variety trends have resulted from the interaction of the trends in yield and bearing acreage. The upward trend in California orange production until the middle 1940's re- flected rising trends in both yield and bearing acreage. The sharp rise in Cali- fornia production from 1939 until 1944 was due primarily to unusually high yields, and the downward drift of Cali- fornia production after the peak 1944 was due to both decreased yields and acreage. The increase in Florida orange pro- duction until the middle 1930's reflected increased bearing acreage offsetting de- creasing and then stable yields. But in the past fifteen years, both increased acreage and higher yields contributed to the strong expansion in Florida produc- tion; the higher level of yield, however, was the more influential. Review of the record shows that bear- ing acreage in Florida rose more sharply than in California and, in recent years, yields in Florida advanced more than in California. This greater increase in both acreage and yields account for Florida's orange production surpassing that of California. [6] The increased volume of national pro- duction in the past two decades induced changes in utilization. Only fifteen years ago, over 90 per cent of the nation's orange crop was used in fresh form, but now only about half is so used. Frozen concentrate grew at a tremendous rate; it now takes nearly 30 per cent of the orange production, and further increases are indicated. This marked growth in orange products temporarily solved — for some groups — the problem of pressing supplies growing faster than demand; but new problems — for other groups — were created. The country at large now consumes more oranges — when all forms are in- cluded — than ever before. This increased consumption includes the marked in- crease in orange products. As the proc- essed-orange outlet expanded, Califor- nia's participation was not as marked as Florida's. A declining proportion of the total oranges processed was from Cali- fornia fruit. But even in this state, an in- creasing portion of the crop has been processed, especially during the past sev- eral years. The California Valencia orange is more adaptable for processing than is the navel. In 1950-51, as much as 43 per cent of the California Valencia crop was processed > and only 12 per cent of the navels. This compares with over 50 per cent of the Valencias, and early and mid- season varieties, processed in Florida in 1950-51. The growing and spectacular segment of the orange-products market in the past several years has been frozen concentrate. Frozen-concentrate output began earlier in Florida where the pressing supply had been growing rapidly. In California a significant volume has been manufac- tured only in the past two years. These changes in utilization of the orange crop are significant; they reflect consumer preferences and affect grower returns. Cultural costs in the production of oranges have long been lower for Florida growers than for California growers. Florida's cost advantage has become even more marked within the past decade. This widening cost differential resulted from the combined effects of higher yields in Florida and a greater rise in cultural costs for California growers. When marketing costs are added to cul- tural costs, we find that total costs during the past decade have risen for California and Florida, but the rise has been sub- stantially larger for California growers. California fresh oranges have generally sold for higher prices per packed box (and still higher per pound) than Florida fresh oranges. This premium differential California shippers received for their fresh oranges was sufficient so that even on an f.o.b. basis California oranges have returned higher per-box prices than Flor- ida oranges. On-tree returns give a picture closer to the grower. Generally — with some excep- tions, as in 1949-50 — the on-tree per-box value of California oranges shipped for fresh use (Valencias and navels com- bined) exceeded the on-tree per-box value of Florida oranges either shipped for fresh use or for processing. When processing alone is considered, the on- tree return to the California grower has been much lower than to the Florida grower. But after 1947-48 the on-tree re- turns — fresh and processed — in Florida advanced sharply, reflecting the impact of packers' demand for oranges to be manufactured into frozen concentrate. And in 1950-51, for the first time on record, Florida on-tree per-box returns from both fresh and processed uses ex- ceeded California on-tree returns from oranges shipped fresh. Within California, on-tree per-box re- turns from oranges shipped fresh exceed by a substantial amount those from oranges processed. This is true for both Valencias and navels. But until recent years the on-tree returns from Valencias used fresh averaged higher than for navels used fresh. During the past several [7 years this situation has been reversed. When California oranges go to process- ing, Valencias yield greater on-tree re- turns than do navels; and this processing differential in favor of Valencias widened much during the recent postwar years. A picture even closer to the grower is obtained when "net returns" are consid- ered. Such returns are not really net be- cause neither orchard depreciation nor interest on orchard investment is re- flected in the estimates. During the years prior to World War II, California net returns generally compared very favor- ably with those in Florida; and during those years California Valencias yielded better net returns — dollars per box — than did California navels. In the postwar years, the situation has been different; Florida growers have experienced — on the average — much better returns than California growers. And Calif ornia navels yielded better returns than California Valencias. These changes in returns re- flect the interaction of the changing sup- plies of oranges and orange products and changing consumer demands. The demand for California fresh oranges involves the demands for winter oranges (mostly navels) and for summer oranges (mostly Valencias). First con- sider winter oranges. The season average f.o.b. price of California fresh winter oranges is determined primarily by the interaction of California-Arizona fresh shipments, fresh shipments from other producing areas, the level of national in- come, and a trend reflecting changes over time. For given levels of income, of supplies from other areas, and of con- sumer attitudes, an increase in the ship- ment and sale of California-Arizona fresh winter oranges is associated with a decrease in the f.o.b. price. Increased winter shipments from other areas also tend to depress the f.o.b. price of Califor- nia-Arizona fresh oranges. Increased levels of national income, with other fac- tors equal, tend to increase the demand for fresh winter oranges. In recent years there was an apparent tendency for the demand for California- Arizona fresh winter shipments to taper off and perhaps even enter a declining phase. But the demand situation now ap- pears to differ from the prewar years in another important way. In the recent postwar years and now, the sales vol- ume of California-Arizona fresh winter oranges is more responsive to price changes than it was before the war. The reason seems to be that more acceptable substitutes or alternatives (orange prod- ucts) for fresh oranges are now available. Now consider fresh summer oranges. The season average price of California summer fresh oranges is also determined primarily by the level of California- Arizona fresh shipments, fresh ship- ments from other producing areas, the level of national income, and a trend re- flecting changes in demand over time. Increased shipments from California- Arizona, and also those from other areas tend to depress the f.o.b. price of Cali- fornia fresh summer oranges. Increases in national income tend to raise the de- mand for summer oranges. And the de- mand for California-Arizona fresh sum- mer oranges, as for winter oranges, appears to have tapered off during recent years. The sales volume of fresh summer oranges, too, is more responsive to price changes now than before the war. Here, also, the change appears to reflect the impact of competition from orange juice products. The evidence suggests that there exists a competitive demand relation between fresh oranges and orange juice products; and it also appears that the recent devel- opments in frozen concentrated orange juice have had a much greater impact on the fresh orange markets than did the earlier developments in canned single- strength orange juice. The current com- petitive demand relation between fresh oranges and orange- juice products does not reflect a new situation. But the com- petition is much stronger than previously [8] and the timing within the year is now different. The better packs of frozen orange juice concentrate very closely approxi- mate — in taste, flavor, and body — juice squeezed from fresh oranges; much more so than canned single-strength orange juice. The storability of the frozen con- centrate permits its sale to consumers over the year. Thus, a highly acceptable substitute for juice squeezed from fresh oranges is available year round; and Cal- ifornia Valencias now do not have the seasonal advantage they used to have when Florida fresh oranges were at their sea- sonal low. Florida oranges, in the form of frozen concentrate, have also attained a. wider geographical market; for ex- ample, high volume sales the year round are now made in the Pacific Coast states. These changes in the marketing and the geographical distribution of a large part of the Florida crop — that part put into frozen concentrate — is one of the sig- nificant changing economic relationships in the orange industries. A change in the timing of the market- ing of part of the Florida crop is not en- tirely new; it occurred with the introduc- tion and growth of canned single- strength juice. But that product did not have the consumer acceptability of frozen concentrate. The spectacular growth in the distribution and consumption of frozen orange juice concentrate results from a mixture of several influences. The product is a close substitute of fresh juice; the consumer price has tended downward; use of the product is con- venient for many householders; a high and rising national income has existed; and the distribution system was ready- made in the form of low-temperature cab- inets widely available in retail outlets. In short, the product has been attractive to the consumer in quality, price, con- venience; and it has been widely avail- able to him. The evidence suggests that the growth of frozen concentrate has had a greater impact on California Valencias than on California navels. Navels generally, not entirely, are used by consumers for eat- ing "out of hand," in salads, or in vari- ous forms other than squeezing for juice. Thus, navels have not been faced with a competitive product as much as Valen- cias. In addition, navels have long been accustomed to competition from fresh oranges from other areas; but for Valen- cias, frozen concentrate appeared as a type of competition which had not pre- vailed earlier. Thus, the development of frozen con- centrate has had serious repercussions on the California orange industries, es- pecially California Valencias. In Florida where much of the orange crop in recent years has gone into the manufacture of orange concentrate, some old problems were solved, but only temporarily, and new problems were created. Orange growers, shippers, and proc- essors, especially in Florida, several years ago, believed that frozen concen- trate would solve the problems of the cit- rus industries. They now face the price- depressing effects of increased crops and of inventories of frozen concentrate. The record high prices received by Florida growers in recent years, caused in large part by the competition among processors for making frozen concentrate, induced further plantings and expansion of the orange-producing industry in that state. The pressure of supply growing faster than demand had its effect on Florida growers in 1951-52. Inventories of frozen concentrate had accumulated in the face of even more oranges available for pick- ing, and the reaction has been lower prices to growers in Florida. Their re- turns, which were phenomenally high only two years ago, in 1951-52 declined to a much lower level. This does not mean that frozen con- centrate is on the way out. It does mean that its success in some ways has brought with it problems in other ways. It means that another major market outlet for [9] oranges has been established, but that this new outlet will not displace entirely the earlier outlets. It means that a larger proportion of the orange crop is being marketed in the form of a manufactured product where nonprice as well as price competition is important. It means that aggressive competition and merchandis- ing on the parts of each of the segments of the orange industries — fresh ship- ments, frozen concentrate, canned single- strength orange juice — will be necessary to hold or to increase their relative vol- umes. It means that the orange industries are subject to the impacts of technological and marketing developments and the changing economic relationships which follow them as well as precede them. As frozen concentrate has come on the scene and is leaving its mark, so other types of orange products may be developed. Among them may be a nonfrozen con- centrate, acceptable in quality and price, which needs no refrigeration but has the taste and nutrition characteristics of juice squeezed from fresh oranges. New vari- eties and/or stock scion combinations may be employed which produce oranges best adapted for use other than manufac- turing juice and which are more accept- able in taste, convenience, and yield than the present varieties of oranges. These are potentials which face the orange in- dustries. The developments in the orange prod- ucts markets have introduced other po- tentials as well as problems. The views of many California-Arizona orange grow- ers, especially of Valencias, led to ques- tioning the effectiveness of the California- Arizona order which regulated by volume of shipment the handling of oranges grown in California and Arizona. Some favored its elimination, others its modifi- cation, still others its continuation as it stood. After a grower referendum, the order was terminated effective March 8, 1952. In the discussion of the order and its effectiveness, a clear distinction had not always been made between what the Orange Administrative Committee could do and what it could not do; between what it was established to do and what some groups believe it should have done; between the interests of the orange in- dustries as a whole and the interests of various segments within the orange in- dustries. The evidence suggests that at times the Orange Administrative Com- mittee, in its operation of the Volume Prorate, had been charged with the re- sponsibility for the outcome of develop- ments over which it had no control. This is not to say that various questions can- not be raised in connection with the operation of the Volume Prorate; it is to say that the major part of recent price and income disappointments came about for reasons basically unrelated to the operations of the Orange Administrative Committee. Under present conditions, and those likely to be with us for some time, the interdependence among the markets for fresh oranges and orange products is such that operations in one affect the returns from the other. If the financial interests of all growers were merged, the ideal use of the orange crop would be consistent with obtaining the largest net profit from the entire crop. But all grow- ers do not have identical interests. Chang- ing economic relationships, however, are now shaping the situation such that sig- nificant industry decisions are being called for. The orange industries of Cali- fornia, and Florida too, now face the problem whether such decisions are to reflect organized group thinking and in- terests under the jurisdiction of appro- priate federal and state authorities, or, whether the outcome is to reflect the in- dependent interests and actions of indi- vidual growers, shippers, and processors. But with or without formalized group- marketing schemes, the growing supply pressure of oranges and orange products interacting with the competitive demand relations now obliges greater attention than ever toward possibilities of increas- [10] ing yield per resource inputs and decreas- ing costs per volume outputs. Among such potentials facing California growers is the rationalization of packing-house organization and operations. The elimi- nation of certain packing houses or their consolidation with other houses, along with modifications in internal operations and a reconsideration of the flow of fruit from orchard to packing house or proc- essing plant, may reduce unit costs and at the same time bring the productive services of the industry in line with cur- rent developments. The pressure for cost reductions fol- lows from the need for increasing returns to large segments of the California orange industries. The earnings from use of the land and other resources in the production of oranges, and how they compare with expected earnings from alternative uses of those resources, deter- mine the course of the California orange industries. REVIEW OF ECONOMIC TRENDS In order to provide an adequate work- ing background and set forth some of the more important developments in the orange industry, we now investigate some economic trends. The objective in this part is to show what has happened. Later on we shall interpret what has happened and look into the apparent results and effects of the developments. First we shall review the trends in pro- duction not only in California but also in other major producing areas. Next, we shall consider the production in- fluences of bearing acreage and yield. Third, we shall discuss the trends in utilization — fresh oranges, canned single- strength orange juice, and frozen concen- trate orange juice. Finally, we shall con- sider costs and returns from the grower's viewpoint. These phases will provide the background for a discussion of the de- mands for oranges and orange products and how such demands have changed in recent years. Production. During the period be- tween the two world wars, the annual orange production of the United States more than doubled, just about keeping pace with the increase in world produc- tion (fig. 1). Average annual production of oranges during the first half of the 1920's was slightly over 31 million boxes, or about 31 per cent of total world pro- duction; in the latter half of the 1930's orange production averaged 67 million boxes annually, also about 31 per cent of total world production. During World War II, United States production con- tinued to increase while the production of many of the other countries remained fairly constant or decreased. As a result, for the 1949-50 season United States production of over 108 million boxes amounted to 40 per cent of the world total. The extent to which orange production in this country has increased in recent years is also well emphasized by com- paring the increase in oranges with what has occurred in other fruits. The figures in the table on page 13 clearly show that the production of all citrus fruits, not only oranges, has ex- panded much more than other fruits. This large increase in citrus production has been associated with expanded consump- tion, but price repercussions have also occurred. Orange production in the United States has not risen at the same rate in the major producing areas. The differing trends are shown in figure 2 for Cali- fornia, Florida, and the country as a whole. The two major orange-producing areas in the United States are California and Florida. Only relatively small amounts are produced in Texas, Arizona, Alabama, Louisiana, and Mississippi. During the past thirty years, production of oranges has increased in each of the major areas, but the increase has been neither steady nor proportional. In the [ii] 300 - 200 - 100 - Figure 1. Production of Oranges, Tangerines, and Mandarins, World and United States, from 1920/21. i r 1920/21 1925/26 1930/31 1935/36 1940/41 1945/46 1950/51 to to to to to to 1924/25 1929/30 1934/35 1939/40 1944/45 1949/50 5 YEAR AVERAGES ANNUALLY Figure 2. Orange Production in United States, Californ ia, and Flori da, from 1919/20. 20 00 80 60 40 20 UNITEC ) STATES - > f \ - V \ t # . 1 1 1- 1 1 1 tJ A \0, FLORIDA 4 - / / — 1 1 y,'\/ - v V v 1 ... , * *- ••/ i i i i i i i i i i 1 •• i i r i / CALIF iiii r— vs ■ORNIA^ 7 1 1 1 -i—i ■ i i i 1920/21 25/26 30/31 35/36 40/41 45/46 50/51 [12] U. S. Production of Oranges and Other Fruits Fruits Apples Bananas, imports . Cantaloupes Grapes Grapefruit Lemons Oranges Peaches Pears Plums and prunes Production Units 1,000 bushels 1,000 bunches 1,000 crates 1,000 tons 1,000 boxes 1,000 boxes 1,000 boxes 1,000 bushels 1,000 bushels 1,000 tons U. S. production in 1925-30 and 1945-50 Average 1925-30 161,200 60,437 13,850 2,396 11,728 6,880 41,705 54,270 22,720 687 Average Percentage 1945-50 change per cent 107,420 - 33 53,366 - 12 12,440 - 10 2,896 + 21 52,170 +335 12,580 + 83 111,210 +167 74,020 + 36 32,780 + 44 666 - 3 season of 1919-20 California production was about 16.6 million boxes. Since then, California orange production followed a persistent upward trend until the middle 1940's. After the all-time peak in 1944- 45, California production receded, and now is about at the level of ten years earlier. Florida's production in 1919-20 was less than 8 million boxes. The trend was slightly upward until 1935-36. Then a series of increased crops brought the state's output to a much higher level. After 1940-41 and during the war years, Florida's production increased sharply, and the high-level record outputs were maintained the past several years. Up to the middle 1940's, California's volume of orange production exceeded Florida's; but beginning with 1945-46, Florida es- tablished and has maintained her position of the leading orange-producing state by volume. Another way of looking at the shift is to consider the proportionate output by states. California's share in total United States orange production during the 1920's varied from year to year but aver- aged over 60 per cent. Since Florida's production increased at a more rapid * The Orange Administrative Committee and its rate, California's share decreased, reach- ing a low of 37 per cent in 1948-49 and rising to 39 per cent in 1950-51. Hence the positions of California and Florida have just about reversed over the past three decades. Within California-Arizona the trends in orange production have varied be- tween the various districts which include the orange-producing areas in the two states. The districts were outlined by the Orange Administrative Committee for its use in regulation of the shipments of. fresh oranges.* California-Arizona was divided into four shipping or prorate districts — northern California, central California, southern California, and Arizona-Desert Valley. The central and northern Cali- fornia districts were a single district until December, 1950; hence, the trends will be reviewed for the combined cen- tral-northern California area. In geographical terms, the districts are. specified as follows: District 1 : North of a line east and west through the Tehachapi Mountains, excluding district number 4. District 2: South of a line east and west through the Tehachapi Moun- operations are discussed on page 57. [13 Figure 3. Orange Production in California, by Districts, from 1943/44. 1943/44 45/46 47/48 49/50 51/52 100 80 i- 60 z Ul o oc LU Q- 40 |a CENTRA L- N RT H E R N ' C A U F. w A q ^\ •:fc : : : :v: : : : : valley 20 1943/44 45/46 47/48 49/50 51/52 tains excluding Imperial County and that part of Riverside County east of San Jacinto Peak. District 3: Arizona, Imperial County, and Riverside County east of San Jacinto Peak. District 4: North of 37th parallel. The southern California district pro- duces by far the largest amount (see fig. 3) of the total California-Arizona orange crop, averaging more than 80 per cent the past few years. Central-northern Cali- fornia is the next largest district, produc- ing an average of about 17 per cent. The Arizona-Desert Valley district provides only about 2 per cent. The production trends have declined in recent years in all of the districts in California* except the Arizona-Desert Valley district. This situation may be summarized by noting that, since 1943- 44, orange production in the combined central-northern California districts de- clined from over 23,000 cars to a little less than 14,000 cars last year; in southern California, from over 108,000 cars in 1944-45 to over 82,000 cars; and in the Arizona-Desert Valley district, increased from about 2,700 cars in 1945-46 to a little more than 3,200 cars (see fig. 3). Therefore, since 1943, this last district has increased its proportion of the state's total production. Southern California has expanded its proportion from slightly over 75 per cent to almost 83 per cent, largely at the expense of the central- northern California district whose pro- portion declined about correspondingly. Orange production in California and Florida is composed of two major varie- tal groupings. In California the two groups are: (1) Valenciasand (2) navels and miscellaneous, generally and here- after referred to only as navels. In Florida the groupings are : (1) Valenciasand (2) early and midseason. Therefore, we must look at the varietal production trends in the two states. As the total production trends in recent years differed in California and Florida, so have the varietal production trends varied within each state. In California, during every season since 1934-35, more * To simplify the wording the California-Arizona orange-producing area is often referred to as California. This practice is followed here and generally in the subsequent pages. [14] than 55 per cent of the total orange crop has been Valencias, the remainder being navels. The change has been erratic and gradual, but there was an increase in this percentage to a peak of 68 per cent in 1942-43 and again in 1948-49. The cur- rent percentages are probably near 65 per cent Valencias and 35 per cent navels (see fig. 4). A somewhat similar increase in Va- lencias was experienced in Florida. Start- ing at a lower level of over 30 per cent Valencias in 1934-35, the percentage of the state crop which was Valencia oranges rose to a peak of 49 per cent in the middle 1940's and then receded to 43 per cent in 1949-50. The current Valencia percentage in Florida is prob- ably near 45 per cent. The other category, "early and midseason" oranges, account for about 55 per cent of the Florida orange crop. In view of the significantly different marketing characteristics of California navels and Valencias, and especially in view of the different impacts resulting from processed orange products, it is worth noting how the varietal production trends have varied by districts. Within the California orange-producing region, the three shipping districts produce dif- ferent proportions of the two major va- rietal types, Valencias and navels. Figure 4. Orange Production in California, Navels and Valencias by Per Cent, from 1934/35. 1935/36 40/4 45/46 50/51 The central-northern California dis- trict's proportion of Valencias in the 1943-44 year was about 35 per cent, fluc- tuated thereafter and dropped to 17 per cent in 1948-49, the year with a freeze; by 1950-51 the Valencia proportion was back up to about 33 per cent. Valencia production in central-northern California was at a peak of 8,297 cars in 1943-44; and navels were at a peak of 16,643 cars in 1946-47. In this district total produc- tion has tended down, both in Valencias and navels. California Orange Production, by Major Varieties and Districts Crop year Central-Northern California Southern California Arizona-Desert Valley Valencia (cars) Navel (cars) Valencia (cars) Navel (cars) Valencia (cars) Vavel (cars) 1943-44 1944-45 8,297 6,253 5,339 7,043 5,170 1,803 3,113 4,638 14,995 15,104 10,084 16,643 14,581 8,476 9,853 9,250 57,823 76,228 51,049 65,562 52,401 51,411 52,844 60,944 28,870 32,378 27,597 25,066 25,869 16,912 23,270 21,539 1,000 1,416 1,491 1,367 829 616 918 1,851 983 1,076 1945-46 1,218 1946-47 1,262 1947-48 955 1948-49 963 1949-50 1,245 1950-51 1,351 [15] In the southern California district, Valencias were the predominant variety constituting about two-thirds of the an- nual output. The largest production of both varieties occurred in 1944-45 with a crop of 76,228 cars of Valencias and 32,378 cars of navels. In this district Valencias in recent years have con- tinued their percentage increase — if only slightly. Production in the Arizona-Desert Val- ley has been more evenly divided. The proportion of Valencias dropped from a high of about 57 per cent in 1944-45 to a low of 39 per cent in 1948-49 and re- turned to 58 per cent in 1950-51. The peak-production year was 1950-51 for both varieties, 1,851 cars of Valencias and 1,351 cars of navels. In viewing the district production trends by varieties, undue emphasis should not be given to the production levels or percentages during the past two or three years. The freezes experienced in some districts in those years resulted in abnormal situations. But it is clear that over the past 10 or 15 years, the increased percentage of Valencia production re- sulted from the situation in southern California whose trends and relatively large volume dominated the state's pic- ture. In both central-northern California and the Arizona-Desert Valley districts, Valencias have tended to give way to navels. Acreage. The two factors which de- termine production are bearing acreage and yield per bearing acre. Therefore, to understand the production trends we must look at the trends in bearing acre- age and yield. Total United States orange-bearing acreage has risen steadily and sharply during the past thirty years from 212,300 acres in 1919-20 to a peak of 606,400 acres in 1948-49; then a decline was re- ported (see fig. 5). The reported sharp decrease of some 17,000 acres between 1948-49 and 1949-50 is the result of an uncommon combination of circum- stances : a 20,000-acre increase in Florida bearing acreage; a decrease of about Figure 5. Orange Bearing Acreage in the United States, California, and Florida from 1919/20. DUVJ 500 400 u VJITED STA1 ' ES "X ^s\~ FLOP IDA^ 300 200 . r u:: % ^ CALIFOR MIA-^ — 1 t 100 - y»' 1 _J L, I ,i I .1 L.,1 i i i L.J 1 1 lit Ill J____L_ 1920/21 25/26 30/31 35/36 40/41 45/46 50/51 [16 13,000 acres in Texas due to the bad freeze in January, 1949; and a reported decrease of California's bearing acreage of some 23,000 acres. The California de- crease was not due to cold weather but to a re-evaluation after a complete enu- meration survey of California acreage which began in 1948 and was continued in 1949. Hence, the "decrease" in Cali- fornia was probably more in the nature of a statistical adjustment rather than a real downturn. California bearing acreage since 1919- 20 followed a steady upward trend and exceeded Florida until 1941-42. Florida orange-bearing acreage also followed an upward trend but increased even more rapidly. It expanded from 52,800 acres in 1919-20 to almost 310,000 acres in 1950-51. This increase of more than 250,000 acres was one of the outstand- ing developments in the industry. Thirty years ago, Florida's bearing acreage was only about one-third of California's, but now Florida's acreage is more than 45 per cent larger than California's. The bearing acreages of the other orange- producing states are much smaller than those of either Florida or California. Texas reached a peak of 40,500 acres in 1948-49 but receded to less than 30,000 acres with the freeze in January 1949. Then a freeze in February 1951 again affected Texas production. Arizona reached a maximum in 1949-50 with 8,300 acres. Only 4,500 bearing acres existed in all other states in 1949-50. The net position of California's bear- ing acreage may be summarized by noting that in 1919-20 the state had almost 75 per cent of the country's total orange-bearing acreage, and by 1949-50 the share had declined to less than 40 per cent. Florida, in turn, increased its share from 25 per cent of the national bearing acreage in 1919-20 to 55 per cent in 1949-50.* The available figures on nonbearing acreage are not as comprehensive or de- tailed as for bearing acreage. But indi- cations are that last year nonbearing acreage in Florida was over four times as large as that in California. Hence, there are some indications that Florida's bear- ing acreage will continue to expand, at least during the next several years, and more than in California. The bearing acreage trends in Cali- fornia and Florida have differed among the varieties. In California the bearing acreage of navels has remained remark- ably stable during the past thirty years (see fig. 6). But California Valencia bearing acreage followed a rising trend. Hence, it is clear that the upward trend in California over-all bearing acreage was due to the upward trend in Valencias. Navels did not contribute to the state's increased number of orange-bearing acres. California Valencia bearing acre- age over the past thirty years increased from 40 per cent to 63 per cent of the state's total orange-bearing acreage. In Florida, for which adequate sta- tistics on varietal bearing acreages are available only since 1933-34, the trends in both Valencias and early and mid- season have been rising steadily. After about 1940, the early- and midseason- bearing acreage generally advanced more rapidly than did the Valencias. But it is clear that in Florida both varietal groups have contributed to the rapidly expand- ing bearing acreage during the past fif- teen years. Valencia acreage in Florida has declined in relative terms — from 45 per cent to 42 per cent of the state's total orange-bearing acreage. Looking at acreage in California by counties, we find that in 1950 there were nine counties each of which had orange acreage exceeding 1,000 acres. Orange County, the smallest in terms of square miles, had the largest orange acreage, 60,109 acres, equal to 27 per cent of the state total. Arranged in order of acreage, * For comparison of California and Florida acreage, it may be noted that Florida averages fewer trees per acre (65) than does California (88) ; although the Florida trees tend to be larger than those in California. [17] Figure 6. Orange Bearing Acreage in California and Florida, by Varieties, from 1919/20. 180 160 140 ro ^ CO .• ro 200 ••*•• • CD .•• •« •* O /•• A / „• ••./ VyiELD S '60 •^ * * .• *• . • / • +■+* ro 3 120 \ / " \ /W-y-'i to Ul X Id \ « 1 BEARING ACREAGE Q 180 z \/*Va^>^ /\~*'~"/XI 40 n -•* i i i i i i- ■ i i i ■ i i i ILL) l l I l i_i i i L 1 1 1 L_ 1920/21 25/26 30/31 35/36 40/41 45/46 50/51 Figure 10. Uses of United States Production of Oranges and Tangerines, by Per Cent of Fresh Fruit Equivalent, from 1934/35. 1935/36 40/41 45/46 50/51 [22] that total United States oranges used fresh increased more rapidly, reflecting the more rapidly expanding production and fresh shipments in Florida and other producing states. But it is to be noted that fresh usage of total United States oranges, as did California oranges, took a downturn in the middle forties and has irregularly tended downward since then. The relative position in the use of Cali- fornia fresh oranges is indicated by not- ing California's shifting share of the na- tional total. In terms of both proportion of national production and proportion of national fresh usage, California's relative share followed a downward trend. It is significant, however, that the California proportion of fresh usage in recent years has held up better than the proportion of national production. This reflects the tendency in those years for other states, especially Florida, to enter the processed markets more aggressively than Cali- fornia. The utilization of California oranges in fresh form did not increase as rapidly as the fresh utilization of United States oranges. California's share decreased from about 60 per cent during the twen- ties to about 45 per cent during the past few years. Prior to the middle 1940's, California's share in total orange pro- duction of the United States usually ex- ceeded slightly California's share of the national total of oranges used for fresh consumption. This situation was reversed since 1943-44. In 1950-51 California's share of national orange production was about 34 per cent as compared with its share of 46 per cent of total oranges used fresh. The state's maintenance of a rela- tively higher share in the fresh market was reflected by a lower share of the processed market. Thirty years ago very few oranges were processed in this country. The insig- nificant quantity processed represented mainly culls and fruit not shipped fresh because of expected unfavorable returns. Now, however, processed oranges make up a very important tonnage — over 55 million boxes in 1950-51 (see fig. 11) . As the processed orange outlet ex- panded, California's participation was not as marked as Florida's. Hence, there was a declining proportion of the na- tional total of oranges processed made up of California oranges. Twenty years ago practically all oranges processed were California oranges. The situation changed rapidly, and during the past several years California has accounted for only about 25 per cent of the na- tion's oranges processed. The volume of oranges processed which were produced in other states, increased much more rapidly than for California. In all orange-producing states there has been an increasing portion of the orange crop diverted to processed uses. During the latter half of the 1930's, the proportion of California's orange crop processed exceeded the proportions of other states. But since 1939-40, Florida has processed a larger share, reaching a record of about 62 per cent in 1950-51 as compared with 29 per cent for Cali- fornia the same year. During the past 10, and especially within the past 6 years, Florida has put a rapidly increasing share of her crop into the processed out- lets. California's trend has been upward, but only slightly so. In the past three years, however, the state's proportion in- creased substantially. Within California, more Valencias have been processed than navels (see fig. 12) . The quantity of California Valencias processed has about quadrupled from nearly 3 million boxes in 1934^35 to almost 12 million boxes in 1950-51; the quantity of navels processed, meanwhile, increased from 694,000 to 1,053,000 boxes. Last year 39 per cent of the Cali- fornia Valencias and only 7 per cent of the navels were processed. But in Florida over 60 per cent of both types — Valen- cias, and early and midseason — were processed last year. This indicates how the growth in the processed outlet has [23] : igure 1 1. O ranges Processed, United States and California, f rom 1919/20. 80 70 60 UNITED STATES -~^^ / 50 - / Ul g40 m / z o -j30 I - 20 10 O ■ Ti/?Vl F i i T i . / CALIFORNIA ■ i i i 1920/21 25/26 30/31 35/36 40/41 45/46 50/51 had differing impacts on the orange in- dustries in the two states. So far, we have been concerned with the portion of the orange crop processed. The processed oranges go into various orange products. Canned single-strength juice and frozen concentrate are the two most important ones in terms of volume. Until recent years, single-strength canned orange juice was the most impor- tant product of the processed oranges. Florida packed 38,000 cases of 24 No. 2 cans in 1929-30, the first year, and has continued packing the major portion of the United States pack. The total national pack in 1950-51 was about 22.5 million cases, with Florida contributing over 20 million and California-Arizona about 1.6 million (see fig. 13). The pack rose sharply during the war years and, even after some reduction, remained high. In 1935-36 Florida began packing blended orange and grapefruit juice and has since increased the annual pack to a peak of 12,267,000 cases of 24 No. 2's in 1945-46. The United States pack in 1949-50 was 7,400,000 of which Florida contributed 6,768,000 cases. The production of frozen concentrated orange juice started on a noticeably com- mercial scale in 1945-46 with an output of 226,000 gallons— all in Florida. Pro- duction increased rapidly and in 1950- 51 Florida packed 31 million gallons, while California packed about 4 million gallons (fig. 14). An even newer product, frozen concen- trated orange-grapefruit blend, was first sold in 1948-49 with production of 112,000 gallons. Output was increased the following year to 33,000 gallons in California and 1,303,000 gallons in Flor- ida. The next year's pack, 1950-51, de- clined to 245,000 gallons in Florida with none in California-Arizona. Canned orange concentrate has been produced for ten years in both the prin- cipal states. In 1950-51 California packed 3,251,000 gallons, while Florida packed 2,529,000 gallons. [24] 40 35 30 25 20 15 10 5 Figure 12. Orange Production by Varieties, ! I I CALIFORNIA NAVELS PROCESSED _ I,— X.—-.. I I I I I I and Uses, California and Florida, from 1934/35. 40 FLORIDA EARLY AND MIDSEASON I I TOTAL PRODUCTION 1935/36 40/41 45/46 50/51 1935/36 40/41 45/46 50/51 1 1 CALIFORNIA A 1 TOTAL 35 ,v v r i i i i i i i i i i i i i i i i i t i l< )35/ '36 40/ '41 45 /46 50/ '51 During each of the last three years, California-Arizona has produced over 2,300,000 gallons of fresh, single-strength juice and over 400,000 gallons of frozen, single-strength juice. The marked expansion in orange prod- ucts, especially frozen concentrate, has had a significant impact on the orange industry. The nature of this impact is dis- cussed in detail in later sections of this 40 35 30 25 20 15 10 5 1 1 FLORIDA VALENCIAS TOTAL PRODUCTION-. l - PR0CES I 1 l SED -J— ^RESH S \ / ULES / m y 1 1 1 1935/36 40/41 45/46 50/51 report. But the developments sketched above clearly indicate that the structure and operations of the orange industries are dynamic; they are constantly chang- ing in response to new developments and in turn affecting other developments. An appraisal of such response to new condi- tions is not the objective of this section. Here we only sketch what has happened; the next section will interpret these de- [25] Figure 13. Pack of Canned Single-Strength Orange Juice, United States, Florida, and California, from 1931/32. 1930/31 35/36 40/41 45/46 50/51 Figure 14. Pack of Frozen Concentrated Orange Juice, California and Florida, from 1945/46. 1945/46 47/48 49/50 51/52 velopments and consider their implica- tions. But first it is necessary to look further at the situation in shipments, and costs and returns. Fresh Shipments. Shipments of fresh oranges from Florida follow a distinct seasonal pattern. The height of the ship- ping season is during the winter months. In the spring and early summer the ship- ments fall off rapidly, and are negligible during July, August, and September. This general pattern is typical of the ex- perience year after year. During the past several years, however, the seasonal peak occurred earlier than usual — in Decem- ber-January rather than March. Shipments of fresh oranges from Cali- fornia also follow a distinct seasonal pat- tern. Beginning the shipping year with November, shipments rise in December, partly reflecting the holiday market. Thereafter, a dip generally occurs, fol- lowed by a gradual rise until July when [26] the annual peak is reached. After July, shipments gradually fall off until the end of the shipping year and the following rise in December. The differential seasonal patterns of fresh shipments from Florida and Cali- fornia are shown in figure 15. It is evi- dent that in the fresh orange market Florida shipments and California ship- ments attain their respective peaks in dif- ferent parts of the year. Winter ship- ments dominate those from Florida, while summer shipments dominate those from California. These patterns generally prevail for the state, as a whole, although differing patterns exist by varieties and districts. When California navels and Valencias are considered separately, distinct sea- sonal patterns are clear for each variety. As shown in figure 16, the navel fresh shipping season is heaviest during the winter and early spring, while the Valen- cia fresh shipping season is heaviest dur- ing the late spring and summer. Thus, the California navel fresh shipping sea- son in large part coincides with the Florida fresh shipping season. But the California Valencia fresh shipping sea- son is to a considerable extent free of simultaneous fresh shipments from Flor- ida. There have been short-term excep- tions in some years when the shipping patterns varied widely from their typical form. Within California, fresh shipments of the two varieties from the several dis- tricts make a fairly complicated picture. The situation is summarized in figure 17. The seasonal patterns of navel shipments from the central northern California and Arizona-Desert Valley districts coincide. Both have sharp peaks in December and then fall off rapidly; by late winter the large bulk of their navels are usually shipped. The southern California navels, however, approach their peak in March — and less sharply ; also, they decline less sharply. By the end of May, the southern California navel shipments are corn- Figure 15. Seasonal Indexes of Fresh Shipments of Oranges from California and Florida. iLl < 180 i\y FLORIDA UJ • •, * *. > 160 / \ ,• *. >-, •* * *• ^ 140 - ." •. »- *. O 120 2 - „/t \ P 100 UJ l- S** ■ \ /v / / •. \ > £ 80 - ^CALIFORNIA \ & 60 . \ h- *• £ 40 - \ i o \ ; tr 20 _ • ? UJ • .* a. •. • o i i i i i i — i — i — Clu — £ — 1 NDJFMAMJJASO pleted. Thus, although there is generallv some overlap in the fresh navel shipping periods of the three districts, the bulk of the navels from the southern California district is made after most of the navels from the other two districts have been shipped. Most of the overlapping in ship- ping periods occurs during January and February. Figure 16. Seasonal Indexes of Fresh Ship- ments of California Oranges, Navels and Valencias. 240 180 160 1 14 120 100 80 60 40 20 K l\ | - I \ ■ \ I v A - i \/ \ ~ i \ ' \ - l^-NAVf - LS 1/ / • ^VALENCIAS ~ \l A /' - 1 \ \ \ \ \ v \ \ NDJFMAMJJASO [27 1 70 £ 60 o 50 40 2 O c/) < UJ if) en T- o E £ 30 o u_ o 20 10 Figure 17. Seasonal Indexes of Fresh Shipments of California Oranges, by Varieties and Districts. 70 NAVELS CENTRAL-NORTHERN CALIF. /! ARIZONA-DESERT VALLEY I ! \ X SOUTHERN CALIF *L \ 1a NDJFMAMJJAS0 The district seasonal shipping patterns of Valencias are also shown in figure 17. The Arizona-Desert and central-northern California periods overlap to a consider- able extent, and they both overlap some- what with the period of southern Cali- fornia Valencias. About three-fourths of the southern California Valencias are shipped after the heavy shipments from the two other districts. The most inten- sive overlapping in the shipping periods of the three districts occurs during May and June. The general problem of over- lapping shipping periods among districts has been a difficult problem in the mar- keting of California oranges. Orange Exports. The orange indus- tries have enjoyed an export market for fresh oranges. During the prewar years, Europe — especially the United Kingdom — was a profitable market. During the war, exports to Europe were cut off, but the Canadian market expanded. In some of the war years, and especially in the postwar years, canned orange juice was sent to the European continent and the United Kingdom as part of the lend- lease and foreign aid programs. The relative position of the orange ex- port market, and the part Canada plays in it, is summarized on page 29. To encourage the exports of oranges and orange products to foreign countries, and to develop export markets, the federal government during the past two years has maintained an export program. The export-payment program for the 1950-51 season provided for federal payments of up to 50 per cent of the export sales price, basis free aside ship, United States ports. Under that program, the United States exported about 2.75 million boxes of fresh oranges, about 260,000 cases (24 No. 2 basis) of canned single-strength orange juice, and more than one million gallons of hot-pack concentrated orange juice. With total exports of fresh oranges in 1950-51 at about 6.6 million boxes, more than 40 per cent of the total was moved into foreign markets under the federal export-payment program. Unlike the domestic lemon industries, the United States orange industries have not been faced with the threat of serious price-depressing imports.* In recent * See footnote on page 4. [28 U. S. Exports of Fresh Oranges and Canned Orange Juice United States production United States exports Period Fresh oranges total Fresh oranges to Canada Canned orange juice million boxes million cases 24/2 basis Five-year averages : 1924-25 to 1928-29 38.7 47.1 64.7 88.5 110.9 108.5 112.8 3.27 3.40 5.24 4.82 6.70 5.02 6.60 2.29 2.74 4.56 5.12 3.34 4.11 1929-30 to 1933-34 1934-35 to 1938-39 1939-40 to 1943-44 0.59 1944-45 to 1948-49 1.28 Annual : 1949-50 1.41 1950-51 1.84 years, however, increased plantings in Mexico have resulted in some imports of Mexican oranges. As the Mexican acreage and production increase that country may have more oranges for export to the United States. Costs, Cultural and Marketing. Trends in cultural costs are difficult to review. It is difficult to obtain cost figures which are appropriate for, or representa- tive of, a large group of growers. Each grower usually faces cost conditions which differ from those faced by other growers. The available cost figures, aside from the question of accuracy, do not presume to be representative of the industry at large. The figures must be in- terpreted appropriately; yet, the year- to-year changes and especially the trends in the available cost figures may suggest prevailing broad tendencies in the indus- try. It is with that view in mind that we here survey the trends in the costs of pro- ducing oranges in California and Florida. Marketing costs are also surveyed, and they may be viewed as more representa- tive of the industry at large than are cul- tural costs. Through the past quarter century, cul- tural costs incurred in the production of oranges have been lower for Florida than for California growers. In both states cul- tural costs in terms of packed-box equiv- alent tended downward until the end of the 1930's. But since 1940, cultural costs in California have followed a marked up- ward trend. This has prevailed in both California Valencias and California navels. Although Florida cultural costs now average higher than ten years earlier, the extent is not so marked as in Califor- nia. In fact, Florida cultural costs have fluctuated around a nearly constant level the past six or seven years in contrast with the rising trend for California. But Florida's advantage in terms of its lower cultural costs has become even more marked within the past decade. This sit- uation has developed for two reasons. Florida's yields have increased sharply; and costs for labor, irrigation, taxes, and other items have increased more in Cali- fornia than in Florida. When the situation in total costs for picking, packing, hauling, and selling is surveyed, the figures suggest that the ad- vantage of lower costs was in California's favor until the middle 1940's. After 1945-46, the advantage shifted in favor of Florida. [29 The cost of transporting the oranges to the fresh market may be surveyed by ref- erence to California shipments to the Eastern Seaboard blanket territory and Florida shipments to the New York City market. As may be expected, the rail transportation cost has been in favor of Florida because of its smaller distance from the eastern markets. Because of changes in the rate structure over the years, California is now at a greater dis- advantage — in terms of transportation costs — than it was 20 years ago. The total costs for cultural and market- ing operations up to delivery at the termi- nal markets are meaningful measures of the relative positions of orange growers in California and Florida. A survey in- dicates that the total costs declined in both states until the late 1930's. During the past 10 or 12 years, total costs have ad- vanced in both states, but the rise has been substantially more in California. The trends in costs in terms of broad averages are summarized in the table on this page. Returns, Fresh and Processed. California fresh oranges have been sold for higher prices per packed box in east- ern auction markets than have Florida fresh oranges. This situation has pre- vailed over the years and reflected con- sumer-trade preferences in favor of Cali- fornia fresh oranges. The auction differ- ential has varied from year to year and in recent years has been as much as $1.52 a box. Since the Florida box is rated at 90 pounds and the California box at 77 pounds, the differential in favor of Cali- fornia is even more pronounced. Similar differentials have existed in private mar- kets. The existence of the differential has helped to offset the higher costs incurred by California oranges. In other terms, Some Costs of Producing and Marketing California and Florida Packed Fresh Oranges Estimated Costs Five-year averages 1924-25 to 1928-29 1929-30 to 1933-34 1934-35 to 1938-39 1939-40 to 1943-44 1944-45 to 1948-49 1949-50 1950-51 Cultural costs California navels . . . California Valencias Florida oranges .... Pick, pack, haul, and sell California oranges .... Florida oranges Transportation to Eastern Seaboard California oranges Florida oranges Total costs delivered to market California navels California Valencias Florida oranges 1.25 1.46 .87 1.31 3.43 3.64 dollars per packed box equivalent .95 1.03 .56 .78 1.03 1.29 .91 3.02 3.10 2.50 .72 .78 .41 .76 .90 1.20 .68 2.68 2.74 1.99 .63 .63 .43 .88 .99 1.24 .64 2.75 2.75 2.06 1.12 1.13 .50 1.34 1.28 1.43 .84 3.88 3.89 2.63 1.05 1.11 .52 1.51 1.38 1.67 1.08 4.23 4.29 2.98 1.15 1.10 .57 1.53 1.40 1.67 1.14 4.35 4.30 3.11 [30] Average Auction Prices of California and Florida Oranges Period During Florida shipping season only During California crop year California oranges Florida oranges California Navels California Valencias dollars per box Five-year averages: 1925-26 to 1928-29 4.91 3.77 3.32 4.04 5.16 4.68 5.75 5.04 5.43 4.30 3.29 2.62 3.04 4.01 3.27 4.23 4.85 4.29 4.67 3.56 3.03 3.65 5.27 4.86 6.34 5.15 5.62 5.48 1929-30 to 1933-34.. 4.30 1934-35 to 1938-39 3.70 1939-40 to 1943-44 4.55 1944-45 to 1948-49 5.07 Annual : 1947-48 5.26 1948-49 5.05 1949-50 5.35 1950-51 5.48 the apparent consumer-trade preference for California fresh oranges has per- mitted California growers to continue their operations despite their higher costs. This, of course, is only part of the situation, but it is an important part. The differentials in terminal markets in favor of California oranges have been sufficient so that even on an f.o.b. basis California oranges have returned higher per-box prices than Florida oranges. Season average f.o.b. prices per box have been higher for California oranges than for Florida oranges every year during the past quarter century, except in one year, 1931-32. The strong consumer-trade preference for California fresh oranges more than offset the higher transporta- tion costs incurred by California oranges. At a comparable f.o.b. shipping point basis, California orange shippers have been generally in a favored position, as compared with Florida shippers, if f.o.b. prices are considered as the basis of com- parison. This, of course, applies to fresh shipping oranges. The relative positions of oranges for processing is noted later. In the past, California Valencias shipped fresh have generally tended to return higher f.o.b. prices than did Cali- fornia navels. Consumers were generally willing to pay higher prices for California summer oranges (mainly Valencias) than for California winter oranges (mainly navels). This situation generally pre- vailed, but recently exceptions have oc- curred. In some years the differential was only a few cents, in other years more than a dollar. But the existence of the differen- tial and the industry's awareness of it was symptomatic of the widely accepted view that Valencia growers were in a fa- vorable position compared with navel growers. Now, the situation is changing. Another way to compare the relative positions of California and Florida grow- ers of oranges is to look at the on-tree returns. In figure 18 such returns are shown, since 1931-32, for the two states separately by oranges shipped to fresh market and to processing. Although the four series move to some extent in com- mon, there are important differences: Except for the depression year of 1931- 32 and the recent year of 1949-50, the on-tree value per box of California oranges shipped for fresh use (Valencias and navels combined) exceeded the on- f31] Figure 18. "On Tree" Returns from California and Florida Oranges, Fresh and Processed Uses, from 1931/32. 1930/31 35/36 40/41 45/46 50/51 tree value per box of Florida oranges either shipped for fresh use or for proc- essing. Florida's fresh fruit value per box exceeded that state's value per box of fruit for processing, but the differential was much narrower than in California. Aside from 1939-40 and 1942-43, the on-tree price of California oranges proc- essed was below — and in most years sub- stantially below — the returns from proc- essing received by Florida oranges. In 1949-50 a new situation appeared. For the first time on record, Florida on-tree per box returns from both fresh and processed uses exceeded California on- tree per box returns from oranges shipped fresh. The 1949-50 freeze in California adversely affected the quality of the fruit and tended to lower on-tree per box re- turns to California growers in contrast with the much increased returns going to Florida growers. This situation reflects the changing relationships which have developed in the orange industries in the past several years. The situation is dra- matically reflected by the sharp advance in Florida on-tree returns — fresh and processed — after 1947-48, compared with the on-tree returns in California. When we look at developments within California, changing economic relation- ships among on-tree returns again are apparent. On-tree per box returns from oranges shipped for fresh use exceed by a substantial amount those from oranges processed. This is true for both Valencias and navels. But until recent years, the on-tree returns for Valencias used fresh averaged higher than for navels used fresh. During the past several years, the situation has been reversed. When we look closer at the returns from California oranges processed, we note another changing relationship. Dur- ing the past decade, processed Valencias have returned more than processed navels because the Valencias are more acceptable for processing, especially for [32] Figure 19. Average "On Tree" Returns from All Uses, Cultural Costs and Net Returns for California Oranges, by Varieties, from 1924/25. 1925/26 30/31 35/36 40/41 45/46 50/51 1925/26 30/31 35/36 40/41 45/46 50/51 [33] Figure 20. Average "On Tree" Returns from All Uses, Cultural Costs and Net Returns for Florida Oranges, from 1927/28. : , CULTURAL \ /. COST V | J I I I ' ' ' I I I L 1930/31 35/36 40/41 45/46 50/51 juice uses. During the postwar years, however, the differential in favor of Valencias has widened greatly. The on- tree returns from Valencias processed have increased since 1946-47, while at the same time the on-tree per box returns from navels processed have not advanced and have even reflected "red ink" or net losses. It is clear that the relative posi- tions of Valencias and navels are subject to differing impacts from the develop- ments in the markets for processed orange products. We have compared the trends in cul- tural and marketing costs and on-tree re- turns, fresh and processed use, for Flor- ida oranges and California oranges — navels and Valencias. We can approxi- mate the net positions of the several seg- ments of the industry even more closely when we survey "net returns." Such re- turns are not really net since neither orchard depreciation (replacement of trees) costs nor interest on orchard in- vestment are included in the computa- tions. The returns are for currently in- vested capital without providing for its replacement. The results, although not precise, may be viewed as indicative of the general trends. Review of the series of annual es- timates of net-returns suggests that, during the prewar years, California net returns generally compared favorably with those in Florida, and during those years, California Valencias yielded better net returns — dollars per box — than did California navels (see figs. 19 and 20) . In the postwar years, however, the situation was substantially different. Florida grow- ers have experienced much better returns that California growers. Furthermore, California navels yielded better net re- turns than California Valencias which be- came seriously depressed in 1946-47 and recovered little since then. These drastic differences in net returns reflect changing economic relationships which developed in the postwar years. In this section of the report we merely indicated what happened. To provide adequate background for understanding [34] the current and prospective situation, we also need information on the demand for oranges and orange products. Hence, in the next section we turn to the demand characteristics of oranges and orange products. DEMAND CHARACTERISTICS OF ORANGES AND ORANGE PRODUCTS In the preceding section we surveyed the trends in orange acreage, produc- tion, yields, shipments, utilization, costs and returns. But important developments have also occurred in marketing and in the consumers' attitudes or preferences. These are reflected in the demand for oranges and orange products. The nature of these changes in demand, as well as the need for considering the trend in demand, makes it advantageous to com- bine such materials into this separate section. First, we shall discuss the notion of demand and indicate its usefulness in our consideration of changing economic re- lationships in the orange and orange products industries. Next we shall present and discuss the results of statistical anal- yses of California fresh oranges, winter and summer, on a seasonal basis. Then we shall consider the available evidence pointing to the nature of the demands for orange products and their relations to the demand for fresh oranges. Such mate- rials will provide necessary background for appraising the changing economic relationships in the orange and orange products industries. What Is "Demand"? At the outset, we must have a clear and precise under- standing of what we mean by "demand." This is desirable because we shall con- sider some statistical evidence bearing on the demand question, and also to clarify the essential relations between price and sales. We shall be concerned with market de- mand, the total demand of a large num- ber of actual or potential buyers. It must be recognized that such market demand reflects, is based on, and is influenced by the demands of many individuals. The [3; statistical evidence we shall consider re- flects the group effects of many separate individuals with different tastes, prefer- ences, incomes, and demand ideas. We shall view the market demand relations as the tendencies prevailing for the mar- ket group as a whole, although many of the individuals may have different tend- encies. The term "demand" is used widely and often loosely in marketing discussions. It is frequently used to mean the quantity of a product, say oranges, which has been sold or the market has taken. A more ac- ceptable and useful interpretation refers to the relation between a schedule of prices and a corresponding schedule of quantities, both schedules pertaining to a particular product in a particular mar- ket. Hence, "demand" is representative of various quantities of a product that would be purchased at various corre- sponding prices in a given market, at a given time, and under given conditions. Those given conditions include fixed tastes and preferences of buyers or poten- tial buyers, fixed amounts of income or money available for expenditures on all goods, and fixed prices of other goods and services. Thus, in a strict sense, the "de- mand" for a particular product pertains to some given situation in which all influ- ences, except price and quantity of the particular commodity, are given and fixed. In such a context it can be argued that for a given demand, price and quan- tity of the particular commodity vary in- versely; the lower the price the larger the quantity that would be taken, the higher the price the smaller the quantity that would be taken. Demand situations may be described in terms of mathematical equations, expressed as schedules in tabu- lar form, or graphically pictured as de- mand curves. Always in the background of such demand curves, however, and in- fluencing their shape and position, are the given conditions such as income and tastes of the buyers, prices of other prod- ucts, and the characteristics of the par- ticular market. When considering many problems in orange marketing, the nature of the de- mand for oranges is of crucial impor- tance. And this is so for two reasons. First, there is the question as to how changes in quantity and changes in price are related for a given orange demand situation, represented by its correspond- ing demand schedule or demand curve. Second, there is the question as to how the orange demand schedule as a whole responds to changes in the level of factors such as income. The relations between price changes and quantity changes, for a given demand schedule, are expressed by the phrase "elasticity of demand with respect to price" which we shall call "price elastic- ity."""' The purpose of price elasticity is to measure the responsiveness of pur- chases to price changes, and it is com- puted so that its magnitude indicates the behavior of total money returns from sales as they are increased or decreased. Such effects of quantity changes on total revenue explain why it helps to have in- dications of the price-elasticity coeffi- cients when considering marketing prac- tices. With knowledge about the values of the price elasticities for oranges, for ex- ample, one may draw inferences as to the money effects associated with the mar- ketings of different quantities of oranges. For that reason, we shall later review the available statistical evidence bearing upon the price-elasticity coefficients for oranges. Factors affecting the demand for oranges, such as income, do not remain constant; they change from year to year and sometimes vary widely. Such changes affect the position or level of the demand for oranges, and, as the changes occur, the demand schedule shifts. For that rea- son, the demand-affecting factors are often referred to as "shift variables." * In precise terms, price elasticity at a point on the demand schedule measures the percentage change in quantity which occurs in response to the corresponding percentage change in price. In more specific terms, the price elasticity equals the percentage change in quantity divided by the corresponding percentage change in price; the changes should be small since the price-elasticity coefficient pertains to the relationship at the price-quantity point from which the changes are considered. When the absolute value of the price-elasticity coefficient is greater than 1, at a certain point on the demand schedule, the demand is said to be "elastic" at the price-quantity combination at that point; when the absolute value of the price-elasticity coefficient is less than 1 at a certain point on the demand schedule, the demand is said to be "inelastic" at that point; and when the price- elasticity coefficient is equal to 1, the demand is said to be of "unit elasticity." When the price and quantity change, on a given demand schedule, the resulting money revenue increases or decreases, depending upon the price elasticity. When the demand is elastic at a given price-quantity combination on the demand schedule, a small decline in price results in an increase in total money revenue from sales; but when the demand is inelastic at a given price-quantity point, a small decline in price results in a decrease in total money revenue from sales. Conversely, a small increase in price from an elastic point on the demand schedule results in a decrease in total revenue, and a small increase in price from an inelastic point on the demand schedule results in an increase in total money revenue from sales. If price is the dependent variable (the one whose variation is "explained"), as in the analyses to be summarized below, for statistical reasons it is more appropriate to use an elasticity measure which is the inverse of the price elasticity. This other measure is referred to as "price flexibility," and is equal to the relative change in price divided by the corresponding relative change in quan- tity. When the absolute value of the price-flexibility coefficient is less than 1, at a particular point on the demand schedule, the demand is said to be "elastic" at that point; when the price-flexibility coefficient is greater than 1, at a particular point of the demand schedule, the demand is said to be "inelastic" at that point; and when the price-flexibility coefficient is equal to 1, the demand is said to be of "unit elasticity." [36] Such "shift variables" are included in statistical analyses of factors affecting demand and prices. Consideration of the "shift variables" is necessary to estimate the demand or net relation between price and quantity in a given season. They are also needed to estimate how and why the demand schedule shifts position from season to season or over a period of years. The available statistical evidence on the influence of major shift variables will be reviewed later. Seasonal f.o.b. Demand for Cali- fornia Fresh Oranges. In analyzing the market demand for oranges, it is advis- able to consider winter and summer oranges separately. This type of seasonal distinction is followed for reasons other than convenience. A more important rea- son is that the winter and summer periods reflect different market characteristics for oranges. Winter oranges from California are marketed during the six-month period from November through April and com- prise mostly navels. Summer oranges from California are marketed during the six-month period from May through Oc- tober and comprise mostly Valencias. Fresh-orange marketings from Florida, Texas, and Louisiana occur primarily in the period from September through June. From the view of California shippers, a distinctive difference between the win- ter and summer seasons is that the win- ter season has — over the years — included competition from the fresh orange ship- ments primarily from Florida, and also from Texas and Louisiana. Since Cali- fornia navels are shipped mostly in the winter season, historically, navel growers and shippers have been faced with com- petitive shipments from other producing states. But Valencia growers and ship- pers, historically, have been in a different situation. Their shipping period, the summer months, has in large part been fres from competitive shipments from other producing states. This contrast be- tween the winter and summer markets. for a long time, influenced the relative positions of navel and Valencia growers in California. But recent market develop- ments have tended to upset the historical pattern. Before considering such develop- ments and their impacts, however, it is first necessary to look more closely at the demand characteristics of California win- ter and summer oranges. Winter Oranges. There are various ways to look at what has happened to the demand for fresh winter oranges and their price elasticity or the responsiveness of consumer purchases to price changes. One convenient and, for our purposes, advantageous way is to consider the pre- war period, and then the prewar and postwar years combined. That way, we can note the extent to which the inclusion of the postwar years changes the nature of the results; we shall thus be able to infer the nature of the demand during the postwar years. Analysis of the post- war years alone is not acceptable because they are too few in number to serve, by themselves, as a base for the type of sta- tistical analysis necessary. Yet, the pro- cedure outlined above does yield indica- tions of the developments in demand for winter oranges in the postwar years, and that is essentially what we are inter- ested in here. Before discussing the re- sults of the analyses, we shall indicate the variables or factors considered. First it may be noted that the analyses explains the behavior of the seasonal f.o.b. prices of winter oranges, in a sta- tistical sense, in terms of the behavior of other influences. These are fresh ship- ments of California winter oranges, fresh shipments of winter oranges from other producing areas including Florida, and the level of United States nonagricultural income payments. Also included is a "time trend" which reflects the influences of those factors which have changed smoothly and persistently over time dur- ing the period. The price, shipments, and income vari- ables included in the analyses are shown [37] in figure 21. The f.o.b. prices, which in- clude winter oranges exported in addi- tion to shipments to domestic markets, followed the well-known course of tend- ing to build up to a peak in 1929-30, and then quickly falling during the de- pression years to a low in 1932-33. Then recovery followed year by year through 1936-37 after which "the 1937 recession" developed and from which recovery again took place. The war years' development is omitted because of its abnormal nature and elements such as price controls and rationing. In the postwar years, begin- ning with 1945-46, prices in terms of money (not purchasing power) were much higher than immediately before the war. But in the postwar years, the sea- sonal price movement was irregular and did not follow a consistent trend. The volume of California fresh ship- ments of winter oranges varied from season to season. Despite the fluctua- tions, which were extreme in some years, there was no pronounced trend over the period as a whole. This may be noted by comparing the figure of 13.3 million boxes as the average for the period 1924- 25 to 1928-29 with 14.2 million boxes as the average for the period 1945-46 to 1949-50. Shipments of fresh oranges during the winter season from states other than California have followed a rising trend. In spite of year-to-year fluctuations — and sometimes sharp ones — the long- term trend has been up. This has re- flected in large part the rising trends in acreage and production in Florida ex- plained earlier in the previous section. The course of nonagricultural income payments reflects the trend and cycle ex- perience in general business conditions. The well-known rise up to the end of the 1920's, the depression years of the early and middle 1930's, the prewar recovery in the late 1930's, and the inflated high money income level years of the latter 1940's are all evident in the index of non- agricultural income payments pictured in figure 21. The income series, as well as the fresh shipments from other states, may be considered as "shift" variables because their fluctuations cause shifts in the demand for California fresh orange shipments. In the same way, the "time trend" is a shift variable expressing how the demand for California fresh orange shipments shifted in response to influ- ences which change smoothly but per- sistently over time. We may now turn to the summary re- sults of the statistical analyses of demand characteristics of California fresh winter oranges.* The results support the view that for given levels of income, of sup- plies from other states and of consumer attitudes, an increase in the shipments and sales of California fresh winter oranges is associated with a decrease in the f.o.b. prices. Increased winter ship- ments from other states also tend to de- * The statistical results for California fresh winter oranges may be expressed as follows: Period 1924-25 to 1941-42; X/ = 7.152 - 0.6603X 2 ' - 0.6523X/ + 1.3092X/ - 0.0030t - 0.0004t 2 (3.69) (3.87) (7.15) (1.25) (2.32) R =0.967; N = 18 Period 1924-25 to 1941-42 and 1945^6 to 1949-50; X/ = 4.131 - 0.5883X 2 ' - 0.3573X 3 ' + 1.5030X/ - 0.0057t - 0.0003t 2 (2.66) (1.57) (5.62) (1.81) (1.58) R =0.922; N = 23 where primes denote logarithms, figures in parentheses are t-ratios, and Xi = f.o.b. price (in dollars per box) X 2 = California fresh shipments (in boxes) X 3 = fresh shipments from other areas (in boxes) X* = index of U. S. nonagricultural income (1935-39 = 100) t = time, origin at May 1, 1933, the end of the 1932-33 winter season. The above statistical results, as well as those for fresh summer oranges to be noted below, were developed with Dr. G. M. Kuznets and with whose cooperation they are cited and used here. I 38 J (00I=6£/S£6I) X3QNI £' if) o Hi ? * o IT) CO h- to ID 5 lO Q. *- I CO I CJ o> IT) ro xoa U3d suvnoa o c S3X09 Nomiw press the f.o.b. price of California fresh oranges. Increased levels of income, with other factors given, tend to increase the demand for fresh winter oranges. There is an apparent tendency for the demand for California fresh winter oranges to have tapered off in recent years. This is consistent with the facts that in recent years California fresh winter shipments have been relatively stable, whereas those from other states have increased substan- tially and money income also increased considerably. These general tendencies pertain to the prewar years as well as the entire period including the postwar years. But of par- ticular concern to the orange industry are certain changing economic relation- ships; and of significance at this point is evidence on the changing characteristic of price elasticity or the responsiveness of sales volume to price changes. On this question, the statistical results tend to support the view that during the postwar years the price elasticity of the demand (at the f.o.b. level) for California fresh winter oranges is greater than it was during the prewar years. This is inferred because the price elasticity for the pre- war years is less than for the prewar and postwar years combined. In the recent postwar years and now, the sales volume of California fresh win- ter oranges appears to be more responsive to price changes than was the general sit- uation in the prewar years. This changing economic relationship is consistent with other developments including the in- creased volume of fresh winter shipments from other states as compared with Cali- fornia, and the rapid growth in orange products, especially frozen concentrated orange juice. In fact, one may suspect that the greater responsiveness of sales volume to price changes is associated with the greater availability — in the re- cent postwar years and now — of more acceptable substitutes or alternatives for fresh oranges. This question and its im- plications will be considered later. Summer Oranges. The seasonal be- havior of the f.o.b. prices of California fresh summer oranges is related to be- havior of California shipments of fresh summer oranges, shipments from other areas in the summer period, and the level of consumers' money income expressed in terms of an index of nonagricultural income. In addition, there is a "time" trend to consider. The behavior over time of the prices and the major factors affect- ing them is summarized in figure 22. We may now directly turn to the re- sults of the statistical demand analyses of California fresh summer oranges based on investigation of the influences just mentioned.* The net relation between f.o.b. prices and shipments of California * The statistical results for California fresh summer oranges may be expressed as follows: Period 1925-1941 ; Yi' = 5.684 - 0.9428Y/ - 0.1764Y 3 ' + 1.3394Y/ + 0.0049t - 0.0028t 2 (7.67) (2.35) (6.35) (0.92) (3.48) R =0.965; N = 17 Period 1937-1941 and 1946-1950; Yi' = 2.214 - 0.8346Y,' - 0.1792 Y,' + 2.4677Y/ - 0.0421 1 - 0.0009t 2 (2.85) (1.47) (4.36) (3.36) (1.69) R =0.944; N = 10 Period 1925-1941 and 1946-1950; Yi' = 4.957 - 0.9061Y 2 ' - 0.1580 Ys' + 1.5109Y/ + 0.0050t - 0.0025r (6.61) (1.82) (6.94) (0.83) (4.16) R =0.944; N = 22 where primes denote logarithms, figures in parentheses are t-ratios, and Yi = f.o.b. price (in dollars per box) Y 2 = California fresh shipments (in boxes) Ys = fresh shipments from other areas (in boxes) Y* = index of U. S. nonagricultural income (1935-39 = 100) t = time, origin at 1933. [40] fresh summer oranges is such that in- creases of one are associated with de- creases of the other for given levels of shipments from other areas and the in- come index. And for given levels of Cali- fornia shipments and the income index, an increase of shipments from other areas is associated with a decrease of the Cal- fornia f.o.b. price. As may be expected, advances in the income index are re- flected by increased demand for Califor- nia fresh summer oranges. For California fresh summer oranges, as for winter oranges, the demand at the f.o.b. level appears to have tapered off during the past decade. Of particular significance is what has happened to the price elasticity or re- sponsiveness of sales to price changes, at the f.o.b. level, in the postwar as com- pared with the prewar years. Comparison of the statistical results for the prewar and postwar periods sug- gests that the price elasticity is greater now than was generally the situation in the prewar years. This means that for given levels of income and shipments from other areas, a certain decrease, say, in the f.o.b. price of California fresh summer oranges, is associated with a greater increase in f.o.b. shipments than was the general case before the war. This greater sensitivity or responsiveness to price changes may well be related to aug- mented supplies of alternatives such as greater shipments of fresh oranges from other areas and the currently available supplies of orange juice products. But this matter, for both fresh summer and winter oranges, will be considered in the next section of this report. We shall now consider the competitive demand rela- tions among the several major orange juice products. Consumer Demands for Oranges and Orange Juice Products. The pre- ceding review of statistical demand char- acteristics was on analyses of seasonal behavior, winter and summer, and was limited to fresh oranges and reflected the situation at the f.o.b. stage of the market- ing flow from producer to consumer. Other views of the situation in the de- mand for oranges may be obtained by considering different types of data. Be- ginning with January, 1949, there are available monthly data on retail oper- ations in oranges and orange products. The data reflect retail prices and con- sumer purchases at retail and are for fresh oranges, for canned single-strength orange juice, and for frozen concentrated orange juice. Such data, for the country at large, are shown in figure 23. The consumer purchases of fresh oranges, canned single-strength orange juice, and frozen concentrated orange juice have been transformed into juice equivalents in order to have some com- mon bases for comparison of relative volumes as well as trends. This does not mean that juice equivalent, in terms of gallons, is the only or even the most ap- propriate common unit for comparison purposes. But it is a convenient and, for our purposes, meaningful base for com- parison. Similarly, the retail prices of fresh oranges, canned single-strength orange juice, and frozen concentrated orange juice have been transformed into a com- mon price unit of dollars per juice- equivalent gallon. Here again, no pre- sumption is made that consumer satisfac- tion or comparative values of fresh oranges, canned single-strength orange juice, or frozen concentrated orange juice are reflected in their retail price equivalents per juice gallon. But that basis for comparison is meaningful, clearly understood, and convenient for our purposes. Examination of the upper panel of figure 23 shows the well-known seasonal movement in the consumption of fresh oranges, with the heavier consumption months in the winter season, and the lighter consumption months in the latter part of the summer season. Although the seasonal pattern in fresh orange con- [41] CO CN 2 O 0. § ^ e a 1 * a < -a z £ a: O O a, u- o in a> UJ 2 o o z a> _l < a: 3 O en 3 o or < to z ro o 0> z CO J O *D CM CM — — S3X08 NOmiW O o * CM K) CM (00I = 6£/S£6I) X3QNI > < c O o a> co in a < c * o £ £ < o a 3 0) UJ 3 CO o m CO I- z UJ 2 Q. in CD X CD X CO UJ o ce en CO Ul i- ct in ^ ro cm xoa U3d sdvmoa CD h 1951- >h 1952 > 2.50 JFMA.MJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASOND h 1949 H< 1950 > l < 1951 H< 1952 -> sumption varies some from year to year, the seasonal profile is recognizable each year and follows the general form indi- cated in figure 23. The trend in fresh orange consumption, aside from the sea- sonal movement, has been just about horizontal during the past several years. Close examination of the data hints a very slightly declining trend, but it is not strong enough to be significant or mean- ingful as to future developments. Consumer purchases of canned single- [43 strength orange juice since the beginning sumption is tied in with growth in the of 1949 are compared with consumer consumption of frozen concentrated purchases of fresh oranges in figure 23. orange juice. The volume of canned orange juice pur- Even more remarkable than the growth chased by consumers in 1950 totaled less of canned single-strength orange juice than in the preceding year, but just about has been the growth of frozen concen- equaled the volume in the following year, trated orange juice. Figure 23 shows the 1951. The trend of canned orange juice estimated monthly consumer purchases (single strength) consumption in the of frozen concentrated orange juice, cora- past three years has been about level, but pared with fresh oranges and canned is lower than prevailed several years ago. single-strength orange juice, all in terms The long-time growth in canned single- of equivalent gallons of juice.* The strength orange juice is suggested by the marked expansion of the frozen concen- summary data shown on page 51. trated orange juice is evident from the Although the long-time trend in the figure and has been viewed as one of the pack and sale of canned single-strength most outstanding marketing-merchandis- orange juice has been striking, a definite ing developments in the food industries, tapering off has occurred during the past Near the middle of 1950, the retail sales several years. Some students of the citrus of the frozen concentrate product ex- industry believe that the leveling out of ceeded in volume, for the first time, the canned single-strength orange juice con- retail sales of the canned single-strength * The primary data on consumer purchases of fresh oranges, canned single-strength orange juice, and frozen concentrated orange juice are available in terms of boxes, cases of 24/No. 2's equivalent to 432 ounces of juice per case, and gallons, respectively. To place the fresh oranges and the juice products on a common base for comparison, their consumer purchases have been expressed in terms of equivalent gallons of single-strength juice. Such was done by using the following conversions: the fresh oranges, originally in terms of boxes, were converted to a tonnage base by using the factors of 77 pounds per box for California oranges and 90 pounds per box for all other oranges. The pounds of fresh oranges were converted to short tons. The fresh oranges juice-yield factors then used were: for California Valencias, 104 gallons of juice per ton; for California Navels, 85 gallons per ton; and for all other oranges, 110 gallons per ton. Then, giving consideration to the relative volumes of California Navels, California Valencias, and other oranges purchased monthly by consumers since January, 1949, weighted average yields were determined to arrive at equivalent gallons of single-strength juice. Such weighted averages are 100 gallons per ton for fresh oranges marketed during the winter season (November- April) and 106 gallons per ton for fresh oranges marketed during the summer season (May-October) . The canned single-strength juice (432 ounces per case of 24/No. 2's) was converted into gallons by use of the factor of 128 ounces per gallon. The frozen concentrated juice (in terms of gallons) was converted by use of the factor of 4 gallons of single-strength equivalent to 1 gallon of concentrate. The primary data on retail prices of fresh oranges, canned single-strength orange juice, and frozen concentrate are available in terms of cents per dozen, cents per 46-ounce can, and cents per 6-ounce can, respectively. To place the fresh oranges and the juice products on a common base for comparison, their retail prices have been expressed in terms of dollars per equivalent gallon of single-strength juice. Such was done by using the following conversions: for fresh oranges, the price in cents per dozen was converted to dollars per equivalent gallon of single-strength juice by using for winter oranges the factors of 16.6 dozens per box, 84.5 pounds per box, and 100 equivalent gallons of single-strength juice per ton of fresh oranges; and for summer oranges, the factors of 17.6 dozens per box, 80.8 pounds per box, and 106 equivalent gallons of single-strength juice per ton of fresh oranges (these factors are weighted averages reflecting the reported retail purchases of California and Florida oranges for the period beginning January, 1949) . For canned single- strength juice, the price in terms of cents per 46-ounce can was converted to dollars per equivalent gallon of single-strength juice by using the factor of 2.78 cans (46 ounces each) per gallon or 128 ounces per gallon. For frozen concentrate, the price in terms of cents per 6-ounce can was converted to dollars per equivalent gallon of single-strength juice by using the factors of 1 can (6 ounces) of concentrate as equivalent to 24 ounces of single-strength juice, or 5.33 cans of con- centrate (6 ounces each) as equivalent to 1 gallon of single-strength juice. [44] product and apparently has retained this position since then. Near the end of the third and early in the fourth quarter of 1950, when fresh oranges were at their seasonal low, sales of the frozen con- centrate product exceeded even fresh oranges. A similar situation appears to have occurred at the beginning of the second half of 1951. The strong position acquired by the frozen-concentrate prod- uct is clearly evident and in large part reflects changing consumer buying habits and demands; and also bears upon the questions of competitive demand rela- tions between fresh, canned, and frozen concentrate orange juices. But to provide further bases for considering such ques- tions, we need review the price trends at the retail level. The lower panel of figure 23 shows the monthly retail prices in equivalent juice gallons since the beginning of 1949. Sev- eral features of the price development are clear. In terms of dollars per equivalent juice gallon, fresh oranges have been most expensive, followed by frozen con- centrate and then canned single strength. Next may be noted that the prices of the canned single strength and frozen con- centrate tend to be correlated over time, or tend to stay in line with each other. This relationship is not perfect, but defi- nitely recognizable. Next may be noted that the price of fresh oranges has tended to follow a rising trend, whereas the prices of frozen concentrate have tended to follow a declining trend. The prices of canned natural strength have followed no definite trend over the period. Thus, the general tendency has been for the spread between the fresh orange and processed orange products (canned single strength and frozen concentrate) to widen, and for the spread between the canned single * By comparing the relative fluctuations over time in the price ratios and quantity ratios, a suggestion may be gleaned as to the demand interrelations which have tended to develop during the period. If there is a strong tendency for the price ratios to remain at a particular level, com- pared with a less strong tendency on the part of the quantity ratios, there is the presumption that the two products are competitive in consumer demand and purchase behavior. This means that if two goods are competitive their prices tend "to stay in line with each other" more than if the goods are not competitive; and, if two goods are complements, their quantities tend "to stay in line" strength and frozen concentrate to nar- row. These are only broad general tend- encies, to which there have been impor- tant exceptions in some months and groups of months. But they have been tendencies which affect, as well as reflect, important developments in the citrus in- dustries, and will be discussed later. The above review of near-recent trends in the retail prices and consumer pur- chases of fresh oranges, canned single- strength orange juice, and frozen concen- trated orange juice (in terms of equiva- lent juice gallons) bear upon the com- petitive demand relations among the sev- eral sources for orange juice. There are many opinions in the citrus industry and trade concerning such relations. Some ac- cept the view that the marked growth in frozen concentrated orange juice has oc- curred primarily at the expense of canned natural-strength juice; another view is that the fresh-orange market has borne the maj or brunt of the frozen orange j uice concentrate; others lean toward the view that both fresh oranges and canned nat- ural-strength juice have suffered in un- determinable amount; still others agree with that but add that the total market for fresh oranges and orange juice products has expanded. It may be that market and consumer experience with frozen orange juice con- centrate is still too meager to serve as a firm basis for considering demand inter- relations among the several orange juice sources; for a refined and definitive analysis, that may well be correct. But suggestive, if inconclusive, analyses may now be attempted. Such has been done by comparing the movements of the avail- able monthly series on retail prices and consumer purchases considered above.* The findings are consistent with the [45] view that in terms of broad general since they bear upon fresh oranges and tendencies, competitive demands exist orange products. among fresh oranges, frozen concen- «ry 5e of Citms Products.-PiacticaHiy all trated orange juice, and canned single- homemakers had made some use of citrus prod- strength orange juice. This does not mean nets during the year that preceded the inter- that such exists for all consumers and to viewing. In most instances these homemakers ,1 , . had used at least five different citrus products. the same extent; on the contrary, impor- The mogt popular items were; tant exceptions and many individual dif- _ . _ . r i i ^ n • t r™ i Fresh Canned Frozen ierences undoubtedly exist. Ihe result ^ __ . . n i ! ! i^-i.i Oranges Orange juice Concentrated reflects only general broad national tend- T amnn rv,.««#«„'# ; • J ° Lemons Orapeiruit juice orange juice encies, and they may not be reflected Grapefruit perfectly. It further appears that the re- "Homemakers with higher family incomes cent developments in frozen concentrated tended to use a greater variety of citrus prod- orange juice have had a greater impact ucts. Frequent use (during the winter) of fresh on the fresh orange markets than did the oranges, grapefruit, and lemons, and frozen earlier developments in canned single- concentrated orange juice was more character- , x . . „, . D istic of homemakers with higher family in- strength orange juice. This view will be comes Frequency of use (during the winter) of examined in more detail in the next sec- the canned citrus products did not appear to be tion of the report. And in anticipation of related to family income. such considerations, we will now look at " With the exce P tion of frozen concentrated . • .l .i i . orange juice a large majority of the homemakers certain other evidence bearing upon con- . . u *•«.*■, j * ° r were using the same quantity of a citrus product sumer demands, purchases, and uses of as they had during the previous year— a rather oranges and orange products. high proportion of the users of frozen concen- Consumer Uses of Oranges and trated orange jllice had increased the quantity Orange Juice Products. There are ^Attitudes towards citrus products.-Most various methods of looking into the atti- homemakers regard citrus fruits as representing tudes and behavior of consumers with a special class within the larger category of respect to the uses of oranges and orange fruit - ™ e uniqueness of citrus fruits is at- t ^ i i • . i i tributed by the homemakers primarily to their products. One method is to ask a sample heahh and food valueg Among the varioug fregh group of households, and such a method c i trus f ru i tSj oranges were thought by them to was recently used to learn about "Con- be highest in food value; fresh citrus fruits, in sumers' Use of and Opinions about Citrus general, were said to be of better quality than Products."* Although the survey per- Processed c itrusitems ° . i i -i Health and taste characteristics were pri- tained to all citrus, it is worth while to mary factors invo i ve d in either using or not quote from its Summary of Findings using citrus products. In addition, convenience with each other more than if the goods are not complementary. These relations are formalized by saying that for two competitive goods, the quantity ratios fluctuate relatively more than do the price ratios; and for two complementary goods, the price ratios fluctuate relatively more than do the quantity ratios. Such a test is only one among several (none completely satisfactory) which have been applied to examine the demand relations among fresh oranges, canned natural-strength orange juice, and frozen concentrated orange juice. The results are summarized in the following table. Coefficients of variation Types of orange juice Quantity ratios Price ratios (per cent) Fresh oranges and canned single strength 28 19 Fresh oranges and canned frozen concentrate 40 17 Canned single strength and canned frozen concentrate 26 12 The price ratios for products A and B were obtained by dividing the price per unit of A by the price per unit of B; and the corresponding quantity ratios for the same two products A and B were obtained by dividing the number of units of A by the number of units of B. * U. S. Dept. of Agr. Bureau of Agr. Economics, Agriculture Information Bulletin No. 50. October 1951. [46] and cost factors were influential in the use of the canned products. "Among homemakers who had used frozen concentrated orange juice this product usually had a preference rating much higher than the canned citrus juices. "Decision-making in purchasing citrus prod- ucts. — Decisions as to whether to buy fresh citrus fruit or which one to buy were influenced by the quality of the fruit within the store. The criteria used in judging quality usually were aspects of the skin rather than size, weight, or variety. "Whereas many homemakers said they usu- ally buy a particular brand of canned citrus juice, they seem to shift, rather readily, to other brands at those times when their pre- ferred brand is not available." The results of the survey also revealed a general tendency for households to have a higher taste preference for fresh oranges than for frozen concen- trated orange juice. But the survey clari- fied that factors in addition to taste preference — such as relative costs and convenience — also influenced consumer uses and opinions about citrus products. The above results stem from an opinion survey; they indicate what a sample group of individuals reported as their opinions, or said what they thought. But another method of examining the situa- tion is to look at what householders do, rather than what they say. This latter method is, in some respects, in the same category as studying market activities, except the activities of sample individ- uals are noted and summarized rather than market totals. We used the market- total approach above when we considered competitive consumer demand relations among fresh oranges and orange juice products. Now we may turn to the results of a study based on reports of what a sample of householders do in their house- hold operations. This second orange usage study was conducted in part of the winter of 1950- 51..* A panel of almost 3,000 household- ers were asked to record and report what they actually did with respect to orange * The survey, "Orange Usage Study," was cond Growers. usages. The sample of households con- sisted of some 2,993 families, living in the northeast and north central regions of the country. They reported any pur- chase of California oranges during the two-month period, December 1950 and January 1951. The sample cannot serve as a firm base for projecting to the coun- try in general, but it can be considered as suggestive of relations and practices which may merit further examination. This usage study found that the sample group obtained, in terms of equivalent juice units, about half of its orange juice by purchase of fresh oranges (California navel and Florida) ; and about half from the frozen concentrate and canned single- strength sources. Each of the latter two accounted for about one-quarter of the total orange and orange juice products consumption. This distribution is not fully in line with evidence reflecting the situation for the country at large; but the differences are not unacceptable in view of the fact that the usage survey is based on a two-month period and is for a sec- tion of the country. Another finding of the study throws light on certain consumers' practices. The evidence suggested that in the winter months about two-thirds of the total orange consumption (including fresh oranges and juice products) was in the form of orange juice. Almost 30 per cent of the consumption was in the form of "eating the orange alone," or what is sometimes called "eating out of hand." About 3 per cent of the consumption was in the form of salads, in recipes, etc. These results, especially the orange con- sumption in the form of juice, are in line with and confirm other evidence. In reporting the use of winter oranges no distinction so far has been made be- tween California and Florida oranges. But the study also throws some new light on that question. The evidence from the study indicates that California fresh win- ucted by Industrial Surveys Company for Sunkist [47] Uses of Fresh Winter Oranges Type of usage Fresh winter oranges California navel Florida For juice per cent 20 75 54 21 5 100 63 31 24 7 6 100 By itself At home In lunch In salads, etc ter oranges, navels, are used substantially less for juice than Florida fresh winter oranges. The broad distinctions are sum- marized in the table on this page. On the basis of the tendencies revealed in the above table, householders — at least a substantial majority — tend to use Cali- fornia navel oranges for "eating by them- selves"; whereas the Florida fresh winter oranges are used in large part, but not entirely, for juice purposes. To the extent this pattern of consumer behavior pre- vails, it may have a significant impact on the differential positions of navel and Valencia oranges in California. The survey also brought out other consumer-behavior aspects. Since a sig- nificant proportion (about two-thirds) of total fresh oranges and orange prod- ucts are used in juice form, it is interest- ing to know the sources of the orange juice. The survey of winter-orange usage indicated the following percentage distri- bution of orange juice from the various sources: from fresh navels, 8 per cent; from fresh Florida's, 17 per cent; from other fresh oranges, 4 per cent; from frozen concentrate, 36 per cent; and from canned single-strength, 35 per cent. These results mean that despite the relatively recent advent of frozen concentrate, it has become a leading source of orange juice. The results also emphasize the rela- tively minor position of California navels as a source of orange juice in the winter. But when fresh winter oranges "eaten by themselves" are considered, the results are as follows: California navels make up almost 70 per cent of the total; Florida's almost 20 per cent, and others, unclassi- fied, as the remainder. It is clear that the strong position of California navels is in their use for "eating by themselves" and not for juice. These results help evaluate the impact on the fresh orange market resulting from the development of frozen concentrated orange juice. It is important to emphasize at this point that these results of orange usage can be considered only preliminary. They reflect experience of only part of one winter season, and they are based on a sample which consists of only those fam- ilies in the northeast and central regions who reported any purchase of California oranges during December 1950 and Jan- uary 1951. Yet, the results of the survey are reasonably consistent with other evi- dence on market developments in fresh oranges and orange juice products. And when viewed as indications rather than conclusions, the results are suggestive and informative — at least while addi- tional experience and information are accumulated. [48] CHANGING ECONOMIC RELATIONSHIPS In the two previous sections we have outlined some major developments which have occurred in the orange industries. Our objective was to set forth the trends in production, acreage, utilization, costs and returns, and in shifts among demands and uses. Now we may consider the impacts of those developments and interpret them in terms of their effects and repercussions. To see the over-all picture, we shall draw upon points noted or developed earlier, and at times supplement them with other points. It will be necessary to consider the orange industry at large, rather than in terms of detail for particular districts or counties; therefore, individual pro- duction-marketing groups must interpret their own position from the over-all in- dustry situation considered in this report. Major Shifts in Production-Marketing The production of oranges in the United States averaged about 110 million boxes during the past five years. This rep- resents an increase of about 70 per cent over the five-year prewar average of about 64 million boxes. Most of this huge increase in orange production took place in Florida. Production in California re- mained about the same. Along with the production changes from the prewar to the postwar years, certain marketing changes have occurred. Before World War II, about 95 per cent of the Florida oranges harvested were shipped for fresh consumption. In the past year or two, only about a third of the Florida oranges harvested were shipped for fresh consumption. This re- flects a large proportion of the Florida crop going into frozen concentrate and canned single-strength juice. In California, too, certain shifts and changes have developed. But they are not wholly comparable or similar to those in Florida. In California, the processing of frozen concentrated orange juice began later than in Florida and has not yet grown to the same extent. As noted in a previous section, Va- lencias make up about 60 per cent of California orange production. These Valencias are summer oranges; they are primarily a "juice orange," and when shipped for fresh consumption, they reach the markets when Florida fresh shipments are at their seasonal low. Navels account for about 40 per cent of the California-Arizona orange produc- tion; they are a winter orange, and they are not best adaptable for processing as a source of canned single-strength or frozen concentrated orange juice. A decade ago, only about 15 per cent of the California-Arizona Valencia crop was processed; last year almost 40 per cent was processed, most of which went into frozen concentrate. But navels still are used primarily for fresh shipping. These shifts in production-marketing — which were outlined in some detail in the earlier sections of this report — occurred along with certain technological develop- ments. Since these technological develop- ments made for significant shifts in the orange industry, it is necessary to note what is involved. Frozen Concentrated Orange Juice. Beginning in the early 1930's, the frozen food industries began to develop, and they did so rapidly. Packs and sales of fresh frozen fruits and vege- tables, fish, meats, and berries increased. Improved methods of packing fresh frozen foods were introduced, and distri- bution facilities were improved and ex- panded. More and more retail outlets in- vested in low-temperature sales cabinets, and by the late 1930's and early 1940's fresh frozen foods were no longer a novelty; their production and distribu- tion were established and it was clear that the consuming public had accepted them. The housewife had become used to [49] the availability of fresh frozen foods and expected their display and sale in the retail outlets. Sales expanded, prices went down, and quality improved. These two developments, the public acceptance of fresh frozen foods and the ready existence or availability of low- temperature cabinets in most retail food outlets by the middle 1940's, went hand in hand. They subsequently had a marked impact on the orange industries. Of im- portance also was the fact that facilities were available in most homes to store frozen concentrate : for limited periods in refrigerators; and for longer periods as low-temperature home cabinets or "deep freezers" became more widely distrib- uted. Various interests in the citrus indus- tries had for some years been looking for means of producing or manufacturing a processed orange juice which would come closer to home-prepared orange juice squeezed from the fresh fruit. In terms of taste and aroma, canned single- strength orange juice did not meet those desires. A high-vacuum, low-temperature evaporation process yielding a nonpas- teurized product, frozen concentrated orange juice, became available in 1945. Commercial operations began in the 1945-46 marketing year, and consumer acceptance was highly favorable. The rapid growth in the production and sale of frozen concentrated orange juice has few, if any, equals in the food industry in recent years. Florida's pack was more than 10 million gallons by 1948-49, and more than doubled the next year. The growth in Florida con- tinued, and in 1950-51 almost 31 million gallons were packed using more than a third of total Florida marketings of or- anges. In California, commercial output began in the summer of 1948, reached almost 3.5 million gallons in 1949-50, and increased again the following year to over 4 million gallons. And it is still growing. Why frozen concentrated orange juice has taken such a hold and has grown so fast is reasonably well clear. The consum- ing public and retail merchants were used to and had already accepted the idea of frozen foods. A distribution system, developed for frozen foods, and low- temperature cabinets in retail stores were available for use. National employment and income were increasing, and the public's purchasing power was at record levels. As the result of advertising over a period of years, the public had learned to "drink oranges." People were orange- juice conscious, in fact juice conscious, as evidenced by the rapid growth in the sale and consumption of other fruit juices as pineapple juice and also tomato juice. All these factors contributed to setting the stage for the marked growth in the use of frozen concentrated orange juice. But those factors alone cannot fully ex- plain the situation. Another one, and a very important one, must be included, and that is the quality factor. For a number of years, consumers had available a canned single-strength orange juice. Its sale grew considerably before the war. But canned single-strength or- ange juice did not quite meet the taste and texture characteristics of fresh or- ange juice; hence, it did not enjoy the consumer acceptance gained by frozen concentrate. The newer product approxi- mated more closely the juice squeezed from fresh oranges. In fact, the newer product had certain advantages with re- spect to quality control and standards. The solids content and sugar-acid ratio of frozen concentrate can be controlled to a considerable degree; differences in solids content of juice from various lots of fresh oranges can be minimized in the processing, and differences in the sugar- acid ratio of various lots of fresh oranges can similarly be minimized. This aids in maintaining standards and quality. But it is not to be inferred that frozen concentrated orange juice must or always does attain a high quality standard. In fact, there are wide quality variations in [50] the various brands marketed. And it is only the higher quality packs which ap- proximate the taste, flavor, and body characteristics of juice squeezed from fresh oranges. Canned Single-Strength Orange Juice. Although it has been overshad- owed in the past several years by the remarkable growth in frozen concen- trated orange juice, the development in canned single-strength orange juice was in itself spectacular. The canning of single-strength orange juice began about twenty-five years ago, but the pack did not reach noticeable amounts until the latter half of the 1930's. In the early years of the pack, its quality in terms of taste and flavor was not widely ac- cepted. But gradually, through research and development and the use of better fruit, the quality of the pack improved. By the late 1930's, a variation of the flash pasteurization technique was widely used, and a canned juice with greater consumer appeal and acceptance became available. The pack and market ex- panded; the pack expanded because in- creased orange production in Florida was being channeled in considerable part to the canned single-strength outlet, and the market expanded because the quality of the product was improving, and the consumer price became more and more attractive. In fact, canned single-strength orange juice made up an increasing pro- portion of the total orange usage year after year, until the frozen concentrated orange juice reached general distribu- tion. The marketing year 1935-36 was the first time that the national pack of canned single-strength orange juice reached a million cases (24 No. 2 basis), and then the large bulk of the pack was in California. But after that, the situa- tion changed quickly. By the time we entered World War II, 4.8 million cases were packed, with almost three-fourths of the pack in Florida. Purchases by the government for the armed services and for lend-lease shipments to foreign coun- tries loomed large in the war years. But after the war, production expanded to a peak of 27.3 million cases in 1947-48, with almost all (25.6 million cases) being packed in Florida. In addition, Florida that year packed some 12 million cases of blended orange and grapefruit juice. U. S. Pack of Canned Single Strength Orange Juice Period California Florida Total U. S. Five-Year Averages 1929-30 to 1933-34 (mill, cases 24 No. 2's) 0.6 1.0 1.4 2.9 3.7 2.3 1.5 2.2 1.9 1.6 0.1 0.5 18.4 7.1 13.9 18.4 17.3 25.6 16.8 17.4 20.0 0.1 1.1 20.9 8.5 16.8 22.2 19.7 27.3 19.3 19.5 22.5 1934-35 to 1938-39 1939-40 to 1943-44 Crop Year (Nov. -Oct.) 1943-44 1944-45 1945-46 1946-47 1947-48 1948-49 1949-50 1950-51 51] In the past year or two, the national pack of canned single-strength orange juice has been near 20 million cases — only about 2 million in California, and the rest in Florida. The canned single-strength orange juice market did not develop as a sig- nificant outlet for California oranges. This is of importance because of the light it may throw on the newer devel- opments occurring in the frozen concen- trated orange juice industry. The canned single-strength orange juice market de- veloped rapidly, and primarily on a price basis. Although the quality of the pack, with fresh juice as a standard, had im- proved, the canned product was still largely a distinct product. Very substan- tial price differences were necessary to attract consumers away from fresh or- anges. Hence, the returns to California growers from the oranges going to the canned single-strength outlet were un- attractive, and that market was used only as an outlet for that fruit which did not pay to be shipped fresh. Hot Concentrate. This product dif- fers from canned single-strength orange juice in processing technique. The proc- ess involves the evaporation of fresh orange juice under vacuum. The degree of concentration attained varies from 42 to 65 degrees Brix* depending upon the market and usage for which the product is manufactured. Pasteurization of the concentrated juice is usually preceded by deaeration to prevent oxidation. This process is commonly called "hot pack" or "hot concentrate" to distinguish it from the "frozen concentrate." For consumption use, "hot concen- trate" orange juice is reconstituted so as to approximate the liquid characteristics of fresh juice. The armed services' re- quirements stimulated the output of "hot concentrate" orange juice in the war years because of its advantages in saving shipping space as compared with canned single-strength juice. Partly for this rea- son also, "hot concentrate" has been pur- chased by the United States Department of Agriculture for distribution to schools in the school-lunch program. Although of minor importance in the national picture — compared with fresh oranges, canned single-strength orange juice, or the frozen concentrate — in Cali- fornia the output of "hot concentrate" so far has been greater than in Florida. The packs in California and Florida are shown in the table on page 53. In addition to the "hot concentrate," the orange industry produces what is often referred to as "beverage base," a formula product made from concentrated orange juice. This product is frequently used to impart an orange flavor in manu- factured products such as carbonated and noncarbonated fruit drinks, canned orangeades, and in some candies and bakery items. Changing Attitudes of Consumers. The preceding sketch of the impacts of technology on the orange industries through the development of canned single-strength, "hot concentrate," and frozen concentrate orange juice markets leads to consideration of changing eco- nomic relationships of great importance. That is, the demand attitudes of con- sumers. To say that "consumers are fickle" is not to give the proper meaning or interpretation to what has occurred. To say that consumer tastes and attitudes are not rigid is to put the matter more appropriately. Within a period of 10 or 15 years a large part of the public learned to "drink oranges." Inexpensive and effective home reamers became a standard piece of equipment in many kitchens. The public took hold and bought more oranges. But in their drinking of orange juice they were not permanently wedded to juice they squeezed from fresh oranges. Some shift developed to the canned single- strength juice as it improved in quality and became price-attractive. And in the * Degrees Brix refers to the percentage of dissolved solids in a given weight of juice. [52] U. S. Pack of Orange Juice Concentrate (65° Brix) Marketing year California Florida 1940-41 1,000 gallons 798 2,226 3,076 1,926 2,601 938 3,332 2,928 2,769 3,216 3,251 65 93 1,882 1,283 240 244 1,447 1,739 1,898 1,529 2,529 1941-42 1942-43 1943-44 1944-45 1945-46 1946-47 1947-48 1948-49 1949-50 1950-51 postwar years, another shift began — to frozen concentrate. The recent growth in the frozen concentrate occurred at the expense of both the home use of fresh oranges and canned single-strength or- ange juice. And the situation now is one of competition in consumption, not for all, but for many orange consumers. Further changes in the relative volumes of oranges used in the fresh, canned, and frozen outlets will depend in large part — but not entirely — on the relative price trends. The experience of this country — not only in oranges but in many items — is that innovation, change, and new prod- ucts are taken up quickly by the public. But newness is not sufficient if volume is to be attained; the product must also be price- attractive to the consumer. And in the case of frozen concentrated orange juice, not only was it a new product, con- venient to use and attractive in price compared with fresh oranges, but the product was good. For the first time there was available a processed orange juice that reasonably well approximated fresh orange juice. Frozen concentrated orange juice had the relative advantages of qual- ity, price, and convenience. What is the lesson one may learn? Is it that the sales of fresh oranges will con- tinue to be subject to competitive pres- sure from orange juice products? Is it that expanded consumption of oranges will mean eating fewer fresh oranges in favor of more orange juice products? The important lesson to be learned is neither; it is that further change can be expected and will bring along further changing economic relationships. The consuming public is no more wed to frozen concentrate than it was to fresh oranges or to canned single-strength orange juice. If, or when, a still different orange juice product — which is satisfac- tory in taste, price, and in nutrition — comes along, the public may well turn to it. This is important for a consideration of changing economic relationships be- cause there are certain distribution prob- lems connected with frozen concentrate. The fact that the product must be kept frozen until used, and low-temperature transportation and storage facilities must be provided, increases the costs of the product. Current experiments and developments in food technology may well bring forth a canned single-strength orange juice, or a "hot concentrate" orange juice, or even an orange powder which would [53] yield a product approximating fresh juice in taste and body as much as does the present frozen concentrate. If, or when, such nonfrozen orange juice prod- ucts are developed so they can be mar- keted at a price-competitive level, they may have profound impacts on the orange industries. And the frozen orange juice industry would be only another milestone along the path of technological marketing developments. Hence, the fu- ture of frozen concentrated orange juice is not necessarily the same as the future of the orange industries. The develop- ment of, say, a shelf-stock orange con- centrate or an orange powder for recon- stituting into orange juice — acceptable in price and taste characteristics — could have even greater repercussions than did frozen concentrated orange juice. This means that technological change and as- sociated changing economic relationships are an ever-present part of the produc- tion-marketing scene. Production for Fresh Shipment and Processing. Technological devel- opments have not only resulted in chang- ing economic relationships in consump- tion and use practices, but certain pro- duction-marketing practices have also changed. The growth in canned single-strength orange juice and later in frozen concen- trated orange juice brought along with it changes in production practices. In Florida, many groves produce only for the orange products market. This means the fruit can be hauled directly from the grove to the processing plant, cannery, or freezing plant. The packing house is eliminated for such fruit. But in Califor- nia, practically no oranges are produced with processing as the objective in view. In California, almost all oranges are hauled from the grove to the packing house. There, fruit is graded and sized, and then distributed to fresh or proc- essed outlets. This generally involves an extra handling for that fruit which even- tually goes to processing. But under the cost-returns levels faced by California producers, they have not been able to produce only for processed outlets. This may be indicated by reference to condi- tions prevailing in the 1951 season. Figure 24 shows the approximate rela- tions which prevailed in 1951 between retail prices and returns to growers for oranges used in frozen concentrate or single-strength canned juice. The cost levels existing in 1951 need not represent the situation in later years, but the figure emphasizes certain relations which can be considered generally typical. Although the retail price for frozen concentrate or canned single-strength juice may vary within wide limits, the corresponding re- turns for the fruit used in the products is higher for Florida growers than for Cali- fornia growers. This should not be unex- pected. In an earlier section of this report we have shown that Florida production- marketing costs total less than do those for California growers, and figure 24 is based on the assumption that the eastern retail prices for frozen concentrate or canned single-strength orange juice are identical for California and Florida fruit. Hence, the results are higher returns to the Florida grower of oranges used in frozen concentrate or canned single- strength juice. The implications of these price-returns relations may be suggested in some ex- amples. In December 1951, the reported national average retail price for frozen orange concentrate was 19 cents per 6-ounce can. Based on the 1951 cost con- ditions, the 19 cents retail price was equivalent to a return of about $35.00 per ton for the California grower's fruit used in the frozen concentrate, and a re- turn of about $41.00 per ton for the Florida grower. When canned single-strength orange juice is considered, corresponding rela- tions between retail price and grower's return may also be approximated as shown in figure 24. As an example, the national average retail price of canned [54] Figure 24. Approximate Returns for California and Florida Oranges Used in Frozen Concentrate and Canned Single-Strength Orange Juice, at Various Retail Prices (Reflecting 1951/52 Season Conditions). 70 z 60 o £50 to < 40 30 - 20 - 10 - -10 FROZEN CONCENTRATE FLORIDA FRUIT RETURN, DELIVERED CANNERY CALIFORNIA FRUIT RETURN, F.O.B. PACKING HOUSE 5 10 15 20 25 EASTERN RETAIL PRICE, CENTS PER 6 OZ. CAN 30 CANNED S.S. JUICE FLORIDA FRUIT RETURN, DELIVERED CANNERY 10 20 30 40 50 EASTERN RETAIL PRICE, CENTS PER 46 OZ. CAN single-strength orange juice was 28 cents (per 46-ounce can) in December 1951. With the 1951 cost conditions, the 28 cents retail price was equivalent to about $12.00 per ton as a return to the Florida grower, but just under breaking even (at the f.o.b. packing house level) for the California grower whose fruit was used to make the canned single-strength orange juice. This means that when cul- tural costs are considered, and picking and hauling to the packing house are also figured in, the California grower is charged with a net loss for that particular fruit. These examples, however, cannot be applied to all the oranges produced. First, all oranges are not canned or made into frozen concentrate; and second, the retail prices and grower returns reflect the interaction of conditions not only in the canned single-strength and frozen concentrate markets, but also in the fresh orange markets. Also, unit costs vary with the respective volumes in the several outlets. But it is clear that because of the lower cost structure facing Florida grower-marketers, they receive a higher return per ton if their fruit retails at the same price as California fruit. It is also clear that at the current and recent price- cost relationships California growers re- ceive a much higher unit return for oranges used in frozen concentrate than for oranges used in canned single- strength orange juice. The cost structure facing Florida growers for a long time has been lower than that facing California growers. Cal- ifornia orange growers have always had to irrigate while water costs exist to a very minor degree for Florida producers. Taxes and labor wage rates have, over the years, been considerably higher in Cali- fornia than in Florida. Yet, despite higher costs, California growers and dis- tributors had generally been able to op- erate profitably. The major explanation is that the bulk of California oranges was shipped fresh, and on the fresh market [55] California oranges have over the years received higher prices per box than Flor- ida oranges. On a per-pound basis, the price differential was even larger in favor of California since the Florida box weighs about 90 pounds compared with 77 pounds for the California box. The market demand for fresh Califor- nia oranges was greater than for fresh Florida oranges as evidenced by the "premium" differential the trade has been willing to pay for California fresh oranges. This differential reflected the attitudes and opinions of many consum- ers. They preferred California fresh oranges to Florida fresh oranges and have been willing to substantiate such prefer- ences by paying a premium for fresh California oranges. Recognition of this premium is necessary to have a meaning- ful account of the changing economic re- lationships in the orange industries with the advent of frozen concentrated orange juice. With the appearance and growth of orange products, especially the frozen concentrated orange juice, the premium for California oranges did not carry over into the concentrate. The retail consumer trade did not have, nor was it beginning to develop, preferences for frozen con- centrate made from California oranges. At the retail level no special or entrenched preference existed. Frozen concentrated orange juice made from California oranges found itself in a position where it had to compete on a price basis, with- out the existence of an established pref- erential demand for the California product. At the packing house or processing plant level, California growers are paid for their oranges going into frozen con- centrate according to solids content of the fruit. The solids content reflects the quantity of sugar and acid in the fruit. The Brix method of analysis commonly used measures the per cent of dissolved solids, by weight, in the orange juice. In accordance with present standards, frozen concentrated orange juice is concentrated down to a minimum of 42° Brix or 42 per cent fruit solids. Thus, the solids con- tent of the oranges determines the quan- tity of juice required to yield a gallon of concentrate for freezing. Color, size, skin condition, and other appearance-affecting factors have no spe- cial significance if the fruit goes to mak- ing frozen concentrate. The concept of external quality which many growers and shipping organizations have developed over the years and which still are relevant for fruit shipped, sold, and used fresh now do not apply to fruit destined for processing into concentrate. Prior to the time frozen concentrate acquired a position of prominence, Cali- fornia growers benefited from the pre- mium differential commanded by their fresh oranges in eastern markets. Al- though such premiums still exist, the vol- ume of fresh fruit business has declined; frozen concentrate has grown in volume, and for the fruit processed, the California grower receives no premium compared with the Florida grower. This is another scene in the panorama of changing eco- nomic relationships. We have noted that California and Florida frozen concentrates retail at the same price for comparable quality labels. We also noted earlier that production costs per ton of fruit are much higher for California growers than for Florida growers. Thus, the juice-products returns to California growers would have to be considerably higher per ton than to Flor- ida growers to yield the same net income per ton of fruit to growers in each state. But such has not been the case. Net in- comes from juice products have been much higher for Florida growers. Com- petition among Florida processors and fresh shippers for the fruit resulted in higher prices to the growers in that state; at the same time they enjoyed cost sav- ings through direct hauling from grove to processing plant. Neither of these ad- vantages existed for California growers. [56] Thus, the Florida growers benefited much more than California growers from the introduction of frozen concentrated orange juice. Competition among processors and fresh shippers in California has not been as keen as in Florida. Processors in Flor- ida went into the manufacture of frozen concentrate early and in a big way. In California, processors were hesitant about frozen concentrate and went into the manufacture of the new product in a way significant at all only in the past year or two. In California many in the orange industry believed that their inter- ests were oriented in the direction of the fresh market. Also, processors in Cali- fornia each season were aware of the frozen concentrate pack which had earlier in the season been packed in Florida and such packs and inventories grew each year. In view of such a situation, proc- essors in California had difficulty in ob- taining financial backing, and under de- clining market price conditions they could not pay California growers more for the fruit than the currently declining price seemed to justify. Faced with such alternatives, California growers pre- ferred the fresh market which from their view promised higher returns than the processed market. While explaining the differential re- turns to California and Florida growers from juice products oranges, it must be noted that oranges may not indiscrimi- nately be sent to juice manufacture. For use in canned single-strength juice, qual- ity is important calling for adequate sugar-acid ratio and Brix. For use in con- centrate, soluble solids are also impor- tant. In some years considerable volumes of California Valencias are not best suited for use in frozen concentrate, and in most years the early Valencias and most of the Valencias picked before the middle of July cannot be advantageously used in the manufacture of single-strength juice or frozen concentrate. Navels are not suited for juice manufacture. Thus, it is clear that although the frozen concentrate orange juice product has opened new potentialities, it has also faced the California orange grower with new marketing complexities. The quality standards for fresh shipment and frozen concentrate are different, and in the latter outlet he does not receive the premium differential to which he has become ac- customed from the fresh shipment outlet. Thus, the California grower lost a good deal of his earlier advantage and faced a decrease in net returns. In considering the causes for the new and incompletely understood situation, many growers understandably looked at their market- ing practices and institutions. And, al- though the technological developments coupled with changing consumer de- mands were basic, many growers attrib- uted their situation to other influences. One of these was the activities of the Cal- ifornia Orange Volume Prorate operated by the Orange Administrative Com- mittee. California Fresh Shipment Pro- rate. Some growers and shippers in California recognized that the develop- ment and growth of orange products, es- pecially frozen concentrated orange juice, was related to their current price-income problems. It is true that the marketing of frozen concentrate had adversely affected many California orange growers, but price-income problems existed earlier. It was in response to calls for improv- ing the price-income position of orange growers that various types of marketing agreements were introduced. First, vol- untary programs were used, and later federal statutory programs under the ju- risdiction of the United States Depart- ment of Agriculture were established in California ; these programs were for ship- ments to the fresh markets. The most re- cent federal program was terminated ef- fective March 8, 1952. The program was administered by an Orange Administrative Committee in the name of the Secretary of Agriculture. The [57] committee included six grower members from the several producing districts, four handler members, and a representative for the public. The committee met regu- larly, usually weekly, and set for the fol- lowing week a shipping quota for each of the producing-shipping districts. Each district's quota was distributed among the various shippers on a proportionate basis in relation to the total crop. The major objective of the committee in its operation of the program — often referred to as the "prorate" — was to in- crease grower returns. In order to attain the objective, one of the procedures was to eliminate sporadic excesses and defi- ciencies in weekly shipments "to smooth out" shipments and "make for orderly marketing." The thought behind the pro- gram was that an evening out of weekly shipments would tend to smooth the price, and in the meantime, returns to shippers and producers would increase higher than they would have otherwise. Many in the fresh shipping trade believe that "orderly marketing" in the sense of smoothing out weekly shipments develops trade confidence and has a favorable ef- fect on demand. The committee also used another pro- cedure in its attempt to increase returns to growers. Rather than permitting total fresh shipments over the season to equal the amount shippers might desire to mar- ket, the committee by setting prorates also restricted the total seasonal ship- ments. Such restriction was made with the view of raising the season average price and thereby increasing seasonal total returns. The extent to which total grower returns were in fact increased, depended on the extent to which the de- mand at the grower level was inelastic — whether the percentage increase in price was greater than the percentage decrease in shipments. The evidence indicates that the demand for fresh oranges in the past several years is less inelastic than it was during the prewar years;* this in turn suggests that the income-raising effective- ness of restricting the seasonal supply of fresh shipments is now less marked than in the prewar years. In addition to regu- lating shipments from week to week, and over the season as a whole — which is re- ferred to as volume regulation — the com- mittee was also in a position to use size regulations to control the shipment of various sizes such as very small oranges which were believed to depress the market price. The committee dealt directly with the regulation of fresh shipments. The fed- eral legislation which authorized the com- mittee and its operationsf was written in terms of fresh shipments, yet the com- mittee indirectly was concerned with and affected returns from the whole crop. The regulation of fresh shipments meant that the part of the annual crop not shipped fresh went to processing. Thus, in fact, the committee's operations bore upon the following major regulatory questions: 1. Out of an available total crop, how much should be marketed fresh, and how much sent to products? 2. Out of the seasonal total to be sent to fresh market, what should be the weekly distribution of shipments? 3. Out of the seasonal total to fresh market, what should be the distribution of sizes? These three major questions are inter- related. An ideal solution — in terms of obtaining maximum returns to growers — involved simultaneous consideration of the several questions. This is noted here to suggest the type of difficult assignment with which the committee was charged. And there was yet another consideration which merited attention — the short-run effects of regulation in contrast with the long-run effects. In view of the difficult problems facing the committee and the * For some evidence on this point see pages 37^1. t Order 66, As Amended, United States Department of Agriculture. Production and Marketing Administration. T7, Ch. IX, Code of Fed. Regs. Marketing Orders — Part 966. [58] diverse interests within the orange indus- tries, it is not surprising that the commit- tee was criticized, especially during the past several years. Some criticisms held the view that the unfavorable returns experienced by cer- tain growers were due to "incorrect pro- rates" set by the committee. The interpre- tation of "incorrect" varied from over- shipment to undershipment, depending upon the district concerned and who was making the charge. The distinction be- tween prorating a given supply over the season and varying the seasonal supply was not often clearly made, and fre- quently the committee was criticized for market developments beyond its control. This was more pronounced since the ap- pearance of frozen concentrated orange juice, and there was in some quarters the view that the weekly proration activities should have been eliminated. In most part, however, the criticisms of the com- mittee largely resulted from a misunder- standing as to what were the committee's responsibilities, and what it could do and what it could not do effectively. When prorate activities with respect to fresh shipments were initiated in the 1930's, the production-marketing situa- tion in oranges was much different from now. The production then was much smaller, and there were no products which competed significantly with fresh or- anges. The committee, during the navel season, could influence the market more than now. A change of, say, 100 cars in the shipment of navels had a larger im- pact on market price then than now. Cali- fornia navels were a relatively larger seg- ment of the winter market because Flor- ida production and fresh shipments were not at the levels attained later. The com- mittee, during the Valencia season, could influence the market to a great extent because California Valencias dom- inated the summer market. These types of situations encouraged pressures on the committee more and more to shift its operations from smoothing the weekly shipments of a given seasonal supply to restricting the seasonal supply with the unshipped volume indirectly being allo- cated to products outlets. In the prewar years, and from the view of the state as a whole, such operations had advantages in the sense that industry returns were probably increased. In the recent postwar years, however, a new situation developed. Certain Valen- cia growers and shippers experienced re- turns relatively lower than in previous years. Some of the growers believed that their lower returns were due to the pro- rate activities of the Orange Administra- tive Committee. To the extent that the committee activities resulted in the crop of certain growers going to products, such criticism was valid from the view of those growers if not from the view of re- turns for the state as a whole. But the essential point is that the postwar situa- tion was different in certain important respects from that in earlier years, and the difference was not due to the Orange Administrative Committee. As emphasized before, the demand situation is different now from the prewar years. One result is that the prorate activ- ities of the committee have different ef- fects as compared to the earlier years. In the Valencia summer season, instead of dominating the market as in earlier years, California oranges must compete with frozen concentrate which for many con- sumers approximates very well the qual- ities of juice from home-squeezed fresh fruit. This means that if the committee restricts Valencia shipments and raises the market delivered and f.o.b. price, two results follow : consumers are encouraged even more to shift to frozen concentrate, and the Valencias not shipped are in ef- fect channeled to products, the returns of which are not attractive to producers. This latter result occurred to some extent in the prewar years but it was then in large part offset by the fact that shipment restriction had a greater effect on price than it does now. The evidence on this [59] point was noted earlier when it was indi- cated that the demand is more elastic now than in the prewar years. This in- crease in price-elasticity may be expected as it is consistent with the increase and greater availability of closer substitutes for fresh oranges. The relative decrease in Valencia returns in the past year or two has been due to the new market de- velopments, including frozen concentrate, rather than the activities of the Orange Administrative Committee. So far we have been concerned with Valencias. With navels, the situation is still different. First, California navel growers and shippers have long been accustomed to competition from Florida fresh ship- ments in the winter marketing season. Hence, the growth of frozen concentrate was not so much a new competitive factor as it was for Valencias. In addition, navels are purchased largely for eating as oranges rather than to be squeezed for juice,* so the appearance of frozen con- centrate did not have the impact on navels that it had on California Valencias. Pro- rate activities of the Orange Administra- tive Committee with respect to navels re- main more meaningful than for Valen- cias, because the navel situation has changed relatively less than the Valencia situation. This may be taken to mean that the changing differential returns from Valencias and navels are due more to the changing market situations than to the Orange Administrative Committee and its prorate activities. The activities of the Orange Adminis- trative Committee may further be con- sidered in respect to the setting of the weekly prorate shipment quantities. The activities of the committee included among their objectives one referred to as "orderly marketing." What was meant by "orderly marketing," however, was not always clear. Does it mean keeping daily or weekly prices stable over time during the season? Does it mean having stable weekly shipments during the sea- * For evidence on this point see pages 47-48. son? Does it mean regulating weekly shipments so trade confidence will be maintained? Does it mean getting stable money returns, by weeks or months, dur- ing the season? Does it mean having a schedule of shipments during the season so that the seasonal total returns are at a maximum? Or, does it refer to mini- mizing the season-to-season differences among total seasonal shipments, among season average prices, or among season total returns? All of these meanings, and others too, have been suggested by vari- ous people at various times. But whatever the context in which the phrase "orderly marketing" has been used, there has usu- ally been the notion of dampening, if not eliminating, wide fluctuations. A degree of stability in the movement of shipments and prices over time has generally been taken to be symptomatic of "orderly marketing." Sometimes the "stability" has been thought of in con- nection with shipments or the flow of sup- plies to market; at other times, the "sta- bility" has been thought of in connection with market prices or returns. Yet, sta- bility in shipments and prices will occur simultaneously only if market demand — in the schedule sense noted in the pre- vious section — remains fixed during and over various shipping periods. If the market demand shifts from week to week, sometimes increasing and other times de- creasing but neither in a systematic fash- ion, stable shipments will not result in stable prices. And widely irregular and fluctuating shipments may, but need not, result in stable prices. Weekly volume prorates were author- ized by the Orange Administrative Com- mittee. In this respect, it is significant to realize that the prices for a given week in reality reflect volume prorates author- ized for and shipments made during a period of about 2 to 2 1 /2 weeks earlier. Examination of the prorate record indi- cates the existence of a tendency for the committee to lag its prorate volumes, with the result that contractions and ex- [60] pansions were accentuated. The commit- tee seemed to eye prices received last week and currently as its barometer of market conditions, and prorate volumes were adjusted in accordance with past prices; in fact, however, those prorate volumes affected prices to be received two weeks later. Thus, a tendency pre- vailed for fluctuations in shipments to be wider than necessary, resulting in fluctua- tions in prices also wider than necessary. Yet, it is important to recognize that among the pressures facing the commit- tee are two which generally are incon- sistent with each other. One pressure was "to ship," to dispose of the available sup- ply, to sell one's fruit before it be- came unsalable or deteriorated. A second pressure was to operate so the market price would be raised, even if it meant a reduction in shipments would be neces- sary. Thus, bystanders watching the com- mittee, or perhaps even some members of the committee itself, were not always aware that its operations reflected various influences and objectives some of which might have been inconsistent with others. Also, it appears that a clear distinction did not exist between operations which resulted in price raising, and those which resulted in increased total returns. Maybe too, the committee often was judged on the basis of its impact on price, and not enough on the basis of its im- pact on total returns and quantity-price fluctuations. Also, perhaps too often the committee was expected to produce re- sults for which it was not established. The committee was established in the years when fresh shipments heavily dom- inated the industry and when California contributed a relatively larger per cent of the supply than it does now. The com- mittee was established to deal directly with fruit shipped fresh and not with fruit for processing. This does not mean it had no influence on the flow of fruit to processing, but such influence stemmed indirectly from its impact on influencing the flow to fresh market. Thus, fruit not authorized to flow to fresh market under the prorate was inevitably destined for products if it was to be used at all. Many individuals looked to the committee as the determinant of returns received by the industry from both the fresh and processed markets. But in fact the com- mittee's authority and responsibility for influencing returns was directly related only to its control over fresh shipments. The above interpretation should not be viewed as expressing the thought that the committee made no errors or was uni- formly successful in attaining sound ob- jectives. But the interpretation does lean toward the view that the development of the products markets including frozen concentrated orange juice and the re- sulting or associated repercussions on the California orange industry cannot logically be charged against the Orange Administrative Committee. Dissatisfaction on the part of a number of California growers, especially of Va- lencias, led to their petition to the Secre- tary of Agriculture asking for termina- tion of the marketing order. The Secre- tary conducted a referendum among pro- ducers. After the voting in the referen- dum, the Department of Agriculture ter- minated the order. On March 6, 1952, the Department issued a press release which included the following statement. "The U. S. Department of Agriculture an- nounced today the termination, effective at 11:59 p.m., p.s.t., March 18, of Federal market- ing order No. 66, as amended. This order, since October 26, 1942, has regulated by volume of shipment the handling of oranges grown in California and Arizona. "Growers voting in a referendum conducted from January 7 through February 7, 1952, rep- resented 70.07 percent, by number, and 80.24 percent, by volume, of all orange growers of record in California and Arizona. Of these voters, 60.19 percent, by number, and 58.93 per- cent by volume, favored continuing the order. By number, 39.81 percent, and by volume, 41.07 percent of the voters favored termination of the order. "By volume of varieties of oranges the refer- endum results were: Valencias, 51.55 percent for continuance and 48.45 percent for termina- [61 tion; navels and other varieties, 73.10 percent for continuance and 26.90 percent for termina- tion. "Although a majority of the growers voting in the referendum favored continuance of the order, the Department said a careful study of the ballots cast by growers and briefs filed by handlers reveals wide differences of opinion concerning the program. Since support of the program, particularly on the part of the Valen- cia orange growers, does not appear to be sub- stantial enough for effective operation, the pro- gram has been terminated."* The termination statement : order included the "Since continuation of the order was favored by 51.55 percent of the Valencia production voted and by 73.10 percent of the production of navel and miscellaneous varieties, considera- tion was given to the possibility of suspending the provisions of Order No. 66 to the extent of their applicability to the regulation of Valencia oranges. But this action was not deemed feasible in view of the evidence on the basis of which the order was made effective and of the insepara- bility of the varieties in many of the provisions of the order."t There is a question whether the dis- satisfaction among some of the growers was with the order itself or with how the order was operated. In either event, vari- ous segments of the California orange in- dustries found themselves in an unfamil- iar situation. Shippers found it necessary to operate from day to day and from week to week without prorates or regulations set by an industry committee. To many shippers this was a new experience, be- cause the California fresh orange han- dlers had operated under some type of regulation since 1934. Shortly after Order No. 66 was termi- nated, and even before the liquidation of the committee's assets was completed, some groups indicated strong interest in a new order. Various proposals were made, such as an order only for navels, and separate orders for navels and Valen- cias. It became clear that the California orange industries, in view of changing economic relationships, faced new prob- lems and potentials. Problems and Potentials This report, so far, has been concerned with what has happened in the orange in- dustries to provide a basis for under- standing what is the current situation and why. A review of past and current devel- opments and an interpretation of them, however, also serves as a basis for point- ing up some current and prospective problems and potentials facing the orange industries. These problems and potentials are general in the sense that they apply to the orange industries at large. Each indi- vidual or group must appraise his own situation in the light of the over-all situa- tion. It must be recognized, at the outset, that what may now appear to be some significant problems and potentials can drastically and suddenly change. A series of ruinous storms in Florida or a series of ruinous freezes in California can so affect the orange production in either of the states that present influences and tendencies would be submerged and lost under new ones. A sharp, sudden, and prolonged turn in international or military affairs can have repercussions which would make the earnings picture in citrus drastically different from what it now is or appears to be approaching. Such "outside" influences or potentials or their timing cannot be projected. But they have occurred in the past, and they may occur again; if they will, or when they will is not known. From the long view, however, the occurrence and im- pact of such outside influences can be recognized as potentials and only in a very general way; they cannot be incor- * United States Department of Agriculture, Production and Marketing Administration. Cali- fornia-Arizona Orange Order Terminated, March 6, 1952. (2306, USD A 495-52) f Order Terminating the Provisions of Order No. 66, as Amended, and Providing for Liquidation of Assets. [Title 7— Agriculture, Chap. IX — Production and Marketing Administration (Market- ing Agreements and Orders) Part 966 — -Oranges Grown in California or in Arizona.] [62] porated into a planning framework in a precise or dependable manner. With the currently available orange acreage, including recent plantings and nonbearing acreage especially in Florida, the level of national orange production can be expected to increase further — at least during the next five years or so. Thus, the pressure of orange supplies will continue to be a problem to growers, ship- pers, and processors. It is such supply pressure which induced the introduction of marketing orders for fresh orange ship- ments, the development of the canned single-strength orange juice, and later the development of the frozen concentrated or- ange juice. Those marketing devices and changes reflected attempts to dispose of the ever mounting orange supplies with profitable returns. And although the total demand for oranges and orange products has expanded, the supplies have con- tinued to grow so fast that the supply pressure remains and even has increased. From the view of California orange growers and shippers, especially of Va- lencias, the mounting supply pressure is not only in absolute terms or in terms of boxes per year. The redistribution over the year of the marketing of the Florida crop, with the substantial and increasing proportion put into frozen concentrate, has presented a new phase of competition from Florida. This problem, like the one of absolute increase in annual supplies, is not new. But it is now more intensified and reflects the loss of a good deal of the seasonal marketing advantage previously held by California Valencias. Florida has been able to expand its sales territory, through its frozen concentrate, to the Pacific Coast, thus selling in large volume in an area that was not economically ac- cessible to Florida fresh shippers. These problems may be viewed as chronic ones in the sense that they will not disappear. We have mentioned the problems of supply pressure reflecting the upward trend in national annual production, and the redistribution over the year of mar- keting the Florida crop and expansion of its market area because of the growth in frozen concentrate. To this must be added the potential of orange imports into this country. In the neighboring country of Mexico, for example, production can ex- pand substantially. Imports from Mexico so far have been sporadic and not over a wide area. Whether the supply pressure stemming from domestic production will be increased by the Mexican supplies de- pends in part on the interaction of two influences: the price level for oranges and orange products in this country, and the extent to which Mexican consumption and demand will expand to absorb their growing production. Presently the Mexi- can production of oranges is growing at a faster rate than its consumption. It is reasonably clear that a significant problem facing California growers and shippers is the expanding production in other areas. This increased production and its market distribution over the year have been reflected in net earnings of California orange growers. The differ- ential impacts on the earnings of Cali- fornia Valencia and navel growers re- verse the historical position of those two varieties in the state. In the two decades preceding World War II, new orange plantings in California were primarily of Valencia varieties. The competitive advantage resulting from their marketing when Florida fresh supplies were at a seasonal low was reflected in their earn- ings; and thus their planting was en- couraged relatively more than that of navels. That situation now tends to be reversed. Generally, navels no longer are considered at a disadvantage relative to Valencias; and California planting trends or pulling trends may so reflect. This suggests the potential that navels will tend to contribute a relatively larger pro- portion of the state's orange crop, and Valencias a smaller proportion. But while noting the production prob- lems and potentials in California, and the growing supply pressure at the na- [63 tional level, it is pertinent to clarify that the growing pressure of domestic sup- plies is from the rapidly expanding pro- duction in Florida. The favorable returns to Florida growers in most of the postwar years, stemming from the competition among Florida fresh shippers and proc- essors for orange supplies, induced even greater plantings than would have other- wise occurred in Florida. Such Florida plantings have begun to produce fruit and in the coming decade will give higher yields and increased production. This in- creased supply pressure can be expected to develop a situation where returns to Florida growers, as well as to California growers, will be no more favorable than when frozen concentrate first came into the picture and was viewed as the savior. The frozen-concentrate outlet created a boom for Florida growers for several years ; but the problem of supply pressure has begun to reappear and may be ex- pected to be facing the Florida grower as well as the California grower. Frozen concentrate has not eliminated the prob- lem of pressure of supplies from an in- creasing production. The development of the frozen-concen- trate market and the continuation of in- creased production and supplies brings into sharp focus the role of demand for oranges and orange products. In order to counteract the price-depressing effects of increased supplies of oranges and orange products, their demands must increase if low returns to producers are to be avoided; this refers to producers in other states as well as in California. Advertising and related devices have long been used in the promotion of the sale and consumption of fresh oranges. The development of frozen concentrate brought further advertising promotion. The brunt of the advertising for fresh oranges was borne financially by large grower marketing co-operatives and state commissions; the advertising for frozen concentrate so far has been primarily financed by and for private packers of frozen concentrate. They have under- taken aggressive merchandising and ad- vertising campaigns, designed to expand their market. This reference to advertising expendi- ture is made to indicate how the competi- tive nature of the industry has quickly undergone a change; not that large-scale advertising has been undertaken — that is an old story in orange marketing. Now, individual firms have advertising budgets exceeding the sums which the industry as a whole spent only several years ago. Aggressive sales competition is a signifi- cant feature of the orange product busi- ness, and each packer feels he must ex- pand his advertising if he is to expand his sales. Along with nonprice competition such as advertising, price competition has also been aggressive in the frozen concentrate business. Frozen concentrate has been widely used in introductory offers, "loss leaders" and week-end specials at the re- tail level. In addition, there has been a persistent downward trend in the retail price. Sales aggressiveness with competi- tion of both the nonprice and price types, along with the consumer acceptability of the product, account in large part for the marked growth in the use of frozen con- centrate. The competition among the packers and distributors of frozen concentrate has had multiple effects. Not only have individual packers attempted to attract frozen concentrate business away from other packers but also to attract con- sumers who habitually use fresh oranges. Thus, the sales aggressiveness of the frozen concentrate distributors has had repercussions on the market for fresh oranges. And the distributors of fresh oranges have before them an intensified, if not new, problem. They are in a situa- tion where increased sales aggressive- ness, pricewise as well as nonprice, is called for if the fresh markets are not to become a less important segment of the orange industry. [64] The growth in orange products reflects a change in the nature of the orange in- dustries. They have become less "agri- cultural," and more "industrial." The consuming public is being supplied with products manufactured from oranges; and as many other manufactured prod- ucts, their prices display smaller short- run fluctuations than do the prices of fresh oranges. This is evident from the behavior of the retail prices of fresh oranges, frozen concentrate, and canned single-strength orange juice (see figure 23). The relative short-run rigidity in the prices of orange products reflects a pric- ing mechanism where fluctuations in storable inventories rather than fluctua- tions in prices act as the "shock ab- sorber" of interactions between short-run market supply and demand. Fresh or- anges must be sold within a short time at the best price obtainable, even if it is a "low" price, so they can be disposed of before deterioration; hence, "flexible" prices. Frozen concentrate, as well as canned single-strength orange juice, need not be sold as quickly to prevent deterio- ration ; the sale may be deferred and the supply carried in inventory for some time; hence, "rigid" prices. At the beginning of frozen concen- trated orange juice, many in the trade were of the opinion that the storability of the product — permitting flexibility in building and depleting inventories there- by regulating the flow to consumer out- lets — would solve a major problem. No longer, was it thought, would it be neces- sary to make forced or sacrifice sales as in fresh fruit. From the view of supply control, it was thought orange marketing had reached a point where "orderly" marketing could be attained to the ad- vantage of growers, distributors, and consumers. But, in fact, the situation has not worked that way. Storability of the prod- uct and flexibility possible in inventories have raised new problems. With the growing pressure of supplies, inventories of frozen concentrate could build up quickly. In midwinter 1951-52 the in- dustry was saddled with frozen concen- trate inventories which depressed the price for fresh oranges for concentrate manufacture and also tended to depress the price of oranges for fresh shipping. Thus, theproblem of intraseason and inter- season fluctuations in inventories of orange products assumed a position of impor- tance greater than in the pre-World War II years when fresh shipments dominated the orange industries. The accumulation of inventories solves marketing price problems much less than it defers them; and usually the accumulation reaches a point where there is a scarcity of suffi- cient economic strength to continue to accumulate and hold the inventory. At some point price-depressing sales of in- ventory occur and the market price de- clines, affecting the fresh as well as the processed markets. Inventory manage- ment calls for judicious market appraisal and foresight, and inventory accumula- tion creates problems as well as tempo- rarily alleviating other problems. With inventory problems arising in the orange products markets and the pressure of supplies from acreage already planted, the industry groups begin to consider marketing schemes to alleviate contemporary problems. These schemes take on various forms. A very substantial and victorious minority in California favored the dropping of the fresh ship- ping volume prorate, other groups in the state desired its continuation (see page 61); some groups in Florida favor the dropping of the fresh shipment grade and size prorate, other groups in that state desire its continuation; some groups suggest consideration of a marketing order for California orange products as has been introduced for lemon products. Variations are considered, such as hav- ing marketing order regulation for Cali- fornia navels but not for California Valencias. Some private packers in Flor- [65] ida have developed special supply and price arrangements with growers. Ship- ping groups in Florida have attempted to establish and maintain "price floors" for their fruit, so far without success. These programs and schemes are all phases of an attempt to get around the price and income effects resulting from supplies growing at a faster rate than demand. Such programs and schemes — when used moderately and without ex- pecting too much — can contribute to in- dustry betterment in the sense that they may be co-ordinated with adjustments in basic supply and demand. The programs and schemes by themselves, and in the short run, may give the appearance of solving certain problems. But in the long run the basic supply and demand influ- ences dominate the outcome. The situa- tion was sharply put a decade and a half ago in the following words which are still to the point: ". . . marketing control schemes which have for their sole purpose the regulation of the flow of shipments to market during the season and which do not involve actual limitation of the total supply marketed are likely to prove bene- ficial to growers both in the short run and in the long run. Such regulation is a device which can be used continuously with reasonable safety and is particularly applicable to fresh fruits and vegetables. "Marketing-control schemes which are de- signed to limit the total supply marketed for the season as a whole are in quite a different category. This type of control is essentially a palliative and should be treated as such. It should be used only in acute emergency situa- tions; that is, when prices and returns to growers would otherwise be at distressingly low levels. Its use should be confined to raising re- f H. R. Wellman, "Controlled Marketing with Special Reference to California Fruits and Vege- tables." Univ. of California, College of Agriculture, Agr. Exp. Sta. November 16, 1938. pp. 9, 10. * An example of the type of analysis referred to is presented for lemons and lemon products in : Sidney Hoos and R. E. Seltzer, Lemons and Lemon Products, Changing Economic Relationships, University of California, College of Agriculture, Exp. Sta. Bulletin 729, pages 46-68. Although comparable analyses for oranges and orange products are being developed, they are not now at the stage where they are adequately acceptable from the combined views of economics, marketing, and statistics. When that stage is reached, there will be available some tools for the orange industries in their consideration of questions as "what proportion of the orange crop should be shipped fresh and what proportion processed; and of the latter, how much into each of the major processed products?" Questions as those are indicative of a number of production-marketing problems which are becoming of more and more significance to the orange industries. turns to producers up to the returns obtained from alternative crops. To go beyond that is to court disaster."! Under present conditions the inter- dependence among the markets for fresh oranges and orange products is such that operations in one affect the returns in the other. Hence, there is the important problem of allocating the crop among the alternative outlets. If the interests of all growers were merged, the ideal allocation would be consistent with obtaining the largest net profit from the entire crop. But all growers do not have the same interests. Navel growers, for example, have less direct interest in juice process- ing than do Valencia growers. Thus, a pressing problem is not so much whether the fresh orange shipping prorates con- tribute to the welfare of the orange in- dustry, but whether a different type of program can contribute more than the California-Arizona order recently termi- nated. A real need is to recognize the divergent group interests in the light of changing economic conditions. And those changing economic conditions now call for more than being concerned only — or even primarily — with intraseasonal ship- ments of fresh oranges. Superimposed upon that concern — aside from navels which are in a special category — is the concern of arriving at decisions as to how much of the crop is to be shipped fresh, how much is to be processed, and in what forms.* The orange industries of California — and Florida too — now face the problem whether such decisions are to reflect organized group thinking and [66 interests under the jurisdiction of appro- priate federal and state authorities, or, whether the outcome is to reflect the in- dependent and unco-ordinated interests and actions of individual growers, ship- pers, and processors. But in either event and with the in- creasing relative importance of orange products, the structure of the California orange industries is undergoing change. In the Valencia producing areas where increasing amounts of the crop are being sent to products, the location, size, and operations of fresh-shipment packing houses call for careful scrutiny. Acreage changes and shifts in production areas suggest that elimination of some packing houses, or their consolidation with other houses, can reduce costs and at the same time bring the productive services of the industry in line with current develop- ments. Another potential facing the industry, which may warrant further attention, is the development and importation of new or little-known varieties and/or stock scion combinations. As science and tech- nology have made possible strides in the manufacture of improved orange prod- ucts, so can horticulture and plant ge- netics develop new varieties among which some would be especially adapted for fresh shipment and others would be espe- cially adapted for processing. The fact that orange products have grown in popu- larity and production in the past several years does not, by itself, mean that the fresh shipping business is doomed to an ever decreasing position. With an ex- panding population, with improved fresh fruit to attract consumers, and with prices not out of line with consumer judgments, there is the potential of a large and growing market for fresh oranges. The recent boom in frozen concentrate and California's position in it has led some to believe that the state is on the way out of orange production because it could not compete with Florida. Chang- ing economic relationships, in oranges as in other industries and markets, reflect and cause shifts in production. But com- petitive orange production in Florida, by itself, cannot account for production changes in California. The production alternatives in California are equally im- portant. A large part of the California orange acreage, shifted to housing development sites in recent years, was so shifted not because of competition from Florida oranges, but simply because the alterna- tive returns were higher. Competitive pressure from other orange-producing areas does, of course, influence the de- cision of resource owners as to whether they will continue orange production or shift to other lines. But the expected re- turns from those other lines, compared with the returns from oranges, also in- fluence the decision of the resource own- ers. When or where California orange acreage is reduced, it is because the earn- ings from orange production on that land are less than expected earnings from that same land used for other purposes; and earnings per box or acre in California compared with Florida are not fully meaningful as an explanation of orange acreage changes in either state. The matter may be put simply by saying that competition from Florida influences the prices California growers receive for their fruit; those prices, compared with the costs of California growers, influence their earnings; and those earnings, com- pared with what the land and resource owners expect they could earn if the land were used for other purposes, influence the decision as to whether the land con- tinues in orange production or is shifted to some other use. This chain of influences sharply sum- marizes why the California orange indus- tries are now much concerned with price influences such as prorate administration and the competitive supplies of orange products, with cost-reduction potentials such as the reorganization and consolida- [67] tion of packing houses, and with earn- earnings from alternative crops or uses ings from orange acreage. Those earnings of the land determine the course of the and how they compare with expected California orange industries. The tables and figures appear- ing in this bulletin are sum- maries of more detailed tables, which are published in a sepa- rate Statistical Supplement in mimeographed form and which give the sources in detail. This supplement can be obtained by writing to the Giannini Founda- tion of Agricultural Economics, University of California, Berke- ley 4, California. 22|m-l,'53 (A3629s)J.B.