Coke Picks Florida Oranges
Plans Call for Purchase of $2 Billion in Fruit Over Two Decades
By ARIAN CAMPO-FLORES and MIKE ESTERL
Coca-Cola Co. KO +1.52%said
Tuesday it would buy $2 billion of oranges in newly planted groves in Florida
over the next two decades, offering a jolt of confidence to the state's battered
citrus industry.
Bloomberg News
Coca-Cola, the leading fruit-juice seller in the world,
said it will invest in Florida's battered citrus
industry.
As part of the arrangement, two growers—Peace River
Citrus Products in Vero Beach, Fla., and Cutrale Citrus Juices of Brazil—will
plant 25,000 acres of new orange trees, and Coke will buy all of the additional
production.
"This is the most significant announcement in the citrus
industry in at least 25 years," said Florida Agriculture Commissioner Adam
Putnam, adding that the investment is expected to generate more than 4,000 jobs.
It "will be a very positive shot in the arm to everyone associated with the
industry."
Coke, the leading fruit-juice seller in the world—with
billion-dollar brands Minute Maid, Simply and Del Valle—estimates it buys one of
every six oranges grown world-wide for juice processing and one in three oranges
produced in Florida.
The company says it buys "the vast majority" of its
oranges from Brazil and Florida but won't say which is the bigger source. Coke
says the new Florida supply pact doesn't signal a shift away from Brazil and
that it won't be buying less from the South American country.
"It's about having more fruit for our business. We're
expecting our juice business to continue to grow. We want to make sure as that
demand happens, we have the fruit we need," said Susan Stribling, a Coke
spokeswoman.
Coke says its juice and juice-drink volumes grew 9%
globally and 3% in the U.S. in the first quarter of 2013, after global volumes
rose 2% last year. It declined to share recent results for orange-juice
sales.
Industrywide sales of chilled, ready-to-serve orange
juice have fallen three straight years in the U.S., slumping to 818.8 million
gallons in 2012, down from 899.9 million gallons in 2007, according to Beverage
Marketing Corp., a research consultancy.
Rising prices for orange juice have dampened demand. The
drink also is heavy in natural sugars, making it less attractive to a growing
number of calorie-conscious consumers. And it is competing with an explosion of
new products on U.S. store shelves, ranging from coconut water to energy
drinks.
In recent years, Florida growers have been battling an
incurable disease called citrus greening that has ravaged the state's orange and
grapefruit groves. The bacterial infection, which slowly kills trees and causes
them to shed fruit, is present in all 32 counties that produce citrus.
Researchers say greening is the main reason the U.S.
Department of Agriculture has repeatedly cut its forecast for this season's
citrus production in Florida, to 138 million boxes last month from 154 million
in October.
Brazilian output, by contrast, could top 500 million
boxes for the second year in a row, though it, too, is grappling with greening.
The country became an industry giant in large part because Coke began sourcing
oranges from there after Hurricane Donna pummeled Florida in 1960, according to
Judith Ganes-Chase, a commodities analyst.
Coke's decision to invest in new Florida groves shows
the company is confident in the state's efforts to combat greening, Mr. Putnam
said. In a budget bill passed last week, the Florida legislature allocated $9.5
million to fighting the disease, most of it for short-term research projects by
the Citrus Research and Development Foundation. Among other things, the group is
devising ways to attack the insect that transmits the bacteria and determining
which root stocks best tolerate the disease, said chief operating officer Harold
Browning.
The growers providing the additional supply to Coke will
be relying on such insights as they plant new trees, said Bill Becker, president
of Peace River Citrus Products. "It's clearly not without risk," he said. But
"there are a lot of ideas in the pipeline to survive greening."
Write to Arian Campo-Flores at arian.campo-flores@wsj.com and Mike Esterl at mike.esterl@wsj.com
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