Brazil Pesticide Use Sends Orange Juice Prices to Record Highs as FDA Threatens Ban
A fungicide found in Brazilian orange juice concentrate has jeopardized the industry as the United States' Food & Drug Administration takes action.
The culprit is carbendazim, a pesticide which is used across the world to treat crops infected with fungal diseases. It is not approved above certain minute levels for food products in the US. None is allowed in citrus products.
As traces of carbendazim were found in concentrate imported from Brazil, the US Food and Drug Administration (or FDA) clamped down, sending orange juice futures surging almost 11% on Tuesday. Brazil supplies more than 10% of the fruit juice consumed in the US.
The FDA threatened to ban imports of orange juice from Brazil as carbendazim is legal there and therefore is likely to be found in all shipments. "Any shipment [of orange juice] will test positive," Christian Lohbauer, a spokesman for CitrusBR, the association of Brazil's main orange juice producers, told Reuters. "Our interest now is that juice keeps entering the United States."
The FDA said that levels of the fungicide below 10 parts per billion were undetectable and so would pass through their controls, which are being applied to shipments from all countries. The Environmental Protection Agency considers carbendazim a health risk only when the levels reach several thousand parts per billion.
Much of the orange juice detected, reports Reuters, did not contain detectable levels of the fungicide. Shipments that did contained between 10 and 35 parts per billion -- thousands of times lower than anything that would constitute a health risk.
In comparison, the European Union (or EU) allows up to 200 parts per billion of residue of the fungicide on oranges. Japan and Canada allow even more. The EU is looking forward to meetings next week to discuss its policies in light of further US testing.
Cold weather in Florida has exacerbated the price rise, which has seen concentrate hit record highs of $2.12 per pound – up 25% in 10 days.
Inflation -- A Sigh of Relief
Brazil's Central Bank President Alexandre Tombini would have breathed a huge sigh of relief last Friday as inflation figures for 2011 were released. Prices rose 6.5% in 2011, compared to the previous year -- the upper limit, above which Tombini would have been forced to write a humiliating open letter to the Finance Ministry explaining what went wrong.
Rather than a groveling explanation, Tombini was able to backup the decision to cut interest rates, a policy which can continue in order to hit this year's inflation target of 4.5%. "Skepticism on the convergence to the targeted level still abounds," said Jankiel Santos, Chief Economist at Espirito Santo Investment Bank, in a note to investors.
Emerging Markets Economist David Rees, of Capital Economics in London, shares Santos' skepticism and does not expect inflation to fall to 4.5% until 2013. "For a start, the prices of around half of the goods in the IPCA basket are indexed to the inflation rate of the previous year," Rees writes. "While that helps to prevent run-away inflation during a boom, it also means that it is slow to fall. Moreover, the government confirmed earlier this week that it had increased the minimum wage by 14%. Given that about one-fifth of public spending is linked to it, the net cost to the government is expected to be 0.5% of GDP. All told, we expect inflation to average 5.5% in 2012."
The interest rate is expected to drop to 10% by May, as turmoil continues in global markets and the Brazilian economy's slowdown. Last year's inflation figure is still the highest annual inflation rate since 2004's 7.6%.
"Brazil may have hit the target in 2011, but it was far from a bull's-eye," writes Jeff Fick in the Wall Street Journal. Fick claims that few expected the figure to be anywhere near the 4.5% target (plus or minus two percentage points, taking the upper limit to 6.5%). "In its own fourth-quarter inflation report, the central bank pegged 2012 inflation at 4.7%," adds Fick.
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