Campeau-McAllister, Kimberly

Campeau-McAllister, Nicole

Phillips, Jon C.

English

Research Papers in Economics

  221
An Assessment of the Attractiveness of the U.S. Fresh Orange 
and Grapefruit Industry
Nicole Campeau-McAllister, Kimberly Campeau-McAllister, and Jon C. Phillips
The United States orange and grapefruit industry is 
an important economic force. The citrus industry 
generates more than $8 billion in economic activ-
ity in Florida alone (Florida Department of Citrus, 
2004). In 2002, the U.S. exported 1,114 million 
pounds ($302.3 million) of fresh oranges and 875.8 
million pounds ($201.8 million) of fresh grapefruit 
(Florida Department of Citrus 2003). Producers are 
mainly located in California, Arizona, Texas, and 
Florida. The U.S. industry is dominated by Florida, 
which produces about 75% of the U.S. orange and 
grapefruit crops. Although leading the industry in 
numbers, more than 90% of Florida oranges and 
50% of Florida grapefruit are used for producing 
juices, not sold fresh. California leads in production 
of fresh oranges, and Texas leads in production of 
fresh grapefruit. California/Arizona grow 11% of 
fresh grapefruit produced in the U.S., while Texas 
produces 14%. (Florida Department of Citrus 2004). 
In the world market, the U.S. orange industry is sec-
ond to only Brazil in production (USDA ERS 2002). 
This research examined the attractiveness (i.e., proﬁ  t 
potential) of the fresh orange and grapefruit industry 
using Porter’s (1980) ﬁ  ve-forces model, a technique 
used to analyze an industry environment. According 
to Porter, the ﬁ  ve forces which affect an industry’s 
attractiveness are the threat of potential entrants, the 
degree of rivalry among existing competitors, the 
threat of substitute products, the power of buyers, 
and the power of suppliers. This research focused 
primarily on the agricultural-producer level, but also 
to some degree on the packer level. Data for this 
research were obtained by searching for relevant 
secondary sources and through key industry-infor-
mant interviews.
There is little threat of entry by new ﬁ  rms into 
orange and grapefruit production, due to signiﬁ  cant 
entry barriers. An important entry barrier is the lim-
ited amount of land that is suitable for production 
of oranges and grapefruits. Most incumbent ﬁ  rms 
in the industry have established supplying relation-
ships with buyers, developed by doing business with 
buyers for several years. Buyers in the industry 
tend to remain with speciﬁ  c ﬁ  rms because of their 
reputation for quality products, timely supply, su-
perior service, and relationships built on trust. Due 
to these factors, buyers have signiﬁ  cant switching 
costs related to establishing a relationship with a 
new supplier, which is a barrier to entry. Another 
factor is that this is an industry in which the larger 
ﬁ  rms fund research and development to create new 
technology, which gives them a competitive advan-
tage. The implication is that the signiﬁ  cant capital 
requirements for research serve as a barrier to entry. 
Adding to the capital requirement for entrants into 
orange and grapefruit production is the fact that 
substantial time is required from planting to getting 
a commercially viable crop. In fact, it typically takes 
from three to ﬁ  ve years to start to receive returns. 
All of these factors tend to make the threat of new 
entrants small.
This industry has many sellers. For example, 
there are more than 12,000 citrus growers in Florida 
(Florida Department of Citrus 2003). Rivalry among 
established U.S. orange and grapefruit producing 
ﬁ  rms is very strong. This could, in fact, be viewed 
as a saturated market. Exit barriers for growers are 
a poor market for orange and grapefruit production 
land and a dearth of comparable job opportunities. 
Orange and grapefruit groves are not easy to sell. 
Not many people are trying to enter an industry that 
is already saturated, leaving growers few potential 
new producers willing to buy their property. Fur-
thermore, because many producers have been in 
the industry much of their lives and have built up 
substantial human capital speciﬁ  c to orange and 
grapefruit production, the transition to another oc-
cupation is difﬁ  cult. For these reasons, the degree 
of rivalry among existing orange and grapefruit 
production ﬁ  rms is high.
A major factor that shapes the industry envi-
ronment is possible substitute products. Substitute 
Campeau-McAllister and Campeau-McAllister are students 
at California State Polytechnic University, Pomona. Phillips 
is assistant professor of Food Marketing and Agribusiness 
Management and Director of the Center for Food Marketing 
and Agribusiness Solutions, California State Polytechnic 
University, Pomona.222   
products are always a threat, causing the orange and 
grapefruit industry to be aware of current consumer 
trends and to research ways to make their products 
more appealing to the public. To some degree, ev-
ery food product is a potential substitute for every 
other food product. The increasing afﬂ  uence and 
sophistication of American consumers has led to 
the diversiﬁ  cation of the fruits included in their 
diets. Fruits like kiwi and mango were basically 
unheard of in the U.S. twenty years ago, but now are 
widely available in supermarkets. The increasing 
ethnic diversity of the American market reinforces 
this trend. In addition, American consumers are 
currently demanding more convenient foods. This 
has made fresh oranges and grapefruits relatively 
less attractive to consumers, because peeling these 
fruits is messy and inconvenient. Ready-to-eat, 
bagged salads, in contrast, have experienced large 
increases in sales in recent years, because they are 
convenient and time-saving. Grapefruits have been 
found to interfere with certain heart medications, 
causing target consumers to substitute away from 
this product. The threat of potential substitute 
products has been of greater concern regarding 
fresh oranges. The Spanish Clementine is a seed-
less, easy-peel fruit. It has recently become more 
preferred by consumers compared to the Valencia 
variety. The Valencia, which has seeds, has tradi-
tionally been grown in California. Thus, the threat 
of potential substitutes for fresh oranges and grape-
fruits is moderate to high.
Many orange and grapefruit producers buy their 
inputs such as fertilizers or packaging supplies (e.g., 
boxes and crates) instead of manufacturing their 
own. Because there are much fewer suppliers of 
these inputs than there are orange and grapefruit 
producers, the suppliers tend to have more power. 
Suppliers control input prices because the orange 
and grapefruit producers need the inputs and do not 
have many suppliers to choose from. This situation 
of few suppliers in a saturated market occasionally 
results in a shortage of inputs. Due to the structure 
of the input-supply industry and the orange and 
grapefruit production industry, the power of sup-
pliers is high.
Although certain factors within the industry may 
change from season to season, the overall U.S. or-
ange and grapefruit industry environment is rela-
tively unchanging. Whether large or small, there is 
a place for most existing ﬁ  rms within the industry; 
there is stability within these dynamics. The large 
ﬁ  rms maintain their size and their buyers, while 
smaller ﬁ  rms create longstanding relationships with 
niche markets. Due to the high level of four of the 
ﬁ  ve forces, the fresh orange and grapefruit produc-
tion industry is not especially attractive, but existing 
ﬁ  rms should be able to maintain a competitive yet 
secure livelihood.
References
Florida Department of Citrus. 2004. “Florida Citrus: 
Cultivating an Industry.” www.ﬂ  oridajuice.com/
ﬂ  oridacitrus/aninfo/news13.htm 
Florida Department of Citrus. 2003. Citrus Refer-
ence Book. www.fred.ifas.uﬂ  .edu/citrus/pubs/
ref/index2.htm 
Porter, M. E. 1980. Competitive Strategy: Tech-
niques for Analyzing Industries and Competi-
tors.  The Free Press: New York.
United States Department of Agriculture Economic 
Research Service. 2002. “Oranges: The Most 
Consumed Fruit in America.” Fruit and Tree 
Nuts Outlook. FTS-296.

An Assessment of the Attractiveness of the U.S. Fresh Orange and Grapefruit Industry

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