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Challenges & Opportunities for California Citrus

International Citrus ConferenceOctober 28, 2010

Scott OwensVice President Sales and Marketing

Paramount CitrusDelano, CA

Executive Summary

• In the world of citrus, California is small and imports are coming with full speed.

• Customer consolidation is enabling retailers to leverage their size to create a bidding process for suppliers.

• Citrus processors are investing more into food safety and ethical compliance as customer requirements are increasing.

• Consumers have more produce choices than ever and oranges are on the decline.

HOWEVER……..

• Consumers are focused on taste and there is an opportunity to INCREASE frequency of purchase by meeting consumers’ needs.

• Consumers have shifted from oranges to mandarins and clementines, as their inherent qualities meet consumer needs.

• Outside of taste, consumers are focused on convenience and seedlessness.

• Consumers are seeking value, and packaged products are on the rise.

• California has positioned itself to respond to meet consumer needs.

• Creating a “brand” is a way to address consumer needs; however, it can be challenging.

• Other trends present an opportunity for Citrus growers as well.

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The US is the 3rd largest citrus supplier; however California is only 34% of the US production

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Florida63%

California34%

Texas3%

CHINA21%

BRAZIL20%

U.S.A.11%

INDIA7%

SPAIN7%

MEXICO 6%

ARGENTINA3%

IRAN3%

ITALY3%

INDONESIA3%

EGYPT3%

TURKEY3%

OTHER10%

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0 500 1000 1500 2000 2500 3000 3500 4000

Pakistan

Uruguay

Israel

Australia

Brazil

Italy

Greece

Mexico

Argentina

China

Morocco

Egypt

USA

Turkey

South Africa

Spain

x 1000 tons

While the US is focused on domestic production, other countries are focused on exports

California Citrus production is shifting between varieties and has some challenges to overcome

California Citrus ProductionSupply

• Navels - stable

• Mandarins - Growing

• Valencias - declining (pressure from seedless imports)

• Lemons - reducing acreage (converting to other)

Challenges

• Water

• Disease

• Cost of production, labor issues - availability/cost

• Regulatory - environmental impacts/pressures

• Transportation

• Foreign competition - Increasing import access of foreign countries; US$ trends

Oranges, 2210

Lemons , 760

Mandarin, 341

Grapefruit, 141

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Customer consolidation is enabling retailers to leverage their size to create a bidding process for suppliers

• Dealing direct with the grower all over the world

• Pre-determining a “fair” grower return

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Citrus processors are investing more into food safety and ethical compliance as customer requirements

are increasing

• Primus Labs, AIB International or Customer Specific

• On staff Food Safety Officers

• PTI - 100% traceability

• HACCP, GAP, GMP

• Food Security Program (Tampering)

• Pandemic Strategy

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Consumers have more produce choices than ever and oranges are on the decline

1. ERS/USDA; 2. U.S. Dept. of Commerce Foreign Trade Statistics (mixed quantities); 3.. Postharvest Technology of Horticultural Crops, Ed. Adel A. Kaded, 2002

Consumption of Fresh Fruit1

(Lbs per person)

13.410.2

1.72.4

9.58.1

72.879.5

0

10

20

30

40

1987 2007

-14%

43%

-24%

9%

% Difference

Non-citrus

Mandarins

Other Citrus

Oranges

Overall fresh fruit consumption has increased ~3lbs per capita since 19871

• Average number of options in the produce department have more than doubled since 1987

• Fresh fruit imports have doubled in the last ten years2

Fresh orange consumption is down 24% since 19871

• Total ~3 billion lbs sold in 2007

• Missed opportunity of ~ 900MM lbs (equiv. of ~3lbs per person)

Not all citrus (i.e. mandarins) is in decline

• Other citrus consumption (e.g. mandarins, tangelos, limes) is increasing ~2% per year3

100

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Over 65% of consumers say they would purchase oranges more frequently if they ate a delicious orange1

A positive eating experience with an orange may initiate additional

purchases . . .

. . . while negative experiences either reduce quantities purchased or send

consumers searching for better oranges

Changes to Behavior After Negative Eating Experiences

(Percent of respondents)

Changes to Behavior After Positive Eating Experiences

(Percent of respondents)

0%

1. 2008 Tragon Study

0%

When consumers were asked why they buy mandarins/clementines, 62% said “taste”

However, when asked why they like mandarins/clementines OTHER than taste

(and are allowed to select more than one), consumers said easy to peel,

convenient and seedless

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69%66%

53%

Easy to peel Convenient Seedless

Source: Brand awareness study 2008 - 2010

Consumers have shifted from oranges to mandarins / clementines as their inherent qualities meet consumer needs

16% 17% 19% 22%

11% 9% 9% 9%

16% 15% 15% 14%

10% 10% 10% 9%

43% 40% 41% 41%

5% 9% 6% 5%

May 06 - Apr 07 May 07 - Apr 08 May 08 - Apr 09 May 09 - Apr 10

Clementines Grapefruit Lemons Limes Oranges Tangerines

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Total Dollars (in millions) -- US Retail

Source: Nielsen Fresh Facts

Packaged citrus is increasing in its share of dollars

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

May 06 - Apr 07 May 07 - Apr 08 May 08 - Apr 09 May 09- Apr 10

Bulk Packaged

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38%

41% 44%

47%

California has positioned itself to respond to meet consumer needs

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0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Clementines Murcotts & Tangos

Pla

nte

d a

cr

es

California supply of Clementines & Murcotts/Tangos

2000 – 2015e• The inherent characteristics of Mandarins and Clementines meet consumer needs. California’s planting of these products is expanding exponentially over the next 4 years.

• Citrus has spent 100 years evaluating fruit based on external quality. Now it is time to evaluate fruit based on internal quality. California is considering raising harvest standards to meet these needs.

• Branded products from California that have higher standards and greater consistency have had significant growth; however, creating a brand can be challenging.

Other Opportunities

1. Consumers continue to be focused on eating healthy, however the definition of eating healthy has changed.

• The closer to home the better – local is best, US grown is better than imported

• Reducing intake of processed foods and increasing the intake of natural products

2. Market power continues to shift from the retailer to the consumer.

3. Consumers are eating more at home and they are actively seeking help. Brands can actively help them with these decisions.

4. Consumers will promote your brand for you if they have a good experience. They will also tell the world if they have had a bad experience.

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