Advanced contracts for inputs as a cause of dumping in markets for processed agricultural goods: The case of Brazilian frozen concentrated orange juice

The last three decades have seen an explosion of antidumping cases brought against foreign firms by US industries. Many of these cases allege that the foreign firm sold their goods in the US market at a price less than their average costs. Ethier points out that price stickiness in the labor market may be responsible for many of the observed cases of dumping (see text). A large portion of the cost for processed agricultural goods, however, comes from the raw input for processing which is often purchased via advanced contracts before the price for the final good is observed. Thus, dumping in these markets must be attributable to price stickiness of raw inputs as opposed to other factors of production like labor.; The case brought against Brazilian processors of frozen concentrated orange juice (FCOJ) in 1986 by Florida Citrus Mutual provides an excellent example of how foreign firms purchased input via forward contracts at a high price only to have world demand fall. As a result, Brazilian processors sold FCOJ in the US market at a price less than their average costs sparking an antidumping suit. Interestingly, processors in both Brazil and Florida had the option of using participation plan contracts which do not establish a final price for the input until it has been processed and marketed. In fact, during the 1970s, more oranges were processed via participation plans than via forward contracts. Yet both opted for the more risky forward contract, which guarantees a price to growers regardless of the price for the final good, in response to a high expected price for FCOJ.; In the present research, I have explained why firms in Brazil and Florida switched from participation plans to forward contracts in the 1980s. I have concentrated my study on showing that Brazilian processors were forced to offer growers more forward contracts (thus, accepting more price risk) as the competition for inputs increased in response to the high expected price of FCOJ even though this put them at greater risk of having an antidumping suit brought against them.