Over the past few years we’ve seen the same cycle play out many times. Threatening tweet leads to market hysteria, leads to harried impact analysis. Sometimes action follows, sometimes not. Regardless of the actual outcome, since 2016 it feels like we have all dedicated significant portions of our lives to following what the potential fallout from the trade war du jour might be.
Perhaps there is no country with which this drama has been more noticeable than with Mexico. Repeated swipes at NAFTA (now USMCA for those keeping score at home), followed by retaliatory steel and aluminum tariffs, and of late the potential for tariffs tied to inaction on immigration, have become seemingly commonplace. Agricultural products play a key role in trade between the US and Mexico (for more details see our earlier blog on the subject). And as such, it is not surprising that they have been a dominant topic during trade discussions. But amid all the commotion, an unlikely figure has really taken center stage.
In early April, following yet another threat to implement tariffs, numerous articles warned against the impact that such action would have on the price of avocados. Some tongue in cheek press even warned that millennials would have a meltdown when they saw the price of their avocado toast. Joking aside, how is it that the avocado has become the lightning rod which would galvanize people’s interest in the detrimental effects of the trade war?
All I Avo Wanted
At the heart of the avocado’s rise to prominence is a fundamental increase in demand. According to the California Avocado Commission, in the 1990’s American per capita consumption of avocados averaged about 1.6 pounds per year. Today, that figure is about 8 pounds per person and is expected to continue to rise at roughly 10% per year over the near term. Demographic shifts, positive perception, and improved availability – not to mention the fact that avocados are irrefutably delicious – have all played a role in encouraging consumption.
Even though avocados do not form part of the traditional American menu, they feature prominently in many Latin diets. As the Hispanic population in the US has grown, so has the consumption of avocados. Data provided by the Pew Research Center estimates that in 1990 there were 22.6 million Hispanics in the US. By 2016, this number had grown to 57.5 million, making Hispanics the fastest growing demographic group in the country. The Census Bureau estimates that in 2018, 18.1% of the US population was Hispanic.
While this demographic correlation does not prove causation, evidence from the Hass Avocado Board illustrates that relatively more avocados are purchased by Hispanic households. Its research, based on 2017 IRI data, shows that nationwide, Hispanic households bought 23.6% of avocados. Comparing this number to the census bureau estimates, it is clear that Hispanic households over-index in avocado purchases. Additional data from the Avocado Board also indicates that while 73.3% of Hispanic households purchase avocados, this figure is just 47.9% for Non-Hispanic households.
Of course, it isn’t just demographics driving this growth. Avocados enjoy a very positive image with consumers, particularly with respect to health attributes. In a survey executed by the Hass Avocado Board, over three quarters of consumers believed that avocados are healthy, with another 71% qualifying them as having ‘good fats’. In addition, avocados rank well on characteristics such as taste and texture. This positive consumer perception has not occurred by accident. Thoughtful marketing on behalf of the avocado industry, in conjunction with recent health and wellness trends, has helped to elevate the avocado to this revered position with consumers.
It is important to mention that many of the marketing programs that have helped to stimulate avocado demand emerged from the creation of the promotional board and market assessment activity. In 2000, a law put into motion an initiative that would create the Hass Avocado Board. The board collects funds from domestic producers and importers to promote research and marketing activities with the end goal of strengthening the industry. These assessment programs have proven successful for other agricultural commodities, and clearly the avocado industry is no exception.
Practically speaking, another important driver for growth in avocado demand in the US has been improved availability and price. While the US has had tens of thousands of acres in avocado production for decades, mostly in California, growers have had to cope with rising land prices, increasing environmental pressures, and competition from other crops. When the trade relationship with Mexico opened following the implementation of NAFTA, consumers gained access to an increased avocado supply that was seasonally staggered and had tremendous growth potential.
Up, Up, and Away
Avocado imports from Mexico began in earnest in 1997, when they exceeded $5 million dollars for the first time. Since then, imports in value terms have grown at an average annual rate of 32.2% per year. By 2018, US imports of avocados from Mexico were valued at $2.1 billion. Most of this growth has occurred in just the last few years. Imports of avocados topped $1 billion for the first time in 2014 and climbed to a peak of $2.3 billion by 2017.
The exploding popularity of avocados has made them incredibly important in the context of all agricultural trade with Mexico. In 2018, avocados represented 35.6% of all fresh fruit imports from Mexico, the second most important category, running a slim margin behind fresh vegetables. Perhaps even more astonishing is that in value terms in 2018, avocado imports accounted for 8.0% of all agricultural imports from Mexico.
Mexico isn’t the only supplier of avocados into the US. In fact, going back decades, Chile was the main supplier. In the late 1990’s, while Mexico was getting their US business off the ground, Chile was already sending tens of millions of dollars’ worth of the fruit into the states. A few year later, Chilean imports stagnated, and the country ceded their chief supplier spot to Mexico. In 2018, Chile sent $61.8 million dollars’ worth of avocados to the US, just 2.6% of total imports. More recently, Peru has emerged as another supplier. Although the country has only been shipping avocados for about a decade, they already account for around 7.6% of US supply.
If trade between the US and Mexico is disrupted, it is logical that alternative suppliers, such as Peru and Chile, will assume a more prominent role in US markets. After all, these countries already have privileged trading relationships with the US. But as is always the case with agricultural products, it is not a simple matter of flipping a switch. Supplanting the huge volumes provided by Mexico will require years of investment and preparation, as orchards are expanded and new supply chains are formed.
Race Against the Guac
Avocados have become the poster child for the trade dispute with Mexico for good reason. Gradually they have worked their way into our homes and into our burritos, becoming ubiquitous on the American dining scene. Improved accessibility to affordable avocados is just one of many great success stories ushered in by widening agricultural trade. It would truly be a step backward to have this progress undone by a petulant tweet. Thoughtful, comprehensive, and expansive trade policy will be necessary to ensure that American consumers continue to have the opportunity to enjoy the agricultural products which they have come to know and love…especially the avocado.