Economics (AS & A Level) · May / June 2022 · Paper 23 · Question 1

The changing market for avocados The global consumption of avocados has increased in the last few years, particularly in the United States (US) but also in China and parts of Europe. This growth is largely due to the increasing popularity of ‘guacamole’ (smashed avocado) and the health benefits claimed for its regular consumption. The US is the largest importer of avocados with supplies coming mainly from Central and South American producers as shown in Fig. 1.1. 100 years 2013 200 300 400 500 600 tonnes (000) 700 800 900 1 000 1 100 Mexico 0 2014 2015 2016 2017 2018 Peru Chile Dominican Republic Source: Avacados show growth in volume, www.thepacker.com Fig. 1.1: US Avocado imports by country, 2010 to 2018 The supply of avocados is unpredictable. It is estimated that to produce one kilogram of avocado requires 2000 litres of water. Consequently, production is highly susceptible to drought conditions such as those that affected Central American growers in 2018. When this happens, the price of avocados increases as shown in Fig. 1.2. Pesos per 10 kg box 700 600 500 400 300 Jan Feb Mar Apr 2019 May Jun Jul Source: Mexican Ministry of Economy Fig. 1.2: Wholesale price of Mexican avocados in the US, January to July 2019 (pesos per 10 kg box) 3 A shortage in supply provides an opportunity for new producers to enter the global market. Kenya, for example, has expanded its productive capacity and signed an agreement to supply the Chinese market. Even some New Zealand farmers switched from dairy to avocado production. The global market for avocados is expected to continue to grow over the next few years. Rising prices will continue to increase production. It should be recognised, however, that there are increasing objections to higher production. In Mexico, for example, farmers have cleared forests to cultivate more avocados. This has put a strain on water supplies and raised concerns about the effects of the farmers’ actions on climate change. These concerns have led one market research report to conclude that ‘the price mechanism is not working to allocate resources successfully.’ Source: Global avocado market, Mordor Intelligence, Avocado market trends 2020, Inspira Farms

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