Where Did All the Avocados Go?: Exploring Market Imperfections
Equal Exchange avocado supporters may remember that in October 2016, Equal Exchange avocados were unavailable for about 2 weeks due to strikes in Mexico. You may also remember that during that time, Equal Exchange Produce President Nicole Vitello put out a blog post about the supply gap in which she tackled two major questions about the situation. Why did the supply of Mexican avocados to the U.S. suddenly stop? And how is Equal Exchange an alternative?
In late October and early November 2018, we found ourselves in a strikingly similar situation – once again, there were strikes in Mexico that effectively halted the avocado industry for a little more than two weeks. Although the strikes have come to an end as of November 14, we want to take the time to reflect address these questions again.
Why did the supply of Mexican avocados to the U.S. suddenly stop?
The avocado business is weekly and imperfect. Each week, exporters consider their costs, margin, and the forces of supply and demand at play in the market to determine a field price, or price per kg of fruit that will be paid to growers. The field price is perhaps the biggest influencer of the subsequent prices in the supply chain, down to the price for a single avocado on the store level. However, the train goes both ways — the field price is also influenced by the desired unit prices of retailers.
In this push and pull to determine a weekly field price, there are imbalances of information and power. As fruit is harvested, packed, and shipped, the market continues to move — sometimes resulting in fruit that was purchased above or below the price in the market when it is sold.
The strikes that just concluded in Mexico were largely in protest of different issues related to field prices, including market volatility and the low level of field prices. Large price drops are especially difficult on farm operations. “Prices fell quite abruptly in the last week … to almost half of what the producers were receiving a month or a month and a half ago,” Ramon Paz, president of Avocados From Mexico and consultant for the Avocado Producers and Exporting Packers Association of Mexico (APEAM), told Fresh Fruit Portal last week. The level to which the price has dropped is low enough that growers are citing “economic losses and employee layoffs”.
These economic frustrations are very much akin to those behind the strikes in 2016. Colin Fain of Agronometrics shows how monthly prices have been dropping since supply became steady in August.
U.S. Historic Monthly Avocado Shipping Point Prices
Price (USD) = price per 25 lb case of avocados
This chart shows shipping point prices in 2016 vs in 2018. Why did producers strike this October, since prices are not at or near the lows of 2016? As discussed earlier, market volatility is part of the issue. This chart illuminates the drop in prices between August and October – along with generally lower price levels throughout the season.
Side by side with steep price drops and consistently lower prices, the more nuanced issue of transparency throughout the avocado supply chain and industry shines through. Growers asked APEAM, an industry association, to set minimum price levels. APEAM cites international trade law in stating that they cannot legally comply with this request, and that price is to be determined between a buyer and a seller. Per the recap of price negotiations earlier in this article: pricing in the avocado business is messy and lacks transparency, with various actors and forces influencing the price with changing and uneven force.
Ramon Paz’s statement regarding the end of the strikes further suggests the importance of the transparency issue: “…the parties had agreed to increase the transparency of information so that everyone knows the reality of the market, the costs and the marketing margins.’”
How is Equal Exchange an alternative?
Equal Exchange takes an approach in which farmer and importer can sit at a table together, on equal footing, and express themselves, negotiate terms that work for both sides, and learn from one another.
What are some of the ways that this approach come to life in Equal Exchange’s work, with regards to pricing?
- We negotiate prices directly with growers. Negotiating directly allows for more transparency, as growers know the export price of fruit. In other models, growers sell to intermediaries who consolidate fruit to sell to exporters. Growers often do not know the export prices of their fruit. Negotiating directly also allows both parties to share market information. We believe letting growers know what is happening on the distributor and retail level leads to more informed discussions and healthier businesses for everyone.
- In addition to negotiating prices directly with growers, we purchase directly from growers. This builds efficiency into the supply chain by cutting out intermediaries, and is part of what allows us to pay growers prices above going market rates to realize the value of their premium fruit.
- We insulate against major price drops by adjusting prices more gradually. This means sometimes taking a hit to our margin to smooth out market volatility for both producers and consumers. This also means investing in education for our customers, to give context for why Equal Exchange fruit prices can sometimes differ from that of other suppliers.
It is estimated that the avocado industry lost $4.3 million a day due to the closures caused by the strikes. While Equal Exchange’s producer partners were not directly involved in the strike, they, along with 25,000 growers and 24,000 industry workers, were impacted by the halting of operations and are implicated in these losses.
On Wednesday November 14, harvest, packing, and shipment of avocados resumed per agreements between growers and APEAM. The resolution that was reached include various commitments that address the root issues of the strikes, like transparency: one next step is the development of a weekly report with market information shared by APEAM.
As the avocado industry continues to evolve, Equal Exchange is committed to continue offering an alternative supply chain that is transparent, direct and fair, and will continue to act as a bridge and advocate between producers and the rest of the supply chain.
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About The Author
The modern grocery basket is a true symbol of human innovation. Its contents span continents…15 November 2018