Avocado Prices - Supply and Demand in Action
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The global market for avocado is a terrific example of how changing conditions of supply and demand can have a direct impact on the prices that consumers pay for “green gold”. In 2017 there was a strong surge in avocado prices in large part because of fast-rising demand - especially in Asian markets - and also some supply shortages affecting producers in the main growing countries. Retail prices soon followed the increased wholesale price and health conscious avocado lovers had to dig deeper into their pockets for their regular supply of avocado on toast! Then in the second half of 2017 and continuing throughout most of 2018, world prices for avocado have been fallen back. In part this the result of much better than expected harvests which has increased supply relative to demand. Supply has also increased as more growers enter the industry and invest in crops that are more resilient to disease and which can be grown, processed and transported at scale to markets in advanced and emerging countries.
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Avocado Prices - Supply and Demand in Action
- 2. Avocado production by country 1,889.35 601.35 455.39 309.43 304.94 195.49 176.05 172.63 137.37 122.94 0 200 400 600 800 1000 1200 1400 1600 1800 2000 Mexico Dominican Republic Peru Colombia Indonesia Brazil Kenya United States Chile China Avocado production in thousand tons
- 3. Avocado planted area in Mexico (2011- 2017) (in hectares) 139,797 151,577 168,155 175,918 186,929 203,732 220,334 0 50000 100000 150000 200000 250000 2011 2012 2013 2014 2015 2016 2017 Areainhectares
- 4. World’s leading exporters of avocado
- 5. Wholesale prices of avocados in Mexico in 2017 (in Mexican pesos per kilogram) 26 28.25 33.39 44.82 53.53 56.44 60.76 47.67 38.16 31.96 32.33 0 10 20 30 40 50 60 70 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec** PricesinMexicanpesosperkilogram
- 6. 2017 – record high avocado prices
- 8. Avocado growers suffer a poor harvest
- 9. AVOCADO PRICES AND CHANGES IN MARKET SUPPLY Price of Avocados Quantity supplied of avocados Market Supply (1) Pe Qe Market Demand (1) 0 PRICE DETERMINATION
- 10. AVOCADO PRICES AND CHANGES IN MARKET SUPPLY Price of Avocados Quantity supplied of avocados Market Supply (1) Pe Qe Market Demand (1) Market Supply (2) 0 PRICE DETERMINATION
- 11. AVOCADO PRICES AND CHANGES IN MARKET SUPPLY Price of Avocados Quantity supplied of avocados Market Supply (1) Pe Qe Market Demand (1) P2 Q2 Market Supply (2) 0 PRICE DETERMINATION
- 12. AVOCADO PRICES AND CHANGES IN MARKET SUPPLY Price of Avocados Quantity supplied of avocados Market Supply (1) Pe Qe An inward shift of market supply of coffee (ceteris paribus) leads to a rise in equilibrium price and a contraction of market demand Market Demand (1) P2 Q2 Market Supply (2) 0 PRICE DETERMINATION
- 14. AVOCADO PRICES AND CHANGES IN MARKET DEMAND Price of Avocados Quantity of Avocados Market Supply P1 Q1 Market Demand (1) PRICE DETERMINATION
- 15. AVOCADO PRICES AND CHANGES IN MARKET DEMAND Price of Avocados Quantity of Avocados Market Supply P1 Q1 Market Demand (1) Market Demand (2) PRICE DETERMINATION
- 16. AVOCADO PRICES AND CHANGES IN MARKET DEMAND Price of Avocados Quantity of Avocados Market Supply P1 Q1 Market Demand (1) Market Demand (2) P2 Q2 PRICE DETERMINATION
- 17. AVOCADO PRICES AND CHANGES IN MARKET DEMAND Price of Avocados Quantity of Avocados Market Supply P1 Q1 An outward shift of market demand (ceteris paribus) leads to a rise in equilibrium price and an expansion of market supply Market Demand (1) Market Demand (2) P2 Q2 PRICE DETERMINATION
- 18. AVOCADO PRICES AND CHANGES IN MARKET DEMAND Price of Avocados Quantity of Avocados Market Supply P1 Q1 An outward shift of market demand (ceteris paribus) leads to a rise in equilibrium price and an expansion of market supply Market Demand (1) Market Demand (2) P2 Q2 If price did not rise from P1 after a shift in demand from D1 to D, there would be excess demand PRICE DETERMINATION
- 19. Quick Quiz on Supply and Demand in the Avocado Market Theme 1 Micro
- 20. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Better than expected avocado harvest Entry of new avocado farmers into the industry Changing consumer preferences towards pineapples and kiwi fruit A rising number of health conscious consumers in from Asia-Pacific region Investment in better storage facilities for avocados in a number of countries Commodity speculators target the fruit industry as offering strong long term returns
- 21. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Entry of new avocado farmers into the industry Changing consumer preferences towards pineapples and kiwi fruit A rising number of health conscious consumers in from Asia-Pacific region Investment in better storage facilities for avocados in a number of countries Commodity speculators target the fruit industry as offering strong long term returns
- 22. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Lower price Increased supply Entry of new avocado farmers into the industry Changing consumer preferences towards pineapples and kiwi fruit A rising number of health conscious consumers in from Asia-Pacific region Investment in better storage facilities for avocados in a number of countries Commodity speculators target the fruit industry as offering strong long term returns
- 23. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Lower price Increased supply Entry of new avocado farmers into the industry Lower price Increased supply Changing consumer preferences towards pineapples and kiwi fruit A rising number of health conscious consumers in from Asia-Pacific region Investment in better storage facilities for avocados in a number of countries Commodity speculators target the fruit industry as offering strong long term returns
- 24. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Lower price Increased supply Entry of new avocado farmers into the industry Lower price Increased supply Changing consumer preferences towards pineapples and kiwi fruit Lower price Decreased demand A rising number of health conscious consumers in from Asia-Pacific region Investment in better storage facilities for avocados in a number of countries Commodity speculators target the fruit industry as offering strong long term returns
- 25. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Lower price Increased supply Entry of new avocado farmers into the industry Lower price Increased supply Changing consumer preferences towards pineapples and kiwi fruit Lower price Decreased demand A rising number of health conscious consumers in from Asia-Pacific region Higher price Increased demand Investment in better storage facilities for avocados in a number of countries Commodity speculators target the fruit industry as offering strong long term returns
- 26. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Lower price Increased supply Entry of new avocado farmers into the industry Lower price Increased supply Changing consumer preferences towards pineapples and kiwi fruit Lower price Decreased demand A rising number of health conscious consumers in from Asia-Pacific region Higher price Increased demand Investment in better storage facilities for avocados in a number of countries Lower price Increased supply Commodity speculators target the fruit industry as offering strong long term returns
- 27. Which direction for avocado prices? Changing condition of demand or supply Likely direction of market price? Brief reasoning Rising global incomes per capita Higher price Increased demand Better than expected avocado harvest Lower price Increased supply Entry of new avocado farmers into the industry Lower price Increased supply Changing consumer preferences towards pineapples and kiwi fruit Lower price Decreased demand A rising number of health conscious consumers in from Asia-Pacific region Higher price Increased demand Investment in better storage facilities for avocados in a number of countries Lower price Increased supply Commodity speculators target the fruit industry as offering strong long term returns Higher price Increased demand
- 28. EQUILIBRIUM PRICES Equilibrium is when there is no tendency for market price to change Shift Equilibrium Price Equilibrium Quantity Demand increases Higher Higher Demand decreases Lower Lower Supply increases Lower Higher Supply decreases Higher Lower PRICE DETERMINATION
- 29. Price Volatility for Avocados Theme 1 Micro
Editor's Notes
- The global market for avocado is a terrific example of how changing conditions of supply and demand can have a direct impact on the prices that consumers pay for “green gold”. Avocados, fresh or dried are the 584th most traded product and the 3914th most complex product according to the Product Complexity Index (PCI).
- In the year 2016 Mexico was the biggest avocado producer with avocado production of 1.88 million metric ton. Mexico is the world's leading producer of avocado accounting for nearly 45% of the international avocado market.
- This chart shows clearly the extent to which Mexican growers have expanded their planted area in a bid to expand avocado production. Avocado is part of the staple diet for millions of Mexicans. But increased productive potential increases the surplus output available for Mexico to export. The top exporters of Avocados, fresh or dried are Mexico ($2.36B), Peru ($460M), Chile ($436M), the Netherlands ($312M) and Spain ($249M). The United States is the biggest net importer of avocado although there is significant growing of the fruit in California.
- In 2017 there was a strong surge in avocado prices in large part because of fast-rising demand - especially in Asian markets - and also some supply shortages affecting producers in the main growing countries. Retail prices soon followed the increased wholesale price and health conscious avocado lovers had to dig deeper into their pockets for their regular supply of avocado on toast! Then in the second half of 2017 and continuing throughout most of 2018, world prices for avocado have been fallen back. In part this the result of much better than expected harvests which has increased supply relative to demand. Supply has also increased as more growers enter the industry and invest in crops that are more resilient to disease and which can be grown, processed and transported at scale to markets in advanced and emerging countries.
- Look at the two main supply and demand factors mentioned in the article – surging global demand and reduced harvests from leading producers. In 2017, Mexico’s supply was short by 20% due to the low harvest year and avocado grower strike that halted shipments
- It takes six years to get an avocado plantation into production,
- In a future video we will look at the avocado market again and focus on the importance of elasticities of demand and supply. But in this video we will look at some of the factors that might bring about changes in market price.
- Here is a handy reminder of the effects that a shift in either supply and demand can have on both the equilibrium price and also the quantity traded.