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Avocados in Charts: An empty promise for California exporters in China

The newest trade agreement with China signed on the 15th of January offers California Avocado producers a window of opportunity into the Chinese markets. Specifically the text in annex 11 of the agreement reads:

“8. Within three months of the date of entry into force of this Agreement, USDA/APHIS and the GACC shall sign and implement a phytosanitary protocol to allow the importation of California Hass avocados into China.”

In light of this piece of news we take a look at the market data to see if we can estimate what the impact of this new agreement could be on the industry.

The production of avocados in California has remained relatively stable for the last 20 years with an average floating somewhere around 160 M Kilos.

The prices on the other hand have generally been increasing steadily. The highest prices are usually the result of a shortfall in production in California, which in 2019 coincided with a year of low production in Mexico, offering the highest prices California producers had ever seen. For the sake of our analysis 2018 we will focus on with price of $3.11 per Kilo and a volume of 164 M Kilos, which was very close to the 20 year average previously identified.

Non-Organic Avocado Prices (USD per Kilo)

Source: USDA Market News via Agronometrics. (Agronometrics users can
view this chart with live updates here)

In all fairness, it’s hard to compare the Shipping Point prices directly to trade value, however, we can't transform the USDA prices to be on par with the UN COMTRADE bringing us closer to comparing the preverbial apples to apples. Through this methodology the market price of California Avocados gets adjusted down to $2.57 per kilo at 164 M Kilos, a good baseline to compare the US market data to UN COMTRADE data available for China, which was last reported by the Chinese government also in 2018. This year China imported 68 M Kilos split between Peru, Mexico and Chile at an average price of $2.81 per Kilo.

The question then is whether a $0.24 cent per Kilo premium is worth while for California producers to ship their produce across the world, at the same time competing directly with Peru who’s entire supply chain has been setup to export their fruit overseas. What’s more, in 2018 Peru only shipped 17 M Kilos to China. If California were to share a part of this volume, it would only account for a tiny portion of their production, arguably not enough to make a significant difference for producers.

The silver lining is that China is a market that is growing very quickly. Imports of avocados into China totaled 8m kilos in 2014, after which they grew by 54m kilos in four years. If this rate continues and if prices remain attractive, there could be an opportunity for California producers to take part in the Chinese market in a couple of years. From the available trade data, however, it seems like these are still early days for avocados in China.

Written by: Colin Fain
Original published in on January 17, 2020 (Link)

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