Uncover the Surprising Impact of Avocado Tariffs on Prices - You Won't Believe the Results!

As we dive into the world of avocado tariffs, the question arises: is the US truly a dominant player in this market? With 90% of avocado consumption coming from Mexico, it may seem that the US holds significant sway. However, the concept of elasticities introduces a layer of complexity to this scenario. A study by Ambrozek et al. (2019) unveils a demand elasticity of 0.2 at the shipper level, hinting at a delicate balance in play.

Let’s delve deeper into the dynamics at play:

Demand and Supply Elasticities: With a speculated supply elasticity of 0.2 (given that the majority of Mexican exports make their way to the US), the distribution of tariffs reveals a 50%-50% split. This leads to a hypothetical scenario where the February price mirrors that of December, with no exchange rate adjustments to offset the impact.
Market Trends and Economic Indicators: Figure 1 showcases the Producer Price Index (PPI) for avocados dating back to 1991, highlighting the correlation between actual and projected prices. The shades of grey denote recession periods, while the orange hues mark the Trump administrations’ influence on avocado trade dynamics.
Exchange Rate Speculations: Assuming minimal exchange rate fluctuations, particularly with the Mexican peso showing resilience in the face of tariff uncertainties, the potential for a depreciation looms large. This could result in a less drastic increase in post-tax avocado prices, mitigating the overall consumer impact.
Seasonal Consumption Patterns: The impending surge in avocado consumption, especially during the pivotal February period coinciding with the Superbowl festivities, adds another dimension to the market’s volatility and consumer behavior shifts.

As we navigate through these intricate layers of the avocado trade landscape, it becomes evident that economic policies, market trends, and seasonal demands intertwine to shape the future of avocado tariffs. Stay tuned as we unravel the complexities and implications of these fluctuations in the global avocado market.