The Guac is Going to be Extra

The US has announced it is suspending all imports of avocados from the Mexican state of Michoacan. At the heart of the dispute is a reported threat against US plant inspectors who certify the produce for export. According to the Avocado Institute of Mexico, “[t]he Mexican avocado industry creates approximately 78,000 direct and permanent jobs and 310,000 indirect and seasonal jobs” in the state of Michoacan, and provides billions of dollars of economic output in the US.

According to the USDA Economic Research Service, demand for avocados in the US has grown substantially over the last 20 years. Per capita consumption has tripled over that time period, and imports have risen to meet that demand. In 2001, nearly all avocados consumed in the US were produced domestically. Today approximately 90 percent of avocados are imported, mostly from Mexico.

It is uncertain how long the ban will last, and both governments reported that they are working to fix the problem. The ban was announced just before the Super Bowl, and warehoused supply was more than enough to satisfy the demand for guacamole at this year’s parties. However, if the dispute drags on too long, some are predicting that this year’s Cinco de Mayo parties will be “no bueno.”

Discussion Question:

1. Use the supply and demand model to discuss how this ban will affect avocado prices.
2. If avocado prices rise significantly, discuss the impact this will have on the restaurant industry, specifically addressing the effect of rising input prices in the supply and demand model.
3. What are some possible substitutes for avocados? How will their prices be affected?
4. Would you expect the price elasticity of supply for avocados to be elastic or inelastic? Explain.
5. The US and Mexico are part of a free trade area, specifically the USMCA (formerly NAFTA). In light of this, does the US have legal authority to ban imports? If Mexico decided to retaliate, what are the options available to them?

Sources:

Los Angeles Times: Avocado imports from Mexico are blocked. What does that mean for you?, CNN.com: Why avocado shipments from Mexico to the US were stopped: A death threat to a safety inspector, AvocadoInstitute.org: Mexican Avocado Industry Fact Sheet, ERS.USDA.gov: U.S. avocado demand is climbing steadily, Photo by Isabella and Zsa Fischer on Unsplash.com