How avocadoes became the poster fruit for climate change and unprepared risk managers

avocado

It’s being called an avocado-pocalypse. With rising prices, increased knowledge of the burdens both to farmers and to the environment of farming water intensive crops, and the impacts of the changing environment on all industry sectors, it is time to kiss the guac good-bye? Are avocadoes the tipping point in consumers waking up to the effects of climate change in their day-to-day regime, or are they the poster fruit for businesses and investors with their heads in the sand about the extent of weather risks in their portfolio? Any way you peel them, avocadoes are bringing attention to the contributors, risks, and mitigation strategies risk managers need to consider today.

They are calling it an avocado-pocalypse. Prices of the extremely trendy green fruit have sent shockwaves through hearts (and wallets) around the world. Recently touted as one of the world’s healthiest food, full of heart-healthy monounsaturated fatty acids, potassium and vitamins B and E, avocados are no longer just the humble base for guacamole. Nowadays, they are spread on toasted bread, replace cheese in a variety of recipes, and are even incorporated into beauty routines as a moisturizer. It all got a bit too much for even the most ardent avocado fans when a video went viral earlier this year demonstrating how to prepare the (inedible) seeds for consumption.

But setting aside the fanatics, there is no denying that the creamy fruit has gone from exotic to mainstream in a very short period of time. The Hass Avocado Board (a non-profit marketing board for the most popular of avocados), which represents 95% of all avocados consumed in the United states, saw sales rise from just over 1 billion eaten in the US in the year 2000, to 4,25 billion by 2014. Aided by the lifting of import restrictions on fruit from Mexico, improved production methods, as well as their positive press for touting the “good kind of fat”, avocados have remained popular despite averaging more than $1 per fruit at wholesale and much more when purchased as an “add-on” garnish at restaurants.

However, all this may be coming to an end, quickly. Amongst reports that avocado prices have doubled since 2015 in many regions, the Hass Avocado Board reports that shipments from Mexico to the United States this month have been almost half what they were last year. Several factors have continued to the gua-calamity. A recent growers’ strike in Mexico by workers demanding better pay has been the biggest disruption to avocado imports. However, this may have just been the final straw on the avocado’s short but sweet reign in the marketplace. In fact, it may be that the avocado will one day illuminate magazine covers next to the polar bear as the symbol for environmental damage and climate change, but also for businesses with their heads buried deeply in the sand about the business risks already being imposed by climate change around the world.

Avocadoes are famously ill-suited to changing climates- they are extremely sensitive to moisture, wind and temperature stresses, and scientists warned as far back as 2006 that there would be dire outcomes for crops in the years ahead. Avocadoes require about 1 million gallons per acre of avocado trees, yet California, which produces 80% of American-grown avocadoes is currently in the middle of what is predicted to be a decades-long mega drought. Chile also saw a record rise in avocado growers since the early 90s, with the crop covering 73,000 acres in 2014 there, and it too has not been able to keep up with the fruit’s water demand. A mega-drought has been affecting some zones in Chile for over six years, but farmers in even the best of years in non-drought regions in Chile are forced to drill deeper and deeper wells, and plant on hillsides to avoid glacier runoff. Demand for avocadoes has simply outstripped supply, and taking into the record high temperatures being experienced around the world as a result of climate change, reason.

Two options exist for those who want to “save the guac”. For those restaurants and supermarkets buying avocadoes from major wholesalers or cooperatives, there is little excuse for their recent skyhigh price hikes. They should have taken appropriate action to protect prices in the event of an input shortfall. Specifically, they should have hedged revenues to protect themselves in the event of a price drop or lower volumes collected, knowing that the volume collection of a plant production of a cooperative varies each year depending on weather conditions observed during the growing season and that insufficient raw materials collected have multiple impacts, including volumes sold, on cost optimization of processing, and transportation.

Alternatively, they could have covered themselves against rising prices for missing tonnes of commodities resulting from a failure of inputs. Or, wholesalers or cooperatives could have engaged in a system of delegated management for situations when they subject to a decline in the average price of the yield.

With the aid of a weather risk management specialist, the wholesaler or cooperative is compensated for production surcharges so as to ensure a stable revenue in performance and price. Their clients, including restaurateurs and pub owners, hotels, healthcare, supermarkets and others can therefore ensure they are protected from commodity price fluctuations. In turn, their customers are not affected by the vagaries of the market.

However, that is not to say that in the case of avocadoes, this problem is going away. Longer-term steps do need to be taken in the case of any enterprise with a long-term, and growing, weather risk. As has been demonstrated in the white paper, The Impact of Climate Variability on the Private Sector: Reconciling Business and Climate Change Horizons, which modelled the impact of climate variability on the private sector, climate change is already making a significant impact in the profits of companies operating in sectors exposed to weather. Private industry, including companies and investors, must act immediately to manage the consequences of climate change. Not only can companies determine their exact weather sensitivity risk, but also their maximum potential losses as a result of climate change now and in the years to come.

With the results of a comprehensive weather risk assessment avocado farmers and their investors can take appropriate action to ensure that yield and quality is not affected by the changing climate such as by implementing adaptive measures to climate changes (eg. modifying sowing and harvesting times, crop types, and labour management practices) and investing in new agrotechnologies (eg. purchasing heat-tolerant crop varieties, and installing post-harvest storage facilities for a warmer climate). Or, one can simply admit that, despite how much we will miss it, it’s simply time to kiss the guac good-bye and look to other more sustainable crops, investments and ventures.