All posts tagged commodities

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


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.

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Hedging commodities to protect market prices

Gin & Tonic

It’s been a devastating year for those dealing in citrus fruits. Unusually high temperatures during the flowering period in the key growing regions of Valencia and Malaga has affected pollination of crops and stunted flower growth in Spain. At the same time, an outbreak of citrus black spot on the Eastern Cape has delayed the picking season in South Africa. With crop yields falling in both regions, supply has shifted to Argentina, but torrential rains during the harvesting period there have led to severe disruptions and delayed seasonal shipping to European markets.

Together, it has been the perfect storm for citrus fruits, with crop yields down by more than 35 percent, their highest mark in eight years. Consequently, supermarkets in Europe have passed along their higher costs at the till, increasing consumer prices of lemons 25 percent from last year.[1] Similarly, lime prices are skyrocketing as Mexico has been unable to meet excess demand and Brazilian traders have responded by placing a stranglehold over market prices, charging up to £2 per kg of limes.[2]

Lemons and limes may not seem all that interesting as one reaches for an afternoon snack, save for those suffering their way through the infamous Master Cleanse, but in fact they are used in large quantities on a daily basis by restaurants and bars in cocktails, sauces, and marinades. The current shortage has meant that those restaurateurs and bar owners buying on the open market will either be unable to source their requirements of citrus products, or pay dearly for the privilege.

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