A Brief Introduction into
the Complexities of an Agribusiness Sector
II. Basic Background of Avocado Production
A. Avocado Output
Figure: Total Avocado Production
B. Avocado Acreage
Figure: Bearing Acreage of Avocado
C. Value of Avocado Production
Figure: Total Value of Avocado Production
D. Avocado Yields and Prices
Figure: Avocado Yield and Price
E. Structure of Avocado Industry
II. Basic Background of Avocado Production
A. Avocado Output
Prior to describing the various aspects of the avocado market, it would probably be a good idea to give you a sense of how many avocados are produced, how much they are worth, how much land is used to grow them and to demonstrate the relationship between prices and yields.
First of all, let's look at the total avocado production in the United States for the period 1987-88 through 1998-99.
One of the first things you should notice is that the
state of California clearly dominates avocado production in the US. In
the US, the only other relevant production of avocados occurs in Florida
but as you can infer Florida production is relatively small. Another thing
you should notice from the graph is that avocado production is quite variable
-- as we discussed before, the variability of land, water and sun can often
significantly affect production.
B. Avocado Acreage
The most important input to avocado production is land -- without it, we couldn't grow anything. So, the next graph we will look at is the level of "bearing acres" of avocados during the same period as the first graph. "Bearing acres" refers to land producing commercial yields of avocados. What is not included in these acres is the land with newly planted avocado trees which have not yet started producing fruit (an avocado tree can take between three and five years before it produces its first commercial harvest) and those acres of trees so old that they no longer warrant harvesting because they produce so little fruit.
The single most important item that should be gleaned
from the graph above is that, unlike total avocado production, the bearing
acreage of avocados has been falling. This means that there has been
a net reduction in acres devoted to productive avocado orchards -- that
is, even if new orchards have been brought into production, the area of
old orchards taken out of production has outnumbered the number of new
orchards.
C. Value of Avocado Production
The next graph we will look at is the total value of avocado production.
Again, you should notice that the values are quite variable.
It appears that the period between 1993-94 and 1997-98 were very good years
for avocado growers.
D. Avocado Yields and Prices
Some of the information in the above graphs can be easily combined into the concept of "yields" which simply describes how much production was generated per bearing acre of avocado orchard. We shall combine this information with the producer price information for avocados.
If we look at graph we find a very interesting relationship.
Except for the last year on the graph, 1998-99, we see that whenever the
yield of avocados goes up (that is, whenever productivity and production
is high) the price that producers receive for avocados goes down. It also
works in reverse. Whenever the yield of avocados goes down, the price
of avocados goes up! This relationship demonstrates the dilemma that many
avocado producers (or producers of any other agricultural commodity for
that matter) face -- when a producer benefits from good growing conditions
which leads to high yields, it is also likely that other producers are
also benefiting, which means that a lot of product will come into the market
and drive prices down. On the other hand, producers may take a little solace
in the fact that when growing conditions are poor, they are more likely
to get a better price for their production, although they will probably
have less production than in other years.
E. Structure of Avocado Industry
The last, but far from least, characteristic to mention regards the "industry structure" of avocado production in California. Industry structure refers to the distribution of firm (farm) size within an industry. The impact of price changes and policy changes are very different for agricultural sectors where there is many small operations producing most of the production versus structures where relatively few operations produce most of the production. For instance, larger firms may be more able to implement new, cost-saving technologies or may be more adept at lowering their borrowing costs.
In the case of California avocado production, 59% of avocado producers harvested fewer than 5 acres as of 1992 accounting for only 10% of total harvested acres. At the other end of the spectrum, less than 4% of avocado producers averaged over 50 acres as of 1992 and accounted for almost 43% of total acreage. This means that a relatively small number of producers control over half the avocado acreage in California.
Having briefly described some of the broad aspects of the avocado market, let's look at some specific information about avocado production.