Some industries in the agricultural space have been drawing outside investors for quite some time. “Once a sector is advanced enough and has scale, it starts attracting money from investors,” says Pedro Somarriba with Avoworks. He feels the avocado business is now getting to that point. “The best indication of that is Mission Produce who announced they were in the process of acquiring Calavo Growers earlier this year.” With much of the avocado industry still operating at a small scale like a mom and pop, the industry is primed to bring in some professional managers, better systems, and better processes. “To get to this next level, investment is necessary.”

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Pedro Somarriba

Versatility of avocados
The U.S. avocado industry has shown significant growth in recent years. “While there are still opportunities to grow, it has reached scale and more importantly, staying power,” Somarriba mentioned. In the early days, avocados were mainly consumed as fresh fruit. However, once guacamole came into play, consumption increased significantly. Right now, avocado oil is an incredibly popular product, not only purchased for use at home, but also by industrial manufacturers to produce large-scale products like potato chips.

The use of avocado oil is strongly recommended by the government, serving as an alternative for corn and soybean oils. This advice is driven by two very important properties. First of all, avocado oil has a very high smoke point as it doesn’t burn until about 500°F, making it suitable for high-heat cooking. Secondly, avocado oil has a very neutral flavor, which makes it a great cooking oil. The versatility in utilization has shown that the avocado isn’t a fad, but an industry that is here to stay.

“We may see more things happening with avocados in the future,” said Somarriba. Take coconuts as an example. Early on, coconuts in combination with coconut water were enjoyed on the beach. Today, there’s coconut oil, coconut sugar, coconut cream, coconut beverages, and the list goes on. “I believe avocado will be going down that same evolutionary path. This doesn’t only make the category suitable for investment opportunities, their versatility also helps with growing consumption. “All of these data points are attractive to potential investors.”

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Avocado consumption globally
When looking at avocado consumption globally, Mexico leads in total volume and is followed by the U.S. Consumption in Europe on the other hand is lagging the U.S. and although Europe has a big avocado industry, the runway is significant with plenty of opportunities to increase consumption.

Price volatility
However, there also is a flipside. “What may put off investors is the price volatility in the marketplace,” shared Somarriba. More stable pricing would enable retailers to plan promotions that drive consumption, supporting overall growth of the category. Up until two weeks ago, the industry in North America witnessed that price stability as a result of ample supply from Mexico. However, without a clear driver, prices started to skyrocket all of a sudden, which has thrown the market into turmoil. Hopefully, the situation will stabilize early June when the Jalisco and “Loca” crops are released for sale. “I believe there are players in the industry looking to find the playbook on stabilizing avocado prices year-round,” he said. This is something that could be accomplished through forward pricing or longer-term contracts with growers. However, capital would be required for upfront payments and for providing the grower with an incentive to enter into an agreement like that.

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Mexico’s complexity
Some other avocado growing countries are able to offer much more stable pricing compared to Mexico. In Colombia and Peru for example, pricing is more stable because their seasons are limited to a finite period of time. In these countries, there is no year-round production. In addition, the avocado industry in these countries is less fragmented compared to Mexico where avocados are grown by 30,000 producers.

According to Somarriba, the avocado business is just hitting its stride to where it is starting to attract investment interest. Interest is coming from U.S. firms, but also European funds and even Middle Eastern funds are interested. In places like Peru, investments have already taken place but because Mexico is more complex due to the diversity of producers, there may be more hesitation. “However, consolidation is certainly possible in Mexico, but it is going to take some capital to make it happen.”

For more information:
Pedro Somarriba
Avoworks
[email protected]
www.avoworks.com