Trump's Mexico Tariff Could Re-Route Avocados to China
China has boosted imports of Mexican avocados, but will it be enough to reverse the economic damage of a potential Trump tax on Mexican goods?
Mexico's president canceled a planned trip to Washington, D.C. in late January when President Donald Trump's press secretary signaled support for a 20 percent tariff on all Mexican imports to help pay for the infamous border wall. The mere mention of an import tax on America's third largest trade partner sent shockwaves all the way down to the Mexican state of Michoacán, the birthplace of your Super Bowl guacamole.
Ramón Paz is the spokesperson for APEAM, Mexico's largest association of avocado producers, packers and exporters, with headquarters in Uruapan, Michoacán. The sun-baked mountainsides of the Michoacán countryside are blanketed with avocado orchards. In an interview with Seeker, Paz said that 80 percent of Mexican avocados are exported to the United States and all of them currently come from Michoacán. In the 2015-2016 growing season, that was 867,000 tons of avocados.
"That's a 26 percent increase over the previous season," Paz added. "There is no other producing region in the world that can supply the U.S. with this amount of fruit 52 weeks a year."
Paz was quick to mention that nothing has changed in U.S. trade policy toward Mexico and that Mexican growers shipped 100,000 tons of avocados to America for the Super Bowl alone. But that doesn't mean he's not concerned.
"This administration has taken a course that's very anti-Mexican and very anti-trade," said Paz. "The truth is that if there's a tariff on avocados, the the price will be paid on the U.S. side. The first impact will be on American consumers."
The average wholesale price of a single avocado in the U.S. in 2016 was 50 cents. A 20 percent tariff would only increase the wholesale price by a dime, but the ripple effect on retail prices could be enough to sour Americans on their avocado habit. The average American currently eats more than 4.5 pounds of avocado each year.
If demand drops in the United States, Mexico will have to boost avocado exports to the rest of the globe. Japan and Canada are the next largest exports markets, buying up 10 percent and 6 percent respectively of Mexico's avocados. But the country with the biggest long-term potential to pick up the slack of decreased U.S. demand is China.
"China is a rising star," Paz said. "It's still a very small market, but the potential is huge."
According to statistics from the Mexican Ministry of Economy and Chinese customs authorities, the Chinese appetite for avocados is exploding. Back in 2010, Mexico shipped a measly $4,000 of avocados to China. In 2015, China imported between $24 million and $38 million of Mexican avocados, depending on the source of the data. Compared to 2014, that represents an increase of either 170 percent or 227 percent, both in the range of "exponential" growth.
Compared to the U.S. market, though, China is still small potatoes (er, avocados). American imported $1.5 billion of Mexican avocados in 2015. The Chinese only imported between 1.5 percent and 2.5 percent of that total.
That's why Paz and other leaders of the Mexican avocado industry are actively making the economic case for maintaining the status quo of U.S.-Mexico trade relations. Citing a 2016 study from Texas A&M's Agribusiness, Food, and Consumer Economics Research Center, Paz said that the U.S. supply chain for Mexican avocados supports 19,000 American jobs, provides $1.2 billion in annual income and generates nearly $600 million in taxes for the U.S. government.
On the other side of the border, 80 percent of Mexico's 21,000 growers operate small orchards with less than 10 acres of avocado trees, and the industry supports more than 70,000 permanent jobs.
"This means that there are 100,000 Mexican families who are not illegally immigrating to the U.S., because they have a decent life," said Paz.
Arnulfo Lopez is one of those small growers. Ten years ago he planted avocado saplings in a 2.5-acre orchard near a crystal-clear mountain lake in the heart of Michoacán. Growing avocados, said Lopez in an interview, was a much better investment than growing corn, which barely allows a farmer to recoup his costs.
Even though Lopez's trees aren't fully mature, he averages 20 tons of avocados per harvest. The packing houses in Uruapan are paying 32 pesos ($1.50) for a kilo (2.2 lbs) of fresh fruit, which adds up to $30,000 per harvest, and there are two harvests a year. It's no surprise that more and more Michoacán farmland and pine forest has been converted to avocado orchards. Lopez knows that this could all change dramatically if Congress and the White House decide to tax Mexican imports.
"Of course, I'm worried," said Lopez. "I'm worried about how this is going to affect the people here in Michoacán. If the U.S. stops buying from Mexico, or imposes expensive tariffs, it's going to have a huge effect on avocado producers."
He hopes that the packing and exporting companies are actively looking for other places to ship his avocados.
"It's a question of our government here in Mexico saying it's time to look for other markets in new places," said Lopez. With luck, a ripe avocado grown on his tiny parcel of land in rural Mexico could soon end up on a kitchen counter in Shanghai.
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