Dive Brief:
- Tight avocado supply pushed up revenue at some of the biggest fruit distributors as consumer demand remains strong despite higher grocery store prices.
- Mission Produce generated a record $324 million in third quarter revenue, a 24% increase over last year. California-based grower Limoneira expects higher prices to position the company for "record avocado revenue this fiscal year," CEO Harold Edwards said.
- Despite Mission reporting a 36% increase in consumer prices, sales volumes remained flat, "demonstrating the resiliency of demand for avocados" in the U.S., CFO Bryan Giles said.
Dive Insight:
Drought and high temperatures partly tied to El Niño constrained supply in the major exporting countries of Mexico and Peru. As a result, distributors relied more on avocados from California’s strong harvest.
California volumes were roughly 40% higher than expected, Mission executives said on an earnings call. Limoneira, which purposefully delayed harvest to capitalize on higher prices, increased its guidance for avocado supply by more than 50% in what would be a record volume for the company.
"The California crop was much larger than was originally expected, giving us more flexibility in addressing supply challenges brought about by lower volumes available from Peru and Mexico," Mission's CFO said.
While California dominates U.S. avocado production, supply in the Golden State isn't enough to offset losses from Mexico or Peru. Around 80% of avocados in the U.S. come from Mexico, where exports had been constrained due to declining water supplies and a temporary halt on inspections during the summer.
With overall supply shortages hitting the industry, companies have significantly raised prices. However, price hikes haven't slowed consumer appetite — consumption of avocados has tripled since 2001 and distributors continue to forecast strong demand in the future.
To meet the voracious demand, Limoneira plans to expand avocado production by 1,000 acres over the next three years. Although primarily known for citrus, Limoneira is focusing more on avocados and has boosted yields through changes to pruning and fertilizer application.
Supply in Peru is expected to rebound with the end of El Niño, Mission executives said, which could depress prices down the line. Still, the strength of consumer demand is likely to keep grocery store costs higher.
"We do anticipate strong consumer demand and strong demand for avocados," said Harold at Limoneira. "So we believe that the pricing environment will be good, maybe just not as good as this year.”
