Avocado Shortage in Australia - Case Study Example

Shortage of Avocado Name: Course Name: Unit Name: Submission Deadline: Table of Content 1.0 Executive Summary……………………….……………………3 2.0 Introduction…………………………….……………………….3 3.0 Description of the main Issue…………………………………..4 4.0 Impact of shortage on the stakeholders……………………..4 a. Consumers b. Restaurants c. Supermarkets d. Government e. Suppliers f. Farmers 4.0 Economic concepts relevant to the Case Study……..………..6 5.0 Conclusion…………………………………………………….7 6.0 Recommendation………………………………………………8 7.0 References…………………………………….……………….9 1.0 Executive Summary The objective of this report is to describe the main issue associated with Avocado shortage in Australia. The report will identify key stakeholders in the Avocado industry and how this shortage has affected the stakeholders. Economic theories/concepts will be used to explain the shortage and alternative recommendation will be provided on how future shortage can be mitigated. Information in this report has been gathered mainly through new articles in The Sydney Morning Herald. The result in this report show that there is shortage of Avocado in Australia, and this has affected Australia’s economic growth from this issue as well as the federal government budget. In conclusion, the avocado industry needs to continue to innovate and look for opportunities that will improve profitability, productivity and global competitiveness for the industry. 2.0 Introduction A shortage of avocados combined with increasing demand for the commodity has seen the prices for the fruit soar this season. Over the past 5 to 10 years, the demand for avocados in Australia has increased rapidly as the fruit has become more popular. Supply of Avocado has also increased in the same period but not fast enough (Olivia, 2016). Generally, the demand of avocados is slightly ahead of supply, which has led to shortage of avocados and higher prices (Geoff, W. 2016). This report will describe the main issue associated with Avocado shortage in Australia; identify the stakeholders in Avocado industry and how they are impacted (Whiley, 2016). In addition, discuss economic theories or concepts related and recommend alternative solutions to mitigate shortage issue in Australia. 3.0 Description of the main Issue In Australia, the demand for avocados has been fast increasing while supply has been struggling to keep up; this has created a situation where there is shortage of avocados in the country (Camilla, 2016). In addition, heavy rains have interfered with the avocado harvest in Western Australia- which is the main source of avocados in the region at this time of the year (Olivia, 2016). In addition, bushfires which tore through Western Australia’s south during the holiday period made avocado shortage to worsen. As a result, it has created shortage of avocados, and price of avocado has increased in the same period. Some growers in Western Australia have also contributed to the shortage of avocados. These growers made all their sales before the month of Christmas season with low prices (Camilla, 2016). The believed that the demand for avocados would drop after the Christmas period, but doing this it meant large quantities were consumed before Christmas period and thereafter created a shortage after Christmas period. 5.0 Impact of shortage on the Stakeholders Avocado industry reputation rest on three pillars: financial stability, positive social impact and responsible business operations. In each of these three areas, there is stakeholders who are impacted by the shortage of avocados from consumers to farmers, to regulators to government, and so forth (Geoff, W. 2016). In turn each stakeholder can have an impact on Australian avocado sector. Customers can decline to purchase the fruits if they perceive any safety issue with the commodity, regulators can place limits on the way the farmers can produce, and activists can mobilize to advance an agenda that runs against the farmers or multinationals interests. Avocado fruit is widely consumed, consumer in Australian consume an average of 3.5 kg of per year (Camilla, 2016). This implies that a change in supply and increased demand in avocado have had impacts on key stakeholders include: consumers, restaurants, government, employees, suppliers and civil societies. g. Consumers Shortage of avocados has largely affected the consumers. As a result, avocado prices have skyrocketed as high as seven dollars this year. While in November2015, each avocado fruit cost between one to two dollars (Olivia, 2016). According to the avocado industry’s website, the average retail price was about 4 dollars per fruit. This has made consumers to spend more money than intended. h. Restaurants Most restaurants in Australia have been forced to remove avocados from their restaurants and findings alternative ingredients (Camilla, 2016). Removing dishes highlighting avocado from the menu, and this has affected the quality which was not up to the standards most customers are used to. i. Supermarkets A normal wholesale price of a box of avocados is between 30 dollars to 45 dollars. As a result of the shortage supermarkets have raised their price for avocados (Camilla, 2016). In addition, some shops have limit the number of avocados that individual customers can buy. j. Government Australian government has responded to the shortage of avocados by importing avocados from Colombia. At same time the government has lost revenue that would have been realized from avocado sales. Furthermore, shortage in avocado might force the government to reduce import regulatory requirements for avocados. The Australian government has proposed allowing avocados from other countries such as Colombia to be admitted into Australia in order to help drive down the shortage as long as certain health requirements have been achieved. k. Suppliers The reduction in the total revenue due to the shortage of avocado will eventually translate to negative impact on the suppliers (Geoff, W. 2016). Lower supply has made the public to believe that suppliers cannot compete with the market l. Farmers The prices for avocado have doubled in recent weeks as a result of shortage (Olivia, 2016). The shortage of avocado is causing a crime spree across Western Australia, proving thieves would go great lengths to get their hands on these fruits (Olivia, 2016). Australian avocado farmers have reports a spate of large scale thefts after a period of shortage due to rising prices. Criminals have spotted opportunities, raiding avocado orchards in order to meet black market demand (Olivia, 2016). The effect of these has made farmers to suffer losses from these thieves. 6.0 Economic theories relevant to the Case Study The price of avocado is derived by the interaction of demand and supply. When there is an agreement on price between the seller and buyers, it is called the “equilibrium price” This has been illustrated in the figure 1. Fig 1: Equilibrium price The buyers are willing to buy quantity “Q” at the price “P” from the avocado growers. At this stage demand and supply of avocado are in equilibrium. At any price below P, the quantity of avocados demanded in the market is more than the quantity of avocado being supplied into the market (Camilla, 2016). At this stage, consumers are anxious to purchase avocados but the supply cannot meet the demand resulting in product shortage. In order to ration the avocado shortage in the market consumers will be forced to pay higher price for the fruit. Fig 2. Change in equilibrium price When either supply or demand changes, the price of avocado will change. For example, good weather increases the supply of avocado. Consumers are in a position to buy more avocados at a lower price. In case of Australia, this happened before the Christmas season whereby there were plenty of avocados in the market which drove the demand for avocado down. Likewise, reduction in avocado supply as a result of shortage caused the demand to be higher which in turn made the prices for avocados to increase. Fig 3. Shift in supply A shortage of avocado in Australian has been created because the demand of avocado is greater that supply. The result of this has cause the price of avocado to increase. Avocados growers are interested in profits and in order to make higher profit some farmers were found to have created artificial shortage by hording their avocados. As a result a shortage in avocados has been created due to limited supply of avocados. 6.0 Conclusion The avocado shortage has been a wake-up call for the stakeholders. Stakeholders expect this shortage will not last long. Avocado availability and pricing have shown signs of improvement, which in few weeks will lead to normalization in the avocado supply (Whiley, 2016). It will take few more weeks for demand and supply to balance out, but Australians should be optimistic that they have moved past the short supply situation. 7.0 Recommendations The Australian government should start propagating extensive planting which will improve pricing and supply of avocado products, but not for a few years. The Australian government should encourage avocado growing in southern area of the country; this will help in keeping up with the demand that is required for an all-year supply. The Australian Department of Agriculture should allow importation of avocados from other countries in order to help drive down prices as long as certain health conditions have been met. 8.0. References Camilla D. January 24, 2016. “Australians Aghast At National Avocado Shortage” The two-way Retrieved from http://www.npr.org/sections/thetwo- way/2016/01/24/464212066/australians-aghast-at-national-avocado-shortage Geoff, W. 2016. “How The Avocado Shortage Is Affecting Chipotle, Grocers And You”. Forbes retrieved from http://www.forbes.com/sites/geoffwilliams/2016/10/31/how-the-avocado- shortage-is-affecting-chipotle-grocers-and-you/#4ad8e63969f1 Olivia, L. January 27, 2016. “Farmers blamed for avocado shortage” News. Com Retrieved from http://www.news.com.au/lifestyle/food/eat/farmers-blamed-for-avocado-shortage/news- story/b9e74e7e6ba8a5e3a3f567e155a3115f Whiley, A.W. 2016. ‘Avocado Production in Australia’. In:PAPADEMTRIOU, M.K. (ed.) Avocado Production in Asia and the Pacific. Food and Agriculture Organization of the United Nations, Regional Office for Asia and the Pacific, Bangkok. Read More