Why planting the Avocado may not be the best investment decision you make in 2018

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There has been a nationwide drive to plant the increasingly popular ‘money tree’ known as the Avocado. Counties, government agencies and large multinational and national companies are pushing for its production in the country, but what are they not telling you?

Let us look at some statistics.

Kenya produces around 200,000 metric tons of avocados annually, 70% of which is produced by small-scale farmers under an average land area of about 7400 ha.

Out of the 200,000 tons produced annually, only about 40,000 tons are exported, with an estimated value of 6.4b Kenya shillings. This is approximately 1% of the global market requirements.

What does this mean? There is currently a very large market for avocados globally. This translates to its very high demand.

What does this also mean? High demand pushes global prices upwards(demand-pull inflation), an opportunity most people want to take advantage of, but before we do, let us take a step further in understanding and analyzing the dynamics surrounding this robust market.

The avocado is a seasonal crop with the two most in-demand varieties, hass and fuerte being produced between March and September, depending on the region. Notable, the hass variety is the most preferred in the global markets.

Avocado prices are highest between April and August, with the highest prices falling between June and July. The hass variety that is being widely marketed in Kenya is normally harvested between June and September. This therefore means that this variety gets a higher price, because global prices are high during the onset of its harvest.

However, due to the competitive prices during this period and of this fruit, a lot of countries have now been attracted to this lucrative market. (This is particularly due to the low export ratio of Mexican avocados which is low during this period). NB. Mexico accounts to about 35% of worlds total avocado exports.

Now, before one does any investment, it is important to first build a business plan highlighting a well detailed competitor analysis. This is important because it determines the market sustainability of an enterprise, assuming there is constant demand, as in this case.

To our market analysis:

According to the latest figures, 1500 hectares of avocados are planted every year in Peru. A large share of the planted crops is still young. The total acreage of avocados amounts to around 28,000 hectares, with its farm production standing at 246,057 tons in 2016.

Colombia has about 15,000 hectares of young avocado trees that have not yet reached their maximum yield. This is twice the total acreage we have in Kenya. Furthermore, 1500 to 2000 ha are planted every year.

A total of 280 containers have been shipped to Europe, by Brazil and the prospect for next year is approximately 360 containers. This makes Brazil a player to be reckoned with in this market. The Brazilian season is similar to ours and they have many added advantage in terms of logistics.

Every year, 65,000 to 85,000 new trees are planted in Mexico. Mexico exported 722,000 tons of avocados in 2017. Mexico have very high quality standards and an extremely advantageous position when it comes to market access, penetration and volume.

Even more, new production countries are emerging, such as Morocco, the Philippines, China and India. With other large producers such as Chile,Guatemala, Dominican republic and Indonesia are increasing their production output and areas under cultivation.

Considering the fact that the avocado is a long term crop taking a minimum of 2 ½ years to fruit and about 5 years to mature, and also considering the number of trees being planted nationally and globally every single day, the prolificacy of the fruit (a mature tree can produce over 400 fruits annually), low investment costs, and high returns, there will be definitely a threat of surplus in Europe and other parts of the world in the next 5 years. Unfortunately, South-Africa, the largest exporter in Africa, is the only country that is concerned about this threat.

This will then push the global market prices down and leave farmers at the mercies of local markets and unscrupulous traders (cartels). This is what happened to coffee.

Therefore, even as farmers think about embracing this lucrative venture, before they consider to cut down their ‘unprofitable’ tea and coffee bushes they need to carry out a thorough analysis of their investment decision in the long term. They need to look at all the possibilities and in-eventualities that may arise if they adopt this enterprise.

And yes, the trees help in conserving our environment, the fruits have very high nutritive value, but is this all that needs to be considered when carrying out an enterprise analysis and preparing for an investment?

However, if you have already invested you are at the right place, because this kind of investment most benefits early adopters(refer to quail and rabbit business, network marketing). If you have not please reconsider.

If you must invest, Diversify either with another crop or within the value chain (value addition).

If you want help in carrying out an enterprise analysis for your farm, in order to determine the best enterprise to set up, please contact us on 0700347462 or send an email to info@falion.co.ke, we will gladly help you.

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