Required Report - public distribution

**Date:** 11/30/2006

**GAIN Report Number:** MX6101

MX6101

**Mexico**

**Avocado**

**Annual Report**

**2006**

**Approved by:**

![](media/image1.wmf)Suzanne Heinen

U.S. Embassy Mexico City

**Prepared by:**

Gabriel Hernandez

**Report Highlights:**

Mexican avocado production for MY 2006/07 is expected to reach a record
1.05 million metric tons (MMT). Hass exports for the same period are
expected to reach 248,000 MT, of which approximately 150,000 MT will be
exported to the United States in light of the year-round market opening
of 50 U.S. States. Exports of California Hass avocados to Mexico are
forecast at 1,300 MT.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Mexico \[MX1\]

\[MX\]

# PS&D TABLE

<table>
<colgroup>
<col style="width: 21%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><strong>PSD Table</strong></td>
</tr>
<tr class="even">
<td><strong>Country</strong></td>
<td colspan="9"><strong>Mexico</strong></td>
</tr>
<tr class="odd">
<td><strong>Commodity</strong></td>
<td colspan="5"><strong>Avocados, Fresh</strong></td>
<td colspan="4"><strong>(HECTARES)(1000 TREES)(MT)</strong></td>
</tr>
<tr class="even">
<td></td>
<td colspan="3"><strong>2004 Revised</strong></td>
<td colspan="3"><strong>2005 Estimate</strong></td>
<td colspan="3"><strong>2006 Forecast</strong></td>
</tr>
<tr class="odd">
<td></td>
<td><p>USDA</p>
<p>Official</p></td>
<td><p>Post</p>
<p>Estimate</p></td>
<td><p>Post</p>
<p>Estimate</p>
<p>New</p></td>
<td><p>USDA</p>
<p>Official</p></td>
<td><p>Post</p>
<p>Estimate</p></td>
<td><p>Post</p>
<p>Estimate</p>
<p>New</p></td>
<td><p>USDA</p>
<p>Official</p></td>
<td><p>Post</p>
<p>Estimate</p></td>
<td><p>Post</p>
<p>Estimate</p>
<p>New</p></td>
</tr>
<tr class="even">
<td>Market Year Begin</td>
<td></td>
<td>08/2004</td>
<td>08/2004</td>
<td></td>
<td>08/2005</td>
<td>08/2005</td>
<td></td>
<td>08/2006</td>
<td>08/2006</td>
</tr>
<tr class="odd">
<td>Area Planted</td>
<td>102,627</td>
<td>102,627</td>
<td>102,627</td>
<td>111,834</td>
<td>111,834</td>
<td>112,381</td>
<td>0</td>
<td>0</td>
<td>112,700</td>
</tr>
<tr class="even">
<td>Area Harvested</td>
<td>98,330</td>
<td>98,330</td>
<td>98,330</td>
<td>100,000</td>
<td>100,000</td>
<td>103,318</td>
<td>0</td>
<td>0</td>
<td>110,000</td>
</tr>
<tr class="odd">
<td>Bearing Trees</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Non-Bearing Trees</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>Total No. Of Trees</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Production</td>
<td>934,282</td>
<td>934,282</td>
<td>934,282</td>
<td>1,000,000</td>
<td>1,000,000</td>
<td>1,016,594</td>
<td>0</td>
<td>0</td>
<td>1,050,000</td>
</tr>
<tr class="odd">
<td>Imports</td>
<td>226</td>
<td>0</td>
<td>226</td>
<td>250</td>
<td>0</td>
<td>1,309</td>
<td>0</td>
<td>0</td>
<td>1,300</td>
</tr>
<tr class="even">
<td>Total Supply</td>
<td>934,508</td>
<td>934,282</td>
<td>934,508</td>
<td>1,000,250</td>
<td>1,000,000</td>
<td>1,017,903</td>
<td>0</td>
<td>0</td>
<td>1,051,300</td>
</tr>
<tr class="odd">
<td>Exports, Fresh</td>
<td>180,165</td>
<td>133,856</td>
<td>180,165</td>
<td>250,000</td>
<td>160,000</td>
<td>228,000</td>
<td>0</td>
<td>0</td>
<td>248,000</td>
</tr>
<tr class="even">
<td>Fresh Dom. Consumption</td>
<td>729,343</td>
<td>775,426</td>
<td>729,343</td>
<td>720,250</td>
<td>800,000</td>
<td>754,903</td>
<td>0</td>
<td>0</td>
<td>763,000</td>
</tr>
<tr class="odd">
<td>For Processing</td>
<td>25,000</td>
<td>25,000</td>
<td>25,000</td>
<td>30,000</td>
<td>40,000</td>
<td>35,000</td>
<td>0</td>
<td>0</td>
<td>40,300</td>
</tr>
<tr class="even">
<td>Total Distribution</td>
<td>934,508</td>
<td>934,282</td>
<td>934,508</td>
<td>1,000,250</td>
<td>1,000,000</td>
<td>1,017,903</td>
<td>0</td>
<td>0</td>
<td>1,051,300</td>
</tr>
</tbody>
</table>

# 

# PRODUCTION

For MY 2006/07, Mexican avocado production is forecast at 1.05 million
metric tons (MMT), slightly up from the 1.02 MMT record level reached in
MY 2005/06. This forecast assumes favorable weather conditions, good
residual humidity in production soils after ample rains during the wet
season, continued implementation of phytosanitary programs which have
successfully controlled pests, and more young trees coming into full
bearing.

Due to the fair weather conditions that characterized MY 2005/06,
production is estimated at 1,016,594 MT, 3.29 percent higher than the
initial forecast. Ample rains previous to the blooming stage, combined
with the high year of the alternate bearing cycle, contributed to the
increase in production. Moreover, the cessation of the producers'
practice of harvesting only 2 MT per hectare has also contributed to the
high production level. MY 2004/05 figures remain unchanged and reflect
official data.

Michoacan continues to be the main avocado producing state in Mexico,
accounting for roughly 88 percent of total production, followed by the
states of Mexico, Morelos, and Nayarit.

# CROP AREA

The official forecast for total national area planted for MY 2006/07 is
112,700 hectares, slightly up from the revised MY 2005/06 planted area
estimate. In recent years, planted area has increased because there is
greater international demand for high-quality Mexican Hass avocados. In
addition, the APHIS list of authorized pest-free municipalities in
Michoacan continues to grow. These additions prompted avocado growers to
increase their production areas in MY 2005/06. State authorities confirm
that Michoacan boasts roughly 90,000 hectares devoted to Hass avocado
production. Michoacan's neighboring states, specifically Jalisco and
Mexico, have also increased their planted area. According to industry
sources, growers of avocado plants in Michoacan nurseries are focusing
their expansion efforts on the untapped markets in those states. Area
planted for MY 2004/05 remains unchanged.

Currently, the APHIS--administered export inspection program has
certified 39,989 hectares of avocado orchards. This figure actually
exceeds the number of certified hectares agreed upon in the work plan.
This program, signed on September 14, 2005, allows for Mexican avocados,
which are produced in authorized orchards, to be shipped to 47 of the 50
U.S. states. The work plan calls for the semi-annual surveillance of
listed municipalities, once in the dry season, and again during the wet
season. Furthermore, the work plan allows for the inspection of proposed
areas, in conjunction with the surveillance applied to certified areas.

Michoacan is the only state in Mexico that is allowed to export avocados
to the United States. Within Michoacan, the only municipalities that
have been certified by APHIS to export are Acuitzio, Tancitaro, Uruapan,
Tingüindin, Salvador Escalante, Nuevo Parangaricutiro, Periban de Ramos,
Ario de Rosales, Los Reyes, Apatzingan, Taretan, and Tacambaro.

Producers from the neighboring states of Mexico and Jalisco continue the
implementation of phytosanitary and good agricultural practices programs
in their avocado producing areas in the hopes of eventual certification
to export to the United States. However, their primary objective in the
short-term is to grow and solidify their market share in the Central
American and the emerging European markets by promoting the quality of
Mexican produce. For the most part, their growing practices are similar
to those used in the state of Michoacan.

Although the majority of avocado exports are destined for the U.S.,
other markets including Japan, Canada, France, and El Salvador are also
significant. Unlike the U.S., these markets do not require APHIS
accreditation. However the GOM requires that all avocado producers,
processors, and shippers meet strict phytosanitary requirements, as
established by the Secretariat of Agriculture, Livestock, Rural
Development, Fishery and Food (SAGARPA).

# INPUTS

The production of Mexican Hass avocados has been a profitable activity,
despite the relatively high cost of production, due to high domestic
retail prices and increased exports. For MY 2006/07, the cost of
production is expected to be similar to MY 2005/06. Latest information
indicates that the cost of production per hectare with natural residue
water table irrigation was between \$47,000--\$50,000 pesos (USD
\$4,331-\$4,608), while costs for orchards with assisted
fertilization-irrigation was between \$56,000-\$59,000 pesos (USD
\$5,161-\$5,437) per hectare. Over the past several years many producers
have implemented SAGARPA's non-mandatory food safety program
recommendations. Even when these practices have slightly increased the
production costs, the majority of avocado farmers in Mexico have
implemented the recommended measures because they are aware that such
practices elevate the image of Mexican avocados as a sanitary product in
foreign markets. Producers consider these practices as a medium-long
term investment.

# YIELDS

Official data reveals that average yields for MY 2006/07 are forecast at
9.55 MT/ha., primarily due to favorable weather conditions and good
agricultural practices. MY 2005/06 yield figures were revised slightly
downward to 9.84 MT/ha, upon the recent publication of official data. MY
2004/05 remained unchanged at 9.5 MT/ha.

# POLICY 

Mexico continues to successfully implement phytosanitary requirements
and good manufacturing practices for the transportation of fresh
avocados within the country (see MX2080). Unofficial reports from one
state official indicate that the vast majority of Michoacan producers
and packers have implemented SAGARPA's recommended good manufacturing
practices in order to guarantee the distribution of high quality produce
in international and domestic markets.

# CONSUMPTION

Fresh domestic consumption in MY 2006/07 is forecast at 763,000 MT, a
1.07 percent increase over MY 2005/06. This increase in consumption can
be attributed to the fact that producers and packers are now marketing
export quality produce, at competitive prices, to the domestic market.
In fact, the vast majority of Mexico's avocado production continues to
be consumed domestically. Avocado is a staple food in most Mexican
households, and is usually consumed fresh, or as a main ingredient in
homemade guacamole. Fresh domestic consumption figures for MY 2005/06
and MY 2004/05 were revised downward due to increased exports. However,
both figures are still higher than historic levels.

Avocado consumption by the processing industry is forecast at 40,300 MT
in MY 2006/07. Though data on avocado consumption by the processing
industry is either proprietary, or does not exist, industry
representatives indicated that it may be up by as much as 15 percent
over MY 2005/06. This increase in consumption is mainly due to increased
demand from the U.S. Anglo and Hispanic sectors. The recent Mexican
border opening for the Californian Hass avocados could attract
investments in processing plants on the Mexican border, thus taking
advantage of lower cost labor on the Mexican side (See Trade Section).
Furthermore, because of the successful promotion of Mexican cuisine
around the world, the consumption of guacamole is expected to maintain
the same levels of MY 2005/06 during the key selling periods such as
Cinco de Mayo, Memorial Day, and the Superbowl.

State and private sources indicate that despite record exports, domestic
consumption will not be affected. Increased output, and new orchards
coming into production, will allow producers and exporters to adequately
meet both domestic and international demand. The MY 2005/06 figures for
processing consumption were revised downward, due to increased exports.
MY 2004/05 figures remained unchanged. Total average annual per capita
consumption in Mexico is estimated around 9 kg.

# 

# AVOCADO PRICES

MY 2006/07 export prices are expected to be less attractive for
exporting producers than those of MY 2005/06. This price decline is
mainly attributable to a more aggressive market strategy from third
country producers, specifically from Chile and New Zealand, to cover the
U.S. market with lower-price produce. Export prices in MY 2005/06 were
roughly U.S. \$22.25- \$24.25 per 11.3 kg (25 lbs) box. As of November
2006, wholesale domestic prices during CY 2006 have been set between
U.S. \$16.31-\$35.00 per 17 kg (37.4 lbs) box. Wholesale domestic prices
for CY 2005 were between U.S. \$15.99-\$27.08 per 17 kg (37.4 lbs) box.
It is expected that wholesale domestic prices during CY 2007 will remain
about the same as CY 2006.

+-----------------+-----------+---+-----------+---+-------------+---+
| #               |           |   |           |   |             |   |
| ##### WHOLESALE |           |   |           |   |             |   |
|  AVOCADO PRICES |           |   |           |   |             |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| ###### Month    | 2005      |   | 2006      |   | Change %    |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| January         | 10.16     |   | 10.41     |   | 2.46        |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| February        | 10.57     |   | 11.00     |   | 4.07        |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| March           | 13.43     |   | 12.03     |   | (10.42)     |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| April           | 16.54     |   | 14.41     |   | (12.88)     |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| May             | 15.34     |   | 15.40     |   | 0.39        |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| June            | 25.83     |   | 15.51     |   | (39.95)     |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| July            | 25.18     |   | 18.31     |   | (27.28)     |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| August          | 18.94     |   | 22.34     |   | 17.95       |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| September       | 13.75     |   | 15.97     |   | 16.15       |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| October         | 10.64     |   | 12.88     |   | 21.05       |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| November        | 9.98      |   | 11.42     |   | 14.43       |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| December        | 9.86      |   | N/A       |   | N/A         |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| Pesos/kilogram  |           |   |           |   |             |   |
+-----------------+-----------+---+-----------+---+-------------+---+
| Source: Sevicio |           |   |           |   |             |   |
| Nacional de     |           |   |           |   |             |   |
| Informacion de  |           |   |           |   |             |   |
| Mercados        |           |   |           |   |             |   |
|                 |           |   |           |   |             |   |
| 2005 Exchange   |           |   |           |   |             |   |
| Rate Avg.:      |           |   |           |   |             |   |
| U.S.\$ 1.00 =   |           |   |           |   |             |   |
| \$ 10.90 pesos  |           |   |           |   |             |   |
|                 |           |   |           |   |             |   |
| November 16,    |           |   |           |   |             |   |
| 2006 exchange   |           |   |           |   |             |   |
| rate U.S. \$    |           |   |           |   |             |   |
| 1.00 = \$ 10.85 |           |   |           |   |             |   |
| pesos           |           |   |           |   |             |   |
|                 |           |   |           |   |             |   |
| As of third     |           |   |           |   |             |   |
| week of         |           |   |           |   |             |   |
| November        |           |   |           |   |             |   |
+-----------------+-----------+---+-----------+---+-------------+---+

# 

# TRADE

Mexican avocado exports are forecast to reach a record level of 248,000
MT in MY 2006/07, a nearly 9-percent increase over the MY 2005/06
figure. This increase is due to greater output, and, as of February 1,
2007, year-round market access to all 50 U.S. Reportedly, producers and
packers had been concerned for some time that open access to the U.S.
market might lead to market saturation, and eventual downward pressure
on prices. In order to avoid such a situation, producers and packers
have worked together to limit their exports by harvesting only 2
MT/hectare. Nowadays, in light of the year-round U.S. market opening,
producers suspended this practice, but only to the extent to which they
are still able to avoid market saturation. Michoacan growers currently
have the capacity to harvest 10-15 MT/ha if there is no threat of market
saturation. Growers and packers have forecast MY 2006/07 avocado exports
to the United States at 150,000 MT. Exports to the U.S. in MY 2005/06
were 130,000 MT, while exports in MY 2004/05 were only 112,000 MT.

As of January 31, 2005, Mexican Hass avocados were granted access to all
U.S. states except California, Florida, and Hawaii, on a year-round
basis. On February 1, 2007, Mexican Hass avocados will be allowed into
all 50 states on a year-round basis. This policy change was made in a
USDA amended regulation, and was established in a final rule published
in the Federal Register on November 30, 2004 (69 FR 69747--69774, Docket
No. 03--022--5). Twenty-six packers are officially eligible to export
Mexican avocados to the United States under the APHIS export program.
Currently, most of the exports to the United States are shipped by land,
but Mexican authorities are hoping to reach an agreement with APHIS in
order to be able to send avocadoes by ship in wooden pallets to the U.S.
Pacific, Gulf of Mexico and Atlantic ports.

Overall, export figures for MY 2005/06 were revised upward to 228,000 MT
to all export markets. These higher-than-expected export numbers are due
to the greater demand from international markets. To this end, growers
ceased restrictive harvesting practices once the U.S. market opened up
in January of 2005. MY 2004/05 export figures were revised upward due to
more recent accurate official data.

According to both official and private sources, the export market
continues to be profitable to producers, but the domestic market still
represents the main business platform for most Mexican avocado farmers.
Official data indicates that Mexican avocados were exported mainly to
the United States, Japan, Canada, France, and El Salvador. The exports
to Japan and the EU represent a strategic market niche for producers and
packers since these markets pay relatively higher prices and represent
an untapped market.

On September 14, 2005, USDA and SAGARPA signed a work plan to allow
access for U.S. Hass avocados into Mexico. For the first 12 months of
the work plan, avocados may be distributed to all states, except for
Michoacan, Jalisco, Morelos, Puebla, and Nayarit. After 12 months, U.S.
avocados may be distributed to all Mexican states. Most industry
representatives do not expect fresh U.S. avocados to be highly
competitive in the Mexican market, mainly because it will be hard for
U.S. producers to compete on a price basis and because U.S. avocados
would be used essentially for making guacamole for the U.S. Anglo and
Hispanic population. Reportedly, Mexico will be importing California
avocados for processing and eventual export to the U.S., targeting the
above-mentioned population. Mexican imports for MY2006/07 are forecast
to be similar to those of MY 2005/06 at 1,300 MT.

# TRADE MATRIX

+-----------------+------------+---+-----------------+-----------+----+
| **[Avocado H.S. |            |   | **[Units:       |           |    |
| 0804.40         |            |   | MT              |           |    |
| ]{.smallcaps}** |            |   | ]{.smallcaps}** |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Exports for    |            |   |                 |           |    |
| (Jan-Dec)       |            |   |                 |           |    |
| t               |            |   |                 |           |    |
| o:]{.smallcaps} |            |   |                 |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [CY             |            |   | ####### CY 2006 |           |    |
| 20              |            |   |                 |           |    |
| 05]{.smallcaps} |            |   |                 |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [U.             | 145,039    |   | [U.             | 76,348    |    |
| S.]{.smallcaps} |            |   | S.]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Fran           | 13,667     |   | [Jap            | 21,534    |    |
| ce]{.smallcaps} |            |   | an]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [El             | 9,063      |   | [Cana           | 11,363    |    |
| Salvad          |            |   | da]{.smallcaps} |           |    |
| or]{.smallcaps} |            |   |                 |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Cana           | 17,469     |   | [Fran           | 6,117     |    |
| da]{.smallcaps} |            |   | ce]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Jap            | 26,459     |   | [El             | 6,066     |    |
| an]{.smallcaps} |            |   | Salvad          |           |    |
|                 |            |   | or]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Oth            | 17,398     |   | [Oth            | 14,571    |    |
| er]{.smallcaps} |            |   | er]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Tot            | 229,095    |   | [Tot            | 135,999   |    |
| al]{.smallcaps} |            |   | al]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+

+-----------------+------------+---+-----------------+-----------+----+
| **[Avocado H.S. |            |   | **[Units:       |           |    |
| 0804.40         |            |   | MT              |           |    |
| ]{.smallcaps}** |            |   | ]{.smallcaps}** |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Imports for    |            |   |                 |           |    |
| (Jan-Dec)       |            |   |                 |           |    |
| fro             |            |   |                 |           |    |
| m:]{.smallcaps} |            |   |                 |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| ####### CY 2005 |            |   | [CY             |           |    |
|                 |            |   | 20              |           |    |
|                 |            |   | 06]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [U.             | [n/a]{.    |   | [U.             | 2,098     |    |
| S.]{.smallcaps} | smallcaps} |   | S.]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Oth            | [n/a]{.    |   | [Oth            | 0         |    |
| er]{.smallcaps} | smallcaps} |   | er]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+
| [Tot            | [n/a]{.    |   | [Tot            | 2,098     |    |
| al]{.smallcaps} | smallcaps} |   | al]{.smallcaps} |           |    |
+-----------------+------------+---+-----------------+-----------+----+

**Source: World Trade Atlas, Mexico Edition.**

As of August 2006.

# 

# TRADE POLICY

Currently, Mexican fresh Hass avocados entering the United States are
not subject to a duty, but are compelled to pay a fee of 2.5 cents per
pound for promotional purposes (see Marketing section).

Fresh avocado imports (HS 08.04.40.01) from the United States are also
not subject to a duty, but are subject to phytosanitary and sanitary
inspections by SAGARPA.

# 

# MARKETING

In light of the complete opening of the U.S. market, the Michoacan
Avocado Producers and Exporters Association (APEAM) is sponsoring
campaigns with radio ads in Spanish and English to promote consumption
in those U.S. areas with a representative Hispanic population,
especially in Texas, Denver, Chicago and New York. Currently, the order
assessment of 2.5 cents per pound, to finance promotion, research,
consumer information, and industry programs, is levied on fresh Hass
avocados, produced or imported into the United States for fresh
consumption.