{"id":270167,"date":"2025-02-01T20:40:53","date_gmt":"2025-02-01T20:40:53","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2025\/02\/01\/the-price-elasticity-of-avocado-supply-demand-and-tariff-pass-through\/"},"modified":"2025-06-25T17:09:30","modified_gmt":"2025-06-25T17:09:30","slug":"the-price-elasticity-of-avocado-supply-demand-and-tariff-pass-through","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2025\/02\/01\/the-price-elasticity-of-avocado-supply-demand-and-tariff-pass-through\/","title":{"rendered":"The Price Elasticity of Avocado Supply, Demand, and Tariff Pass Through"},"content":{"rendered":"

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I was pondering whether the US is a large country insofar as tariffs<\/a> on avocados are concerned. Since 90% of consumption is from Mexico, one might think the US is a large country; on the other hand, elasticities matter. This study by Ambrozek et al. (2019)<\/a> indicates 0.2 demand elasticity at shipper level. Let\u2019s guess that supply elasticity is 0.2 (about 80% of Mexican exports go to the US, and about 85% of production is exported; Carman and Kraft (1998)<\/a> cite 0.2.<\/p>\n

This implies about a 50%-50% split of the tariff, counterfactual February price equal to December, and no exchange rate offset.<\/p>\n

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Figure 1:<\/strong> PPI avocado n.s.a., 1991=100 (blue), implied price (red square). NBER defined peak-to-trough recession dates shaded gray. Trump administrations shaded orange. Assume counterfactual February price is same as actual December price, and no exchange rate reaction. Source: BLS via FRED, NBER, author\u2019s calculations.<\/em><\/p>\n

I\u2019ve assume little exchange rate reaction, as the Mexican peso has not moved much even in the face of tariff threats. If there is a Mexican depreciation in response (it could come from dollar appreciation against all currencies as uncertainty rises), then the after-tax avocado price could rise less.<\/p>\n

Interesting timing as avocado consumption picks up in February, when about 5% of annual consumption takes place during the Superbowl.<\/p>\n<\/p><\/div>\n

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