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Chains face a potential avocado shortage

Prices have spiked following President Trump’s threat to close the Mexican border, says RB’s The Bottom Line. That’s bad news for Chipotle and others.
Photograph: Shutterstock

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Earlier this week, President Trump threatened to close the border with Mexico unless that country acted upon illegal immigration into the U.S.

He said he would do so even while acknowledging the potential effect it would have on the economy.

It’s already had an impact in one area: avocado prices.

Prices of avocados from Mexico jumped 34% on Tuesday, according to Fortune, which was the biggest one-day jump in a decade.

The price spike would worsen dramatically if the border were to be shut down.

Some reports have suggested that the U.S. would run out of avocados in three weeks if Trump follows through on that threat.

That, of course, is bad news for restaurant chains that have increasingly used avocados on their menu, and which at least until recently had enjoyed some lower avocado prices.

Avocados are particularly important, of course, for chains such as Chipotle Mexican Grill and Del Taco, which prominently feature avocado and guacamole.

Executives at both chains routinely mention avocado prices on earnings calls, according to a search of earnings call transcripts on financial services site Sentieo.

Chipotle features avocados in its risk factors, noting it among the ingredients critical to its menu. “Any increase in the prices critical to our menu, such as chicken, beef, cheese, avocados, beans, rice, tomatoes and pork, would have a particularly adverse effect on our operating results,” the company said in its most recent annual report.

That risk factor also says this:

“A substantial volume of produce items are grown in Mexico and other countries, and a significant portion of our meats and restaurant supplies are sourced from outside the U.S. as well. Any new or increased import duties, tariffs, or taxes, or other changes in trade or tax policy as a result of retaliation by the countries from which we source our ingredients in response to such changes in U.S. trade or tax policy … would adversely impact our financial results.”

Investors don’t seem overly concerned about the potential impact: Both Chipotle and Del Taco’s stock prices each moved less than 1% on Wednesday.

But the potential impact of an avocado shortage wouldn’t affect only those chains. Numerous concepts, such as Subway, Dunkin’, Habit Burger and even Potbelly and Starbucks either now or have in the past included guacamole or avocado as a menu addition or as an item centerpiece.

Avocados have soared in popularity in recent years, driven by the popularity of guacamole but also items such as avocado toast, along with branding campaigns from avocado growers.

According to the Hass Avocado Board, avocado shipments have more than doubled over the past decade, from just over 1 billion pounds in 2009 to nearly 2.6 billion pounds last year.

What’s more, more of those avocados are coming from Mexico. In 2009, 60% of Hass avocados came from South of the border. Last year, that increased to nearly 80%.

It’s not just avocados, however. Almost half of all vegetable imports into the U.S. come from Mexico. The next highest? Canada, at 20%.

To be sure, there are other potential impacts on restaurants from a closed Mexican border. But the industry’s dependence on Mexico for its avocados is the most immediate result.

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