Competitive Behavior in the U.S. Green-skinned Avocado Market

Evans, Edward

Green-skinned avocados are an important contributor to the agricultural economy of Florida, second only to citrus. In 2011, cash receipts for green-skinned avocados totaled $22 million. At the wholesale end of the market, the Florida avocado industry is worth upwards of $30 million per year. Approximately 80 percent of the crop is sold outside of the state; hence, the industry brings in a substantial amount of "new dollars" to the state, resulting in an overall economic impact of approximately $54 million per annum.

Domestic green-skinned avocado production is not enough to satisfy the demand; therefore imports are needed. The US green-skinned avocado import market may be characterized as oligopolistic as it is served by few suppliers: Dominican Republic, Peru, Mexico, and Chile. Dominican Republic has been the main US supplier of green-skinned avocados; in 2012, it supplied about 96 percent of the total imports valued at $15.2 million. Historically, a high market share has been associated with market power; however, as stated by Goldberg and Knetter (1999), a high market share does not necessarily prove a country’s ability to exercise market power. On the other hand, the United States is the major purchaser of green skinned avocados and as such could exercise market power.

Whether from the perspective of the seller or buyer, imperfect competition remains an ongoing concern in international agricultural trade, as it may lead to higher consumer prices in the importing country and/or lower producer prices in the supplying country. Given the current market structure of the US green-skinned avocado market, incentives for both the seller and the buyer exist to exercise market power. The purpose of this paper is to simultaneously assess the competitive behavior of the United States and Dominican Republic in the US green-skinned avocado market.

The results of our investigation suggest that over the 2003–2012 sample period, imperfect competition was an issue in the US green-skinned avocado market.