Avocado buyers Chipotle and Calavo Growers are getting slammed as Trump's Mexico tariffs threaten to raise prices (CMG)

31.05.2019 16:49

Chipotle's stock slid 3% on Friday morning amid fears that tariffs on Mexican avocados will drive up its guacamole costs.
Chipotle imports many of its avocados from Mexico and uses 450,000 of the fruits daily.
"We're paying a lot more right now," Chipotle's CFO said earlier this year.
Shares plunged 6% in Calavo Growers, which sold $500 million worth of avocados in 2018.
The Trump administration plans to slap 5% tariffs on all imports from Mexico, rising to 25% in October if illegal crossings at the southern border aren't halted.
Watch Chipotle Mexican Grill and Calavo Growers trade live.

Chipotle's stock slid 3% on Friday morning as investors feared higher guacamole costs would eat into the restaurant chain's profits. Avocado prices are poised to jump after President Donald Trump announced plans to slap tariffs on all imports from Mexico.

The Trump administration announced it would introduce duties of 5% in less than two weeks' time, and steadily ratchet them up to 25% by October — Mexico "substantially stops the illegal inflow of aliens coming through its territory," a White House statement said.

The tariffs will have a significant impact on the avocado trade. The US imported more than 85% of its Hass avocados from Mexico last year, bringing in nearly 2 billion pounds of the most-popular variety of the soft fruit, according to the Hass Avocado Board. Avocado prices have more than doubled in the past two months to almost 550 Mexican pesos ($28) for a 10-kilogram box, according to Bloomberg.

The most dramatic increase came in April, when Trump threatened to close the border with Mexico. The Hass price from Michoacan — the heartland of Mexico's avocado industry — surged by 34% in a single day, its biggest rise in a decade, according to Bloomberg.

The spike probably reflected importers bringing forward purchases to avoid border disruptions, and a heatwave in California that delayed the state's avocado harvest, according to Bloomberg. The prospect of 25% tariffs on Mexican avocados could also spur buyers to rush orders, driving up prices and forcing supermarkets and restaurants to pass on those higher costs to consumers, likely reducing demand.

Pricier avocados are bad news for Chipotle, which goes through more than 450,000 of them daily. The fast-casual restaurant chain already expects food costs to rise 1% quarter-on-quarter in the three months to June, as the supply of avocados hasn't kept up with demand this year, CFO John Hartung said on the first-quarter earnings call in late April.

"We're paying a lot more right now," Hartung said at the time, adding that he expected prices to normalize later this year following Chipotle's seasonal shift to Mexican suppliers. News of the tariffs may well have dashed those hopes.

Investors punished other companies reliant on Mexican avocados. Shares dropped 6% in Calavo Growers, which earned more than $600 million in revenue last fiscal year — more than half its total gross sales — from selling about 390 million pounds of avocados and avocado products such as guacamole and salsa.

"Our continued success in marketing avocados is largely dependent upon securing a reliable, high-quality supply of avocados at reasonable prices," the company said in its latest annual report.

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