When they start getting dark on the tree, they start dropping. No other fruit has witnessed quite the meteoric rise like the avocado. U.S. consumption has more than tripled since 2001. We're working on maximizing their production. It's become more of a mainstream thing that you just see everywhere, like Super Bowl commercials about guacamole. And I think ten years ago the market wasn't there. But while Americans continue to consume the fruit at an ever-increasing pace, 90% of what's eaten here actually comes from Mexico, the world's largest producer by far. Farming is a way of life, and the people who do it, even though it's hard and it's risky, it is something that we do and take a lot of pride in. The Mexican producers are going to have a significant cost advantage. And so it's, uh, you know, it's very difficult for California to compete.

So how did Mexico become the most dominant producer of avocados? And if we're eating so much of them, what's stopping the US from growing more of its own? We're just heading up, up the ranch. It's like the original property that the Brokaws had. This is Brokaw Ranch in Ventura County, about two hours northwest of Los Angeles. It's where the majority of California's avocados are grown. Where was it? Debbie Brokaw Jackson owns the farm with her mom and siblings. Her parents, Hank and Ellen, founded the ranch in the 50s, but got more serious about it by the 90s. I said, dad, this ranch needs to be profitable. You're going to be leaving us a big burden. So we started rehabbing and organizing the ranch and making it more commercially viable. Let's see what's on this one? Avocados are the Brokaw's biggest crop, grown on 168 acres of the

252-acre total. We're still harvesting about once a week. Avocados. We're about 10,000 pounds a week. This year, they expect to harvest about 1.9 million pounds of avocados at an average price of $1.25 each. That will bring in about $2.3 million. We are not always profitable. The prices vary quite a lot. We're trying to stay ahead of that, make sure we get very large crops because we've got to make it up on volume if we can't do it on price. While nearly all US avocados are produced in California, the state can only meet a fraction of demand. And while neighboring Mexico's avocado industry is expanding rapidly, California's shrinking production peaked in the early 2000s, and it's been on a steady decline since. The 2022/2023 season was one of the lowest in decades. We are probably really maxed out on what we can grow because of urban pressure.

because of land prices, because of the availability of water, and because of water quality issues. The price of everything, including water and labor, has skyrocketed. California's minimum wage for farm workers is also the highest in the country. Labor is always tough. We try to maintain a consistent workforce and, you know, keep our guys above minimum wage because they are skilled workers. I know we're going to be investing in new technology, more automation. A lot of people are experimenting with using drones for monitoring the field or for applying fertilizers, agrochemicals. Eventually, the land becomes too valuable to grow a farm commodity like avocado. I would be very reluctant to plant new orchards, you know, given the market condition as we see it. I don't see a lot of expansion for California. I don't, and I certainly don't see the avocado production getting any kind of a substantial foothold elsewhere in the US.

And then, of course, the climate. Wind gusts up to 70 mph, unpredictable and explosive, limiting the air attack. The Thomas Fire just started just, uh, about a half mile or less, right over the hill. Pretty much the whole ranch, like, top to bottom, burned. Brokaw Ranch lost 80% of its trees in one of the largest wildfires in California's history. We're trying to work proactively to protect against heat, wind, flood, fire. We got hit by fires in 2017. We got hit by floods in 2023. I don't know why we were so crazy, but we replanted everything, and that is not cheap. California is a dry climate, and we had a couple of good years of rain, but I wouldn't say we're out of I don't I wouldn't say we're out of like drought conditions. Water is always scarce. Though farmers are trying to adapt, the US will likely never be competitive in agriculture.

Except for a short period in 2020, imports are exceeding exports for the first time in US history. That doesn't bode well for the future of farming in the country. The California growers, a lot of them are holding their own. It's a tough industry at this point, just because of all of the imports, you know, which do have a cost advantage. While American avocado farmers are struggling to scale, produce wholesalers like Calavo Growers and Mission Produce are doing alright. In fiscal year 2023, Mission's revenue increased by 8%. Though volume was down, the company's increase in per unit prices offset the decrease in fruits sold. Calavo Growers, another major distributor with Kroger and Trader Joe's as its main customers, saw sales down by 18%. The company blamed seasonality and unfavorable foreign exchange impact. As far as inflation over the last few years. You know, you see the price of food and commodities go way up and in grocery

store, and those returns don't always show up the same way to the grower. It's hard because it's a global market, and California is just one piece of it. While avocado farming is a small fraction of America's agriculture, it's a major industry for Mexico, whose ties with the fruit date back 10,000 years. Avocado exports are set to bring the country $3 billion in 2024. Ramon Paz Vega is a third-generation avocado farmer based in Michoacan, Mexico, the world's largest grower by far. The fact that we have fruit all year round allows us to ship the best fruit that we have at every part of the year. For instance, any other country will have a start and an end to their seasons. The area's rich volcanic soil, abundant sunlight, natural irrigation, varied elevation, and consistent climate are the secret to the state's year-round avocado harvest.

Labor costs are cheap, about a 10th of the US's. This is really a challenge. Everything is good for growing avocados. Usually, the prices are better for exports than for the domestic market. It distributes wealth to a very, very large number of people. In 2023, more than 440,000 acres of avocados were planted in Michoacan alone, and most of that goes to the US, reducing transportation costs significantly. The remaining 15% either goes to Japan or Canada or stays in Mexico. But that hasn't always been the case. Free trade agreements and the US lifting of a long-time ban against Mexican avocado imports cleared the way for today's booming export industry. The US government's creation of the Hass Avocado Board in 2002, founded solely on the mission to drive US demand and consumption, took the fruit's popularity to new heights. We were allowed to ship only to 13 states in the northeast.

and only from November through February 2007. Ten years later, we got access to the whole US market. As we got more access and more people began to consume avocados in the US, the US market started to grow. We offered good fruit, good quality fruit in a period of time in which California couldn't supply. Ramon says his three farms produce about 220,000 pounds of avocados and $1 million in profit per year. There are about 40,000 registered orchards in Mexico, and 85 to 90% of them, including Ramon's, are solely growers. Once the fruit is ready, they'll alert the dozens of distributors who then bid to handle the production, sending their own picking crew to harvest, inspect and then transport their fruit to a packing house. From there, the avocados are classified according to their quality, labeled and inspected again by Mexican authorities for pests. Those destined for the US enter mainly through two Texan ports, then shipped to a distribution

center, which moves them to retail establishments. While the US's future in avocado production is shaky, Mexico's isn't. Still, as world consumption grows, the country faces its own set of challenges that could perhaps threaten its position as the world's leading producer. Criminal activities surrounding agriculture in Michoacan date back decades. Organized crime groups have been known to extort producers at every step of the value chain. It's been a mix between a very and unfortunately, a very violent state where you have like very powerful drug cartels. At the same time, you have this economic boom that has been related to avocado production and export for the past 30 years. In June 2024, the US paused safety inspections on avocado and mangoes in Michoacan after two US Department of Agriculture inspectors were assaulted. Exports were paralyzed for a week. Inspections were similarly suspended in 2022 after a plant safety inspector was verbally

threatened. Criminal organizations in Michoacan have been putting tons of pressure to that final step of the industry because they know that if they control the packaging house, you control everything that goes out to the US. So you don't necessarily have to go all the way through at controlling all the farms and all the production and all that. Recent estimates believe the tax is about $20 per acre, so an orchard as big as Ramone's would bring the cartel more than $22,000 a month. They would take 10%, for example, of anything you would produce out of your farm. 10% of everybody coming and picking up avocados and taking it to the packaging houses, etc., etc. They were probably extorting maybe between 5 and 10% of those billions of dollars that were coming out. We cannot close our eyes or be blind. There are some risks, as in any other part of Mexico.

I have been on top of this operation for about 40 years now, and I have never been exposed or approached for extortion or this kind of thing. Authorities also collude with organized crime to turn forests into avocado farms, though the details are unclear. Calavo disclosed it was investigating corruption in its Mexican operations in its fiscal year 2023. Climate issues are a real concern in Mexico, too. The country is experiencing prolonged periods of drought, and avocado production is highly water-intensive, even with irrigation. Something that has limited local communities' access to water. The most valuable crops will get the water, and certainly right now, and I think for the foreseeable future, avocados is a very profitable crop to be grown in Mexico. Lastly, the playing field is heating up high. Avocado-producing countries like Peru and Colombia are upping their export game to keep up with gaps in both Mexican and US production.

Right now, the real benefit for California and for Peru is that when they're both on the market is when there's a relative lull in Mexican production. If Mexico were to find other producing regions that would peak at the same time, that would further challenge the California growers and the Peruvian growers. Still, we don't have that attitude of seeing, uh, them as hard competitors, but we are building a market that is much bigger than that, which is the US, and that's helped a lot. Mexico will almost always be inefficient and a low-cost producer. To my mind, the biggest winners are the consumers, right. Because now avocados are available year-round. I don't think anything that's been in storage for a long time can compete with something that's picked from the tree directly to the consumer. And I think that gives us a big advantage as far as that premium quality.

Why Mexico Beats The U.S. In Avocado Production

Welcome to the official YouTube channel for CNBC. From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

For real-time news updates from around the world, visit: http://www.cnbc.com

For CNBC's primetime TV lineup, visit http://tv.cnbc.com

For CNBC's International YouTube channel, visit: http://www.youtube.com/cnbcinternational