From a distant conflict to day-to-day decisions at Hass

The conflict in the Middle East, though seemingly distant, is increasingly becoming a factor that directly impacts the profitability of the avocado sector. What happens in that region ultimately affects production costs and the financial conditions under which producers operate.

The most obvious channel is energy. The increase in oil prices has put pressure on international transport and logistics, making it more expensive to move fruit from production areas to ports and final destinations. However, at the local level, there is an element that helps to mitigate this impact. The Fuel Price Stabilization Fund in Colombia acts as a buffer, reducing the immediate transmission of international shocks to domestic prices, thus introducing some stability to the operation.

On the input front, the impact is also significant. The production of fertilizers like urea depends primarily on natural gas, a key input in its production process. In a context of geopolitical tensions, the increase in oil prices is passed on to some extent to gas prices, and consequently to fertilizers, raising crop maintenance costs and reinforcing the need for more efficient resource management.

Despite this outlook, not everything is negative. The exchange rate has played a mitigating role in the short term. An appreciated peso has helped contain some of the increase in the value of imported inputs, which is especially relevant for a sector with a partially dollarized cost structure. This effect has helped to prevent the cost shock from being as abrupt as might be expected in a depreciation scenario.

However, from a structural perspective, for an export sector like Hass avocados, a higher exchange rate tends to be more favorable, as it strengthens income in pesos and improves the ability to absorb increases in costs, not just those denominated in dollars.

Beyond the exchange rate, which is projected to close the year at an average of 3751 COP/USD, the current focus is on interest rates. The inflationary environment associated with rising energy costs has led central banks to maintain cautious stances, with rates remaining elevated for longer. This has direct implications for the cost of financing, access to credit, and investment in the sector.

Thus, producers today face an environment in which external shocks affect not only costs but also financial conditions. The combination of high interest rates and international volatility demands more careful management of cash flow, debt, and investment decisions.

Overall, the message is clear. Although the shock originates externally, the capacity to respond is internal. Efficiency in the use of inputs, financial planning, and understanding the macroeconomic environment become key tools for maintaining competitiveness. In a global business, understanding these connections is no longer optional; it is a fundamental part of producing and exporting.

Daniel Jiménez Cardona
Directorate of Sectoral Research in Agroindustry
Bancolombia
dajimen@bancolombia.com.co