Acai Case Revised-2

Acai Berry

--The super food

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Table of Contents

1. Introduction ............................................................................................................................... 2

2. Overview of Acai Market ........................................................................................................ 2

3. Relevant Economic Model ...................................................................................................... 4

4. Critical Analysis ..................................................................Error! Bookmark not defined.

5. Conclusion............................................................................Error! Bookmark not defined.

Reference ...........................................................................................................................................6

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1. Introduction

The Acai is a species of palm tree, its fruit generally known as “Acai Berry”. It grows mainly in

the river side of Amazon of Brazil. The fruit is rich in calories, calcium, vitamin A, C, amino

acid, antioxidant and some more important nutrient contents. This exercise will show the

economic reason behind the steep price hike and what measures can be taken to combat against

this price hike. I will also try to explain the rationale behind the proposed measures. Section two

of this exercise will describe the market scenario of Acai fruit in Brazil, section three will

contain relevant economic model, section four will depict critical analysis of key arguments and

finally a conclusion will be drawn.

2. Overview of Acai Market

The Acai fruit mainly grows in the Brazilian area of Amazon River basin. Traditionally the fruit

used to cover major portion of diet of indigenous Amazon people. It was traditionally a food

item for poor people. Due to its higher nutrient value the fruit has caught significant attention of

International consumers. As a result the fruit has become a super food in US and international

market in recent days. From a “giffen” good “Acai Berry” has now become a “super food”

(Brasileiro, 2009). The boom of Acai fruit consumption in last three decade created opportunities

for new product pathways and transformation industries (Brondizio, E. S. 2004).

Sharp rise of this product price is explained by the theory of demand (Samuelson A P &

Nordhaus D Wiiliam, 2001). Due to Acai berry‟s nutrient values, higher demand by Brazilian

consumers and international demand Acai price has gone up significantly in past few years. Even

after significant price increase demand for Acai berry did not decrease. This is may be the reason

of its nutrient value. As the willingness to pay did not decrease; price of this product is

continually increasing.

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Figure-1: Increase in Price due to increase in demand

Table-1: Per capita GDP (PPP) of Brazil and the USA

Country Value Brazil $ 12,100

USA $ 52,800 Source: The World Fact Book, CIA

Acai Roots, a Brazilian company based in California, estimates the size of the US retail market

for acai products to range between USD70 million to USD100 million. (Goddard, 2010)

Acai trees usually produce fruit in three to five years of plantation. Trees produce fruit twice in a

year. As Acai can be only produced in a specific climate (climate like river basin of Brazilian

Amazon). It has a limited supply against the rising demand.

Acai is now also growing in North Queensland of Australia, tropical forest of Malaysia, South

Florida, Puerto Rico, and Hawaii.

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A survey by JD Power and Associates late last year (2013) found that American consumers are

Optimism, they simply seek value for their money, Brand conscious, Authenticity-seekers,

Purpose-driven, and Mature.

Currently Brazil is experiencing a consumer behavior that America experienced post-WWII

period of the 1950s and 1960s. Brazilian sales are growing four times faster than the U.S. Retail

sales in the emerging market nation are increasing at 7 to 8% a year. At the same time America is

only experiencing retail sales growth of about 2%. [Result is summarized from a research report

of Boston Consulting Group (BCG)]

3. Relevant Economic Model

Increased demand for Acai berry has created economic opportunity for many economic agents

(Samuelson A P & Nordhaus D Wiiliam, 2001). As a result of increased demand Acai cultivation

has now become commercial and many big commercial producers has now entered in to the

market to raise the supply of Acai berry. Superior technology and cultivation process has been

employed to increase the supply of Acai berry. No doubt that supply of Acai has increased in

recent past but demand for this product has increased many folds than the supply. As a result

supply force failed to bring down the price of Acai.

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Figure-2: Increase in Price due to greater increase in demand than increase in supply

Due to Acai fruit‟s global increased demand local producers of Brazil are now under presser of

increasing the supply of this fruit. As this fruit requires a specific environment to grow, local

producers are not being able to match with the demand of this product. As a result as theory of

supply suggests price of Acai fruit has gone up significantly (prototype scenario is portrayed in

figure-2).

Because of its higher demand producers now can change high price for the product hence higher

profit margins for the local producers and others.

Theory of completion suggests super normal profit attracts more new entrants into the market.

Super normal profit attracted many new producers and some corporations in to Acai production

and processing industry. However, as described in figure-2, demand has increase more than the

increase in supply. As a result price of Acai is still in climbing stage. But superior technology,

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better scientific production process can lead to a greater supply of Acai fruit which may create

downward pressure on price.

As multinational companies are now a player in Acai fruit industry they can exclude the small

local producers from the industry. MNCs can do so because they have better supply-chain

management, they can enjoy economies of scale hence lower cost of production.

Reference

Brasileiro, A. 2009, „Superfood‟ Promoted on Oprah‟s Site Robs Amazon Poor of Staple”.

Retrieved from http://www.bloomberg.com

Goddard, P. 2010, Brazil fruit juice production fuels drinks export. International News Services

Retrieved from http://www.thefreelibrary.com

Kreinin E. Mordechai, 1998, International Economics: A Policy Approach, 18th edition, The Dryden Press, 85-119

Brondizio, E. S. 2004. From Staple to Fashion Food: Shifting Cycles and Shifting Opportunities

in the development of the Açaí Palm Fruit (Euterpe oleracea Mart.) Economy in the Amazon

Estuary, in Working Forests in the Neotropics: Conservation through Sustainable Management?

(Eds.) Daniel J. Zarin, Janaki R. R. Alavalapati, Frances E. Putz, and Marian, Columbia

University Press, pp. 339-365.

Samuelson A P & Nordhaus D Wiiliam, 2001, Economics, 17th edition, McGraw-Hill, 48-92

Word Count: 1295 excluding table, graph and reference

Acai Case Revised-2

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