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 berrys 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 fruits 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 Oprahs 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, 18
t h
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 Aa 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, 17
t h
edition, McGraw-Hill, 48-92

Word Count: 1295 excluding table, graph and reference