February 20, 2015

Cheap Avocados, the Super Bowl XLIX, and Regulatory Reforms

Patrick McLaughlin

Director of Policy Analytics

Candace Mottice

MA Fellowship Alum
Summary

If you missed this commercial in the Super Bowl, it's official: Mexican avocados are on national television. But they could have stayed on the bench, but for the Free Trade Agreement with North America (TLC) and some actions by the Inspection Service Animal and Plant United States Department of Agriculture (APHIS, for its acronym in English), who eliminated trade barriers that had been present for decades. It is clear that these actions increased the welfare of American consumers, avocado growers in Mexico, and football fans in the country.

If you missed this commercial in the Super Bowl, it's official: Mexican avocados are on national television. But they could have stayed on the bench, but for the Free Trade Agreement with North America (TLC) and some actions by the Inspection Service Animal and Plant United States Department of Agriculture (APHIS, for its acronym in English), who eliminated trade barriers that had been present for decades. It is clear that these actions increased the welfare of American consumers, avocado growers in Mexico, and football fans in the country.

However, is a shame that this regulatory reform occurred only after NAFTA forced to do: federal regulatory agencies - as APHIS- are free to review and amend regulations, if changing its own rules will benefit consumers. This is as simple as reviewing the problem that the regulation seeks to correct. Does the problem still exists? Is there any evidence that the regulation it is solving? If the answer to either of these questions is no, it's time to change the rules.

In this case, regulating trade between Mexico avocado and the United States began in 1914. The argument for these trade barriers resided in controlling pests, although actors with special interests also played an important role. Based on the FTA in 1994, Mexican avocado growers naturally wanted to export their product to the United States. Despite the protests of farmers in California, trade barriers avocado were phased out. In 1997, avocados of selected Mexican producers were approved for sale in 31 states between October 15 and April 15, because it is less likely that pests survive the cold winter.

The Mexican government asked the Department of Agriculture to allow the importation of Mexican avocados permanently to the 50 states. At the same time, not coincidentally, the Mexican government enacted trade barriers for imports of maize from the United States. APHIS published a study on pest risk 2004 concluding that removing the barriers would not pose a risk, thus initiating the process of regulatory change. That same year, APHIS allowed export throughout the year to all states of the Mexican avocado from places where inspectors of the Department of Agriculture had a presence, although the producers of California, Hawaii and Florida had two-year grace period before the Mexican avocados were allowed in their markets.

Forecasts drastically underestimated the benefits of these changes. In the 2004 APHIS predicted avocado consumption would increase 9 percent due to these changes. However, rose consumption 147.1 percent in the last decade. APHIS also predicted that California producers suffer a loss 7.3 percent in sales. However, sales of California avocados increased 18.4 percent during the same period. The increase in demand for avocados benefit all producers, as consumers developed a taste for the product.

The initial prognosis for lower prices avocado was also wrong. APHIS predicted that prices would fall 20.6 percent. The reality is that avocado prices have remained relatively constant with very small fluctuations from year to year. Again, the law of supply and demand works. Remove barriers to trade dramatically increased the supply of Mexican avocados. Simultaneously, consumers increased their demand. If barriers had been kept – ie the offer we would have increased- This increase in demand would have caused an increase in prices. Regulatory reform helped neutralize the possible price increases.

Data Source: Hass Avocado Board

While US consumers have enjoyed relatively lower prices, Mexican farmers have also benefited. APHIS predicted that imports of Mexican avocados would increase 260 percent. However over the last decade consumption grew Mexican avocados 1377 percent. At the same time, there have been no major cases of pests associated with avocado since these restrictions were eliminated.

As a result, sales continue to rise and millions of American consumers are benefited. If more regulatory agencies consider reviewing the evidence and the results of its rules, could create similar benefits for other products and markets.