Avocados:
A Brief Introduction into
the Complexities of an Agribusiness Sector


            V.     Foreign Competitors in the US Avocado Market
                        A.    Background
                        B.    Mexican Avocado Production and Imports
                        C.    The Role of Processed Avocado Products


V.    Foreign Competitors in the US Avocado Market

A. Background

Currently, only 10% of the US market is satisfied by imports from other countries. This fact alone does not describe in any sort of detail why the number is "only" 10%. Why isn't it higher? Why isn't it lower?

One statistic alone can be misleading. If California Hass avocados are so great, why don't they satisfy all the demands of consumers? We have already described the biological limitations of avocado production -- trees can only produce at certain times of the year and they often vary in productivity. This is why Florida Bacon avocados are able to get a piece of the market. Some of you might ask, well why don't Californians plant more orchards? After all, if the product is so desirable, why not grow more? This is an excellent question and will be addressed in later sections of this tutorial -- the sections that address costs of production and the decisions that producers must make regarding the decisions to produce avocados, to replace old trees and to expand an existing orchard.

Prior to answering these questions, we must consider the external pressures on production. This is to say, what are foreign countries doing in the US avocado sector?

Regardless of country of production, avocado biology cannot change as we cross national borders. An avocado produced in Mexico, Chile and the Dominican Republic (the principal exporters of avocados to the United States) still requires land, labor and water just as it does in California. What can be different, though, is the relative amounts of these inputs that are used, the times of the year when the fruit is produced and, ultimately, how much it costs to produce and transport the fruit to the US market.

While Chile and the Dominican Republic are important avocado exporters to the US, this tutorial will focus on Mexico for the following reasons:


B. Mexican Avocado Production and Imports

Per capita consumption of avocados in Mexico is approximately 22 lbs. a year and Mexico is the largest producer of avocados in the world, yet it does not have a strong export market for its avocados. Part of the reason is that most of its production is not of export quality -- this is often due to the fact that many producers choose not to produce fruit of specific appearance and quality since it is easier to produce for the domestic market.

Most avocados are produced in the state of Michoacan in west central Mexico. Whereas California avocado yields generally hover around 2 to 2.5 tons per acre, average Mexican avocado yields run around 4 tons/acre and can run up to almost 8 tons/acre for mature orchards. In addition, Mexico can produce avocados year-round (with production peaking between October and February).

If we look at the availability and costs of inputs, again Mexico has many advantages. Land and labor are very cheap when compared to the California. Finally, water in Mexican avocado production is primarily supplied via precipitation (which is free) whereas California avocado production depends primarily upon groundwater (which costs money to pump) or surface water from state and federal water projects (which is also costly).

Given the low cost and high productivity of the Mexican avocado sector, why doesn't it out-compete California producers in the US market? The answer is that beginning in 1914, the US government imposed phyto-sanitary (phyto means plant and sanitary means relating to health) restrictions on fresh avocado imports to combat weevil problems. A critical role of the government is to protect US agriculture from having foreign pests and diseases introduced. The concern was that there was a sufficient enough chance that weevils would enter the US on Mexican avocados and become established in US avocado orchards. While protecting US avocado producers from potentially troublesome pests, the restriction also protected them from low cost competition from Mexico.

This restriction kept Mexican avocados out until 1997 when the US Animal and Plant Health Inspection Service (APHIS) of the US Department of Agriculture determined that specific Mexican producers had sufficiently eradicated the weevil and other pests and diseases from their avocado orchards to allow them to be imported into the US. These imports are restricted to the period of November through February and only to 19 northeastern US states. The logic behind this decision was that during this period pests could not survive the cold in those areas and that this was also a period during which the supply of US-produced avocados was low and prices were very high. It was estimated that these restricted imports would only be exposed to about 5% of the US avocado market. Finally, the Mexican imports were subject to a tariff of 3.58¢/lb. -- but this tariff will be completely phased out by 2003.
 

C.    The Role of Processed Avocado Products

Although the import of fresh Mexican avocados into the U.S. is severely restricted, processed avocados (avocado pulp, avocado paste and frozen avocados) are not since pests tend to be transported in the skins of avocados. While Mexican producers are anxious to enter into the US fresh avocado market, exports of processed Mexican avocado products has been growing. In fact, as early as 1977 the value of Mexican processed avocado imports to the US was equal to the value of all the fresh avocados being imported into the US. Processed avocado imports are subject to the same tariff that fresh avocado imports are.

It is important to note additional benefits of processed exports to an exporting nation:

It should be clear from this section of the tutorial that the potential for competition from Mexico is substantial, especially as NAFTA (the North American Free Trade Agreement) requires the US to increasingly open up the US market to more agricultural and food goods. This potential is critical to the decision-making of US producers, especially those in California. The next part of the tutorial will address some of the general decision-making that must be undertaken.


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VI. Producer Decision-Making in Avocado Production
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This web tutorial was developed as part of the "Partnership to Promote Diversity in Food System Education" project funded by the Hispanic-Serving Institutions Education Grants Program administered by the Cooperative State Research, Education and Extension service of the U.S. Department of Agriculture.
The project is part of a collaboration among the following organizations:
The Business Division of Santa Ana College in Santa Ana, CA
The Agribusiness Department of the California Polytechnic State University in San Luis Obispo, CA
The United Agribusiness League of Irvine, CA