This tutorial has already touched upon the issue of freer trade in the US with the discussion of the import of Mexican avocados to the US. That discussion pointed out that costs of production in Mexico are significantly lower than the costs of production in California. With the passage of the North American Free Trade Agreement (NAFTA) a few years ago, the opening of the US market to many Mexican agricultural goods is becoming a reality.

This trend is not only occurring with Mexico but it is also in the process of happening with other countries. On a bilateral basis, the US is considering free trade pacts with a number of South American countries like Chile and Argentina. On a multilateral basis, the Uruguay Round of the General Agreement on Trades and Tariffs (GATT) led to the formation of the World Trade Organization (WTO) which is empowered to adjudicate trade disputes between countries and work to remove unreasonable barriers to trade. Traditionally, the agricultural sector in a number of countries has been protected from foreign competition for political reasons. Countries also have tended to protect their agricultural trade with former colonies by impeding the entrance of agricultural goods from other countries. A good case in point is in Europe. The US and Europe are having numerous arguments over the sales of genetically-modified organisms (GMOs) in Europe by US firms -- examples include products made with soybeans, corn and cotton varieties that had foreign material introduced into its genetic structure to inhibit damage done by various pests.

Many argue that agriculture, especially US agriculture will be a net beneficiary of more open trade due to the fact that many subsectors of US agriculture are extremely efficient. Those arguing against free trade -- usually in the context of preventing foreign competitors from entering the US market -- often don't realize that trade policy is often a tit-for-tat process. Countries erecting trade barriers against certain countries are often faced with new trade barriers imposed by the same countries. This would not be of much concern if the US market alone was sufficient to sustain US agriculture but the reality is that US agriculture depends on exports for its growth.

Although the US exports very little avocados, the US avocado sector is still benefiting from international trade in avocados. Again, we look at the example of Mission Produce. Given the high costs of production in the US, US avocado growers cannot really compete internationally with low-cost producers like Mexico. On the other hand, US companies can get involved in value-added activities in other countries. Mission Produce, for instance, has a wholly-owned subsidiary operating in Mexico which packs avocados and supplies customers in Asia. Although Mission Produce is not growing avocados in Mexico its packing and shipping activities do allow it to compete in the world avocado market. Extend this model to include the development and export of processed avocado products and you have a true US multinational company.

The next, and final, issue addresses how changes in the grocery industry can potentially affect the avocado industry.