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...risk management, whereby set of compliance procedures are specified that reduce the pest-risk externality associated with trade of a commodity. Adoption of systems approaches rest on a firm foundation in Article 5.6 of the World Trade Organization (WTO) Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), which states that Members shall ensure that their measures "are not more trade-restrictive than required to achieve their appropriate level of sanitary or phytosanitary protection" (WTO 1994).
This article develops a multi-season, partial equilibrium model with imperfect product substitution to evaluate the effects of allowing imports of fresh Hass avocados from approved orchards and packing houses in approved municipalities of Michoacan, Mexico, into the United States, under alternative compliance measures to mitigate pest risks. From 1914 until 1997, phytosanitary restrictions precluded entry of Mexican avocados into the conterminous United States due to prevalence of certain avocado-specific pests and fruit flies in Mexico. In November 1997, fresh Hass avocados from Mexico were allowed entry into nineteen northeastern states and the District of Columbia during a four-month period, November through February, under specified pest-management protocols. In 2001, the area approved for imports was expanded by an additional twelve states, and the period of importation was extended to six months, October 15 to April 15. The remaining geographic and seasonal restrictions were eliminated in a November 2004 rule that allowed year-around importation of Mexican avocados initially into forty-seven states (California, Florida, and Hawaii were excluded) and to all states starting in February 2007.
Progressive easing of the avocado import ban demonstrates successful application of a systems approach which has opened the U.S. market to approved Mexican producers and created more than a $100 million annual export industry. However, the compliance costs associated with the regulations remain controversial. Five avocado-specific pests generally not found in the United States (stem weevil, Copturus aguacatae; seed weevils Conotrachelus aguacatae, C. perseae, and Heilipus lauri; and seed moth, Stenoma catenifer) are prevalent within Mexico's production areas, particularly within noncommercial (backyard) orchards. Additional controversy has focused on four Mexican fruit flies (Anastrepha fraterculus, A. ludens, A. serpentine, and A. striata) that adversely affect numerous horticultural crops and are subject to local quarantine and eradication programs when discovered at U.S. sites. Mexican growers and sanitary authorities acknowledge the presence of the avocado pests but argue they can be effectively controlled in approved commercial orchards with relatively minimal measures, making the U.S. export compliance requirements excessive. They have also argued that Hass avocados are not a host for fruit flies, so the compliance measures required to monitor fruit fly infestations are unnecessary. USDA's Animal and Plant Health Inspection Service (USDA/APHIS) acknowledges that Hass avocados are a "poor" host for fruit flies but not a nonhost, which would justify elimination of the monitoring and control requirements.
The political economy of the controversy over avocado imports from Mexico has been intense. Roberts and Orden (1997) trace the regulatory process back through the 1970s, when Mexico nearly obtained import authorization, to the renewed discussions facilitated by the NAFTA negotiations in 1991, and the heated public hearings surrounding USDA's subsequent 1997 rule. Lamb (2006) further investigates the lobbying costs and political economy of this case in which the domestic industry once used full-page advertisements in major newspapers to assert that the Secretary of Agriculture by exposing it to pest risks was "about to destroy a $1 billion industry." Orden and Peterson (2006) conclude that opening of the U.S. market has required science (evidence of limited risk), opportunity (substantially higher prices in the U.S. market), traceability (to approved orchards), persistence (of the Mexican exporting association), and joint political will (under the NAFTA umbrella).
The economic impacts of avocado imports have been assessed in partial equilibrium simulation models in each of the final rules, but under the assumption that the systems approach adopted eliminated pest risks and without consideration of the exporter's compliance costs or potential trade-related pest damage. Romano (1998), and subsequently Orden, Narrod, and Glauber (2001), incorporate various pest risk and cost estimates into simulation of the 1997 partial opening of the market in a bilateral model with avocados from Mexico and the United States treated as perfect substitutes. Carman, Li, and Sexton (2006) present preliminary econometric evidence incorporating seasonality considerations to evaluate the implications of the initial market opening on likely imports with full Mexican access to the United States.
The analysis in this article extends the previous simulation analysis by explicitly considering compliance costs in Mexico, subsequent pest risks and U.S. producers' control costs and production losses in the event of a trade-related pest infestation. The analysis proceeds along lines suggested by Paarlberg and Lee (1998), Rendleman and Spinelli (1999), Glauber and Narrod (2001), Yue, Beghin, and Jensen (2006), Wilson and Anton (2006), and Calvin, Krissoff, and Foster (forthcoming) for determining optimal policies when there are pest risks associated with domestic or international movement of products. The model builds upon the detailed supply and demand structure utilized by APHIS in the economic analysis for the 2004 rule. The structural specification herein identifies three supply regions (southern California, Chile and Mexico), two seasons (winter and summer), and four domestic (U.S.) demand regions. In contrast to standard ex ante policy simulation analysis that uses demand and supply elasticities from the literature, our analysis utilizes post-2004-rule market data from 2005 to 2006 to calibrate and validate the model.
Three alternative compliance scenarios related to the ongoing controversies are examined in the simulation analysis: access to the U.S. market with the systems approach measures in effect as specified in the 2004 rule; additional elimination of the compliance measures directed specifically toward fruit flies; and elimination of all systems approach requirements. Our results show that the current systems approach reduces pest risk to a negligible level even without seasonal or geographic restrictions; fruit fly-related risks are minimal and eliminating the fruit fly compliance measures leads to a slight expected welfare gain; and elimination of all compliance measures for avocado-specific pests and fruit flies raises expected welfare under the average risk probabilities estimated by APHIS, but leads to a reduction of welfare compared to the 2004 rule under higher-risk probabilities. Because our model validation leads to a relatively large elasticity of avocado demand, we also undertake sensitivity analysis using two less-elastic values. The policy conclusions from a comparison among the three scenarios with the two levels of risk probabilities are robust across these alternative demand elasticities.
Framework of the Analysis
The avocado export program is administered jointly by APHIS and Mexico's Sanidad Vegetal (SV). The systems approach for importation of Mexican avocados contained nine different steps or requirements prior to the 2004 rule, as described in table 1. The 2004 rule eliminates the geographic and seasonal restrictions and modifies some of the remaining steps in light of the increased market access provided.
Only the Hass variety of avocados is included in the model because it accounts for nearly 85% of all avocados consumed in the United States. The chosen supply regions account for nearly all U.S. Hass avocado production (California) and over 95% of all Hass avocado imports (Chile and Mexico). The two seasons reflect seasonal production patterns among the suppliers and the restrictions on Hass avocado imports from Mexico prior to the 2004 rule. In season i (winter and a period of low domestic supply), Mexican Hass avocado imports were allowed into the specified states while no imports were allowed during season 2 (summer).
US. Consumer Demand
The demand for avocados is derived from a weakly separable, nested CES utility function for a representative consumer with purchases partitioned between avocados and everything else. Avocados from each of the three supply regions are assumed to be imperfect substitutes, reflecting observed U.S. wholesale price differentials. The demand specification for avocados in demand region i, from supply region j, in season k is defined as (see Keller 1976):
(1) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]
where [a.sub.kij] and [b.sub.ki] are shift parameters, [wp.sub.kij] is the wholesale price, [[sigma].sub.1] is the elasticity of substitution between avocados and all other goods, [[sigma].sub.2] is the elasticity of substitution among avocados, [I.sub.ki] is per-capita income, and [PI.sub.ki] is a CES price index defined as:
(2) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII].
Four domestic demand regions are identified in the model to reflect differences in pest-risk susceptibility and per-capita consumption. Demand Region A corresponds to the thirty-one northern states and the District of Columbia, where imports of fresh Hass avocados were allowed by the 2001 rule. This region is not susceptible to outbreaks of any of the pests of concern. Southern California (Region D) is identified as a separate demand region because nearly all Hass avocado production occurs within this region, and it is susceptible to both avocado pests and fruit flies....
NOTE: All illustrations and photos
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