When living in a foreign country it is always a learning experience to encounter “exotic” products that are not readily available in the U.S., but are staples in the local cultures. One of the pleasures I had when I lived in Mexico City was going grocery shopping on the weekends. I especially enjoyed visiting the fresh fruits and vegetables section of the Mexican-style mercados and supermarkets.
The very first time I went shopping for food in the Mexican capital, I had what one could call an eye-opening experience. After I had selected my apples and lettuce, I suddenly came upon what looked to be bright green melons, roughly the size of healthy eggplants. Upon closer inspection, I realized that the peculiar items were not melons, but the Mexican “aguacate” or avocado.
I had never seen avocados so full of meat and so large. Furthermore, in dollar equivalent, each avocado was being sold for what amounted to pennies. Those of us who love avocados in salads or guacamole can appreciate the bargain that this presented. Having just moved to Mexico City from Albuquerque, where small, black avocados were being sold for one dollar apiece, I thought that I had hit the jackpot. I promptly bought more avocados that I later found I could consume in a week and went home a happy chef. However, at the time, it struck me as odd that Americans did not have access to these Mexican beauties.
The avocado is a striking example of high-stake trade battle, based on comparative advantage, between the U.S. and Mexico. In 1914, the U.S. began banning the importation of Mexican avocados into the country due to concerns over avocado weevils and fruit flies. Over the decades, the Mexican government, pushed by the Mexican avocado producers, lobbied the U.S. Department of Agriculture for access to U.S. markets. Time after time the requests were rejected.
In the early 1990s, the Mexican government filed a plan with the U.S. to grow avocados for export in the state of Michoacan, Mexico’s avocado capital, under strict conditions. These included complying with U.S. phytosanitary rules, restricting the exports to specific months, and only selling the avocados in specific U.S. states. The U.S. government took its time reviewing this proposal.
By 1993, the avocado was a controversial issue as the North American Free Trade Agreement (NAFTA) was being negotiated to lower tariffs between the U.S., Canada and Mexico. The State of California was particularly vocal and powerful on the avocado issue during the NAFTA negotiations. According to statistics published by the California Avocado Commission, the state has approximately 6,500 avocado producers that are estimated to produce more than 90 percent of all of the avocados consumed in the U.S. This group produces more than 215,000 tons of avocados with a value close to $400 million. When the agricultural portion of NAFTA was negotiated, the powerful California avocado producers played a major role in influencing the U.S. government to exclude avocados from the list of items whose markets would be opened between the U.S. and Mexico.
Finally in 1997, the U.S. government ruled that Mexican avocados could be sold in 19 states, located in cooler climates, and far away from the U.S.-Mexico border. The importation of the fruit was limited to only four months out of the year. Four years later, 12 more states were put on the list, and the window of importation was stretched to six months.
Ironically, during the past 10 years, U.S. firms have entered the Mexican avocado market by establishing growing and packing operations in large avocado producing states such as Michoacan and Sinaloa. Their access to affordable capital, superior packing operations and good logistics have allowed them to carve out a competitive niche in Mexico to ship the precious fruit to U.S. markets, at the time the U.S. government started allowing in Mexican imports.
In November 2004, the U.S. government issued a decree that Mexican-grown avocados would be allowed to be sold year-round in 47 states starting January 31, 2005. Due to their stake in U.S. avocado production, the California, Florida and Hawaii markets will not be opened until 2007. The U.S. Department of Agriculture based its decision on findings that the avocado pests from Mexico are no longer a major threat.
To the Mexican avocado producers, the real threat was never based upon pests, but the fear of competition on behalf of their northern competitors. Just as Mexican corn and wheat producers are terrified of their dominant U.S. competitors, so are the California avocado producers wary of the Mexican competition, which enjoys advantages such as cheaper labor, abundant land and a long growing season. Mexico also is close to the western and southwestern U.S., which is responsible for most of the avocado consumption in the U.S.
Mexican producers have long accused the U.S. producers of hiding behind the pest issue in order to unfairly shut Mexican avocados out of the U.S. market. With a production of approximately 1 million tons per year, Mexico produces more than 4 times the avocados than does California. However, it only exports less than 5 percent of this production to the U.S. market. This promises to change during the next two years as more and more Mexican avocados will be sold in the U.S.
What’s in store for U.S. producers facing a free trade market with their southern competition? One option is to do nothing, complain about what is happening and eventually develop housing and commercial real estate on the avocado orchards. Surprisingly, many companies facing impending competition from foreign companies do just this and essentially hide their heads in the sand.
The other option is for the U.S. producers, many of which already have a production and distribution foothold in Mexico, to further develop their U.S. market, possibly through joint ventures with Mexican producers. The popularity of the avocado is only growing, as Americans have come to love its tastiness and healthy nature. As the pie expands, so does the demand for more avocados. Even though we should expect the price of avocados in the U.S. to go down as more Mexican avocados enter the market, more avocados will be needed in the aggregate. This should increase the economies of scale and efficiencies of both the U.S. and Mexican producers.
Meanwhile, American consumers will benefit from a larger supply and a higher quality avocado, all at a cheaper price. So the next time you are in your American supermarket and you see the weirdest colored melons, rest assured, your eyes aren’t playing tricks on you.
