Abstract

This study compares the effects of importing fresh Mexican Hass avocados into the

United States under three scenarios for mitigating pest risks. The analysis finds that

Scenario 1, adherence to the U.S. phytosanitary rule of November 2004—which

removed all seasonal and geographic restrictions on Mexican avocados, while maintaining existing compliance procedures in Mexico—leads to low pest risks for U.S. producers and an estimated annual U.S. welfare gain of $72 million. In Scenario 2, if compliance measures specific to fruit fly control are eliminated along with seasonal and geographic restrictions, pest risks for U.S. producers remain low and there is an additional

gain in net U.S. welfare of $1.7 million. Results for Scenario 3, which eliminates all

control measures in Mexico, depends on the level of pest-risk estimated. With average

risk, there is a gain in net U.S. welfare of about $8.5 million compared with eliminating

only seasonal and geographic restrictions, but U.S. producers incur significant pest control costs. With maximum pest-risk estimates, the net gain in U.S. welfare is $16.2 million less than if only geographic and seasonal restrictions are eliminated, with larger pest

control costs for U.S. producers and lower consumer welfare gains due to pest-related

losses of U.S. avocados.

*David Orden is also a Senior Research Fellow at the International Food Policy

Research Institute.

United States

Department

of Agriculture

www.ers.usda.gov

Electronic Report from the Economic Research Service

October 2006

Contractor

and Cooperator

Report No. 25

Linking Risk and Economic

Assessments in the Analysis of

Plant Pest Regulations

The Case of U.S. Imports of Mexican

Avocados

By Everett Peterson and David Orden,* Dept. of

Agricultural and Applied Economics, Virginia

Polytechnic Institute and State University

ERS project representative: Donna Roberts, 

202-694-5193, droberts@ers.usda.gov

This study was conducted by Virginia Polytechnic Institute and State

University under research grant 43-3AEM-3-80087 with the

Economic Research Service. The views expressed are those of the

authors and not necessarily those of ERS or USDA.

Program Of 

Research On The 

Economics Of 

INVASIVE 

SPECIES 

MANAGEMENT
ii 

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR -25 

Economic Research Service/ USDA 

Acknowledgements 

This report was prepared for USDA, Economic Research Service, Program of 

Research on the Economics of Invasive Species Management (PRESIM), through a 

grant to Virginia Polytechnic Institute and State University (Virginia Tech). We 

thank ERS for financial support. We have benefited from discussions with our ERS 

project collaborators and other colleagues, including Suzanne Thornsbury, Eduardo 

Romano, Claire Narrod, Joe Glauber, Trang Vo, Barry Krissoff, Donna Roberts, 

Ben Faber, and Ray Trewin. We have also benefited from interaction with Frank 

Filo and other staff of the USDA Animal and Plant Health Inspection Service 

(APHIS), with whom we collaborated to prepare the economic analysis for a 

November 2004 USDA rule rescinding previous seasonal and geographic 

restrictions on access of Mexican Hass avocados to the United States. Helpful 

comments from three anonymous reviewers are also gratefully acknowledged. 

Additional financial support for developing the modeling framework, in order to 

incorporate pest risks and related costs into economic equilibrium assessments 

under alternative compliance measures, has been provided by the Australian Centre 

for International Agricultural Research (ACIAR) through a grant to the 

International Food Policy Research Institute (IFPRI). 

Our field research in Mexico to evaluate compliance costs associated with the pestrisk mitigation measures required for avocado exports to the U.S. was graciously 

facilitated by Carlos Illsley, Alberto Cisneros and other growers, packers, and U.S. 

and Mexican sanitary inspection personnel in and around Urupan. Dale McNiel and 

Ron Campbell in Washington D.C. helped make the arrangements for this part of 

the research. 

About the Authors 

Everett Peterson (petrsone@vt.edu) is Associate Professor, Department of 

Agricultural and Applied Economics, Virginia Tech. David Orden 

(d.orden@cgiar.org) is Professor, Department of Agricultural and Applied 

Economics, Virginia Tech, and Senior Research Fellow, Markets, Trade and 

Institutions Division, International Food Policy Research Institute. 
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Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table of Contents 

Introduction ...............................................................................................................................................1 

General Framework of the Model............................................................................................................4

 Demand in the Importing Region ...........................................................................................................4 

 Supply in the Importing Region .............................................................................................................5 

 Frequency of Pest Outbreaks..................................................................................................................5 

 Pest-Control Costs in the Importing Region...........................................................................................6 

 Exporter Excess Supplies .......................................................................................................................6 

 Control Costs in the Exporting Region with Pest Risk...........................................................................7 

 Market Clearing Conditions ...................................................................................................................7 

 Welfare Measures...................................................................................................................................7 

Implementing the Model for the U.S.-Mexico Avocado Case..............................................................10

 The 2004 Pytosanitary Rule: Background..........................................................................................10 

 Systems Approach ..............................................................................................................................10 

Model Overview.......................................................................................................................................14

 Demand Regions ...............................................................................................................................14

 Frequency of Pest Outbreaks.............................................................................................................18

 Supply of Californian Avocados .......................................................................................................21

 Costs of U.S. Control Measures and Pest Damage in California Avocado Orchards .......................22

 Cost of Control Measures in Other U.S. Regions..............................................................................24

 Costs of Compliance for Mexican Growers ......................................................................................24

 Supply of Mexican Avocados............................................................................................................27

 Costs of Compliance for Mexican Avocado Packers/Exporters........................................................29

 U.S. Consumer Demand ....................................................................................................................31

Benchmark Market Data, Model Calibration, and Sensitivity Analysis ............................................33

 Benchmark Data ................................................................................................................................33

 Model Calibration..............................................................................................................................36

 Sensitivity Analysis for Selected Model Parameters.........................................................................38

Simulation Analysis of Alternative Systems Approaches ....................................................................40

 Pest Outbreaks: Frequencies, Cost of Compliance, and Cost of Control ..........................................40

 Market Equilibrium and Welfare with Average Pest-Risk Probabilities...........................................43 

 Market Equilibrium and Welfare with High Pest-Risk Probabilities ................................................48

Summary and Conclusion.......................................................................................................................54

References ...............................................................................................................................................56
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List of Figures and Tables 

Figures: 

Figure 1 Change in producer surplus from a shift in the supply function ..............................................9 

Figure 2 Preference structure for a representative consumer ..............................................................32 

Tables: 

Table 1 Comparison of systems approaches for avocados imported from Mexico 

 pre-2005 and post-2005 .........................................................................................................11 

Table 2 Number of avocado farms in California by county................................................................15 

Table 3 Hass avocado consumption by U.S. geographic region.........................................................16 

Table 4 State and regional population in fruit fly-susceptible areas ...................................................17 

Table 5 Estimated probabilities for fruit fly outbreak with and without risk mitigation ....................19 

Table 6 Estimated probabilities for seed weevil outbreak with and without risk mitigation..............19 

Table 7 Estimated probabilities for stem weevil outbreak with and without risk mitigation..............20 

Table 8 Estimated probabilities for seed moth outbreak with and without risk mitigation ................20 

Table 9 Model variables associated with U.S. costs of pest control and productivity losses 

 due to infestations ..................................................................................................................23 

Table 10 Average production costs for avocados in Mexico................................................................26 

Table 11 Model variables associated with costs of compliance by Mexican growers and packers......26 

Table 12 Number of avocados inspected in the field, at packinghouses, and at the border..................28 

Table 13 Avocados inspected as a percentage of total exports.............................................................28 

Table 14 Benchmark data in the model.................................................................................................34 

Table 15 Consumer substitution and producer supply parameters in the sensitivity analysis ..............39 

Table 16 Frequency of pest outbreaks and compliance and pest control costs under alternative 

 systems...................................................................................................................................42 

Table 17 Equilibrium prices and quantities demanded and supplied under alternative systems: 

 average risk probabilities .......................................................................................................44 

Table 18 Producer and consumer welfare under alternative systems: average risk probabilities .........47 

Table 19 Equilibrium prices and quantities demanded and supplied under alternative systems: 

 high risk probabilities ............................................................................................................49 

Table 20 Producer and consumer welfare under alternative systems: high risk probabilities .............52 
Introduction 

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Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Technical barriers are often significant obstacles to market access for agricultural 

exporters. One approach to easing technical trade restrictions is to shift from the 

most restrictive, such as complete bans, to less restrictive requirements for pest 

control. One alternative is a systems approach to risk management, whereby a set 

of compliance procedures is specified to reduce the pest risk from importing a 

commodity. These requirements add to exporter production costs, but enable 

market access. Systems approaches have 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). 

Since 1993, a long dispute between Mexico and the United States over U.S. 

restrictions on imports of Hass avocados has been largely resolved by replacing an 

import ban with trade under a system of measures designed to reduce fruit fly and 

avocado-specific pest risks. This case illustrates that technical trade restrictions can 

be eased when the risk issues can be sharply delineated and governments are firmly 

committed to negotiations. The easing of the longstanding import ban on Mexican 

avocados through a systems approach occurred in four steps: 

 

(1) In 1993, Hass avocados from Mexico were permitted entry only 

into Alaska. 

(2) In 1997, Hass avocados from Mexico were allowed entry into 19 

Northeastern States and the District of Columbia during the months 

of November through February. 

(3) In 2001, the area approved for import was expanded by an 

additional 12 States, and the import period was extended to October 

15 to April 15 

(4) In November 2004, all geographic and seasonal restrictions were 

effectively eliminated, allowing year-round importation of Mexican 

avocados into 47 States (excepting California, Florida, and Hawaii) 

starting in 2005, with access to all States after a 2-year 

implementation delay (USDA, 2004). 

Thus, nearly 15 years after the avocado trade issue was brought to the fore during 

the negotiation of the North American Free Trade Agreement (NAFTA), and 11 

years after the initial opening of the U.S. market, an import ban in place since 1914 

was reversed. USDA’s Animal and Plant Health Inspection Service (APHIS) 

estimates the net economic benefits to the United States of the most recent rule, 

compared with the 2001 rule that still limited Mexican access geographically and 

seasonally, are about $70 million annually (USDA/APHIS, 2004a). 

The USDA/APHIS economic analysis of full opening of the U.S. market assumed 

no risk of pest infestation as long as the measures in Mexico remained in effect. 

We extend the analysis to consider pest risks, Mexican costs of compliance with the 

systems approach, and U.S. producers’ control costs and production losses in the 

event of a pest infestation. We find that the expanded trade anticipated under the 

November 2004 rule lowers Mexican per unit compliance costs by half (from nearly 

20 percent to about 10 percent of producer prices). Because pest risks are low with 

the compliance measures still in place, the estimated annual net U.S. welfare gain 

from eliminating all geographic and seasonal restrictions is approximately $72 
2 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

million. Next, we consider removing some or all of the systems approach measures, 

with corresponding compliance cost savings but greater pest risks. If only the 

measures for reducing Mexican fruit fly infestations (all field trapping and postharvest quarantine requirements in Mexico) are eliminated, compliance costs fall by 

another 20 percent. In that scenario, the pest risk to U.S. producers increases by two 

orders of magnitude (100 times), but remains low in absolute terms, and there is a 

slight additional net welfare gain of $1.7 million for the United States. 

The outcome is less certain if the systems approach is abandoned, with all pest-risk 

mitigation measures against fruit flies and the targeted avocado pests eliminated. In 

the best case, based on the APHIS estimates of the average probabilities of a pest 

infestation with all control measures eliminated, there is an additional gain in net 

U.S. welfare of $8.5 million compared with eliminating only the seasonal and 

geographic restrictions. Expanded consumer benefits more than offset an additional 

pest-related reduction in producer surplus of $5.2 million to California producers. 

However, using the maximum APHIS estimates of pest risks, infestations due to 

imported avocados become frequent enough that California producers lose an 

additional $12.3 million in producer surplus and consumers receive $3.8 million 

less in welfare gain compared with the first scenario, that is, with year-around 

access to all States with all compliance measures in place in Mexico. In this worst 

case, the net gain in U.S. welfare is $16.2 million lower than in any other scenario 

considered. 

Our analysis of these alternative pest-risk management policies suggests three broad 

conclusions: 

(1)When pest risks and related costs (Mexican cost of compliance and 

domestic producers’ pest control costs and production losses) are 

incorporated in the analysis, the estimated net gain in U.S. welfare does not 

differ substantially from the USDA/APHIS analysis that did not include 

these costs. 

(2)There may be modest additional gains from further modifying of the 

systems approach to reduce compliance costs associated with fruit fly 

control measures. 

(3)When we posit a scenario that abandons the systems approach 

completely, our knowledge of the level of pest risk is not precise enough to 

rule out a smaller net gain in U.S. welfare than the gain when all or some of 

the systems approach compliance measures are retained. Thus, this scenario 

is a less conservative decision in terms of pest risk or economic criteria. 

In the next section we develop a general framework for incorporating pest risk, 

exporter compliance costs, and domestic pest-related costs in an expectationweighted partial equilibrium market analysis. The model includes three general 

supply regions: domestic supply by the importer, excess supply from an exporter 

free of pests, and excess supply from an exporter not free of pests. The following 

section implements the general framework for the avocado case. The avocado 

model incorporates three supply regions (Southern California, Chile, and Mexico) 

corresponding to the theoretical regions, substitution possibilities between two 

seasons (winter and summer), and four domestic (U.S.) demand regions. Pest risks 

and related domestic costs are derived from USDA/APHIS studies. Mexican 

compliance costs were investigated during field research in the avocado-exporting 

state of Michoacán. The report concludes with the model simulation results, 
3 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

contrasting the pest risks and economic outcomes under three alternative scenarios 

to a baseline case of restricted geographic and seasonal access prior to the 

November 2004 rule. The three scenarios, as summarized above, are unlimited 

access to the U.S. market with the Mexican compliance measures in effect as 

specified in the 2004 rule, further removal of the fruit fly compliance measures, and 

elimination of all systems approach requirements. 
General Framework of the Model 

4 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

To analyze the benefits and costs of alternative policies, we assume that a regulator 

will chose the policy (φ ) that will maximize expected welfare (EW). Following 

Glauber and Narrod (2001) and Rendleman and Spinelli (1999), we define expected 

change in welfare as: 

(1) () () () ( ) ( ) 0 1 EW p W p W C W = +− − − φφ φ φ φ D N ⎡ ⎤ ⎣ ⎦ , 

where p is the probability of a disease/pest outbreak, WD is the welfare if an 

outbreak occurs, WN is the welfare if no outbreak occurs, C is the cost of the 

regulatory policy, and W0 is the welfare before the policy was implemented. 

Welfare is defined as the sum of consumer surplus and producer surplus. 

To determine the expected changes in consumer and producer surplus, a partial 

equilibrium trade model is developed in which imports are linked to the possibility 

of introducing a plant pest or disease into the importing region (Paarlberg and Lee, 

1998). The partial equilibrium model will determine the level of imports and the 

associated risk of a pest outbreak, as well as the expected welfare. We focus on a 

proposed regulatory change that eliminates an import quarantine. 

For tractability, the model will focus on a pest that will affect a single product or 

commodity market. The model identifies three different regions: region 1 is an 

importer of the product, region 2 is an exporter deemed free of the pest or pathogen, 

and region 3 is an exporter who is not free of the pest and has some probability of 

transmitting the pest to the importer. 

Demand in the Importing Region 

Demand in the importing region is derived from a utility function for a 

representative consumer. To allow for possible product differentiation between 

regions, the model assumes that consumers view the product from each region as a 

similar but slightly different product. For example, consumers in the importing 

region may view the product from the importing region as being fresher than a 

product from a more distant region.1 

In general notation, the quantity demanded of the product from region j ( D Qj ) is a 

function of the retail price of product j ( j p ) in the importing country: 

(2) ( ) 11 1

1 1 123

12 3

, , , 0, 0, and 0

DD D

D QQ Q Q D pp p

pp p

∂∂ ∂

= ≤≥ ≥

∂∂ ∂ ; 

(3) ( ) 22 2

2 2 123

12 3

, , , 0, 0, and 0

DD D

D QQ Q Q D ppp

pp p

∂∂ ∂ = ≥≤ ≥

∂∂ ∂ ; and 

1 A homogeneous good model is 

just a special case of a 

differentiated goods model, in 

which the elasticity of substation 

in final demand is equal to 

infinity. 
5 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

(4) ( ) 33 3

3 3 123

12 3

, , , 0, 0, and 0

DD D

D QQ Q Q D ppp

pp p

∂∂ ∂ = ≥≥ ≤

∂∂ ∂ . 

The demand curves for all goods are downward sloping and all goods are 

assumed to be substitutes for one another. 

Supply in the Importing Region 

The expected quantity supplied by producers in the importing region ( 1

S Q ) is 

assumed to be a function of the producer price, which is defined as the retail 

price minus a fixed marketing margin 2 ( m1 ), the frequency of pest outbreaks 

(N), and the costs associated with controlling any outbreak that occurs 

( PC1 ): 

 

(5) ( ) ( )

1 11

1 11 1 1 1

11 1

, , ; 0; 0; 0; 0; and 0

S SS

S Q QQ Q S p m N PC N PC p m N PC

∂ ∂∂ = − ≥ ≤ ≤≥ ≥

∂− ∂ ∂ . 

The supply function in equation (5) identifies two potential shifts from a pest 

outbreak. First, an outbreak will reduce productivity, and therefore the quantity 

supplied. Second, some or all of the loss in productivity may be mitigated through 

control measures. Because the control measures may not fully eradicate the pest, 

there could be a decline in productivity along with an increase in production cost 

from a pest outbreak. This would suggest that 2

1 1 0 S ∂ Q N PC ∂∂ ≥ . 

Frequency of Pest Outbreaks 

The frequency of pest outbreak is defined to be a function of the regulatory policy 

under consideration (φ ) and the level of imports from region 3 ( 3

E Q ): 

(6) ( ) 3 3 ( )

3

, ; 0; 0; and ,0 0 E E

E

N NN Q Q N Q φ φ ∂ = ≥≥ =

∂ . 

The frequency of pest outbreaks increases as the level of imports from region 3 

increases and is equal to zero if there are no imports from region 3. 

The relationship between 3

E Q and N will depend on the product in question. In 

general, the following relationship can exist between 3

E Q and N. Let: 

prob1( ) φ = probability that the product being exported is infested, 

prob2( ) φ = probability that the pest survives shipment, 

prob3( ) φ = probability that the product/pest is transported to a suitable 

habitat, and 

2 The marketing margin includes 

all trade and transport services 

needed to get the product from 

producers to consumers. This 

margin provides the link between 

producer and retail prices. 
6 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

prob4( ) φ = probability that the pest is able to become established. 

Note that magnitudes of these four probabilities will depend on the regulatory 

policy under consideration. Assuming that all four events are required for an 

outbreak to occur and that each event is independent, then equation (6) is specified 

as: 

() () ( ) ( ) 3 1* 2* 3* 4* E N prob prob prob prob Q = φφφφ . 

Pest-Control Costs in the Importing Region 

The cost of mitigation measures used by producers in the importing region to 

control an outbreak is assumed to be a function of the frequency of an outbreak, the 

intensity of an outbreak ( 1 Int ), and the level of eradication (α ): 

(7) ( )

2

111 1

11 1 2

1

, , ; 0; 0; 0; and 0 PC PC PC PC PC PC N Int

N Int

α

α α

∂∂∂ ∂ = ≥≥≥ >

∂∂ ∂ ∂ . 

As the intensity of an outbreak or the level of eradication increases, the cost of 

mitigation also increases. Note that the level of eradication may vary between 0, or 

no eradication effort and 1, full eradication. This implies that if the eradication 

effort is 0 or there is no outbreak, then: 

PC N Int PC Int 1 1 11 ( ) , ,0 0 0, , = = ( α ). 

The cost of eradication is assumed to grow at an increasing rate. While not 

specifically noted in equation (7), it is possible to make the second partial derivative 

with respect to the intensity of the outbreak to be increasing. Thus, the cost of 

control measures is increasing at an increasing rate. 

Exporter Excess Supplies 

The level of exports from region 2 ( 2

E Q ) is specified as an excess supply function 

that is increasing in the export (or f.o.b.) price of the product in region 2 (e.g., the 

retail price in region 1 minus a fixed margin): 

(8) ( ) ( )

2

2 22 2

2 2

; 0

E

E Q Q Ep m

p m

∂ =− ≥

∂ − . 

The level of exports from region 3 is specified as an excess supply function, 

increasing in the export price in region 3 and decreasing in the cost of control 

measures ( PC3 ) required by the regulatory policy being considered in region 1: 

(9) ( ) ( )

3 3

3 33 3 3

33 3

, ; 0; and 0

E E

E Q Q Q E p m PC p m PC

∂ ∂ =− ≥ ≤

∂− ∂ . 
7 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Control Costs in the Exporting Region With Pest Risk 

The cost of control measures for producers in region 3 will depend on riskmitigation practices specified in the regulatory policy under consideration: 

(10) PC PC 3 3 = ( ) φ . 

If a pest outbreak occurred, the producers in region 3 would also bear the 

cost of eradicating the pest. This cost is not included in the model because it 

is assumed that a pest outbreak would lead to reinstatement of the import 

quarantine. In this case, the cost of eradication would not be directly related 

to the risk-mitigation practices specified in the regulatory policy, and 

therefore it is not included in the model. 

Market Clearing Conditions 

The market-clearing conditions equate the demands for the substitutable products in 

region 1 with the supplies from regions 1, 2, and 3: 

(11) 1 1

D S Q Q= . 

(12) 2 2

D E Q Q= . 

(13) 3 3

D E Q Q= . 

Equations (2) through (13) constitute the market portion of the model. The 

endogenous and exogenous variables of this portion of the model are: 

Endogenous: 1 2 3 1 2 3 123 1 3 , , , , , , , , , , , and DDDSEE Q Q Q Q Q Q p p p N PC PC . 

Exogenous: 112 3 α, , , ,and Int m m m . 

The number of regulatory options in policy set φ is assumed to be exogenous. 

Welfare Measures 

To distinguish the optimal regulatory option, the change in expected welfare 

is computed for all of the policy options under consideration. The option 

with the largest increase in expected welfare will be the optimal policy. The 

change in expected welfare for the region 1 is defined as: 

(14) EW CS PS PC PCP 11 1 1 1 = + −− () () φ φ , 

where CS1 ( ) φ is the expected change in consumer welfare (surplus) in region 1, 

PS1 ( ) φ is the change in producer surplus in region 1, PC1 is the cost of control 
8 

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measures borne by producers in region 1, and PCP1 is the cost of control measures 

paid by public agencies in region 1. 

The cost of control measures paid by public agencies will consist of inspections or 

pest-eradication programs required by the regulatory policy but not paid for by the 

producers. For example, inspections at the border of the importing country are paid 

for by the taxpayers. The cost of inspections or other control measures will depend 

on the regulatory policy under consideration, the level of exports from region 3, and 

the intensity of infestations in regions 1 and 3: 

(15) ( ) 11 1

1 1 3 13

31 3

, , , ; 0; 0; and 0 E

E

PCP PCP PCP PCP PCP Q Int Int Q Int Int φ ∂∂ ∂ = ≥≥ ≥

∂∂ ∂ . 

The infestation intensity in each region is included because more intense outbreaks 

may lead to higher levels of inspection. 

Consumer welfare in region 1 is defined as the equivalent variation (EV1) due to the 

change in regulatory policy in region 1: 

(16) CS EV e p u e p u 1 1 1 0 1 00 () () φφ φ == − ( ) , , ( ) ( ) , 

where: e = expenditure function derived from the utility function for the 

representative consumer, 

0 p = initial (or current) retail prices, 

0 u = initial level of utility, and 

u ( ) φ = level of utility after the change in regulatory policy. 

Because the supply curve will shift to the left due to productivity losses and/or the 

cost of pest-control measures, the change in producer surplus in region 1 is equal to 

the producer surplus after the change policy minus the producer surplus before the 

change. (fig.1). This can be expressed as: 

(17) ( ) [ ] ( ) [ ] ( )

* 0

1 11 1 1 1 1 11 1 1 1 , , ,0,0

p p

b a

PS S p m N PC d p m S p m d p m φ = − −− − − ∫ ∫ , 

where a is the intercept of the supply function, 0 p is the producer price level before 

the policy change, b is the intercept of the supply function, and * p is the producer 

price level after the policy change. This change is shown graphically in figure 1, 

where S0 is the supply curve before the policy change, S* is the supply curve after 

the policy change, and 0 p and * p are the producer prices before and after the 

policy change. The level of producer surplus after the policy change is the triangle 

B. The level of producer surplus before the policy change is the sum of the areas A, 

B, and C. Thus, the loss in producer surplus is the sum of areas A + C. 
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Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Figure 1 

Change in producer surplus from a shift in the supply function 

Source: Authors’ depiction of pest impacts. 

Producer 

price 

Quantity 

S0

a 

S*

b 

p0

p

* 

A 

B 

C 
Implementing the Model for the U.S.-Mexico Case 

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Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

To compare the effects of implementing the 2004 phytosanitary rule that eliminated 

seasonal and geographic restrictions on the importation of fresh Hass avocados 

from approved orchards in Mexico under three different sets of systems approach 

compliance measures, we use the framework developed above to construct a static, 

partial equilibrium model. This model is used to simulate the effects on prices, 

quantities, and welfare of the 2004 phytosanitary rule for each systems approach 

scenario. 

The 2004 Phytosanitary Rule: Background 

From 1914 until 1993, the entry of fresh Hass avocados from Mexico into the 

United States was prohibited due to phytosanitary risks. In 1993, Mexico avocados 

were allowed into one state (Alaska). In November 1997, Mexican avocados were 

allowed into the conterminous United States for the first time. Entry was allowed 

into 19 northeastern States and the District of Columbia from November through 

February, with a set of risk-mitigation measures required of approved export 

orchards and packers.3 In 2001, the area approved for import was expanded by an 

additional 12 States, and the period of importation was extended to 6 months, 

October 15 to April 15. 4 The November 2004 rule allows year-round entry of fresh 

Hass avocados from Mexico into 47 States for a 2-year implementation period, after 

which entry will be allowed into all 50 States. The compliance measures required in 

Mexico are adjusted for the extended seasonal access. The model developed in this 

section draws heavily on a partial equilibrium model without pest risk, compliance 

or control costs, or productivity losses developed by Peterson, Evangelou, Orden, 

and Bakshi (2004). This earlier model was also adopted and modified by 

USDA/APHIS for assessment of the 2004 rule (USDA/APHIS 2004a). 

Systems Approach 

Prior to the 2004 rule, the systems approach contained nine steps or requirements: 

field surveys, trapping activities, field sanitation, host resistance, post-harvest 

safeguards, packinghouse inspections, port-of-arrival inspections, seasonal shipping 

restrictions, and geographic shipment restrictions. The new system eliminates the 

last two steps and modifies some of the remaining steps (table 1). A description 

follows of the current steps. 

Field surveys: Two types of field surveys are required: municipality and orchard 

surveys. The Government of Mexico, along with APHIS, is required to conduct 

area surveys of Michoacán municipalities for stem weevils (Copturus aguacatae), 

three seed weevils (Heilipus lauri, Conotrachelus aguacatae and Contrachelus 

perseae) and seed moths (Stenoma catenifer) before those regions are certified as 

eligible to export fruit. Certification is dependent upon the municipalities being 

free of pests. The stem weevil survey must include a trap every 1 - 4 square miles. 

For the seed weevils and seed moth, the surveys must cover at least 300 randomly 

selected hectares in each municipality and include portions of commercial orchards, 

wild areas, and backyards. The surveys include foliage sampling, fruit cutting, and 

visual inspection. Foliage samples are collected by beating the lower branches of a 

tree over a white tarpaulin, with material falling onto the tarpaulin examined for 

pests. The survey must be conducted during the growing season and completed

3 The effective date of the final 

rule was March 7, 1997. The 

approved area included 

Connecticut, Delaware, District 

of Columbia, Illinois, Indiana, 

Kentucky, Maine, Maryland, 

Massachusetts, Michigan, New 

Hampshire, New Jersey, New 

York, Ohio, Pennsylvania, 

Rhode Island, Vermont, 

Virginia, West Virginia, and 

Wisconsin. 

4

 The effective date of the final 

rule was November 1, 2001. 

The States added were 

Colorado, Idaho, Iowa, Kansas, 

Minnesota, Missouri, Montana, 

Nebraska, North Dakota, South 

Dakota, Utah, and Wyoming. 
11 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 1 

Comparison of systems approaches for avocados imported from Mexico pre- and post-2005 

Pre-2005 Systems approach Post-2005 Systems approach 

Field Surveys

Once per year (municipalities and orchards 

certification, pest-free status, Michoacán only) 

Field Surveys

Twice per year* (municipalities and orchards 

certification, pest-free status, Michoacán only) 

Trapping Activities 

1 trap per 10 hectares to monitor for fruit flies 

Trapping Activities

1 trap per 10 hectares to monitor for fruit flies 

Field Sanitation

Remove fallen fruit weekly and prune dead 

branches 

Field Sanitation

Remove fallen fruit weekly and prune dead 

branches 

Host Resistance (Hass cultivar only) 

Remove fallen fruit weekly and prune dead 

branches 

Host Resistance (Hass cultivar only) 

Remove fallen fruit weekly and prune dead 

branches 

Post-Harvest Safeguards

Transport to packinghouse within 3 hours of 

harvest in screened trucks; transport from 

packinghouse in refrigerated containers; 

identity of grower, packinghouse, and exporter 

must be maintained 

Post-Harvest Safeguards

Transport to packinghouse within 3 hours of 

harvest in screened trucks; transport from 

packinghouse in refrigerated containers; 

identity of grower, packinghouse, and exporter 

must be maintained 

Packinghouse Inspection

Stems and leaves removed from the fruit. Each 

fruit labeled with a sticker with registration 

number of the packinghouse. Inspectors in 

packinghouses inspect and cut 300 fruit 

sampled from each shipment. Each truck or 

container must be secured by Sanidad Vegetal 

before leaving packinghouse. 

Packinghouse Inspection

Stems and leaves removed from the fruit. Each 

fruit labeled with a sticker with registration 

number of the packinghouse. Inspectors in 

packinghouses inspect and cut 300 fruit 

sampled from each shipment. Each truck or 

container must be secured by Sanidad Vegetal 

before leaving packinghouse. 

Port-of-Arrival Inspection

Inspectors ensure that the seals on the trucks 

are intact and shipment is accompanied with a 

phytosanitary certification. One fruit per box 

from 30 boxes per shipment are sampled, cut, 

and inspected. 

Port-of-Arrival Inspection

Inspectors ensure that the seals on the trucks 

are intact and shipment is accompanied with a 

phytosanitary certification. One fruit per box 

from 30 boxes per shipment are sampled, cut, 

and inspected. 

Geographical Shipment Restrictions

Shipments limited to 31 states plus District of 

Columbia 

Seasonal Shipment Restrictions

Shipping allowed only October 15 – April 15 

Geographical Shipment Restrictions

None* 

Seasonal Shipment Restrictions

None* 

*Post-2005 change. 

Source: USDA/APHIS, 2004a. 
12 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

before the avocado harvest. The survey sampling is calibrated to detect pests if they 

are present in 1 percent or more of the area surveyed at a 95-percent confidence 

level. 

APHIS is required to monitor Mexico’s compliance with the municipality survey 

procedures, and Mexico’s sanitary authority Sanidad Vegetal is required to inform 

APHIS of any pest infestations. If quarantine pests are found, the affected areas are 

eliminated from the export program and eradication programs initiated. 

In addition to municipal surveys, each orchard must be certified in order to export 

fruit to the United States. To obtain certification, a grower must petition the Junta 

Local de Sanidad Vegetal (JLSV). Inspectors from the JLSV office visit the 

prospective orchard biweekly and conduct general pest inspections. After the JLSV 

inspector identifies the pest-free orchards, the Comite Estatal de Sanidad Vegetal 

(CESV) inspects the orchards once again and certifies that they are free from 

pathway pests (those that travel wilth avocados being shipped). Orchards that pass 

this inspection are tentatively approved to export the following season. APHIS and 

CESV inspectors conduct a third inspection the following year during the avocado 

growing season. Final approval to export is given only if the orchard passes all 

three inspections. In all inspections, fruit is cut and examined for pest infestation. 

Established orchards must continue to undergo pest surveys and must be recertified 

each year. 

The only difference between the pre- and post-2004 rule systems approaches for 

field surveys is an increase from one to two surveys a year because of year-round 

access. 

Field Trapping: McPhail traps are used continuously at a rate of one trap per 10 

hectares to monitor for Mexican fruit flies (Anastrepha ludens, A. serpentina, and 

A. striata). If Anastrepha species are detected in traps, an additional 10 traps must 

be deployed in the surrounding 50 hectares. If another fruit fly is found, malathion 

bait spraying must be done every 7-10 days for the orchard to remain in the 

program. 

Field Sanitation: All fallen fruit must be collected and removed each week, and all 

dead branches on the avocados trees must be pruned. Because fallen fruit – which 

is usually overripe or damaged – is more susceptible to pest infestation, removing it 

reduces the potential for infestation. Pruning helps prevent infestations of stem 

weevil. These sanitation practices are the responsibility of the grower or orchard 

owner. The JLSV monitors compliance, and the Sanidad Vegetal and APHIS assess 

the field sanitation practices during the orchard surveys. 

Host Resistance: The Hass avocado has shown natural resistance to certain 

Anastrepha spp. found in Mexico and has been given “very poor host” status. Hass 

avocados are easily distinguishable from other varieties by their pebbly skin texture, 

characteristic shape and size, and blackish exterior when ripe. Accidental or 

deliberate substitution of other varieties is unlikely and can easily be detected. 

Post-Harvest Safeguards: All avocados must be shipped to the packinghouse in 

enclosed trucks within 3 hours of harvest, with each box marked with the 

registration number of the orchard. At the packinghouse, the identity of the orchard 
13 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

must be maintained. In addition, all boxes in each shipping container from the 

packinghouse must be marked with the identity of the grower, the packinghouse, 

and the exporter, and the outside of each shipping container must be labeled with 

the registration number of the packing house. Finally, each shipping container (or 

truck) must be refrigerated to 5° to 8° C (41°–46.4° F). 

Packinghouse Inspections: To keep out fruit flies, screens are required on all 

windows and double doors are required on all entrances of the packinghouse. 

Stems and leaves must be removed from the fruit before it is packed in boxes. This 

helps ensure that pests infesting these parts of the plant are excluded from the 

shipment. Each fruit must be labeled with a sticker with the registration number of 

the packinghouse. Inspectors in the packinghouse cut and examine fruit samples 

from each incoming shipment for the presence of pests. This typically involves 

cutting multiple thin slices completely through the fruit, including the seed. Before 

the truck or container leaves the packinghouse, Sanidad Vegetal secures it with a 

seal that will be broken if the truck or container is opened. Once sealed, the 

refrigerated truck or container must remain unopened until it reaches the United 

States. Because the seals may be broken by Mexican authorities to inspect for 

drugs, under the proposed modified systems approach, safeguarding containers will 

replace sealing as a means to prevent infestation during shipping. 

Port-of-Arrival Inspections: Prior to 2005 avocados were allowed to enter the 

United States at designated locations: Brownsville, Hidalgo, Laredo, Eagle Pass, 

and El Paso, Texas. Under the 2004 rule, port of entry restrictions have been 

relaxed but border inspections continue. U.S. border inspectors ensure that the seals 

on the trucks are intact upon arrival and that the shipment is accompanied with 

phytosanitary certification issued by Sanidad Vegetal, verifying compliance with all 

provisions of the rule. At the port of first arrival the inspectors must inspect 

avocados from each shipment for pests. The inspectors cut and inspect one fruit per 

box from 30 boxes per shipment. 
Model Overview 

14 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

The static partial equilibrium model consists of four demand regions in the U.S.; 

three supply regions, California, Chile, and Mexico; and two seasons or periods. 

Only Hass avocados are considered because they account for approximately 85 

percent of all avocados consumed in the United States. The supply regions were 

chosen because nearly all U.S. Hass avocado production takes place in California 

and over 96 percent of all Hass avocado imports are supplied by Chile and Mexico. 

The two periods in the model reflect the seasonal restrictions on Hass avocado 

imports from Mexico before the 2004 rule. Season 1 is defined as the October 15-

April 15 time period when Hass avocado imports were allowed into specified States 

under the 2001 rule, and Season 2 is defined as the April 16-October 14 time period 

when Hass avocado imports from Mexico were not allowed. The following 

discussion refers only to fresh Hass avocados unless otherwise indicated. 

Demand Regions 

Four domestic demand regions are identified in the model to reflect differences in 

pest-risk susceptibility and per capita consumption. Region A corresponds to the 31 

Northern States and the District of Columbia where imports of fresh Hass avocados 

were allowed by the 2001 rule. Region A is not susceptible to outbreaks of any of 

the pests of concern. Region D, Southern California, 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. Region D consists 

of 11 counties: Imperial, Kern, Los Angeles, Orange, Riverside, San Bernardino, 

San Diego, San Luis Obispo, Santa Barbara, Tulare, and Ventura. Nearly 99 

percent of all avocado farms in California are located in these counties (table 2). 

The remaining portion of the United States.is disaggregated into two regions: 

Region B, which is defined as the Southeastern United States, and Region C, which 

is defined as the Pacific Northwest and Southwestern United States, northern 

California, and Hawaii. The per capita consumption of avocados is substantially 

larger in Region C compared with Region B (table 3). 

The U.S. area that is susceptible to fruit fly infestation consists of plant hardiness 

zones 8-11, which include all or portions of California, Oregon, Washington, 

Nevada, Arizona, New Mexico, Texas, Louisiana, Arkansas, Mississippi, Alabama, 

Georgia, Florida, North Carolina, South Carolina, and Hawaii (USDA/APHIS, 

2004b).5 Only a portion of Regions B and C are in plant hardiness zones 8 through 

11 and are susceptible to fruit fly infestation. Table 4 shows the proportion of the 

population in each State in Regions B and C that is located in these zones. Because 

no information is available on avocado consumption in the fruit fly-susceptible 

areas in Regions B and C, it is assumed that consumption in these areas is 

proportional to the percentage of the region’s population in the susceptible areas. 

For example, approximately 55 percent of the population in Region B lives in a fruit 

fly-susceptible area, so 55 percent of avocado consumption in this region will be 

assumed to take place in a susceptible region. Holding these proportions constant 

alleviates the need to disaggregate Regions B and C any further.

5 A small portion of the 

State of Virginia in the 

Tidewater region was 

classified in zone 8. 

However, Virginia was 

allowed to receive fresh 

Hass avocados from 

Mexico under the 1997 

and 2001 rules and is not 

be classified in our 

model as a fruit flysusceptible region.
15 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 2 

Number of avocado farms in California by county 

County Number of Farms 

Southern California 

Imperial 0 

Kern 0 

Los Angeles 90 

Orange 37 

Riverside 558 

San Bernardino 41 

San Diego 2,757 

San Luis Obispo 122 

Santa Barbara 393 

Tulare 50 

Ventura 902

Total 4,950 

Other California counties 

Madera 3 

Monterey 6 

San Benito 5 

San Joaquin 9 

Santa Clara 5 

Santa Cruz 32

Total 60 

Percentage of avocado farms in Southern California 98.8% 

Source: Table 7, Appendix D of “Importation of Avocado Fruit (Persea americana Mill. var. ‘Hass’) 

from Mexico: A Risk Assessment,” U.S. Department of Agriculture, Animal and Plant Health Inspection 

Service (APHIS), Plant Protection and Quarantine (PPQ), and Center for Plant Health Science and 

Technology (CPHST), Washington, D.C., May 24, 2004 (USDA/APHIS, 2004b). 
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Table 3 Hass avocado consumption by U.S. geographic region  2001/20022 2002/20032 P Region3 Region Population coRegion1 CA CH MX CA CH MX 2002 2003 20

1,000 pounds Thousands 

Region A 82,058 26,414 52,315 69,153 35,992 64,178 148,852 149,697 1

Region B 32,939 13,918 0 29,307 21,057 0 57,963 58,704 0Region C 155,079 62,721 0 140,534 98,359 0 59,404 60,306 3Region D 101,126 40,312 0 81,827 54,855 0 21,755 22,103 6Total 371,201 143,365 52,315 320,821 210,262 64,178 287,974 290,810 11 Region A contains the following States: CT, DC, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, VA, WV, IL, IN, KY, 

MN, MO, MT, NE, ND, SD, and WY. These States also correspond to the Northeast, East Central, and West Central re

Pacific region as defined by the Avocado Marketing Research and Information Center (AMRIC). All States in Region A avocados from Mexico during the period October 15 to April 15 under the 2001 rule. Region B consists of the following LA, MS, NC, SC, and TN (Southeast region). Region C consists of AK, AZ, HI, NV, OR, WA, NM, OK, TX, and Nortregion plus Pacific region, less Southern California). Region D consist of Southern California, which is defined to incluImperial, Kern, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Luis Obispo, Santa Barbara, Tulare, anand D did not have access to fresh Hass avocados from Mexico prior to 2005. 

2 Denotes October 15 to October 14 marketing year. 3 Region defines the source of Hass avocados. CA denotes California, CH denotes Chile, and MX denotes Mexico. Qu

avocados shipped to each region is based on monthly shipment data from the Avocado Marketing Research and Informa

below the regional level involved associating specific city markets to States. ID and UT: Boise and Salt Lake City; souSan Diego. Quantities of avocados imported from Chile and Mexico are taken from U.S. Census Bureau monthly data. 

allocated proportion to the shipments of Californian avocados to those regions. Source: Consumption assumed proportional by authors to U.S. Population estimates from the US Census Bureau. 
17 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 4 

State and regional population in fruit fly-susceptible areas 

 Population (2003) 

Region/State Susceptible areas Total Proportion

Region B 

Alabama 1,848,880 4,478,896 

Arkansas 375,220 2,706,268 

Florida 16,691,701 16,691,701 

Georgia 2,777,785 8,544,005 

Louisiana 4,476,192 4,476,192 

Mississippi 1,979,141 2,866,733 

North Carolina 1,398,443 8,305,820 

South Carolina 2,526,592 4,103,770 

Tennessee 0 5,789,796 

Total 32,073,954 57,963,181 0.553

 

Region C 

Alaska 0 641,482 

Arizona 5,252,197 5,441,125 

Hawaii 1,240,663 1,240,663 

New Mexico 314,404 1,852,044 

Nevada 1,560,767 2,167,455 

Oklahoma 0 3,489,700 

Oregon 3,032,988 3,520,355 

Texas 18,568,548 21,736,925 

Washington 4,731,327 6,067,060 

Northern California 13,203,817 13,246,748 

Total 47,904,711 59,403,557 0.806

 

Region D 

Southern California 21,755,238 21,755,238 

Total 21,755,238 21,755,238 1.000

Source: The list of counties that reside in plant hardiness zones 8 through 11 was obtained from 

USDA/APHIS (2004b). The 2003 population estimates are from the U.S. Census Bureau. 
18 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Frequency of Pest Outbreaks 

Before we specify the equation for the frequency of pest outbreaks, a brief digression 

is in order. The final risk assessment published in November 2004 (USDA/APHIS, 

2004b) for the latest rule change used a slightly different procedure than the risk 

management analysis and the supplemental pest-risk assessments published in May 

1995 (USDA/APHIS, 1995a). The May 1995 analyses focused on the proposed 

systems approach to determine the probability of a pest outbreak in the United States. 

However, only the geographic and seasonal restrictions were changed in 2004, not the 

risk-mitigation steps within Mexico. The 2004 risk assessment was based on 

historical observations of the number of infected fruits identified during inspections 

and calculated the probability of an infected piece of fruit being exported. Because 

the purpose of this report is to examine the marginal benefits and costs of each step or 

combination of steps in the systems approach, focusing on the original risk 

assessment is more appropriate. According to APHIS, the systems approach 

“operates like a fail-safe system in that redundant safeguards are built into the 

process. That is, if one mitigating measure fails, other safeguards are in place to 

ensure that the risk continues to be effectively reduced and managed” 

(USDA/APHIS, 1995b, p. iv). Thus, the remainder of this discussion will focus on 

the 1995 risk assessment 

Using the definitions of the frequency of a pest outbreak from in USDA/APHIS 

(1995a), we construct the equation: 

1* 2* 3* 4* 5* 6* E N prob prob prob prob prob prob Q = mex , 

where prob1 = probability that a pest infects fruit pre- or post-harvest, 

prob2 = probability of the pest not being detected during harvest or packing, 

prob3 = probability that the pest survives shipment, 

prob4 = probability that the pest is not detected at port-of-entry inspection, 

prob5 = probability that the product/pest is transported to a suitable habitat, 

prob6 = probability that the pest is able to become established, and 

 E Qmex = quantity of avocados exported from Mexico. 

In our analysis, the model will determine the quantity of exports going to regions that 

are susceptible to pest infestation. Thus, prob5 is not required. 6 The frequency of a 

pest outbreak in season i, in demand region r is defined as: 

(18) , 1* 2* 3* 4* 6* E N prob prob prob prob prob Q ir mex ir =

The outbreak frequency can be evaluated for each season (1-2) and demand region 

(B-D for fruit flies and D only for avocado pests). Tables 5 through 8 provide 

estimates of the individual probabilities for the cases where no specific riskmitigation measures are implemented and where measures identified in the systems 

approach are implemented for fruit flies, seed weevils, stem weevils, and seed moths. 

Because exact values for all probabilities are unknown, simulations will use 

the average and maximum values of the estimated probabilities in table 5 through 8 

to determine the sensitivity of the model to alternative pest-risk probability values. 

6 However, one can still 

consider a regulatory policy 

that bans the sale of avocados 

to regions with areas that are 

susceptible to a pest 

infestation. 
19 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 5 

Estimated probabilities for fruit fly outbreak1 with and without risk mitigation 

Probability2 Mean Minimum Maximum

No pest-risk mitigation 

Pest infests fruit: pre- or post-harvest 0.00055 0.0001 0.001

Pest not detected during harvest or packing 0.0505 0.001 0.1

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.8 0.7 0.9

Infested fruit in suitable habitat leads to outbreak 0.00055 0.0001 0.001

Systems approach 

Pest infests fruit: pre- or post-harvest 2.5E-06 5.0E-08 5.0E-06

Pest not detected during harvest or packing 4.0E-03 8.0E-05 8.0E-03

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.7 0.6 0.8

Infested fruit in suitable habitat leads to outbreak 0.00055 0.0001 0.001

1

 The term fruit flies applies to the following: Anastrepha fraterculus, A. ludens, A. serpentine, and A. 

striata. 2

 All probabilities are assumed to have a uniform distribution. 

Source: No pest-risk mitigation: Table 5, Supplemental Risk Assessment; Systems Approach: Table 2, 

Addendum I to Supplement Risk Assessment., USDA/APHIS (1996). 

Table 6 

Estimated probabilities for seed weevil outbreak1 with and without risk mitigation 

Probability2 Mean Minimum Maximum

No pest-risk mitigation 

Pest infests fruit: pre- or post-harvest 0.00055 0.0001 0.001

Pest not detected during harvest or packing 0.101 0.002 0.2

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.65 0.5 0.8

Infested fruit in suitable habitat leads to outbreak 0.000275 0.00005 0.0005

 

Systems approach 

Pest infests fruit: pre- or post-harvest 2.8E-05 5.0E-06 5.0E-05

Pest not detected during harvest or packing 0.00808 0.00016 0.016

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.55 0.4 0.7

Infested fruit in suitable habitat leads to outbreak 0.000275 0.00005 0.0005

1

 The term seed weevil refers to Conotrachelus aguacatae, C. perseae, and Heilipus lauri. 2

 All probabilities are assumed to have a uniform distribution. 

Source: No pest-risk mitigation: Table 6, Supplemental Risk Assessment; Systems Approach: Table 3, 

Addendum I to Supplement Risk Assessment, USDA/APHIS (1996). 
20 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 7 

Estimated probabilities for stem weevil outbreak1 with and without risk mitigation 

Probability2 Mean Minimum Maximum

No pest-risk mitigation 

Pest infests fruit: pre- or post-harvest 0.055 0.01 0.1

Pest not detected during harvest or packing 0.101 0.002 0.2

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.8 0.7 0.9

Infested fruit in suitable habitat leads to outbreak 0.000275 0.00005 0.0005

 

Systems approach 

Pest infests fruit: pre- or post-harvest 0.0055 0.001 0.01

Pest not detected during harvest or packing 0.00808 0.00016 0.016

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.7 0.6 0.8

Infested fruit in suitable habitat leads to outbreak 0.000275 0.00005 0.0005

1

 The term stem weevil refers to copturus aguacatae. 2

 All probabilities are assumed to have a uniform distribution. 

Source: No pest-risk mitigation: Table 7, Supplemental Risk Assessment; Systems Approach: Table 4, 

Addendum I to Supplement Risk Assessment, USDA/APHIS (1996). 

Table 8 

Estimated probabilities for seed moth outbreak1 with and without risk mitigation 

Probability2 Mean Minimum Maximum

No pest-risk mitigation 

Pest infests fruit: pre- or post-harvest 0.00055 0.0001 0.001

Pest not detected during harvest or packing 0.0505 0.001 0.1

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.375 0.25 0.5

Infested fruit in suitable habitat leads to outbreak 0.000275 0.00005 0.0005

 

Systems approach 

Pest infests fruit: pre- or post-harvest 2.8E-05 5.0E-06 5.0E-05

Pest not detected during harvest or packing 0.00044 0.00008 0.0008

Pest survives shipment 0.8 0.7 0.9

Pest not detected during port of entry inspection 0.325 0.2 0.45

Infested fruit in suitable habitat leads to outbreak 0.000275 0.00005 0.0005

1

 The term “seed moth” refers to Stenoma catenifer. 2

 All probabilities are assumed to have a uniform distribution. 

Source: No pest-risk mitigation: Table 8, Supplemental Risk Assessment; Systems Approach: Table 5, 

Addendum I to Supplement Risk Assessment, USDA/APHIS (1996). 
21 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Supply of Californian Avocados 

Because ripe avocados can be left on the tree for many months before harvesting, 

producers may be able to shift avocado sales between seasons as relative prices 

change. A Constant Elasticity of Transformation (CET) production possibilities 

frontier is used to capture sales shifts between seasons. The location of the 

production possibilities frontier in output space is determined by the level of inputs 

used in avocado production. In this analysis, all inputs (e.g., labor, management, and 

capital) are aggregated into a single input assumed to be specific to avocado 

production. If a pest outbreak were to occur, the production possibilities frontier 

would shift towards the origin. This is because a pest outbreak reduces the quantity 

of avocados produced from a given level of the avocado-specific factor. 

With no risk of a pest outbreak, the CET revenue function is specified as: 

() ( ) { }

1

1 2 R pV p p V , 1 β β β = +− δ δ , 

where δ is a parameter that is chosen during the calibration process to 

replicate initial seasonal supplies, β is a parameter that determines the 

elasticity of transformation, p1 and p2 are producer prices in the first and 

second season, and V is the level of avocado-specific factor employed. If a 

pest outbreak were to occur, it could require producers to use costly control 

measures or affect the productivity of V. To incorporate both of these 

potential effects, the revenue function is modified to: 

(19) ( ) ( ) ( )( ) { } ( )

1

1 2 12 , 11 R D D p V p CP p CP N N PL V β β β = − +− − − + δ δ ⎡ ⎤ ⎣ ⎦ , 

where NiD = frequency of a pest outbreak in season i (i = 1,2), 7 

CP = expected per pound cost of control measures, and 8

PL = percent reduction in productivity due to an infestation. 

The expression ( ) 1 2 1− + N N PL D D ⎡ ⎤ ⎣ ⎦ is the expected productivity loss due to a 

pest infestation. 

The frequency of a pest outbreak depends on the level of imports and will vary 

across seasons. It is assumed that the productivity loss associated with an 

outbreak is the same regardless of the season in which it occurs. 9 Because it 

is likely that PL will depend on the intensity of the outbreak, several 

alternative values will be considered for each simulation scenario. The 

expression ( ) i p CP − represents the expected net price received by producers 

after paying for any pest-control measures. 

The conditional supply functions are derived by taking the derivative of 

equation (19) with respect to the producer price. This yields the following 

expressions: 

7 Because the demand Region D 

corresponds to the California 

supply region, the frequency of 

pest outbreaks refers to the 

frequency for Region D. 

8

 Because estimates for some 

control measures, such as the 

cost of controlling fruit flies, 

are available only on an annual 

basis, we allocate annual 

control costs on a productionquantity-share basis. This 

implies that the cost of control 

will be equal in both seasons. 

9 While an outbreak that occurs 

in the second season would not 

be expected to affect production 

in the preceding period, it may 

affect production in the first 

season of the following year. 

Given the static nature of the 

model, the only way to account 

for this possibility is to allow an 

outbreak in the second season 

to affect production in the first 

season.
22 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

(20) ( ) ( ) ( )( ) { } ( )

1 1 1

1 1 1 2 12 1 1 D D y p CP p CP p CP N N PL V ββ β β δδ δ − −

= − − +− − − + ⎡ ⎤ ⎣ ⎦ and 

(21) ( )( ) ( ) ( )( ) { } ( )

1 1 1

2 2 1 2 12 1 11 D D y p CP p CP p CP N N PL V ββ β β δδ δ − −

=− − − +− − − + ⎡ ⎤ ⎣ ⎦ , 

where yi is quantity of avocados supplied in season i. As the risk of an outbreak 

increases (i.e., N1 or N2 increases), the expected reduction in productivity affects 

each season proportionally. 

The supply functions in equations (20) and (21) are conditional on the level of the 

avocado-specific factor, which determines the location of the CET production 

possibilities frontier in output space. An increase in the net price received by 

California avocado growers ( i p −CP ) would be expected to lead to an increase in 

the amount of the avocado-specific factor used as growers seek to increase the supply 

of avocados. The opposite would be expected if the net producer price decreased. 

Formally, this relationship is specified as: 

(22) { } ( ) ( )( )

1

1 2 V c d p CP p CP 1 β β β =+ − + − − δ δ , 

where the term in {} is the CET price index from the revenue function in 

equation (19). The impact of a pest outbreak is to lower the expected net price 

received by producers due to higher costs of control, thereby lowering the 

expected price index, leading to a reduction in avocado- specific factor 

utilization. 

Costs of U.S. Control Measures and Pest Damage in California 

Avocado Orchards 

Avocado producers in California face potential infestation from fruit flies and 

avocado-specific stem weevils, seed weevils, and seed moths. Table 9 provides a 

summary of all variables in the model associated with the U.S. costs of controlling a 

pest infestation and the productivity losses due to pest damage. The cost of control 

for fruit flies is based on the existing regulatory control program, the Texas Valley 

Mexican Fruit Fly Protocol, and on alternative control options in Texas, California, 

and Florida evaluated by USDA/APHIS (2000). The Texas Valley control program 

monitors and suppresses Mexican fruit fly populations through trapping and the 

release of sterile flies. It also requires all fruit from infested areas in the Lower Rio 

Grande Valley moving to or through other citrus-producing States to be treated. The 

estimated cost of responding to 12-15 detections and 3 infestations under this 

program ranges from $316,000 to $500,000 per year. 

Costs of an alternative program in California of eradication, monitoring, and 

emergency response to detections and outbreaks is estimated to be $150,000 per 

detection and $220,000 - $500,000 per outbreak. In order to be conservative, 

maximum annual cost of $500,000 per outbreak is assumed in our model. 10 The 

10 The costs per outbreak 

do not include annual basic 

monitoring costs, since it is 

assumed that monitoring 

would be undertaken in any 

case. The costs of allowing 

widespread uncontrolled 

infestation of Mexican fruit 

flies are too large for 

nonmonintoring to be a 

policy option (see 

USDA/APHIS, 2000).
23

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 9 

Model variables associated with U.S. costs of pest control and 

productivity losses due to infestations 

Variable Description Mean Minimum Maximum

Domestic producers 

CPff Control cost for fruit flies 

per infestation 

$500,000

Z Cost per acre of avocado 

pest control 

$2,321.75

Yield Average yield per acre 

(pounds) 

6,548 5,893 7,203

PL Productivity loss from 

avocado pest other than 

fruit flies (percentage) 

20% 10% 30%

Pcteff Percentage of total 

production affected by 

infestation 

3% 1% 5%

Source: USDA/APHIS (1993) and USDA/APHIS (2000). 

expected annual cost of controlling fruit flies per pound of avocados may be 

expressed as: 

(23) ( ) 1 2

1 2

500,000 D D

ff

N N

CP

y y

+ = + . 

California avocado producers are assumed to pay all costs of a fruit fly outbreak in 

demand Region D. 

Under the Texas program, fruit originating from infected areas may be treated with a 

variety of methods, such as fumigation with methyl bromide, cold treatment, high 

temperature forced air, or field application of malathion bait spray. Once treated, the 

fruit may be shipped to any destination. Thus, this protocol implies a zero 

productivity loss. We also assume a zero productivity loss from fruit flies for 

California avocado growers. 

The potential cost of an infestation of an avocado-specific pest, such as a stem or seed 

weevil, is based on work by Evangelou et al. (USDA/APHIS, 1993).11 They 

estimated that the pesticide and labor costs required to control a weevil or other 

avocado pest infestation were $2,321.75 per acre. In addition, an avocado-specific 

pest infestation would result in a 20-percent per acre reduction in fruit production on 

all treated acres. The control cost per pound may be expressed as: 

11 The November 2004 

USDA/APHIS pest risk 

analysis provides only 

qualitative assessments of the 

economic impacts of each 

type of pest infestation. 
24

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

 ( ) cost/pound 1

Z

yield PL = − , 

where Z is the cost per acre, yield is pounds of avocados produced per acre, and PL is 

the percentage productivity loss per acre from an infestation. Using the average 

annual yield of 6,548 pounds of avocados per acre in California for the 10-year period 

of the 1993/94 - 2003/04 marketing years, and assuming a 20-percent productivity 

loss, the average cost of control is $0.443 per pound. 

Because an infestation will not likely affect all avocado orchards in California, the 

cost of controlling a weevil or other avocado pest infestation will depend on the 

amount of acreage affected. Given the uncertainty of the total acreage that would be 

affected, and consistent with the localized control measures used in Mexico when a 

pest is detected, we follow USDA/APHIS (2000) and consider infestation rates 

ranging from 1 to 5 percent, with a mean of 3 percent. Uncertainty about yields also 

affects the per pound cost of control for avocado-specific pests, 

and we consider yields ranging from 5,893 to 7,203 pounds per acre. The expected 

per pound cost of control for avocado-specific pests in period i (CPap

i

) is equal to cost 

per pound times the percentage of total production affected by an infestation (pcteff) 

times the frequency of an infestation (Ni) times the amount produced (yi): 

 

(24) ( )

* **

1

i iD i

ap

Z pcteff N y CP

yield PL = − . 

The expected annual average per unit cost of control for avocado-specific 

pests (CPap) is the summation of equation over the two seasons. On a per 

pound basis, this is: 

(25) ( )

( )

( )

11 2 2

1 2

*

1

D D

ap

Z pcteff Ny Ny CP

yield PL y y

+ = − + . 

Although these costs are borne by public pest-control agencies, in our model we 

assume that they are reflected in prices received by avocado producers. 

Cost of Control Measures in Other U.S. Regions 

Because portions of demand Regions B and C are susceptible to fruit fly infestation, 

the costs of controlling fruit fly infestation in these regions are also included in the 

analysis. The estimated cost of $500,000 per outbreak is used for controlling a fruit 

fly infestation in Regions B and C. 

Costs of Compliance for Mexican Growers 

Access to the U.S. market has substantial advantages for approved Mexican 

producers, but it does not come without additional costs. Estimates of the costs of 

compliance for Mexican avocado growers and packers were obtained during a field 

visit by David Orden, co-author of this report, to Uruapan, Mexico and surrounding 

areas in Michoacán during May 2-6, 2005. 12 He held discussions with growers and 

12 For more details, see Orden 

and Peterson (2005). We are 

indebted to Ron Campbell 

and Dale McNiel, Carlos 

Illsley, Alberto Cisneros, and 

other growers, packers and 

U.S. and Mexican sanitary 

inspection personnel in and 

around Urupan, Michoacan, 

for their gracious assistance 

with our field investigation. 
25

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

packers in visits to seven packing houses and several orchards, representatives of the 

Michoacán Avocado Exporter, Packers, and Growers Association (APEAM), 

representatives of the Uruapan field office of APHIS, representatives of local and 

state offices of Mexico’s Sanidad Vegetal (SAGARPA), packing house inspectors, 

and visiting representatives of the California Avocado Commission (CAC). 

There are currently about 2,200 avocado orchards approved to export to the U.S. in 9 

of the 21 municipalities of Michoacán. These orchards included about 27,390 

hectares in 2005. As of late April 2005, about 62.6 million tons of avocados had been 

picked for export processing during 2004/05, or an average of 2.29 tons per hectare. 

Overall, there are 77,260 hectares of orchards in Michoacán, with average total 

production per hectare of 9.7 tons. 

Orchards incur three types of costs for participating in the U.S. program: increased 

costs of production for approved acreage, fees paid to the local Junta de Sanidad 

Vegetal for avocado pest surveys and fruit fly trapping to establish and maintain 

certification to participate, and loss of fruit cut during the inspections. Estimates of 

these costs and related model parameters are shown in tables 10 and 11. 

Production Costs: The U.S. export program requires field sanitation and pruning 

beyond levels normally undertaken by growers. In addition, only certain pest-control 

chemicals (e.g., pesticides) are authorized for use in the approved orchards. The 

increased production costs involved in participating in the U.S. program varies among 

orchards, depending on the management practices they already follow. Informal 

verbal estimates from growers of the additional cost of participating in the U.S. 

program ranged from “one-third higher” to “only a few (U.S.) cents per kilogram.” 

In part, the verbal answers differed depending on whether the respondent was 

considering the cost per pound exported or produced in total per hectare. 

Average variable costs of production for a hectare of avocados, and more detailed 

estimates of the increased costs for participation in the U.S. program obtained in the 

interviews, are shown in table 10. The MX$729 (peso) increase in the average 

variable cost per hectare for labor reflects increased field sanitation requirements 

under the systems approach.13 Based on an approximate exchange rate of MX$10 

per US$, this converts to an increase of $72.90 per hectare (table 11). The one-third 

increase in phytosanitary control costs (table 10) reflects the additional cost of the 

pesticides approved for use in orchards that export to the United States. Because the 

restrictions on pesticide use are not formally a part of the systems approach, they are 

not considered a part of the cost of compliance for Mexican avocado growers. 

Sanidad Vegetal Pest Survey Costs: Growers in the U.S. program pay fees to their 

local Junta de Sanidad Vegetal to cover costs of avocado pest and fruit fly 

surveillance. Direct estimates of the costs of Sanidad inspections include $26,000 for 

fruit fly traps, $158,147 for fruit fly trap chemicals, and $1,283,772 for technician 

labor for the fruit fly trapping program and avocado-specific pest controls combined. 

Additional labor costs are estimated at $632,306 for other pest-control and extension 

activities related to the avocado program. The total survey cost of $2,100,225 is 

about $76.67 per hectare, based on 27,390 approved hectares. 

Under the 2004 rule, field pest surveys increase from one to two per year. Assuming 

that the direct costs for fruit fly and avocado-specific pest monitoring double from 

13 U.S. dollars are denoted as 

“US$” or simply “$,” while 

Mexican pesos are denoted as 

pesos or “MX$.” 
26

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 10

Average production costs for avocados in Mexico 

Item Cost/ha (Pesos) Additional cost for U.S. 

program

Cultivation Labor 2,143 2,872 (1/3 increase)

Fertilizer 10,059 10,059

Phytosanitary control 6,580 8,817 (1/3 increase)

Machinery and Equipment 17,661 17,661

Other 2,891 2,891

Administrative (5 %) 1,967 1,967

Financing 3,779 3,779

Total 45,080 48,461

Source: Costs/ha provided in “El Aguacatero,” Marzo-Abril de 2005. Additional costs for U.S. program 

provided to authors during May 2005 interviews (Orden and Peterson, 2005). 

Table 11

Model variables associated with costs of compliance by Mexican growers and packers 

Variable Description Mean

Mexican producers 

fieldc Cost per hectare of field sanitation $72.90

pestsurv Cost per hectare of JSLV pest surveys $130.27

Ha Hectares in approved orchards 27,390

gfruit Proportion of total exports cut and inspected in field 0.02

 

Mexican shippers 

pinvest Cost per pound packinghouse investment $0.005

paphisv Variable cost per pound of APHIS inspection $0.009

paphisf Fixed cost of APHIS inspections $335,940

inspect Cost of SAGARPA inspectors per plant $12,000

Plants Number of approved packing plants 22

pfruit Proportion of total exports cut and inspected in 

packing plants 

0.004

Source: Personal interviews in May 2005 (Orden and Peterson, 2005). 
27

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

$1,467,919 to $2,935,838, the total cost of pest surveys will increase to $3,568,144, 

or $130.27 per hectare. 

Loss of Fruit to Inspections: Another cost to growers and packers is the loss of 

saleable fruit picked from trees for inspection or sampled during packing or at border 

inspections. Table 12 provides APEAM estimates of the quantity and total cost of the 

fruit inspected. The cost of inspected fruit quadrupled between the 2000/01 and 

2004/05 marketing years from $358,000 to $1,400,000 as exports expanded. Table 

13 provides estimates of the pounds of fruit inspected as a proportion of the total 

pounds of avocados exported to the United States. Assuming an average weight of 

one-half pound per avocado (based on a standard 26 pound box of 48 avocados), 

approximately 2 percent of the total quantity of avocados exported to the U.S. is cut 

in the field and inspected for pests. Approximately 0.4 percent of total exports are 

inspected in the packing sheds and another 0.04 percent is inspected at the border. 

Model Formulation of Grower Compliance Costs: The per pound cost of compliance 

for Mexican avocado growers (GCOST) for the systems approach to manage fruit fly 

and avocado-specific pest infestation is formulated in the model as: 

(26) [ ] ( 11 2 2 )

1 2

fieldc pestsurv ha gfruit p y p y GCOST

y y

+ ++ = + , 

where GCOST = per pound cost of compliance for Mexican avocado 

growers, 

fieldc = cost per hectare of field sanitation, 

pestsurv = cost per hectare of JSLV pest surveys, 

ha = number of hectares in approved orchards, 

gfruit = proportion of total exports cut and inspected in field, 

pi = producer price of avocados in Mexico in season i, and 

yi = quantity of exports of avocados from Mexico to the U.S. in season 

i. 

We hold the number of hectares in approved orchards constant. Field sanitation and 

pest surveys must be performed on all hectares regardless of the quantity of avocados 

exported, representing a fixed cost to Mexican avocado growers. The cost of fruit 

inspected and cut in the field is equal to the proportion of fruit inspected times the 

quantity exported times the producer price of avocados. Since price and quantity 

exported may vary between seasons, the total cost of inspected fruit will also vary. 

Finally, the per pound grower cost of compliance is computed as the cost divided by 

the pounds of avocados exported to the United States. 

Supply of Mexican Avocados 

The per pound cost of compliance reduces the net price received by Mexican avocado 

growers. An increase in the cost of compliance will reduce the quantity of avocados 

exported to the U.S., all else constant. Similar to the model representation of the 

supply of avocados from California, the export supply of avocados from Mexico to 

the United States is represented using a CET revenue function and linear supply 

function for the level of the aggregate avocado-specific factor used. The export 

revenue function for Mexican avocado growers is specified as: 
28

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 12

Number of avocados inspected in the field, at packinghouses, and at the border 

 Number of fruit cut (thousand) Value 

Year In the field for Packing Border Total (Million 

US$) 

 JLSV USDA Total 

2000/01 651.5 558.3 1,209.8 171.0 17.3 1,398.1 0.358 

2001/02 937.8 678.6 1,616.4 347.5 41.2 2,005.5 0.457 

2002/03 1,795.6 954.3 2,749.9 545.6 50.5 3,345.0 0.799 

2003/04 1,785.0 1,275.7 3,060.8 816.4 71.3 3,948.5 1.047 

2004/05 2,325.5 1,728.5 4,054.0 1,104.6 87.6 5,246.2 1.407 

Source: Interviews with Michoacán Avocado Exporter, Packers and Growers Association (APEAM), 

May 2005 (Orden and Peterson, 2005). 

Table 13

Avocados inspected as a percentage of total exports 

Year Field Packing Border Total 

2000/01 0.024 0.0034 0.00034 0.028 

2001/02 0.015 0.0033 0.00039 0.019 

2002/03 0.021 0.0042 0.00039 0.026 

2003/04 0.016 0.0043 0.00038 0.021 

Average 0.019 0.0038 0.00037 0.023 

Note: The quantity of fruit cut is obtained from the estimates in Table 12. Each avocado is assumed to 

weigh approximately one-half pound, based on a 25-pound box that contains 48 avocados. 

Source: Total exports for the October – September marketing year are obtained from Foreign Trade 

Statistics, U.S. Census Bureau, Department of Commerce. 
29

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

(27) ( ) ( ) ( )( ) { }

1

1 2 R p V p GCOST p GCOST V , 1 β β β = − +− − δ δ .

14 

Because no information is available on how the use or nonuse of the growercompliance measures affects the pest infestation level in Mexico, the infestation level 

is assumed to be constant. Thus, the expected productivity of the avocado-specific 

factor in Mexico remains constant, and no adjustment to V is required in equation 

(27). The conditional export supply functions for seasons 1 and 2 are: 

(28) ( ) ( ) ( )( ) { }

1 1 1

11 1 2 y p GCOST p GCOST p GCOST V 1 ββ β β δδ δ − −

= − − +− − and 

(29) ( )( ) ( ) ( )( ) { }

1 1 1

22 1 2 y 1 1 p GCOST p GCOST p GCOST V ββ β β δδ δ − −

=− − − +− − . 

The supply function for the aggregate avocado-specific factor is specified as: 

(30) { } ( ) ( )( )

1

1 2 V c d p GCOST p GCOST 1 β β β =+ − + − − δ δ . 

Costs of Compliance for Mexican Avocado Packers/Exporters 

There are currently 21 packinghouses approved to export avocados to the United 

States under the systems approach requirements. About 300 packing operations ship 

avocados from Michoacán to domestic markets or export destinations (such as Japan, 

Canada, and Europe) that do not require the U.S. systems approach measures. These 

packing operations vary from open sheds where sorting into weight grades is 

undertaken by hand and there are no cold storage facilities to modern enclosed 

facilities with machine sorting and refrigeration. 

Packers/exporters incur four types of costs for participation in the U.S. export 

program: (1) investments to establish fruit fly quarantine conditions at their plants; 

(2) operating costs of certification and fruit fly protection during picking and 

processing; (3) costs for SAGARPA inspectors to cut fruit and undertake other 

quarantine activities; and (4) fees to APEAM to reimburse APHIS for its inspection 

costs and for an avocado promotion program. The model parameters associated with 

these costs are shown in table 11. 

Plant Quarantine Requirements: The systems approach requires that packing plants 

maintain enclosed quarantine conditions so that fruit flies cannot enter the area where 

fruit is processed and stored. Costs of upgrading a facility vary, depending on the 

initial structure. For less formal packing operations, these costs can be substantial, 

but for modern facilities the costs are relatively modest. 

For example, for a medium-sized, relatively modern plant currently shipping only to 

the domestic market, but already equipped with machine sorting and cold storage 

facilities, the estimated cost of upgrading to meet USDA requirements is around 

$50,000. Upon approval, the plant owner can anticipate shipping about 50 containers 

(refrigerated truck loads) per year, about half to the domestic market and half to the 

14 Note that the parameters 

δ and β in equation will 

differ than those in 

equation. The same 

symbols are used in order 

to reduce the amount of 

notation. 
30

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

United States. Since each container carries 40,000 pounds, total shipments to the 

U.S. would equal 1 million pounds. Assuming the upgraded facilities would 

depreciate over 10 years, the projected cost for avocados shipped to the United States 

(without discounting) would be around $0.005/lb (one-half cent). 

An additional cost to the packing firm is the fee to become a member of APEAM. In 

2004, each newly approved packing shed paid a fee of $150,000 for membership. 

These fees, which are based on the value of APEAM assets and have risen from 

$35,000, are not included in our model. 

Costs of Fruit Fly Protection and Certification: Packers usually purchase fruit on the 

trees and are responsible for picking it and delivering it to the packing sheds. The 

systems approach requires certification that the fruit comes from approved orchards, 

protection from fruit flies with netting from harvest to delivery, and delivery to the 

packing shed within 3 hours of picking. These requirements do not raise the cost of 

the packing operations much beyond the inspection reimbursement costs. 

Under the systems approach, inspectors from SAGARPA and APHIS must be present 

at the plant from arrival of the fruit from the field to its loading into sealed containers 

for shipment to the United States. The cost to the packing firms for the SAGARPA 

inspectors is collected by Sanidad Vegetal and runs about $12,000 per year per plant. 

The APHIS inspection costs budgeted for the avocado program (under the 2004 rule) 

for Fiscal Year 2005 (October 1, 2004-September 30, 2005) totaled $1,275,201. This 

amount includes fixed costs for permanent staff in Uruapan ($280,788) and for 

expenses of the APHIS Guadalajara office ($55,152), and variable costs for field 

inspection staff ($939,261). Based on exports of 104.24 million pounds of avocados 

between October 16, 2004 and April 23, 2005, the variable cost of field inspection 

staff is estimated at $0.009 per pound. 

The increase in inspection costs for year-round access to the U.S. market was 

undetermined at the time of our field research and will depend on the intensity of the 

inspection effort. In our analysis, we assume that the inspection intensity will remain 

constant, implying that the variable cost will remain at $0.009 per pound. However, 

one initial estimate is that the variable cost of the field inspection staff will increase 

by around 40 percent to $1.3 million. If annual exports increase by more than 40 

percent compared with exports during October 16, 2004 –April 23, 2005, then the per 

pound variable cost of APHIS inspection will decline. 

Model Formulation of Packer/Exporter Compliance Costs: The per pound cost of 

compliance for Mexican avocado packers/exporters (PCOST) is specified as: 

(31) ( ) 11 2 2

1 2

inspect plants paphisf pfruit p y p y * *

PCOST pinvest paphisv

y y

++ +

=+ +

+ , 

where pinvest = cost per pound of packing plant investment, 

paphisv = variable cost portion of APHIS inspection costs, 

paphisf = fixed cost portion of APHIS inspection costs, 

inspect = cost of SAGARPA inspectors per plant, 

plants = number of packing plants, and 

pfruit = proportion of total exports cut and inspected in packing plants. 
31

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

The cost of compliance for Mexican packers is assumed to be part of the marketing 

margin for Mexican avocados sold in the United States. In our analysis, the number 

of packing plants is held constant. Because the per pound cost of compliance will 

vary with the level of exports, it is necessary to identify this portion of the marketing 

margin separately. The wholesale price (wp) for Mexican avocados in a given region 

in the U.S. can be expressed as: 

(32) wp p m PCOST =++ , 

where p is the Mexican producer price and m is the remaining component of the 

marketing margin, which is held constant in the model. 

Other Packer/Exporter Costs of Exporting to the United States: In addition to the 

costs to growers and packers, there are two additional costs of exporting avocados to 

the United States: (1) border inspections (information on this cost was not collected, 

but it is small given the limited number of fruits inspected at the border, which are 

bagged separately at the packing plants) and (2) an avocado promotion fee of 

$0.026/lb required for the past 2 years under U.S. law for all avocados sold in the 

United States. For avocados from Mexico, this fee is used for promotional activities 

and is administered by the Mexican Hass Avocado Importers Association (MHAIA). 

Neither of these costs is included in the model. 

U.S. Consumer Demand 

The U.S. demand for avocados is derived from a weakly separable utility function for 

a representative consumer.15 The utility function is assumed to partition all goods 

purchased by consumers into avocados and everything else. In addition, avocados 

produced in each of the supply regions are assumed to be heterogeneous products. 

This assumption rests on observed wholesale price differentials in the United States. 

Figure 2 shows the assumed preference structure for a representative consumer. 

There are two different substitution possibilities in consumption. The parameter σ 2

represents the elasticity of substitution between avocados from the different supply 

regions. An increase in the price of California avocados, for example, relative to the 

price of avocados from Mexico and Chile will lead the representative consumer to 

substitute the less expensive imports for the more expensive California product.16 

The parameter σ1 represents the elasticity of substitution between avocados from all 

supply regions and all other goods. An overall decrease in the relative price of 

avocados (represented by a price index) would lead the representative consumer to 

increase consumption of avocados from all regions.17 Thus, the value of the parameter 

σ1 will determine the magnitude of the aggregate own-price elasticity of demand for 

avocados in the model. 

15 The assumption of weak 

separability allows the 

demand for avocados to be 

specified as a function of 

avocado prices, an avocado 

price index, and total 

expenditure. 

16 In a homogeneous goods 

model, σ 2 would equal 

infinity, that is, avocados 

from the different supply 

regions would be perfect 

substitutes. 

17 The price of all other 

goods is held constant in the 

partial equilibrium model, 

and any change in the 

avocado price index 

represents a change in 

relative prices.
32

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Figure 2 

Preference structure for a representative consumer 

Utility of representative consumer 

Fresh Hass avocados All other goods 

σ1 

Californian

σ2 

Chilean Mexican 
Benchmark Market Data, Model Calibration, 

33

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

The parameters of our model are set to correspond to the benchmark market 

equilibrium data. Details of the benchmark data, along with a discussion of the 

model calibration and sensitivity analysis of several of the model parameters, are 

given below. 

Benchmark Data 

Implementing the empirical model requires specifying a set of prices and quantities 

that represents an initial equilibrium. These values, shown in table 14, constitute 

the benchmark. All prices and quantities are averages from October 15, 2001 to 

October 15, 2003. During this period, Mexico was allowed to export only into 

Region A during Season 1. The advantage of using a multiyear base is that it 

reduces the chance of choosing an unusual year. A 2-year benchmark period is 

chosen, instead of a longer period, because of increased imports from Mexico and 

Chile in recent years. 

During the benchmark period, risks from fruit fly and avocado pests are assumed to 

be zero due to the combination of compliance measures in Mexico and the seasonal 

and geographic restrictions. 18 The quantity data for California avocados are based 

on monthly shipment information provided by the Avocado Marketing Research 

and Information Center. 19 Quantities of avocados imported from Chile and Mexico 

are from U.S. Census Bureau monthly data. The benchmark data are averages of 

the annual quantities demanded, as shown in table 3, disaggregated between 

Seasons 1 and 2. Total consumption of fresh avocados in the United States is 

almost evenly split between the two seasons. California and Chile each provided 

about 40 percent of the avocados consumed during Season 1 and Mexico provided 

about 20 percent. California avocados dominate U.S. consumption during Season 

2, accounting for 75 percent. 

Wholesale price data are based on reports by USDA’s Agricultural Marketing 

Service (AMS). Wholesale avocado price data were available for Atlanta, 

Baltimore, Boston, Chicago, Dallas, Detroit, Los Angeles, Miami, New York, 

Philadelphia, Pittsburgh, San Francisco, Seattle, and St. Louis. In both seasons, 

wholesale prices of California avocados are substantially higher than prices of 

Chilean avocados in all demand regions, while Chilean and Mexican avocados have 

similar wholesale prices in Region A during Season 1. During the benchmark 

period, the unweighted average wholesale price for California avocados across our 

four demand regions was $1.48 per pound during Season 1 and $1.70 per pound 

during Season 2, while the average prices for avocados from Chile were $1.18 and 

$1.44 per pound, respectively. 

California producer prices are FOB prices reported by the California Avocado 

Commission. Chilean producer prices are unit import prices reported by USDA’s 

Foreign Agricultural Service (FAS). Mexican producer prices are the average price 

paid by Mexican packers for fruit shipped to the United States (Orden and Peterson. 

2005). Producer prices for avocados from California exceed those of Chile or 

Mexico during the benchmark period. In the benchmark data, California produces 

a larger quantity of avocados in Season 2 at higher producer and wholesale prices 

than in Season 1. Chile provides a larger quantity of exports during Season 1 than

18 This zero-risk assumption 

does not affect our 

comparison of simulation 

results with the benchmark 

results under alternative rules 

and expanded exports. 

 

19 AMRIC was created by 

California State law in 1985 

to provide the California 

avocado industry with daily 

inventory and shipment 

information to guide 

harvest/market strategies. 
34 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 14

Benchmark data in the model 

 Supply region 

Quantity demanded California Chile Mexico 

 Season 1 Million pounds 

Region A 14.115 12.869 58.247 

Region B 12.794 12.002 0 

Region C 56.209 53.156 0 

Region D 32.696 30.182 0 

Total Supply 115.814 108.209 58.247 

 

 Season 2 

Region A 61.490 18.335 0 

Region B 18.329 5.485 0 

Region C 91.598 27.384 0 

Region D 58.780 17.401 0 

Total Supply 230.197 68.605 0 

 

Wholesale prices 

 Season 1 Dollars per pound 

Region A 1.470 1.103 1.080 

Region B 1.562 1.370 N/A 

Region C 1.515 1.216 N/A 

Region D 1.378 1.058 N/A 

 

 Season 2 

Region A 1.744 1.461 N/A 

Region B 1.748 1.573 N/A 

Region C 1.720 1.426 N/A 

Region D 1.592 1.291 N/A 

 

Producer prices 

 Season 1 0.871 0.577 0.540 

 Season 2 1.101 0.599 N/A 

 

System compliance costs 

 Growers N/A N/A 0.081 

 Packers/Exporters N/A N/A 0.026 

 ————continued 
35 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 14 

Benchmark data in the model (continued)

Demand region 

Region A Region B Region C Region D 

Per-capita income 

 Season 1 $16,249 $13,796 $14,450 $16,500 

 Season 2 $16,527 $14,072 $14,733 $16,854 

 

Millions 

Population 149.274 58.333 59.855 21.929 

Sources: Demand quantities: averages of annual quantities shown in table 2 and separated between 

Seasons 1 and 2. Wholesale prices: Market News Archive, USDA Agricultural Marketing Service, 

Wholesale Market Fruit Reports (various issues). Producer prices: California avocado prices are FOB 

prices reported by the California Avocado Commission. Chilean producer prices are unit import prices 

reported by USDA’s Foreign Agricultural Service (FAS). Mexican producer prices are the average price 

paid by Mexican packers for fruit shipped to the U.S., reported in Orden and Peterson (2005). Per capita 

income: State quarterly personal income from U.S. Department of Commerce, Bureau of Economic 

Analysis. Population: mid-year State population estimates from U.S. Census Bureau. 
36

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

in Season 2, despite lower wholesale and (slightly) lower producer prices in the first 

Season. 

The margin between producer and wholesale prices is derived by subtracting the 

benchmark producer price from the benchmark wholesale price. For example, the 

margins in Region A in Season 1 are $0.60 per pound for California avocados, 

$0.53 per pound for Chilean avocados, and $0.54 per pound for Mexican avocados. 

The marketing margin for Mexican avocados includes the packers’ costs of 

compliance with the systems approach. The margins for California and Chile are 

assumed to remain constant in all model simulations, while marketing margins for 

Mexican avocados adjust to changes in packers’ per pound compliance costs. 

Using the benchmark export volume, the calculated cost of compliance is $0.081 

per pound for Mexican avocado growers and $0.026 per pound for Mexican 

packers/exporters. Compliance costs are approximately 15 percent of the Mexican 

producer price and 5 percent of the wholesale margin on Mexican avocados. 

Model Calibration 

The parameters in the supply and demand equations are chosen to replicate the 

initial equilibrium identified in the benchmark data while satisfying a set of 

elasticities obtained from the literature. A full description of the calibration 

procedures is provided by USDA/APHIS (2004a). 

Demand Calibration: Little empirical evidence exists on the magnitude of demand 

elasticities for avocados. Carman and Craft (1998) estimated the inverse demand 

for California avocados using annual data from 1962 through 1995. They obtained 

a price flexibility of -1.33 when per capita consumption of California avocados 

equaled 1.01 pounds and the producer price of avocados, deflated by the consumer 

price index (1982-84 base), equaled 51.29 cents per pound. Because per capita 

consumption and the real producer price in our benchmark data differ from those 

used by Carman and Craft, their flexibility estimate must be adjusted. Using the 

parameter estimates reported in Carman and Craft (equation (10)), per capita 

consumption of California avocados of 1.198 pounds, and a real producer price of 

56.31 cents per pound yield a price flexibility of -1.60, or a demand elasticity of 

-0.62. 

Because the demand elasticity estimate derived from Carman and Craft is for 

producer prices, it must be adjusted to the wholesale level to be consistent with our 

model. The wholesale-level demand elasticity is obtained by multiplying the 

producer-level demand elasticity by the ratio of the wholesale price to the producer 

price.20 In the benchmark data, the average ratio of wholesale price to producer 

price for California avocados across all markets and seasons is 1.63, yielding a 

wholesale-level demand elasticity of -1.02 for California avocados. 

The value of the demand elasticity for California avocados is used to determine the 

values of the unknown demand parameters σ1 and σ 2 in each region. However, 

with two unknown parameters, we need an additional elasticity estimate to 

calibrate the model. This could be either an elasticity estimate for Chilean or 

Mexican avocados or an aggregate demand elasticity for all avocados. Because no 

elasticity estimates are available for Chilean or Mexican avocados, we use the 

20 This assumes that the 

elasticity of substitution 

between avocados and all 

other inputs at the 

wholesale level is equal 

to zero (e.g., fixed 

margins). This 

assumption is consistent 

with the treatment of the 

marketing margins in the 

model. 
37

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Californian demand elasticity to estimate a consistent aggregate demand elasticity 

for avocados. We compute the aggregate demand elasticity by multiplying the 

wholesale-level demand elasticity of -1.02 for California avocados by California’s 

share of the total supply, which equals 0.595 across regions and seasons. Thus, the 

implied aggregate wholesale-level demand elasticity is equal to -0.61. Using these 

two elasticity estimates, we obtain values of 0.6 and 1.85 for σ1 and σ 2 , 

respectively. These values are then used to determine the shift parameters in the 

nested CES utility function in order to replicate the quantities demanded in the 

initial benchmark data (see USDA/APHIS 2004a). 

Supply Calibration: Values of two parameters are required to implement the supply 

equations in the model: the aggregate supply elasticity and the elasticity of 

transformation. The aggregate supply elasticity determines how easily total 

production can expand or contract as the avocado price index changes. In their 

study, Carman and Craft estimated that the supply elasticity for California avocados 

ranged from approximately 0.2 in the short run to a maximum of 1.3 in the long run. 

Romano (1998) used an aggregate supply elasticity of 0.35 for California avocados, 

which we use in this analysis. Mexican export supply is assumed to be very elastic, 

with a supply elasticity of 50.0. Less than 20 percent of the output from approved 

orchards was exported in the benchmark period, so additional quantities could be 

shifted into exports at little or no added cost. For Chile, the relevant aggregate 

supply elasticity is the export supply, not total supply. Assuming the same total 

supply elasticity as for California, and adjusting this value based on the percentage 

of Chilean production exported, we use an aggregate export supply elasticity of 0.64 

for Chile (0.35/0.547). During the years 2000 - 2002, 54.7 percent of Chilean 

avocado production was exported. 

The elasticity of transformation, which is equal to 1− β in equation (19), 

determines the ease with which avocado producers can shift their sales between the 

two seasons as relative producer prices between the periods change. Given small 

observed differences in the relative quantity of avocados sold across seasons, the 

elasticity of transformation is assigned a small value, 0.5, in the model. The values 

of the parameter δ for each region are chosen in order to replicate the seasonal 

supplies of avocados. Mexico is not allowed to export avocados to the United 

States during Season 2 in the benchmark data, which implies that δ must equal 1 in 

equation (29). In the simulations where this seasonal restriction is removed, δ is 

set equal to 0.4 for Mexico. This value matches the proportion of Mexico’s 

worldwide exports during Season 1. 

Modeling Consumer Preferences with the Removal of Import Restrictions: To 

simulate the change in import restrictions under the 2004 rule that allows expanded 

seasonal and geographic access for Mexican avocados, it is necessary to adjust the 

shift parameters of the CES utility function for Region A in Season 2, and for 

Regions B, C, and D in both periods, from the initial zero values used to denote the 

policy-induced zero consumption of Mexican avocados in the benchmark period. 

This raises the issue of how to adjust the preference parameter values. 

A change in the shift parameters can be thought of as a “varietal effect” that reflects 

non-price influences on the relative demand for avocados from each of the supply 

regions. Even if avocados from the three supply regions were equal in price, 
38

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

demand for them would not be the same because of consumers’ perceptions and 

preferences. 

Following Venables (1987), we assume that with the change in import restrictions, 

shift parameter values for avocados from Mexico that are initially zero can be 

equated to the shift parameter values for Chilean avocados. In Regions B, C, and D 

during Season 1, the shift parameters for California avocados are equal to 0.4 and 

the shift parameters for both Chilean and Mexican avocados are equal to 0.3. The 

preference (varietal effect) for California avocados is based on initial shift 

parameters of approximately 0.6 and 0.4 for avocados from California and Chile. 

While the quantity market shares of California and Chilean avocados are almost 

equal, there is a wholesale price premium for California avocados. This implies a 

varietal effect towards California avocados, which may be a result of marketing 

activities by the California Avocado Commission or of consumer perceptions that 

fruit from California is fresher than fruit from Chile. Setting both the Chilean and 

Mexican shift parameters equal to 0.4—the initial value for Chilean avocados—

would eliminate the existing varietal effect that favors California avocados. We 

believe that eliminating this preference for California avocados would be 

unrealistic. 

In Season 2, the shift parameters for Mexican avocados in all regions are set equal 

to the initial shift parameters for Chilean avocados in the benchmark period. For 

example, in Region A, the initial shift parameter for avocados from Chile during 

Season 2 is equal to 0.1756. With the new rule, the shift parameter for avocados 

from Mexico is also set equal to 0.1756, and the preference parameter for California 

avocados is decreased by the same amount, since the coefficients must sum to 1 for 

each demand region in each season. A larger varietal effect for California avocados 

is justified in the second season due to seasonal production patterns. More fresh 

avocados are available from California than from Chile and Mexico during the 

summer months. 

Sensitivity Analysis for Selected Model Parameters 

There is uncertainty about the values of some of the parameters in the model. To 

incorporate this uncertainty, a sensitivity analysis is performed around three types 

of parameters: (1) yield and productivity losses incurred by California avocado 

producers as a result of any pest infestations (as described above), (2) the elasticities 

of substitution (and implicitly from these choices the own-price elasticities of 

demand), and (3) the elasticity of supply in each country. The mean and range of 

the parameters in the sensitivity analysis are shown in table 9 for the yield and 

losses of California producers and in table 15 for elasticities of substitution and 

supply. The parameter sensitivity analysis uses symmetric order-three Gaussian 

quadratures. 21 This procedure assumes that each uncertain parameter has an 

independent uniform distribution with known (or estimated) endpoints. A sample 

of parameters is drawn from these distributions and the model is resolved using 

each set of parameter values. 

The procedure for drawing the sample of parameters is as follows: Let n be the 

number of parameters to be included in the sensitivity analysis. Then let 

( ) 1 2 , ,, k k k kn Γ = γ γ γ K be the kth quadrature point, where k = 1, 2, ..., 2n. Define 

an integer r = 1, 2, ..., z such that z does not exceed n/2. For example, if n equals 5, 

21 Stroud (1957) has 

shown that for a 

symmetric distribution, 

such as the uniform or 

triangular, the model 

needs to be resolved only 

2n times, where n is the 

number of exogenous 

variables or parameters, 

in order to conduct a 

systematic sensitivity 

analysis. Arndt and 

Hertel (1997) have 

shown that systematic 

sensitivity analyses 

conducted using orderthree quadratures are as 

accurate as higher order 

quadratures. 
39

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

Table 15 

Consumer substitution and producer supply parameters in the 

sensitivity analysis 

Variable Description Mean Minimum Maximum

 

σ1 Elasticity of substitution 

between avocados and all 

other goods 

0.6 0.3 0.9

 

σ 2 Elasticity of substitution 

between avocados from 

different regions 

1.85 1.25 2.45

aggsupply 

California 0.35 0.175 0.525

Chile 0.64 0.32 0.96

Mexico 50 25 75

Note: the choice of σ1 and σ 2 results in a mean own-price elasticity of -

0.98, a minimum value (in absolute terms) of -0.59, and a maximum value of 

-1.37. 

Source: Sensitivity analysis by authors. 

then r would equal 2 because r cannot exceed 5/2. Elements of the Γ matrix are 

then chosen using the following formulas: 

(1) ( )

,2 1

2 1

2 cos k r

r k

n

π

γ −

⎡ ⎤ − = ⎢ ⎥ ⎣ ⎦

 and 

(2) ( )

,2

2 1

k r 2 sin

r k

n

π

γ

⎡ ⎤ − = ⎢ ⎥ ⎣ ⎦

. 

Note that if n is an odd number, then ( ) 1 k

kn γ = − . The values of the parameters for 

each quadrature point are then determined using the formula: 

(3) Φ= +Γ Σ μ , 

where Φ is a (2n x n) matrix of values of parameters, μ is a (2n x n) matrix 

of the mean values of the parameters, Γ is a (2n x n) matrix defined above, 

and Σ is a (n x n) diagonal variance/covariance matrix for the parameters. 

Since all of the parameters are assumed to be independent, Σ is a diagonal 

matrix. 
Simulation Analysis of Alternative Systems 

40

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

To evaluate the risk and economic outcomes for alternative systems approaches, 

three scenarios are analyzed and compared to the initial benchmark results. 

● Scenario 1 eliminates the geographic and seasonal restrictions on imports 

from Mexico under the 2001 rule while maintaining the other compliance 

measures of the systems approach. This corresponds to implementation of 

the 2004 rule. 

● Scenario 2 eliminates the geographic and seasonal restrictions as well as 

eliminating fruit fly monitoring of orchards (field trapping) and quarantine 

requirements during harvests and packing (post-harvest safeguards) in 

Mexico. This is assumed to raise the probability of a fruit fly infestation 

during pre- or post-harvest (prob1 in equation 20) from its systems 

approach level (2.5E-06) to its level without the risk mitigation measures 

(5.5E-04), as shown in table 5. Other fruit fly and avocado-specific pestrisk probabilities are assumed to remain at their systems approach levels, 

because inspections continue in packing plants and at the U.S. border. 

● Scenario 3 removes all compliance measures that have been applied to 

avocado imports from Mexico. The risk probabilities (prob1-prob4 and 

prob6 in equation 20) are assumed to be at their levels for no riskmitigation measures (given in tables 5-8). 

In each scenario, we consider the outcomes under the average and maximum (high) 

risk probability levels given in the tables. 

The three scenarios imply different compliance costs for Mexican growers and 

packers/exporters. In the first two scenarios, compliance costs per pound will 

depend on the equilibrium export quantities. In scenario 2, eliminating all fruit fly 

monitoring will also reduce the direct costs of Sanidad inspections. Approximately 

one-third of the $1,283,772 cost for technical labor, or $427,924, was estimated in 

our field interviews to be incurred for fruit fly monitoring. Adding the cost of traps 

($26,000) and chemicals ($158,147) yields a total cost of $612,071 for fruit fly 

monitoring for a single annual pest survey. Since inspections are required twice per 

year under the 2004 rule, the total cost reduction from eliminating fruit fly 

monitoring for the Mexican growers is assumed to be $1,224,142. Subtracting this 

from our earlier estimates of the cost of pest surveys of $3,568,144 yields 

$2,344,002, or $85.58 per hectare. Thus, while the cost of pest surveys increases 

with the requirement for two surveys per year, the increase would be much smaller 

if the costs of monitoring fruit flies were eliminated. For Mexican 

packers/exporters, eliminating the need for packing plant quarantine for fruit flies 

would mean that the $0.005/lb cost for upgrading their facilities would no longer be 

necessary. In scenario 3, all of the systems approach requirements are eliminated. 

Mexican avocado growers and packers/exporters thus would not incur any 

compliance costs to export to the United States. 

Pest Outbreaks: Frequencies, Costs of Compliance, and Costs of Control 

A critical aspect of the simulation equilibrium outcomes is the frequency of pest 

outbreaks in the United States. The results depend on the risk probability levels for 

the assumed compliance measures and the quantity of exports of Mexican avocados 

to pest-susceptible regions in the United States. The frequencies (number per 
41

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

season) of expected pest outbreaks are shown in table 16 for the equilibrium 

outcomes in the three scenarios. Simulated per pound cost of compliance for 

Mexican growers and packers/exporters, and the expected costs of pest control (CP) 

in California avocado orchards, are also shown. 

For fruit flies, the frequency infestation is very low (no more than 4.0E-06 per year) 

in scenario 1. The frequency increases by an order of magnitude (to at most 3.6E05) under the high pest-risk probabilities. Eliminating the compliance measures 

specific to fruit flies in Mexico (scenario 2) raises the frequency of outbreaks in the 

United States by two orders of magnitude, and eliminating all of the systems 

approach pest control compliance measures (scenario 3) raises these risks another 

two orders of magnitude. The estimated frequency of a fruit fly infestation reaches 

a maximum of 0.11 in scenario 3 in Region C during Season 1. For Southern 

California (Region D), the expected cost of controlling the fruit fly infestations 

never exceeds $0.00022 per pound when averaged over the quantity of avocados 

produced under scenario 3. The cost of fruit fly control for expected outbreaks due 

to importing avocados from Mexico remains low in regions B and C (less than f 

$124,000 for the worst case of high pest-risk probabilities in scenario 3) and is not 

shown in table 16. 

The expected frequencies are also quite low for infestations of avocado-specific 

pests due to imports from Mexico under the 2004 rule (scenario 1). Among 

avocado pests, the frequency of an outbreak is highest for stem weevils by two 

orders of magnitude. Stem weevil outbreak frequencies also increase by an order of 

magnitude under the high pest-risk probabilities (from 4.9E-03 to 4.1E-02). The 

avocado-specific pest frequencies are not affected directly by removing the fruit fly 

compliance measures in scenario 2, 22 but the outbreak frequencies rise by two 

orders of magnitude when all compliance measures are eliminated. For the stem 

weevils, expected frequency of an outbreak reaches approximately 0.75 per season 

under the average pest-risk probabilities and 6.4 per season under the high pest-risk 

probabilities. Thus, without any systems approach compliance measures, avocado 

stem weevil outbreaks resulting from imports from Mexico are likely, possibly 

multiple times in a typical year. The expected frequencies of other avocado pest 

outbreaks remain two orders of magnitude smaller. 

The alternative compliance requirements under scenarios 1-3 have substantial 

implications for the costs borne by Mexican avocado growers and packers/exporters 

and the costs of avocado pest control and production losses borne by California 

producers. In scenario 1, Mexican compliance costs are estimated to be $0.037 per 

pound for growers and $0.019 per pound for packers/exporters, a total of $0.056 per 

pound, compared with a total of $0.107 per pound of avocados exported in the 

benchmark.. These per pound compliance costs are 45.7 percent of the benchmark 

costs for growers and 73.1 percent of the benchmark costs for packers/exporters. 

Although compliance requirements increase with year-round shipping from $6.267 

million to $11.644 million, the volume of exports increases enough that per pound 

costs are sharply lower. 

When specific compliance measures for fruit flies are eliminated in scenario 2, the 

per pound cost of compliance falls still farther for both growers and 

packers/exporters (to $0.031 per pound and $0.014 per pound, respectively). This 

additional decrease of $0.011 per pound arises primarily from a $2.23-million 

22 There is a slight increase in 

these probabilities due to a 

small increase in the 

equilibrium quantity of avocado 

exports entering Regions D in 

scenario 2 compared with 

scenario 1. 
42

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 16Frequency of pest outbreaks and compliance and pest control costs under alternative systems 

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: Uwithout comp

Frequency of outbreak Risk probability level  Average High Average High Average Fruit flies  Season 1  Region B 1.0E-06 7.0E-06 1.6E-04 1.4E-03 2.5E-03  Region C 4.0E-06 3.6E-05 8.7E-04 7.4E-03 1.3E-02  Region D 2.0E-06 2.0E-05 4.9E-04 4.1E-03 7.5E-03  Season 2  Region B 1.0E-06 5.0E-06 1.2E-04 1.0E-03 1.9E-03  Region C 3.0E-06 3.2E-05 7.6E-04 6.4E-03 1.2E-02  Region D 2.0E-06 2.1E-05 5.0E-04 4.2E-03 7.6E-03 Seed weevil  Season 1 1.9E-05 1.8E-04 1.9E-05 1.8E-04 6.1E-03  Season 2 1.9E-05 1.8E-04 2.0E-05 1.8E-04 6.2E-03 Stem weevil  Season 1 4.9E-03 4.1E-02 4.9E-03 4.1E-02 7.5E-01  Season 2 4.9E-03 4.2E-02 5.0E-03 4.2E-02 7.6E-01 Seed moth  Season 1 1.0E-06 6.0E-06 1.0E-06 6.0E-06 1.8E-03  Season 2 1.0E-06 6.0E-06 1.0E-06 6.0E-06 1.8E-03 Mexican compliance costs  Growers 0.037 0.031 0. Packers/Exporters 0.019 0.014 0.Costs for California avocado orchards  Fruit flies 0.0 0.0 1.6E-06 7.5E-06 2.5E-05  Seed weevil 2.6E-07 2.4E-06 2.6E-07 2.4E-06 8.2E-05  Stem weevil 6.5E-05 5.5E-04 6.6E-05 5.6E-04 1.0E-02  Seed moth 0.0 0.0 0.0 0.0 2.4E-05 Source: Derived by the authors from model simulations. 
43 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

reduction in compliance costs compared with scenario 1, as the quantity of exports 

only slightly increases in scenario 2. 

When all measures are removed in scenario 3, the associated compliance costs for 

Mexican growers and packers/exporters are also eliminated, but with higher 

expected frequencies of pest outbreaks in the United States. The expected cost of 

control measures for California orchards remain low for seed weevil and seed moth 

outbreaks. However, pest control costs for the relatively frequent outbreaks of stem 

weevil become substantial. These costs are estimated to be $0.01 per pound in 

scenario 3 with average pest-risk probabilities and $0.086 per pound with high pestrisk probabilities. Thus, terminating all measures raises pest control costs for 

California avocado producers to the same magnitude per pound as the compliance 

costs for Mexican avocado producers before the 2004 rule was implemented. In 

addition, California growers suffer output losses due to pest-damaged fruit. 

Market Equilibrium and Welfare With Average Pest-Risk Probabilities 

Producer and wholesale prices, quantities demanded and supplied, producer gross 

revenue, Mexican compliance costs, and expected pest-related costs of control 

incurred by California avocado growers due to imports from Mexico are shown for 

the benchmark and the three simulation scenarios in table 17. These results are for 

simulations based on the average pest-risk probabilities estimated by APHIS. 

In scenario 1, there is a sharp net decline in demand for avocados from California 

and Chile. This is reflected in lower producer and wholesale prices and quantities 

consumed. Producer prices for California and Chilean avocados decline over 30 

percent in each period (slightly more in period 2), and annual equilibrium quantity 

demanded and supplied falls by 11.3 percent for California avocados and by 17.1 

percent for avocados from Chile. Annual producer gross revenue in California 

declines from $354.298 million to $213.155, or by 39.8 percent. For Chile, 

producer gross revenue (export earnings evaluated at producer prices) similarly falls 

from $103.493 million to $63.226 million. Expected pest-control costs for 

California avocado growers due to imports from Mexico are only $20,000. 

With the increased seasonal and geographic access allowed under scenario 1, annual 

exports from Mexico increase by 250 percent, from 58.247 to 206.956 million 

pounds. Due to lower producer and wholesale price, Mexican exports are higher in 

Season 1 (122.697 million pounds) than in Season 2 (84.259 million pounds). 23 

At the producer level, the price of avocados in Mexico declines from $0.540 per 

pound in the benchmark to $0.507 in Season 1 and $0.537 in Season 2 (table 17). 

The larger price decrease in Season 1 is due to the seasonal pattern of Mexican 

avocado exports and U.S. consumption. With lower U.S. per capita consumption 

and higher Mexican exports in Season 1, an expansion of Mexican exports leads 

to a larger decrease in the export price of Mexican avocados in Season 1 than in 

Season 2. The net export prices received by producers also depend on their 

compliance costs. With expanded exports, the per pound compliance costs fall. If 

the growers’ per pound compliance costs in the benchmark and scenario 1 (in tables 

14 and 16, respectively) are subtracted from the corresponding producer prices in 

table 17, the net price received by Mexican avocado growers rises in each season: 

23 The equilibrium quantity of 

avocados from Mexico 

consumed in Region A in 

Season 1 falls to 55.317 

million pounds as avocados 

from California and Chile 

become relatively less 

expensive. In regions B, C 

and D, where imports from 

Mexico were previously not 

allowed, consumption 

increases from zero to 67.383 

million pounds despite falling 

prices for other avocados. 

The regional results are not 

shown in table 17 but are 

available from the authors on 

request. 
44

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 17Equilibrium prices and quantities demanded and supplied under alternative systems: Average risk probabilities 

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: without com

 Simulation outcomes and standard deviations from sensitivity analy Base values Simulation St. dev. Simulation St. dev. Simulation Producer prices Dollars per pound  Season 1  California 0.871 0.587 0.033 0.584 0.033 0.57 Chile 0.577 0.400 0.023 0.398 0.023 0.39 Mexico 0.540 0.508 0.014 0.502 0.014 0.47 Season 2  California 1.101 0.748 0.056 0.746 0.056 0.74 Chile 0.599 0.478 0.040 0.476 0.040 0.47 Mexico 0.540 0.537 0.019 0.532 0.020 0.50Wholesale prices  Season 1  Region A 

 California 1.470 1.186 0.033 1.183 0.033 1.17 Chile 1.103 0.926 0.023 0.924 0.023 0.91 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 Region B 

 California 1.562 1.278 0.033 1.275 0.033 1.26 Chile 1.370 1.193 0.023 1.191 0.023 1.18 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 Region C 

 California 1.515 1.231 0.033 1.228 0.033 1.22 Chile 1.216 1.039 0.023 1.037 0.023 1.03 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 ———
45 

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 17 Equilibrium prices and quantities demanded and supplied under alternative systems: Average risk probabilities 

Scenario 1: Unlimited seasonal 

and geographic access 

with compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: without com

 Simulation outcomes and standard deviations from sensitivity analy Base values Simulation St. dev. Simulation St. dev. Simulation Quantities demanded and supplied Million pounds  Season 1 (total supply) 282.269 312.427 4.856 313.552 4.617 318.02 California 115.815 102.452 3.036 102.268 3.044 100.81 Chile 108.208 87.278 2.940 87.028 2.865 86.11 Mexico 58.247 122.697 4.489 124.256 4.442 131.1 Season 2 (total supply) 298.802 348.093 10.630 348.989 10.396 352.09 California 230.196 204.491 6.311 204.338 6.260 202.61 Chile 68.605 59.343 2.734 59.229 2.694 58.88 Mexico 0.000 84.259 5.518 85.422 5.522 90.58 Annual (total supply) 581.071 660.520 15.296 662.541 14.825 670.12 California 346.011 306.943 8.890 306.606 8.846 303.43 Chile 176.813 146.621 5.323 146.257 5.204 145.00 Mexico 58.247 206.956 9.965 209.678 9.924 221.68Producer gross revenue Million dollars  Season 1  California 100.897 60.160 3.200 59.729 3.221 58.19 Chile 62.398 34.887 1.499 34.608 1.451 33.59 Mexico 31.453 62.329 1.137 62.336 1.071 61.68 Season 2  California 253.401 152.995 12.690 152.379 12.411 150.52 Chile 41.095 28.339 2.946 28.192 2.901 27.76 Mexico 0.000 45.224 4.437 45.402 4.467 45.78 Annual total  California 354.298 213.155 15.063 212.108 14.777 208.71 Chile 103.493 63.226 3.923 62.800 3.843 61.35 Mexico 31.453 107.553 5.257 107.738 5.267 107.47 Mexican compliance costs  Growers 4.726 7.716 0.105 6.496 0.105 0.00 Packers 1.541 3.928 0.160 2.918 0.110 0.00 California expected cost of control 0 0.020 0.008 0.021 0.008 3.09Source: Derived by the authors from model simulations. 
46

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

from $0.459 per pound in the benchmark to $0.461 per pound in Season 1 and 

$0.500 in Season 2. Mexican annual producer gross revenue increases from 

$31.453 million to $107.553 million. 

The net welfare effects of removing the seasonal and geographic restrictions on 

avocado exports from Mexico while retaining the other systems approach measures 

are shown in table 18. Expected producer surplus for California avocado growers 

declines by $107.651 million. This estimate takes into account the impact of 

expanded trade, which leads to lower market prices for California avocados, and the 

effects from small expected pest-control costs and output losses due to pest damage, 

which leads to lower net producer prices for Californian growers. Pest-control costs 

for fruit flies for other U.S. crops are negligible. Producer surplus also declines by 

$25.069 million for Chilean avocado growers, but increases by $3.108 million for 

Mexican avocado growers.24 The smaller increase in Mexican producer surplus is 

due to elastic export supply used in this analysis, which implies that more of the 

benefits of the policy change are passed on to U.S. consumers. This can be seen by 

the estimated total gain in equivalent variation of $179.443 million for U.S. 

consumers across all regions and seasons. U.S. net welfare increases by $71.791 

million for scenario 1. 

In our second scenario, all monitoring of fruit flies in orchards and quarantine 

requirements during harvests and packing are eliminated along with all seasonal and 

geographic restrictions on Mexican avocado exports. This leads to a further 

reduction in Mexican compliance costs, while the expected cost of pest control in 

California remains low. Mexican exports expand by 2.722 million pounds (1.01 

percent) compared with scenario 1, which also lowers per pound compliance costs 

slightly, from $0.056 to $0.045 per pound. Wholesale prices for Mexican avocados 

fall by about $0.01, mainly in response to the lower compliance costs. Gross 

revenue for Mexican growers increases by $185,000, their revenue net of their 

compliance costs rises by $1.405 million, and producer surplus increases by 

$90,000. Effects on quantities supplied and producer and wholesale prices of 

avocados from California and Chile are relatively small. Producer surplus declines 

an additional $832,000 for California growers and $272,000 for Chilean growers 

compared with scenario 1. U.S. consumers benefit from an additional increase of 

$2.586 million in equivalent variation, and net U.S. welfare increases by $1.756 

million, to $73.547 million, compared with scenario 1. Thus, while most of the 

increased trade and net welfare gains come from the removal of seasonal and 

geographic restrictions, there are additional net gains—with little additional pestrisk costs or losses to U.S. producers—from eliminating the compliance measures 

directed specifically at fruit flies. 

In our third scenario, all systems approach measures are eliminated, with associated 

increases in fruit fly and avocado-specific pest risks. Compliance costs in Mexico 

are eliminated, but pest risks are high enough that expected control costs for 

California avocado growers jump to $3.091 million. Producer and wholesale prices 

of California avocados are similar to those in scenario 1, but the quantity of 

avocados supplied annually by California falls by 3.510 million pounds. 

Californian gross producer revenue falls by $4.437 million compared with the first 

scenario, producer revenue less control costs falls by $7.508 million, and producer 

surplus falls by an additional $5.196 million. Chile also experiences a loss of 

exports, gross revenue, and producer surplus compared with scenario 1. Producer 

24 The increase in producer 

surplus for Mexican avocado 

growers does not take into 

account any increases in 

domestic avocado prices in 

Mexico or export prices to 

other countries that arise from 

the shift in sales from these 

other markets to the U.S. 

market. Thus, our estimate 

underestimates the increases 

in welfare to Mexican 

producers. 
47

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 18Producer and consumer welfare under alternative systems: Average risk probabilities 

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: Uwithout comp

 Simulation outcomes and standard deviations from sensitivity analysis  Simulation St. dev. Simulation St. dev. Simulation Welfare change Million dollars  Producer surplus  California -107.651 15.755 -108.483 15.759 -112.847  Chile -25.069 4.693 -25.341 4.701 -26.269  Mexico 3.108 0.981 3.198 1.006 3.607  Equivalent variation  Season 1  Region A 9.350 0.967 10.074 0.991 12.895  Region B 7.676 0.333 8.541 0.503 8.744  Region C 30.537 1.849 31.212 1.825 33.756  Region D 14.882 1.192 15.336 1.192 16.508  Season 2  Region A 32.827 4.112 32.421 4.854 33.259  Region B 10.116 1.507 9.951 1.441 10.381  Region C 46.621 6.062 46.825 6.041 48.976  Region D 27.434 3.962 27.668 3.951 28.79  U.S. annual total 179.443 18.917 182.029 19.547 193.308  Other cost of control – fruit flies 6.5E-06 3.3E-07 0.001 7.3E-05 0.015 Net U.S. welfare change 71.791 6.290 73.547 5.523 80.442 Source: Derived by the authors from model simulations. 
48

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

and wholesale prices of Mexican avocados decline with zero compliance costs, and 

Mexican avocado exports increase by 14.732 million pounds compared with 

scenario 1. Gross producer revenue in Mexico decreases by $83,000, but revenue 

net of compliance costs increases by $7.633 million and producer surplus increases 

by $499,000. U.S. consumers again experience net gains: avocado consumption 

increases to 670.121 million pounds (9.601 million pounds more than scenario 1), 

and equivalent variation increases to $193.308 million, which is $13.865 million 

higher than in scenario 1. Net U.S. welfare increases by $80.442 million versus an 

increase of $71.791 million in scenario 1. Thus, there is a substantial additional 

domestic welfare gain associated with eliminating all of the systems approach 

measures, at the average pest-risk probabilities estimated by APHIS, in spite of the 

significant pest-related losses to California avocado growers. 

Market Equilibrium and Welfare With High Pest-Risk Probabilities 

The market equilibrium and welfare results are presented in tables 19 and 20 for the 

three simulations using the high pest-risk probabilities estimated by APHIS. 

Estimated pest risks remain very low in scenarios 1 and 2. In these two scenarios, 

California growers receive slightly lower net prices than in the corresponding 

scenarios under average pest risks, as expected costs of pest control (primarily for 

fruit flies) increase to $170,000 (scenario 1) and $174,000 (scenario 2), 

respectively. Quantities of avocados produced by California growers, and their 

producer surplus, decline slightly compared with the corresponding scenarios under 

average pest risks. Producers in Chile and Mexico benefit slightly from the reduced 

avocado supply from California, with slight increases in producer gross revenue and 

producer surplus compared with the corresponding average risk simulations. 

The increased probability of pest risks and related costs has a negative net effect on 

consumers and net U.S. welfare. When trade is opened up with higher risks of pest 

damage, gains to U.S consumers are smaller and the losses to California avocado 

growers are larger. While these effects are quite small in scenarios 1 and 2, they do 

show that the higher pest risk is detrimental economically. 

Risk impacts are demonstrated vividly in scenario 3 using the high pest-risk 

probabilities. In this scenario, the expected per pound control costs for California 

avocado growers increase to $0.086 (table 16). Equilibrium prices received by 

California producers increase to $0.624 in Season 1 and $0.799 in Season 2, 

compared with $0.577 and $0.743 using the average risk probabilities. With the 

higher pest-control costs, the net price received by California producers falls to 

$0.538 per pound from $0.567 per pound in Season 1 and to $0.713 per pound from 

$0.733 in Season 2. The supply of California avocados declines in response to the 

falling net producer prices as well as the damage to fruit from the avocado pests. 

The equilibrium quantity supplied by California growers falls to 290.008 million 

pounds, compared with 303.433 million pounds supplied in scenario 3 using the 

average risk probabilities. While gross revenue is higher for California growers in 

scenario 3 with high risk probabilities than in the same scenario with average risk 

probabilities, net revenue falls from $205.627 million to $189.843 million. The 

producer surplus of California growers declines by an additional $7.128 million for 

scenario 3 with high pest risk compared with scenario 3 with average risk. The 

decline in California production due to higher pest-control costs and fruit damage 

has a negative effect on U.S. consumers. Wholesale prices for California avocados 
49

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 19 Equilibrium prices and quantities demanded and supplied under alternative systems: High risk probabilities 

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: without com

 Simulation outcomes and standard deviations from sensitivity analy Base values Simulation St. dev. Simulation St. dev. Simulation Producer prices Dollars per pound  Season 1  California 0.871 0.588 0.033 0.584 0.034 0.62 Chile 0.577 0.400 0.023 0.398 0.023 0.39 Mexico 0.540 0.508 0.014 0.502 0.014 0.46 Season 2  California 1.101 0.749 0.056 0.746 0.056 0.79 Chile 0.599 0.478 0.040 0.476 0.040 0.48 Mexico 0.540 0.537 0.019 0.532 0.020 0.51Wholesale prices  Season 1  Region A 

 California 1.470 1.186 0.033 1.183 0.034 1.22 Chile 1.103 0.926 0.023 0.924 0.023 0.92 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 Region B 

 California 1.562 1.278 0.033 1.275 0.034 1.31 Chile 1.370 1.193 0.023 1.191 0.023 1.18 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 Region C 

 California 1.515 1.231 0.033 1.228 0.034 1.26 Chile 1.216 1.039 0.023 1.037 0.023 1.03 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 ———
50

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 19 Equilibrium prices and quantities demanded and supplied under alternative systems: High risk probabilities (con

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: without com

 Simulation outcomes and standard deviations from sensitivity analy Base values Simulation St. dev. Simulation St. dev. Simulation Wholesale prices Dollars per pound  Region D 

 California 1.378 1.095 0.033 1.092 0.034 1.13 Chile 1.058 0.881 0.023 0.879 0.023 0.87 Mexico 1.080 1.041 0.014 1.029 0.014 0.98

 Season 2  Region A 

 California 1.744 1.392 0.056 1.389 0.056 1.44 Chile 1.461 1.340 0.040 1.338 0.040 1.34 Mexico 1.080 1.070 0.019 1.059 0.019 1.02

 Region B 

 California 1.748 1.395 0.056 1.393 0.056 1.44 Chile 1.573 1.451 0.040 1.450 0.040 1.45 Mexico 1.080 1.070 0.019 1.059 0.019 1.02

 Region C 

 California 1.720 1.368 0.056 1.365 0.056 1.41 Chile 1.426 1.305 0.040 1.303 0.040 1.31 Mexico 1.080 1.070 0.019 1.059 0.019 1.02

 Region D 

 California 1.592 1.240 0.056 1.237 0.056 1.29 Chile 1.291 1.170 0.040 1.168 0.040 1.17 Mexico 1.080 1.070 0.019 1.059 0.019 1.02

 ———
51

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 19 Equilibrium prices and quantities demanded and supplied under alternative systems: High risk probabilities (con

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: without com

 Simulation outcomes and standard deviations from sensitivity analy Base values Simulation St. dev. Simulation St. dev. Simulation Quantities demanded and supplied Million pounds  Season 1 (total supply) 282.269 312.414 6.107 313.539 4.621 316.19 California 115.815 102.418 3.011 102.233 3.045 95.58 Chile 108.208 87.282 2.862 87.033 2.864 86.86 Mexico 58.247 122.714 4.476 124.273 4.447 133.75 Season 2 (total supply) 298.802 348.060 8.743 348.955 10.402 347.27 California 230.196 204.437 6.241 204.283 6.262 194.42 Chile 68.605 59.349 2.692 59.235 2.694 59.81 Mexico 0.000 84.274 5.500 85.437 5.527 93.03 Annual (total supply) 581.071 660.474 15.124 662.494 14.835 663.47 California 346.011 306.855 8.803 306.516 8.850 290.00 Chile 176.813 146.631 5.200 146.268 5.204 146.68 Mexico 58.247 206.988 9.934 209.710 9.934 226.78Producer gross revenue Million dollars  Season 1  California 100.897 60.172 3.186 59.739 3.225 59.69 Chile 62.398 34.892 1.515 34.613 1.452 34.38 Mexico 31.453 62.335 1.112 62.342 1.072 62.67 Season 2  California 253.401 153.031 12.517 152.412 12.424 155.40 Chile 41.095 28.347 2.931 28.200 2.903 29.01 Mexico 0.000 45.235 4.434 45.412 4.471 47.45 Annual total  California 354.298 213.202 12.916 212.151 14.793 215.10 Chile 103.493 63.239 3.299 62.814 3.847 63.40 Mexico 31.453 107.570 4.572 107.754 5.272 110.13 Mexican compliance costs  Growers 4.726 7.716 0.105 6.496 0.105 0.00 Packers 1.541 3.928 0.159 2.918 0.110 0.00 California expected cost of control 0 0.170 0.069 0.174 0.070 25.25Source: Derived by the authors from model simulations. 
52

Risk and Economic Assessment: U.S. Imports of Mexican Avocados/CCR-25

Economic Research Service, USDA 

Table 20Producer and consumer welfare under alternative systems: High risk probabilities 

Scenario 1: Unlimited seasonal 

and geographic access with 

compliance measures

Scenario 2: Unlimited access 

without fruit fly compliance 

measures

Scenario 3: Uwithout comp

 Simulation outcomes and standard deviations from sensitivity analysis  Simulation St. dev. Simulation St. dev. Simulation Welfare change Million dollars  Producer surplus  California -107.699 15.768 -108.533 15.772 -119.975  Chile -25.061 4.693 -25.333 4.701 -24.957  Mexico 3.109 0.982 3.199 1.006 3.788  Equivalent variation  Season 1  Region A 9.345 0.967 10.069 0.991 12.099  Region B 7.844 0.308 8.427 0.479 8.276  Region C 30.827 1.895 31.47 1.802 31.641  Region D 15.182 1.175 15.355 1.199 15.087  Season 2  Region A 33.126 4.288 31.883 4.964 29.605  Region B 10.098 1.454 9.794 1.492 9.47  Region C 46.580 6.102 47.209 6.064 44.057  Region D 27.700 3.994 27.668 4.006 25.441  U.S. annual total 180.702 19.115 181.875 19.694 175.675  Other cost of control – fruit flies 6.1E-05 3.3E-07 0.007 3.7E-05 0.124 Net U.S. welfare change 73.002 6.120 73.349 5.737 55.562 Source: Derived by the authors from model simulations. 
53

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

are about $0.05 per pound higher using the high pest-risk probabilities compared 

with the average pest-risk probabilities. Because of the higher wholesale prices, 

consumption of California avocados is further reduced by 13.425 million pounds 

(from 303.433 million to 290.008 million pounds), and there is a 6.648 million 

pound smaller increase in total avocado consumption (670.121 million to 663.478 

million pounds), compared with scenario 3 with average pest risks. The reduction 

in consumption leads to a $17.633 million smaller gain in equivalent variation 

($175.675 million versus $193.308 million). In addition, the increase in consumer 

welfare in scenario 3 is lower than the increases in scenarios 1 or 2. Thus when pest 

risks increase, both consumers and producers are worse off with elimination of the 

systems approach measures than they are if seasonal and geographic restrictions are 

removed while the systems approach measures are retained (at least for the 

avocado-specific pests). In scenario 3, the net U.S. welfare gain is $55.562 million, 

$24.88 million less than the net welfare gain in scenario 3 using the average pest 

risk probabilities. This is the smallest net U.S. welfare gain in all of the scenarios 

and risk levels considered. 

Foreign avocado producers, however, are net beneficiaries in scenario 3 under high 

pest-risk probabilities compared with average risk probabilities. The increase in 

producer surplus for Mexican growers is $181,000 larger, while the decrease in 

producer surplus for Chilean growers is $1.312 million smaller. 

 
Summary and Conclusion 

54 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

In this report, a static, multiseason, partial equilibrium model has been developed to 

evaluate the economic effects of importing fresh Hass avocados from approved 

orchards in Mexico into the United States. Scenarios without geographic or seasonal 

restrictions are evaluated under alternative measures to mitigate pest risks. 

Until 1997, phytosanitary restrictions precluded entry of Mexican avocados into the 

conterminous United States. In November 1997, fresh Hass avocados from Mexico 

were allowed entry into 19 Northeastern States and the District of Columbia during 

a 4-month period from November through February. In 2001, the area approved for 

import was expanded by an additional 12 States, and the period of importation was 

extended to 6 months, October 15 to April 15. The most recent ruling, in November 

2004, effectively eliminates all geographic and seasonal restrictions by allowing 

year-round importation of Mexican avocados into all States by 2007. The 

progression of these USDA phytosanitary rules illustrates that technical trade 

restrictions can be eased when the risk issues can be sharply delineated and 

addressed and governments are firmly committed to negotiations. Easing the 

import ban on Mexican avocados under a systems approach to pest-risk 

management has facilitated trade by opening the U.S. market to Mexican producers 

and resulted in net welfare gains to U.S. consumers, with little added pest risk to 

U.S. producers. 

The model articulated in this report builds on the one used by USDA/APHIS in the 

economic analysis of the full opening of the U.S. market under the November 2004 

rule. That analysis was completed under the assumption that there was no risk of 

pest transmission to the United States as long as the stipulated measures remained 

in effect in Mexico and at the U.S. border. 

The contribution of this report is to extend the earlier analysis to explicitly consider 

pest risks, the costs of compliance in Mexico with the systems approach, and costs 

to U.S. producers for pest control and production losses in the event of a pest 

infestation. The model incorporates three supply regions (Southern California, 

Chile, and Mexico), substitution possibilities between two seasons (winter and 

summer), and four U.S. demand regions. Pest risks and related domestic costs are 

derived from USDA/APHIS studies, and Mexican compliance costs were 

investigated during field research in the avocado exporting state of Michoacán. 

Three alternative compliance scenarios are evaluated with the model: (1) removal 

of all seasonal and geographic restrictions while maintaining all other compliance 

measures (2004 rule), (2) further removal of the compliance measures directed 

specifically toward Mexican fruit flies, and (3) elimination of all systems approach 

requirements. 

Our simulations show that the substantially expanded trade anticipated under the 

November 2004 rule lowers Mexican per unit compliance costs from $0.107 per 

pound to $0.056 per pound of avocados exported. Because pest risks are low with 

the measures still in place, our estimated annual net U.S. welfare gain from 

eliminating all geographic and seasonal restrictions is approximately $72 million, 

similar to the earlier APHIS assessment. 

When the systems approach measures related directly to reducing Mexican fruit fly 

infestations (field trapping and post-harvest quarantine requirements in Mexico) are 

eliminated along with the seasonal and geographic restrictions, we calculate there
55 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

are further compliance cost savings with little increase in pest risks. Compliance 

costs of Mexican growers and packers/exporters fall by another $0.011 per pound of 

avocados exported. The pest risk to U.S. producers increases by two orders of 

magnitude but remains low in absolute terms, and there is an additional net welfare 

gain of nearly $2 million for the United States under the range of risk probabilities 

we apply. 

The outcome is less certain if the systems approach is completely abandoned, with 

all pest risk mitigation measures against fruit flies and the targeted avocado pests 

eliminated. In the best case, based on the APHIS average pest-risk probabilities 

with no control measures, there is an additional gain in net U.S. welfare of $8.7 

million compared with eliminating only the seasonal and geographic restrictions. In 

this case, expanded consumer benefits more than offset additional pest-related 

losses to California producers of nearly $5 million. However, using the maximum 

APHIS pest-risk probabilities, infestations due to imported avocados become 

frequent enough that California producers lose an additional $12 million in 

producer surplus compared with allowing year-round access to all States with the 

measures still in place. Consumer welfare gains are also reduced by more than $3.5 

million in this worst case compared with retaining the systems approach measures 

because pest-related productivity losses in California reduce the domestic supply of 

avocados and lead to higher consumer prices. Overall, the net gain in U.S. welfare 

is $16.2 million less than the net welfare gain from eliminating only the geographic 

and seasonal restrictions. 

Our analysis of these alternative pest-risk management import policies suggests 

three broad conclusions. First, the gains from the USDA decision to allow imports 

of Mexican avocados under a systems approach that does not include seasonal or 

geographic restrictions hold up when pest risks and related costs are incorporated 

into the analysis. Second, there may be modest additional gains from further 

modification of the systems approach to reduce compliance costs associated with 

fruit fly control measures. Third, abandoning the systems approach completely 

would be a less conservative decision in terms of pest-risk or economic criteria. 

That is, it may yield a net gain in U.S. welfare, but at a cost of higher pest-related 

control costs and productivity losses borne by California producers. Moreover, our 

knowledge of pest-risk probabilities is not precise enough to rule out a smaller gain 

in U.S. welfare compared with scenarios when some or all of the measures are 

retained. 
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56 

Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

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Risk and Economic Assessments: U.S. Imports of Mexican Avocados/CCR-25 

Economic Research Service, USDA 

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