You probably don't think about free trade when you dip a chip into some guacamole or bite into an avocado seasoned with just a little lemon juice and salt. But maybe you should. The avocado has become more common — and central to many Americans diets — due to flexible trade agreements and regulations. And in that story is a larger lesson for our economy.
Avocado consumption per person has risen nearly tenfold over the last four decades. But it could have easily remained a marginal fruit for Americans had it not been for the North American Free Trade Agreement of 1994 and some moves by the U.S. Agriculture Department's Animal and Plant Health Inspection Service that dismantled decades-old trade barriers. Today, it's clear that these actions increased the well-being of American consumers and Mexican avocado farmers.
It's a shame that this regulatory reform occurred only after NAFTA forced action. Federal regulatory agencies can always re-examine whether changing their own rules would help the public. This can be as simple as re-examining the problem that the regulation is supposed to fix. Does the problem still exist? Is there evidence that the regulation is alleviating it? If the answer to either of those is no, then it's time to modify the regulation.
In this case, the regulation of U.S.-Mexican avocado trade began in 1914. Pest control was the rationale for erecting these barriers to trade — although special interests likely played a role too. Following the passage of NAFTA in 1994, Mexican avocado farmers naturally wanted to export to the United States.
Despite protests by Californian producers, reform of U.S.-Mexican avocado trade barriers gradually proceeded. First, in 1997, avocados from select Mexican municipalities were approved for sale in 31 states between Oct. 15 and April 15, ostensibly because fruit flies are less likely to survive during colder months.
The Mexican government then requested that the Agriculture Department's inspection service allow year-round avocado importation to all 50 states. Not coincidentally, the Mexican government began erecting barriers to corn imports from the United States.
The inspection service published a pest risk assessment in 2004 concluding that removing the existing trade barriers wouldn't pose a pest threat, paving the way for further regulatory reform. Subsequently, the service allowed year-round export to all states of avocados from approved Mexican municipalities where U.S. Agriculture Department inspectors are present — although domestic producers in Florida, California and Hawaii had two years to adjust before the Mexican avocados were let into their markets.
Forecasts at the time drastically understated the actual benefits of this rule. In 2004, the inspection agency predicted that avocado consumption would rise 9 percent due to these changes. In fact, consumption has risen by 147.1 percent in the last decade. The service also predicted that Californian producers would suffer a 7.3 percent decline in sales. In fact, sales of Californian avocados rose 18.4 percent during the same time. Increased demand for avocados helped, as domestic consumers developed a taste for guacamole and as the health benefits of avocados were more widely realized.
The expected reduction in avocado prices was also off the mark. The inspection service predicted prices for American consumers would fall by 20.6 percent. In fact, avocado prices have remained relatively constant. Again, the forces of supply and demand are at play.
The removal of trade barriers dramatically increased the supply of Mexican avocados. Yet simultaneously, consumers demanded more and more of the fruit. Had the pre-2004 status quo remained — that is, had supply not increased — the increased demand for avocados would have caused prices to increase. Regulatory reform helped neutralize the price increases that higher demand alone would have caused.
While American consumers enjoyed more avocados at relatively inexpensive prices, Mexican farmers also benefitted. The inspection agency first estimated that Mexican avocado imports would increase by 260 percent, but during the last decade consumption of Mexican avocados rose by 1,377 percent. Moreover, there have been no notable cases of avocado-related pest infestation since the 2004 reform.
Because of these regulatory reforms, sales continue to rise, prices remain relatively low, and millions of people are better off. Over the next few years, broader free trade partnerships with Asian countries and with the European Union will likely arise. Will we have to wait for those partnerships to force agencies to re-examine the justification and results of their regulations in order to achieve similar benefits? We shouldn't have to.
Patrick A. McLaughlin is a senior research fellow with the Mercatus Center at George Mason University (follow him on Twitter @EconPatrick). Candace McTeer is a second-year master's student in the Department of Economics at George Mason University. They wrote this exclusively for the Tampa Bay Times.