Everett B. Peterson (Virginia Tech)
David Orden (IFPRI)
Suzanne Thornsbury (Michigan State)
Eduardo Romano (PIRE)
Presentation made at 2004 PRESIM Workshop, Washington,
DC, August 19 – 20, 2004
2004 PRESIM Workshop 1

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Goal: To develop and test an evaluation methodology for regulations that adopt a “systems approach” to reducing invasive pest risks associated with imports that is less traderestrictive than a product ban.
Will develop several case studies to evaluate the proposed methodology
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Avocado imports from Mexico
Citrus imports from Argentina
Current status
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Have completed economic assessment of removing geographic and seasonal import restrictions on avocado imports from Mexico
Begun work on developing decision tree to evaluate alternative systems
2004 PRESIM Workshop 2

 Importation of fresh Hass avocados from Mexico into the U.S. have been totally or partially banned since 1914
 Since 1997, avocados from approved orchards in State of
Michoacán, Mexico have been allowed to be imported during specific time periods to specific regions:
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In 1997, access to 19 Northeastern states plus D.C. during November to
February
In 2001, access to additional 12 states during October 15 – April 15
 Currently, there is a proposed to remove all geographic and seasonal restrictions
2004 PRESIM Workshop 3

600
500
400
300
200
100
0
97/98 98/99 99/00 00/01 01/02 02/03
Marketing Year
Mexico
Chile
California
2004 PRESIM Workshop 4

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Static, partial equilibrium model
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3 supply regions: US (California), Chile, Mexico
3 domestic demand regions: currently approved states, avocado producing states (California, Florida, and Hawaii), all other states
2 time periods: October 15 – April 15, April 16 – October 14
Consumer demand for avocados
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Derived from weakly separable nested CES utility function for representative consumer in each region
Two substitution parameters:
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Between avocados and all other goods
Between avocados from each supply region
Avocado supply
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CET revenue function determines supply in each time period
Linear supply of an aggregate factor (determines location of ppf)
Export supply of avocados from Mexico assumed to be perfectly elastic
2004 PRESIM Workshop 5

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Baseline data is average of 2001/2002 and 2002/2003 marketing years
Demand elasticities
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SR: Californian producer-level own-price -0.62 (Carman and Kraft), aggregate avocado -0.60
 LR: 1.75 times SR elasticities
Supply elasticities
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SR: 0.35 (Romano)
LR: 1.3 (Carman and Kraft)
Chile: Adjust above total supply elasticities to reflect export supply
Long-run population and income growth
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Assumed 10% growth in real income for all demand regions
Population growth varied from 3.5% to 9% across demand regions
2004 PRESIM Workshop 6

 To calibrate the CES utility function, must choose a set of
“preference parameters.”
 For example, consider one-level CES: U



 j n  

1
1 j x j
 
1
  

 


1
, j n  

1 j

1,
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For time periods and geographic regions with import restrictions in place, the preference parameter for Mexican avocados will equal zero in initial equilibrium.
Removal of seasonal and geographic restrictions require adjustments in preference parameters
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Following Veneables, equate parameter value for Mexican and Chilean avocados
Maintain slight preference bias for Californian avocados
2004 PRESIM Workshop 7

Variable
California Avocado Production
Mexican Exports
Chilean Exports
California Producer Price
October - April
April - October
Producer Surplus
California
Chile
Equivalent Variation
Net US Welfare Change
Base
(Million lbs)
346.0
58.2
176.8
$0.87
$1.10
Short-Run Long-Run
Percent Change
-12.2
259.6
-16.5
-14.6
485.1
-9.3
-36.8
-32.7
-17.2
-8.2
$ Millions
-$114.4
-$35.9
-$24.4
$184.4
$70.0
-$3.9
$116.2
$80.3
2004 PRESIM Workshop 8

 Avocado case
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Incorporate APHIS risk assessment and the economic analysis (similar to work by Glauber and Narrod)
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Determine the costs alternative systems to controlling avocado pests
Assess costs and benefits of alternative systems (including alternative geographic restrictions)
 Decision tree
 Continue to develop a generic framework for analyzing different system approaches
 Develop additional cases
2004 PRESIM Workshop 9