Chapter

6
Market Failures and Free Trade:
Hass Avocados in Mexico
Edgar Aragón

I
n the past two decades, avocados have grown steadily in the world market
and are now considered part of the everyday diet of many countries, rather
than an exotic fruit. This trend has been reinforced by the increasing pop-
ularity of natural products. Avocado, sold mainly as a fresh fruit, is the main
ingredient of guacamole, which is used in salads and dips. Consumption of
avocados is recommended to help lower cholesterol, and processed avocado
oil is used in the pharmaceutical and cosmetics industries. Worldwide, Mexico
is the largest consumer and grower of avocados and, more recently, the largest
exporter of avocados.1 Mexican exports grew from less than $1 million in 1985
to $34.5 million in 1995, and to $620.8 million in 2007 (World Trade Atlas, 2006;
FAOSTAT, 2010).
This study uses two complementary methods to explore how avocados
emerged as a new, successful export activity in Mexico. First, it describes how
Mexican companies, local associations, and governments dealt with market
failures (externalities, coordination failures, and the existence of public goods).

1 The oldest evidence of avocados in Mexico, dating from 10,000 B.C., was found in a
cave in Coxcatlán, Puebla. In colonial times, the Spaniards introduced the avocado to
the rest of the Americas and to Europe. Between 1950 and 1970, avocado growers in
Mexico began planting diverse avocado varieties such as Fuerte, Bacón, Rincón, Crio-
llo, and Zutano.
148  Export Pioneers in Latin America

Then, to highlight the factors that contributed to this success, it compares the
case of avocados with a counterfactual case similar to it in many respects, but
ending in failure (mangoes).
Fieldwork took place mainly in the avocado-producing state of Michoacán,
in central Mexico, between August 2006 and January 2007, and open-ended
interviews were conducted with local growers, exporters, heads of nongov-
ernmental organizations, government officials, and one industry consultant. A
final round of consultation was conducted in August and September 2010 to
assess potential threats to the competitiveness of the industry.

Avocados and the State of Michoacán: A Strong Marriage

The state of Michoacán in Mexico offers some comparative advantages for the
cultivation of avocados, especially climate and soil features that allow the trees
to produce year-round.2 A belt across the state possesses the bioclimatic re-
quirements well suited to growing avocados. Michoacán’s avocado belt (86,000
hectares) is located in a volcanic area 1,600 meters above sea level, stretching
across 20 municipalities, the largest of which is Uruapan. This belt contains
volcanic soil consisting of deep, clay-like earth rich in organic substances; it is
rich in iron, aluminum, and potassium—most important for avocado cultiva-
tion. The belt also has the correct level of humidity and an adequate climate
for harvesting avocados. Avocado production requires a great deal of water.
In Michoacán, where only about half the orchards have irrigation systems,
abundant rainfall gives Mexican growers an advantage in lower water costs
compared with other countries. In the areas visited, the orchards required rela-
tively little maintenance, the fruit withstood neglect, and the trees continued
to produce.
Michoacán avocado growers benefited early on from genetically improved
varieties, which are rich in taste and resistant to disease and extreme weather. In
the mid-1950s, a small group of entrepreneurs established the first nurseries of
improved avocado varieties, including Fuerte, in the town of Uruapan. During
this time, Rudolph Hass, a California mail carrier and amateur horticulturist, de-
veloped a stronger avocado variety from Guatemalan trees, whose fruits lasted

2 The avocado is a fruit that belongs to the Lauraceae family and the species Persea

gratissima or Persea americana Mill. Perhaps the most important feature of the plant is
that the fruit does not mature right away on the tree. Avocados can remain unspoiled
on the tree anywhere from four to six months, and they will be ready for consump-
tion a week or two after being cut. The tree acts as a natural warehouse.
 Market Failures and Free Trade: Hass Avocados in Mexico  149

longer and were more resistant to disease. California’s cold weather increased
the resistance of Hass and Fuerte plants. In 1957, after the Hass patent had ex-
pired, the Uruapan nursery owners introduced these varieties to the region of
Michoacán, and they continued to be improved in their nurseries. For example,
Vega Vega, an Uruapan grower, imported 5,000 plants from California and cre-
ated 25,000 more plants under local conditions. Having witnessed the positive
reaction of the Hass variety to Michoacán weather, many local growers began
to switch from Fuerte and native varieties to the improved Hass variety. Half a
million plants were produced and sold in Mexico during this time.
Public efforts were also made to afford small growers access to improved
avocado varieties. The state of Michoacán set up nurseries to reproduce avo-
cado trees, starting with 20,000 certified plants from Santa Paula, California. By
1965, the Michoacán State Forest Commission had begun offering free trees
to small growers in rural communities throughout Michoacán. As a result, the
Hass variety became a strong competitor to the Fuerte and Criollo varieties for
the national market.
From an economic point of view, the state nurseries helped to further
develop a public good whose benefits spread across Michoacán through the
action of private and public institutions. By the late 1960s, Mexican consumer
preferences were shifting slowly toward Hass, providing the consumer demand
that resulted in a dramatic expansion in Hass avocado orchards in Michoacán.
The cultivation area increased from 3,700 hectares in 1970 to 80,000 hectares
in 2003. Production increased from 40,000 tons to 1 million tons in the same
period. Mexico became the world’s largest avocado grower and consumer.
The avocado boom was known regionally as the time of “green gold,” and
had its first peak in the mid-1980s. The boom effected an important change:
The growers with larger farms gradually replaced coffee, banana, lemon,
mango, and guava plantations with avocados. At the beginning of the 1980s,
new industries and activities developed in tandem with the cultivation of av-
ocados. Picking became specialized. Plants were built for packing fresh avo-
cados, and for manufacturing avocado products such as guacamole paste and
avocado oil. Avocado exporters emerged. Avocado production represents 62
percent of agricultural production in Michoacán. According to 2003 figures,
avocado production generates 47,000 direct jobs, 70,000 seasonal jobs, and
187,000 indirect, permanent jobs in Michoacán.3

3 See http://www.aproam.com/. Indirect jobs relate to packing, transport, sales, and

technical services.
150  Export Pioneers in Latin America

As noted, Mexico has become the world’s largest producer, exporter, and
consumer of avocados. Worldwide avocado production in 2008 was 3.6 mil-
lion tons (FAOSTAT, 2010). Approximately 69.5 percent of this production is
concentrated in 10 countries; Mexico’s share represented 31.6 percent of total
production, or 1.1 million tons, followed by Chile, Indonesia, Colombia, Brazil,
and Peru (FAOSTAT, 2010). Peru is the newcomer, with a production of 0.14 mil-
lion tons in 2008. World exports reached $1.4 billion in 2007; 44.3 percent was
exported by Mexico, with a value of $620.8 million.
The main importer of avocados is the United States, whose imports rep-
resented 41.6 percent of the world’s total, or $553.7 million, in 2007. Most of
the U.S. imports (80.2 percent) came from Mexico, reaching $443.9 million that
year. Mexico is also the main consumer of avocados, with annual consumption
of around 832.6 thousand tons, followed by the United States, with 532.4
thousand tons.
The normal transport of avocados is by sea, which keeps transportation
costs low and maintains good quality.4 In Michoacán, Mexico, there are 6,256
registered growers, 9,058 avocado orchards, and 34 packing plants/exporters
certified to export to the United States. In addition, there are 14 industrial firms
that process the avocados into guacamole, pulp, halves, frozen products, bev-
erages, and unrefined oil.
Figure 6.1 shows the traditional production and export chain from
planting and other production costs through final sale to the customer. For
example, in the United States, the final customer pays $1. 0 0 per avocado, or
$3.00 per kilogram. Of this, $1.18 (or 39.3 percent of the total value) goes to the
retailer or supermarket; $0.30 (10 percent) to the importer; $0.11 (3.6 percent)
to e x p o r t services such as APEAM (Avocado Producers and Export Packers
Association of Michoacán) and the USDA (U.S. Department of Agriculture)
certification and promotion fees, professional fruit harvesting services, and
transportation costs; $0.27 (9.0 percent) to the exporter or packing plant;
$0.55 (18 percent) to the grower; and $0.45 (15 percent) to other produc-
tion costs such as planting, irrigation, and fertilizers. In this traditional chain,
Michoacan’s cumulative value added amounts at least to $1.14 per kilogram,
or 38 percent of the final value. This percentage increases when the packers/
exporters are also Mexican.

4 For the Hass and Fuerte varieties, for example, sea transportation is recommended
in containers refrigerated at 5ºC to 6ºC in a controlled atmosphere, and with a transit
time of 22 to 24 days. Air transportation of avocados is profitable only in exceptional
cases, such as when demand is high in an undersupplied market (AGEXPRONT, 2004).
 Market Failures and Free Trade: Hass Avocados in Mexico  151

Figure 6.1 | Value Added at Each Stage of Production and Export of

Mexican Avocados
(Percentage and dollars per kilogram)

Mexico $1.14 (38.0%) Mixed $0.38 (12.6%) US$1.48 (49.3%)

Supplier Grower Cutter/ Packer/ APEAM- Importer Retailer

Transp. Exporter USDA
$0.45 $0.55 $0.30 $1.18
(15.0%) (18.3%) $0.14 $0.27 $0.11 (10.0%) (39.3%)
(4.6%) (9.0%) (3.6%)

Source: Authors’ calculations based on interviews.

APEAM – Avocado Producers and Export Packers Association of Michoacán
USDA – U.S. Department of Agriculture
Note: “Mixed” refers to the fact that a significant number of exporting firms operating in Mexico are American-owned, but not all.
Likewise, both Mexican and U.S. institutions offer export services. Thus, the value added is generated in Mexico by a mix of Mexican and
U.S. firms and institutions.

First Movers

Leopoldo Vega

The first avocado exporter was Leopoldo Vega, owner of the Purépecha
Group. His export activities began in October 1970, when he successfully sent
two containers by ship to Rotterdam (see Figure 6.2). Vega, born in 1935, came
from a family of agricultural growers (wheat, corn, and beans) and cattle
raisers. When he was a child, the family farm had several avocado trees to
provide shade for the coffee plants. At 16, Vega began working in an uncle’s
firm—Limones de Michoacán—growing lemons, melons, watermelons, and
cotton. In the early 1960s, he started the Purépecha Group, farming avocados
with the improved varieties. He started his own avocado nursery, and in 1962
and 1965, he planted Fuerte and Hass avocado varieties. Later, Vega set up
operation of the first mechanical packing equipment in the region, acquired
from the agricultural state of Sinaloa. The main objective of the Purépecha
Group was not to export, but to sell to the local market. Due to the size of
the Mexican market, the main goal of the Purépecha Group was to capture
the Monterrey and Mexico City markets. Its first promotion campaign was
carried out in the 1970s through what was the only commercial chain at the
time: Comercial Mexicana; it was followed by television advertising on the
popular Raúl Velazco Show on Channel 8.
Vega made his initial export contacts through the Mexican Institute of
Foreign Trade (Instituto Mexicano de Comercio Exterior, or IMCE) and the
152  Export Pioneers in Latin America

Figure 6.2 | Vega’s Purépecha Group, 1971–2006

1971 – Vega
1st mover

1985 – Purépecha-Camel
Camel Israel

West Pak California

1990 – Purépecha-West Pak
2003 West Pak Mexico

Frutícola Velo
Vega’s son

Source: Author, based on interviews.

Mexican Export Promotion Bank, now called Bancomext. IMCE covered 50

percent of an exporter’s promotion expenses abroad. Technical assistance and
production loans were granted at discounted rates by FIRA, the central bank’s
branch for agricultural support.
The logistics of the Purépecha Group’s first shipment were organized by
Adalberto Palma, assistant to Agustín Legorreta, the president of the largest
private Mexican bank (Banamex), and a friend of Vega. One container was sent
from Veracruz port into the Gulf of Mexico and the other a week later from
Houston, Texas, perhaps to diversify the risk. Both containers arrived at the
same time, in Rotterdam. Although the client was located in Paris, Vega saw
the opportunity to sell the fruit at auction in Rotterdam at $2.00 per kilogram
more than the price agreed upon with the client in France.
From 1971 until the peso devaluation in 1976, Vega exported avocados
to France. The 1976 devaluation, however, hindered avocado exports because
the federal government maintained strict control of peso-dollar exchanges.
Vega was required to sell the dollars obtained through exports to the Mexican
government at a discount, only to repurchase them at a higher price in order
to make the payment to the shipping firm. Devaluation and currency controls
stopped Vega’s exports.
The real export incentive for Vega came in 1985 when the Israeli Agrexco
Corporation supported his efforts to export avocados throughout Europe. 5 The

5 Vega also tried unsuccessfully to export fresh flowers to the United States.
 Market Failures and Free Trade: Hass Avocados in Mexico  153

contact with the firm came through an Israeli engineer who visited Mexico to
obtain information and seeds for plants that could grow in dry, salty soil. The
engineer met with Sánchez Colín, former governor of the state of Mexico and
founder of the research institute of the same name, 6 who in turn introduced him
to Vega. In return for his help, Vega obtained marketing assistance and informa-
tion about clients in Europe, which led to a considerable increase in exports.
The Purépecha Group tended to be self-reliant, avoiding partners and
business associations. The exceptional alliance with the Israelis was probably
successful because avocado production in Israel and Mexico is complemen-
tary. Israel’s avocado trees hit peak production from October to April, with
Hass trees producing from December to April and ending right when Mexico’s
production starts. In 1990, the Purépecha Group established another business
agreement with West Pak, a California-based, foreign corporation that bought
avocados in Mexico for sale in Europe and Japan.

Cooperative Socopaum’s Trial-and-Error Strategy

Ten years after Vega sent two avocado containers to Rotterdam, a coopera-
tive of growers started export efforts again, from scratch. In 1977, Cooperative
Socopaum was founded in Michoacán by a group of 30 growers. Its original
objective was to break the informal monopsony created by local buyers, who
until that point had artificially kept avocado farmgate prices down. Having
succeeded in stabilizing prices at a 20 to 30 percent higher level, Cooperative
Socopaum received an unexpected visit from Agrexco, a public-private Israeli
consortium that decided to supply its European clients with Mexican avo-
cados. Israel had suffered from extreme heat that year and lost 80 percent
of its avocado crop. Striving to maintain their client bases, Israeli firms such
as Agrexco and Hillroom were looking for suppliers in Mexico. However, they
were surprised to encounter the austere packing systems and plant facili-
ties of Mexican avocado growers, who lacked even cold rooms for the fruit.
Hillroom made an unsuccessful attempt at exporting and Agrexco canceled
the project, giving up the idea of transporting Mexican avocados to Europe
in jumbo jets.
With no feedback from Vega, Cooperative Socopaum started exporting
to Europe in 1980 (Figure 6.3). Intrigued by the idea of exporting avocados to

6Fundación Sánchez Colín CICTAMEX, S.C., Centro de Investigaciones Científicas y Tec-

nológicas del Aguacate en el Estado de México.
154  Export Pioneers in Latin America

Europe, Socopaum members found Pascual Hermanos, a Spanish importer

with clients in France. Originally from Valencia, the Pascual brothers had expe-
rience in handling citrus, such as oranges and lemons, and they were willing to
try something new. In November 1980, Socopaum successfully exported two
containers to Europe. Perhaps it was good luck, but with the cold weather, the
high quality of the avocados, and the right moment in the year, Socopaum
sold the fruit at higher prices than expected. Socopaum members decided to
begin exporting in part because of Europe’s high demand, and also because
they were interested in diversifying their customer base. A 1977 forecast study
by FIRA, the central bank’s agricultural arm, predicted a fall in domestic prices
due to the increasing number of avocado farms in Mexico. Both the optimistic
news brought by the Israeli firms regarding Europe’s avocado demand, and
a pessimistic study of the domestic market, triggered Socopaum’s exports.
Tempted by the early success, Socopaum members sent 18 containers
(540 tons) to France between January and February of the following year. The
operation was a failure, largely because of Pascual Hermanos’ limited experi-
ence in handling avocados. At that time of the year, avocados from Israel and
Spain were already in the market, and much of the fruit in the 18 containers
was improperly packed.
Early avocado exporters faced three major difficulties when exporting to
Europe, according to Ramón Paz, an industry consultant and former exporter.
First, the fruit had to arrive fresh for the European consumer, after being
shipped from the West Coast of Mexico, through the Panama Canal, and across
the Atlantic Ocean, without using temperature-controlled facilities (the whole

Figure 6.3 | Cooperative Socopaum and Its Imitators, 1980–2006

1980 – Cooperative Socopaum
1st mover Mission California Mission Mexico

1984–87 Albafrut 1987–90 Nucal

1983–84 Garvi
1983 Socoaac 1986–91 Socoaac-Mission 1991 Aguamich-Mission

1987 Agrifrut 1986 Exotic Dovi

Agrifrut-Calavo Calavo Mexico 1995 Tropic Vifrut

Agrifrut
Calavo California

Source: Author, based on interviews.

 Market Failures and Free Trade: Hass Avocados in Mexico  155

operation took 17 to 18 days, versus five to six days when shipped from Israel).
Second, some technical difficulties had not yet been resolved, such as the black
spots that appear on the fruit because of cold temperatures during transporta-
tion. Lastly, new Mexican exporters had no experience in negotiating fixed-
price contracts with European importers, who prefer to sell “on consignment”.
Adapting their strategy to the local market circumstances frequently resulted
in large losses for the Mexican firms.7
After the failure, Cooperative Socopaum decided to establish a committee
to research the necessary elements to ensure they would be well prepared
for exporting. The committee was formed by three of its most active mem-
bers: Salvador García, Adolfo Barragán, and Carlos Illsley. Both García’s and
Barragán’s families were in agribusiness. García’s family came from Zamora,
Michoacán, where they cultivated and exported strawberries. García was part
of the third generation of strawberry growers. He had immigrated to Uruapan
(a three-hour drive from Zamora) to start an avocado farm. Barragán’s family
was also from Michoacán. They cultivated melons in Apatzingan, Michoacán,
and pineapples in the state of Oaxaca.
Illsley’s background was a little different. Although he was born in Mi-
choacán and attended school in Uruapan with the sons and daughters of
avocado growers, he spoke perfect English, had traveled extensively, and main-
tained a rich network of international contacts. Illsley’s father, an American
economist and World War II veteran, was interested in the development of
local firms in China and Mongolia. He retired in Mexico and acquired an avo-
cado farm in 1964. Illsley’s mother, an American freethinker of the 1960s, was
interested in Mexican local customs and traditions. She and her husband set
up a cooperative in Uruapan to run, and save from demolition, a textile plant
dating from the 1880s. In 1974, Illsley bought a commercial avocado farm and
joined the group of growers.
While conducting the review of how to prepare Socopaum for exporting,
Illsley met an Israeli engineer who came to town with a Colombian delega-
tion working on Michoacán’s cut-flower export project. The engineer provided
him with the business information of a firm that had set up several avocado

7 In the European market, 85 percent of the fruit and vegetable commerce is carried
out on consignment. European importers sell the merchandise under the shipper’s ac-
count, and the grower’s final payment reflects product quality and market conditions
at the time of the purchase. The importer then deducts 8–10 percent commission, as
well as transport costs, tariffs, customs-inspection costs, taxes, and so on, diminishing
the final amount the exporter receives.
156  Export Pioneers in Latin America

packing plants in Israel. Representatives of the Israeli firm visited Mexico, and
after meeting with the committee, they struck a $25,000 deal to acquire a busi-
ness plan with plant specifications and machinery. When the plan was pre-
sented to Socopaum members, the businessmen believed the project was too
costly and voted against the deal. At that point, García, Barragán, and Illsley
committed to undertake the task by themselves, and headed to Israel to re-
search Israeli packing plants and their avocado export operations.
What the three men learned in Israel ultimately shaped Michoacán’s avo-
cado industry. Among the major innovations on the packinghouses observed
were:8

•• Packing machinery that selected avocados by weight, with elec-

tronic scales, and classified each individual avocado. Up to this
time, Michoacán’s packing plants had relied on experienced female
workers who selected and classified the fruit without using scales;
•• Precooling and cooling systems to keep the temperature of the fruit
constant from the moment it was packed to the time it reached the
client. Although the trip from Israel to Europe by sea lasted at most six
days, the cooling systems could maintain the fruit’s condition much
longer, which was ideal for trips across the Atlantic Ocean;
•• Harvest systems for collecting the fruit on-site. The procedure al-
lowed the labor force to be concentrated in the process of harvesting
the fruit rather than in handling it. The fruit in Israel was collected in
half-ton containers that were manipulated by lift trucks. The fruit was
better preserved than with the 20- to 30-kilogram plastic boxes then
used in Mexico. When the Mexican plastic boxes were stacked, they
crushed the fruit, and the plastic boxes were easily stolen;
•• Statistical analysis on the historical production of each avocado plot.
Records were kept for each farm, along with the most recent produc-
tion forecasts.

García, Barragán, and Illsley supplied the initial investment for the busi-
ness plan to set up a packing plant with modern machinery. On their return
to Mexico, they decided to pursue the export project. The total necessary

8 Innovations did not focus on the cultivation methods that could improve production
yields per se. Israeli packinghouses are sophisticated in matters of weighing, packing,
and cooling avocados, not in growing them.
 Market Failures and Free Trade: Hass Avocados in Mexico  157

investment reached $2.8 million, which required that they establish a new firm
and invite new investors. Unfortunately, the 1982 debt crisis and devaluation
put a halt to the project.
Four years later, Barragán and Illsley founded their own separate firm,
called Agrifrut (García had already left the group; see next section). Barragán
and Illsley invited two new partners into the new enterprise: Jorge Fernández
and Pascual Gally. Fernández’s entrance was indirect. He was first hired to
construct the packing plant, and then became a partner when Barragán failed
to remunerate him for the construction and offered him stock instead. This
carried several repercussions for the new firm because Fernández, a civil engi-
neer and construction contractor, lacked experience in the avocado industry.
Other potential partners canceled their contributions when Fernández be-
came a partner. Illsley introduced the project to Gally, a Swiss engineer who
was in the region because of the fresh-flower-to-export project. Gally liked
the avocado business plan and joined the group, providing fresh capital and
new marketing channels in Europe. In Switzerland, his family had import-ex-
port enterprises.
In 1987, the firm Agrifrut began operations with the first exporter, Carlos
Illsley, and the two newcomers, Fernández and Gally (see Figure 6.3). Agrifrut
acquired the Israeli business strategy and equipment as planned. Gally
opened an importing firm in Switzerland—Sunfresh—to buy avocados from
Agrifrut. Sunfresh would then resell the fruit to other Gally family enterprises,
acting as an intermediary. For the partners, Sunfresh represented an addi-
tional cost because it only received the fruit; however, Sunfresh was selling
26 avocado containers (520 tons) per week throughout Europe. When Illsley
and Gally left the firm, Fernández took over Agrifrut, and remains its chief
executive officer.
For Agrifrut, the avocado business learning curve was steep. The firm had
to perform the following tasks almost simultaneously:

•• Learn how to make pallets for boxes;

•• Learn the cooling process;
•• Determine how to transport the fruit by sea for 18 days;
•• Deal with technical problems (e.g., black spots on the fruit, which was
still not resolved, although it is now preventable);
•• Reach the distribution platforms of clients;
•• Learn about product presentation (e.g., 4-kilogram boxes, such as
those used in South Africa);
•• Deal with being a one-product supplier versus selling several products;
158  Export Pioneers in Latin America

•• Take the risk and accept the price of the fruit when the containers
reached Europe9;
•• Work with the structure of the firm (e.g., partners with different back-
grounds and interests).

Imitators Go after the Feast

Right before the trip to Israel, Salvador García de Alba invited his friend Antonio
Villaseñor to join the group. Villaseñor, who would become a large exporter
himself, did not have experience in agribusiness; he ran a furniture store, but
possessed good business sense. Although Villaseñor did not join the business
mission to Israel, he covered his share of the cost in order to buy into the busi-
ness. Due to differing interests, Villaseñor and García split from the rest of the
group. Villaseñor and García then founded the Garvi firm (see Figure 6.3) and
adopted the business plan to set up a packing plant.
Garvi was the first modern packing plant set up in the state of Michoacán
intended principally for exports.10 Garvi’s owners, who even set up their own
“Garvi” brand, exported the fruit to Pascual Hermanos, Socopaum’s former
client in France.11 José María Pascual, one of three brothers who founded
Pascual Hermanos, came to Mexico and personally supervised the opera-
tions. However, the firm experienced some problems with the shipments.
Although some arrived well, others did not. The main technical problem
seemed to be the previously mentioned black spots that appeared on the fruit
when changes in humidity and temperature occurred. Other reasons might
have included Pascual Hermanos’ lack of experience in selling avocados on
consignment. The losses were too great to be shouldered by two people. As
a result, Garvi closed down a year later, in 1984. García kept title to the land
and the building, and started a third firm named Albafrut (see Figure 6.3).
Villaseñor kept the machinery and joined the Socoaac Cooperative.

9 That is, not selling it at fixed price that otherwise would allow the exporter to know
his profit margin when buying the avocados from the Michoacán growers, as in the
case of exporting to the United States and Japan.
10 Another packing plant, La Tarazca, started operating near Morelia, the state capital.

It was even inaugurated by the then state governor and former presidential candidate,
Cuauhtémoc Cárdenas. La Tarazca did not export because the domestic market was
rather strong; all production was sold domestically.
11 Pascual Hermanos was later sold to Chiquita.
 Market Failures and Free Trade: Hass Avocados in Mexico  159

García’s newest firm, Albafrut, came to a tragic end. After three years of
operation, the firm was bought by Jewish Iraqis established in Switzerland. Mr.
Sushnani, an Israeli technician, and Abraham Cohen, a retired general, ran the
new firm, which they renamed Nucal, or New California. In 1990, one member
of the board, who was personally involved in the Iran–Contra scandal, died in
a plane crash. This episode was known internationally as the “Guacamolegate”.
The firm did not pay its debts, and ultimately the plant was turned over to the
workers and creditors, mainly avocado growers.
Villaseñor’s new venture had better luck. Socoaac (Sociedad Cooperativa
de Agricultores de Aguacate del Cupatitzio) was formed by a group of 20 new
growers in 1983 (see Figure 6.3). The following year, Villaseñor joined the group
and sold them the machinery acquired in Israel. Socoaac bought it through
a credit from Bancomer, a private commercial bank. The same year, Socoaac
became a limited liability company—a private, rural firm—and Villaseñor sold
his furniture store to acquire Socoaac stock. Villaseñor became the firm’s gen-
eral manager, and by 1985, Socoaac began to sell avocados in the domestic
market.
In 1986, Socoaac received a visit from Mission, a California-based avocado
corporation that was interested in indirectly exporting Mexican avocados.
Socoaac-Mission exported avocados to Rotterdam to a new firm called Exotic,
run by François Teisstre, a former fruit dealer in a French corporation with
experience in handling avocados from Israel. Socoaac-Mission shipments in-
creased from one to three containers per week (from 20 to 60 tons) to between
three and six containers per week (between 60 and 120 tons). Six months later,
Socoaac-Mission started exporting one container per week to Japan.
The relationship with Mission formalized and expanded Socoaac’s knowl-
edge of the packing and exporting processes. The diffusion of knowledge was
carried out through Mission’s local manager, Ezequiel García, who was working
full-time in the operations section of Socoaac’s packing plant. When García had
doubts or questions, he would forward the question directly to Mission’s head-
quarters in California. Thanks to García’s follow-up, dramatic improvements
were implemented in Mission’s Mexico plant. These included:

•• Changing harvesting tools to improve quality;

•• Establishing uniform weight classes for the avocados;
•• Using waxed boxes that are impervious to humidity;
•• Affixing plastic corners to secure the boxes in the pallets;
•• Utilizing precise wood platforms for pallet bases;
•• Storing fruit in cold rooms after packing, rather than after harvesting;
160  Export Pioneers in Latin America

•• Maintaining cold rooms at a specific temperature;

•• Negotiating fixed-price contracts with importers.

Exporters needed to buy the fruit not only from their own orchards, but
from other growers to fulfill export demand. Thus, Mission bought avocados
from San Lorenzo, which was owned by Joaquín Barragán, a local grower who
also became an exporter (through Frutas del Sol in Tingüindín). Mission also
bought fruit from Joaquín Barragán’s nephew, Mario Rivas (Global Frut). The
fruit from these packing plants was then exported to Japan. Rivas also sold
fruit to Fresh Directions, another California-based firm. Today, Rivas is the
largest exporter to Japan. According to Rivas, he learned from Mission and
Fresh Directions practically the same business specifics as those mentioned
by Villaseñor, Socoaac’s general manager. The California-based corporations
acted as disseminators of production and export knowledge.12
By 1991, after eight years in operation, Socoaac had proven to be a sus-
tainable firm, and the partners decided to make it a fully private corpora-
tion, changing its name to Aguamich S.A. de C.V. With sales booming, the
partners, mainly avocado growers, became more interested in becoming
involved in management decisions. For example, they felt they should be
included in setting the price at which Aguamich would buy the avocados
from their own farms. Not being a grower himself, Villaseñor (who at that
time was Aguamich’s general manager) did not understand why it would be
necessary for Aguamich to pay a higher price when the same product could
have been supplied by other growers in the region at a lower price. As a re-
sult, Villaseñor left the company in 1993, only to found a new one, Frutícola
Dovi, S.A. de C.V., with the Doddoli family. Aguamich had financial problems;
it remains closed.
The Doddoli family owned sawmills and managed the harvesting ser-
vices of pine tree plantations. It got involved in the avocado industry through
farms, packing plants, harvesting services, and guacamole exports. In fact, two
Doddoli brothers eventually became Villaseñor’s brothers-in-law. Therefore,
the new firm, Dovi (owned 75 percent by the Doddolis and 25 percent by
Villaseñor), was a family business. Dovi operated for only two years because
tensions emerged between the grower family, which was interested in selling
fruit to Dovi at a high price, and Villaseñor’s commercial interest in buying fruit
from local growers at lower prices and better quality.

12 As in the Socoaac-Mission experience, Agrifrut developed a relationship with Calavo,

the largest avocado corporation in California, creating Agrifrut-Calavo.

 Market Failures and Free Trade: Hass Avocados in Mexico  161

In 1995, Villaseñor left Dovi to start a new firm, Vifrut, this time with
his own sons and no growers or business partners (see Figure 6.3). His son,
Antonio Villaseñor-Zurita, moved to Paris to run Vifrut’s marketing opera-
tions from there. That year, Vifrut was exporting 10 containers (200 tons) per
week to France, England, Sweden, and Spain, and one to Canada.13 However,
the market conditions for fruit in Europe quickly and radically changed. The
EurepGAP (Euro Retailers Produce Working Group Good Agricultural Practice
Assessment) norm required that farms exporting products to Europe comply
with a set of food security, safety, ecological, and social security regulations.14
Some of these norms depended on the actions of the grower (in such areas as
health and safety of workers, types of fertilizers, and water treatments) and not
of the packing plants or exporters.
In addition to these tougher regulations, newcomers entered the avo-
cado market. Algeria, Chile, Israel, Kenya, Peru, South Africa, Spain, and Turkey
all became competitors of Vifrut. For these reasons, and because the North
American Free Trade Agreement (NAFTA) opened the U.S. market to Mexican
avocados in 1997, Vifrut decided to supply the fruit exclusively to North
American markets. As of 2006, Vifrut exported between 15 and 20 containers
(between 300 and 400 tons) per week to the United States.
With the opening of the U.S. market to the Mexican avocado, California-
based avocado corporations established their own packing operations in
Michoacán. Some of these operations, such as Mission, were set up well before
the opening of the U.S. market in order to export Mexican avocados to Japan
directly. Others, like Calavo and West Pak, had Mexican subsidiaries and part-
ners for the same purpose, although they were not packers yet. With NAFTA,
the California-based corporations imported Mexican avocados into the United
States using the distribution channels they already had in the country. Among
the firms that set up locations in Mexico were Calavo, Mission, Fresh Directions,
West Pak, and Delmonte.
The establishment of large U.S. corporations in Michoacán had several
impacts on the region. First, the new plants provided approximately 2,000
jobs.15 Second, they benefited local growers by paying for the crops with

13 In 2005, Vifrut even exported avocados to Chile.

14 The EurepGAP was initially used by supermarket chains in 1997 to use the same
standard when dealing with suppliers. In 2004, the norm became obligatory for fruit
and vegetable imports in Europe (http://www.exportapymes.com/article864.html;
August 9, 2011).
15 However, many of the workers come from Mexican-owned packing plants currently

in operation or from the ones that went bankrupt.

162  Export Pioneers in Latin America

cash on the same day of the operation. In contrast, local packing plants were
paying with a lag of seven to 14 days. Third, U.S. firms pressured local packing
plants to improve their relationship with local growers to stabilize and secure
the fruit supply. Lastly, they also subcontracted local packing plants to con-
duct maquila operations for them when their own packing plants reached
full capacity.

A Passage through the Impassable: The U.S. Market

Despite the fact that there are some complementarities between the Mexican
and U.S. production cycles,16 Mexican avocados have traditionally faced great
challenges in meeting U.S. standards of product quality and safety. In 1914,
California avocado growers claimed that Mexican avocados were infested
with various insects, particularly the avocado seed and stem weevil pests.
Consequently, the United States imposed a phytosanitary ban that prevented
Mexican avocado exports into the U.S. market for over 80 years (APROAM).
For most of the last century, the protection of plant health was maintained
through a policy of pest exclusion. Beginning with trade liberalization in
1990, the rules have changed. Debate over the North American Free Trade
Agreement (NAFTA) in the late 1980s and early 1990s placed trade between
the United States, Canada, and Mexico at the top of Mexico’s national agenda.
Although the primary goal was the phased removal of most tariffs by 2004,
the legislation also provided the setting for the harmonization of sanitary and
phytosanitary (SPS) measures between trading partners (Bellamore, 2002).
This helped to open up the U.S. market to Mexican avocados.17
The Animal and Plant Health Inspection Service (APHIS) of the U.S.
Department of Agriculture (USDA) is the primary government branch charged
with implementing the phytosanitary provisions of NAFTA and other trade
agreements. In 1992–93, Mexico sent three work plans to APHIS requesting
the importation of Mexican avocados into the United States. In July 1993,
one of the proposals was approved. The entrance of Mexican avocados into

16 The peak season in California and Florida is usually from March to August, while in

Michoacán the primary harvest season is October to February, although production is

year-round.
17 The members of NAFTA have also agreed to accept one another’s SPS measures as

equivalent, provided that the exporting country makes available scientific evidence
that objectively demonstrates that its measures achieve the appropriate level of pro-
tection of the importing country.
 Market Failures and Free Trade: Hass Avocados in Mexico  163

Alaska was authorized under specified conditions (APROAM). During the next
two years, Mexico conducted further research and pest surveys. In June 1994,
new data were submitted to the United States. On July 3, 1995, a proposal
was published to allow the entrance of Hass avocados destined for certain
U.S. states under additional phytosanitary requirements. The imports were
restricted to the months between November and February (APROAM).
Nevertheless, avocado growers in California and Florida opposed the en-
trance of the Mexican avocados, arguing that the import posed an intolerable
risk of pests to the domestic avocado industry. It took an army of specialists
(Mexican trade representatives and avocado association lobbyists hired by
Mexican growers and packers) to overcome the U.S. avocado nontariff barrier.
The elite producers of the Mexican avocado industry further organized their
lobbying efforts by setting up an independent Avocado Commission of the
State of Michoacán in 1994.18 Mexico also agreed to allow USDA-APHIS officials
to operate in Michoacán to secure the compliance of health plant standards.
Thus, on July 15, 1997, Mexico and the United States signed an agreement in
which avocado exports from the Mexican state of Michoacán were allowed
into 19 U.S. states.19 Later, the number of states permitting Mexican avocado
imports increased to 32 (APROAM). The price of avocados in approved states
fell by between 8 and 41 percent, in comparison with the rest of the states,
in which the decrease was between 1 and 3 percent (APROAM). 20 U.S. imports

18 This group would later on constitute the export association, APEAM, with which all
new exporters must register and pay fees. These resources have been used to main-
tain lobbying and promotional campaigns in the United States. In economic terms, it
seems that the group was able to internalize the “positive” externality of opening the
market.
19 Connecticut, Delaware, Kentucky, Illinois, Indiana, Maine, Maryland, Massachusetts,

Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island,
Vermont, Virginia, West Virginia, and Wisconsin. Imports into the District of Colum-
bia were also permitted. Only imports from certain growers were allowed into these
states, and only from November to February, when the cold temperature was suf-
ficiently low to eliminate any pests that may have survived the phytosanitary control
treatments.
20 Before NAFTA, the general tariff applied to avocados was 13.2 cents per kilogram.

Then, with the Uruguay Round Agreement on Agriculture (URAA), tariffs were reduced
to 11.2 cents per kilogram for a six-year period beginning in 1995; due to NAFTA, this
tariff was reduced for Mexican avocados too, but for a period of 10 years (WTO, 1994).
Mexico loaded a tariff of 20 percent on avocado imports. Under NAFTA, the tariff was
phased out over a 10-year period. Canada does not impose tariffs on avocado imports
because it does not produce them (WTO, 1994).
164  Export Pioneers in Latin America

of Mexican Hass avocados increased from 4,100 tons in 1997 to 234,507 tons
in 2008, when the value of exports reached $497.3 million (FAOSTAT, 2008).
Despite the pest control efforts, the state of California continued blocking
Mexican avocados until late 1997 (a year later than agreed). This time, they
argued the Mexican avocados had white flakes or escamas on the skin. The
state of California even sued APHIS, but the legal action failed. APEAM then
sued the state of California for delaying the entrance of Mexican avocados, and
demanded compensation. California settled, allowing Mexican avocados in at
the end of 1997.

Compliance with Health Plant Standards through Coordinated

Efforts: USDA-APEAM-JLSV

During the NAFTA negotiations on avocados, the USDA-APHIS demanded

the formation of a local organization in Mexico to deal with the expenses of
USDA’s local office in Michoacán. This motivated growers and exporters from
Michoacán to create a new organization where both growers and exporters had
equal rights.21 APEAM’s main goal is to deal with the USDA-APHIS on behalf of
avocado growers and exporters, and to set up a collection mechanism to pay for
USDA permits. APEAM derives revenues from two sources. First, it imposes an
entrance fee on new exporters ($160,000) as a contribution for what the organi-
zation has already accomplished.22 This helps address the problem of financing
the public good of an opened U.S. market; the first movers—who bore the costs
of establishing the public good—can derive some benefit from the imitators.
Second, to cover the cost of USDA certification documents, APEAM charges
packinghouses $0.06 per kilogram exported to the United States. APEAM also
collects $0.05 per kilogram exported to promote consumption of Mexican
avocados in the United States (e.g., through television ads, trade fairs, tasting
events, and so on). That is, APEAM collects $0.11 per kilogram from packing
plants to cover certification and promotion activities. To date, APEAM has
spent more than $7.5 million on promotions.23 Due to significantly increased
exports, APEAM has a surplus of more than $10 million. APEAM members are

21 APEAM was formed by two growers—Rito Mendoza and Gonzalo Moreno—and

two exporters: Jorge Fernández Barragán (Agrifrut) and Ricardo Vega López, son of
Vega Vega (the first mover of the Purépecha Group).
22 In 2010, the fee was $250,000.

23 In addition, the federal government, through SAGARPA, matched APEAM funds for

promotion. By 2006, the federal government had contributed a total of $4 million.

 Market Failures and Free Trade: Hass Avocados in Mexico  165

debating how to utilize their excess funds, and are contemplating investment
in R&D rather than short-term spending.
The Local Plant Health Boards (Juntas Locales de Sanidad Vegetal, or
JLSV), an organization formed exclusively by local growers, executes the fed-
eral Phytosanitary Law, which regulates production, pesticide use, and im-
ports of agricultural chemicals. For example, specific articles in the legislation
required growers to register their use of insecticides, herbicides, and fertil-
izers with the Ministry of Agriculture, Ranching, Rural Development, Fisheries,
and Food Supply (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca
y Alimentación, or SAGARPA). The Phytosanitary Law established the legal
and normative procedures for the standardization of avocado production in
the industry. At the same time, the legislation provided some teeth for local
growers and state authorities to enforce compliance with these standards
through the issuance of mandatory certification permits for growers planning
to sell their crops to local packing plants for export. Certification permits are
currently issued only by the JLSV, under SAGARPA’s supervision.24 Formation
of the JLSV was already foreseen in the 1973 federal law, Ley de Sanidad
Fitopecuaria. The law was updated right after NAFTA in 2004, and reviewed
in 2007 without significantly modifying the JLSV’s role in helping to eradicate
plagues and pests. Box 6.1 describes the way growers establish a JLSV, how
pests and plagues are controlled, and how orchards and freights are certified.
JLSV inspectors report directly to SAGARPA officials, who in turn conduct
all communication with USDA-APHIS. Thus, the relationship between JLSV and
USDA inspectors (who are also Mexican) is informal; they work side by side cer-
tifying freights at packinghouses, learn from one another, and tend to develop
friendly relationships. JLSV inspectors, who have been in the field longer, show
their colleagues the way to the orchards and share with them working docu-
ments and information on orchards that have been “liberalized.” The JLSV’s
role is quite similar to that of the USDA. At the federal level, however, the situ-
ation is different; SAGARPA would like USDA to exit Mexico, but local growers

24 Although the phytosanitary regulations are overseen by SAGARPA, the Economics

Ministry supervises compliance with export Norm 016 for avocados. Norm 016 estab-
lishes quality standards for the fruit, including color, size, and texture. Courses for cer-
tifying officials on Norm 016 have been given at a local university in Michoacán, where
approximately 100 officials have been trained. In a political maneuver, the plant health
boards and committees hired these officials to provide Norm 016 certification for their
farms. Currently, the boards and committees manage both phytosanitary and Norm
016 certifications.
166  Export Pioneers in Latin America

Box 6.1 | Operation of a JLSV (Local Plant Health Board)

Setting up a JLSV
•• Inscription. Growers register their orchard deeds and plans with the JLSV, and pay
an annual fee of $54 per hectare (or $648 per 12 hectares, the average size of an
orchard).a Growers then receive an inscription code for every orchard they own. By
December 2009, 6,256 growers had registered with a JLSV.b
•• Board election. All JLSV members get together once every two years to select the
board through an open election. The board consists of a president, a treasurer, and
trustees. Board members can serve a second term if they are reelected.
•• JLSV staff. The board then hires a general manager and technical and administra-
tive staff, mainly agronomists. In total, between 10 and 15 people run the JLSV for
operational purposes.
•• Crops. If there are several crops in the region with pest and plague control programs,
then the board should include growers from different crops. There is only one JLSV
per municipality, regardless of the number of crops in the regions.

Fighting Pests and Plagues

•• Orchard visits. The technical members of the JLSV visit the orchards to review the
health of the plants and to make recommendations to the growers. They are specifi-
cally concerned with eradicating the avocado seed and stem weevil pests. For this
task, the technicians develop a “working plan” with detailed specifications on mea-
sures to fight pests and plagues.
•• Checkups. The technicians return to the orchard to see whether the recommenda-
tions and suggested measures have been implemented. Samples are collected and
statistical tests run. If everything is in order (no signs of pests or plagues), they file a
“liberalization” report with SAGARPA, and send a copy to the local USDA office.
•• Road controls. To bar avocados from entering the plague-free zones of Michoacán
state, the JLSVs set up road controls to check every truck transporting avocados.

Certifying Orchards and Freight

•• USDA visits. After receiving the report from the JLSV, the SAGARPA local office noti-
fies the USDA local office. USDA inspectors then visit the orchard to check the health
of the plants and fruits (avocados).
•• Orchard certification. If USDA officials find everything in order, the grower then re-
ceives permits and plates from the JLSV (on behalf of SAGARPA).c The permits and
plates, which bear the orchard’s JLSV inscription number, allow the grower to trans-
port the fruit to the packinghouse.d The truck should be sealed and the inscription
number visible on every avocado box. JLSVs provide permits and plates on a daily
basis. They are the mechanism to control supply.
•• Verification of certification numbers. When the truck arrives at the packer/exporter,
both a USDA and SAGARPA inspector verify the plate, seals, and inscription numbers
before the avocados are unloaded.
•• Statistical samples. USDA and SAGARPA inspectors on-site conduct statistical sam-
ples to check the condition of the fruit before the avocado boxes are carried inside
the packinghouse.e If seals are broken, boxes lack a registration number, or traces of

(Continued on next page)

 Market Failures and Free Trade: Hass Avocados in Mexico  167

Box 6.1 | Operation of a JLSV (Local Plant Health Board) (Continued)

plague or disease are detected on the avocados, the entire truckload is sold in the
local market; it cannot be exported.f
•• Freight certification. If everything is okay with the shipment, SAGARPA issues the in-
ternational phytosanitary certificate needed to export the fruit to the United States.
Other countries do not require that certificate.

a
Exchange rate of $13.0148 pesos per dollar on August 27, 2010 (http://www.banxico.org.
mx/).
b
Growers who wish to export to the United States must belong to the JLSV. If they export to
other markets, they do not have to belong to the JLSV, but the trend is for all growers who
export to join the JLSV, and for packers/exporters to buy the entire day’s freight from one
certified orchard.
c
There were 9,058 orchards registered (53,400 hectares) by December 2009.
d
If several trucks are to be loaded in one orchard in one day, the growers should request ad-
ditional plates from the JLSV.
e
By December 2009, there were 34 certified packinghouses that could export avocados to
the United States.
f
Going “local” has strong financial implications for the producer, who will earn 60 percent less
(i.e., US$0.77 per kilo instead of US$1.92 per kilo).

and exporters do not. USDA has helped organize the sector. Without USDA,
first JLSVs could be subject to corruption, because the price difference in
selling to the domestic market ($0.60 per kilo) versus selling to an exporter
($1.80 per kilo) is too large. Second, without formal control, the U.S. market
might be saturated with Mexican avocados quite rapidly.
JLSVs operate plague and pest control programs for any plant (or animal).
For example, some JLSVs deal with problems with mangoes in the states
of Michoacán, Jalisco, Nayarit, and Sinaloa; with lemons and citrus fruits in
Michoacán and Colima states; and with coconuts in Michoacán. In the Uruapan
and Tancítaro municipalities in Michoacán state, the JLSV deals only with avo-
cado because it is the only crop for export that currently has pest and plague
control programs.
The elimination of pests in the avocado region of Michoacán was con-
sidered a striking success.25 However, by regulating the weekly (or even daily)
permits, which specify the names of the orchards and the quantity of tons

25It took at least two years for growers from other states, such as Jalisco or the state of
Mexico, to eradicate pests after they began following the advice of Michoacán grow-
ers. Otherwise, the pest problem in these states would never have abated.
168  Export Pioneers in Latin America

that can be sold to packing plants for export, JLSVs and committees are,
in fact, regulating supply. That is, JLSVs issue daily permits to avocado or-
chards, and only orchards with these permits can sell avocados to the packers/
exporters that day.26 Packing companies, which are not represented on plant
health boards and committees, often complain that growers use these organi-
zational bodies to reduce output and reach their target price floor of $1.00
per kilogram (see Figure 6.1). The growers, who do not feel pressured to sell
the avocados quickly (because the fruit can remain on the avocado tree for
several months and be ready for picking without spoiling), are willing to wait
to harvest until the price is right. Ultimately, both the growers and packing
companies (exporters) agreed that, despite their differences, regulating
supply was not detrimental to them because prices have remained stable in
the United States.

The Counterfactual Case: Mangoes—Too Sweet, Too Cheap

Many interviewees who succeeded in exporting avocados attempted and

failed to export mangoes. Even José Luis Gallardo, current president of the
State Committee on Plant Health (Comité Estatal de Sanidad Vegetal), is
transforming his company—Anguiano’s Mango Plantations—into avocado
orchards. Why is it difficult for multinational corporations to succeed at ex-
porting mangoes when the same, or similar, firms can export avocados?
First, compared with the avocado, mangoes are highly perishable, and this
makes the jobs of the growers and packing companies more difficult. Avocado
trees can maintain fresh fruit up to six months once it is ripe; mango trees hold
the fruit for less than a week. Growers then must be ready to sell the fruit to
packing plants, which in turn need to process it and sell it rapidly in international
markets. They must accept the current price. Prices can easily drop as entire
mango regions come into full production. In addition, Mexico’s mango market is
small, unlike its avocado market, which makes it difficult for growers and packers
to recover lost revenues by releasing surplus quantities into the market.27
Moreover, in contrast to avocados, mango production is geographically
dispersed, making coordination among growers and other actors more difficult.

26 A parallel, local grower organization has been set up, sometimes with the same

board as the JLSV, to keep the JLSV from being blamed for controlling supply.
27 A possible solution would be to find a way to keep mangoes fresh during the final

export stages, before they reach the consumer; this is the case for kiwi fruits and apples
which, once harvested, can be stored for months.
 Market Failures and Free Trade: Hass Avocados in Mexico  169

There are several mango-producing regions in Mexico. The main mango growers
are the states of Colima, Guerrero, Michoacán, and Nayarit. The season starts
in the southern states of Chiapas and Oaxaca and ends in Sinaloa, in east-cen-
tral Mexico. This means that packing plants in each region are active only two
months per year, making investment in packing plants unprofitable, and pests
hard to control. Some entrepreneurs have attempted establishing their packing
operations in a more central location, such as Guadalajara, with little success.
The geographic dispersion of production goes hand in hand with differ-
ences in production practices that affect quality and commercial relations.
Roughly speaking, avocado growers and exporters from Michoacán comply
with norms, while mangoes that are produced in a diversity of regions lack
operational and quality controls. While avocado-harvesting procedures have
been standardized and pesticides and chemicals controlled, mango operations
do not have standardized procedures that would secure the same quality levels
throughout the harvesting months in each region and across plantations.28
More fundamentally, mango growers are not as organized as avocado
growers. The growers do not even participate in EMEX, the mango organi-
zation that covers the expenses of the USDA inspectors (the equivalent of
APEAM in the avocado industry). That is, “Mango packing plants look out only
for their own individual interest,” said the head of a State Committee on Plant
Health. For avocados, the organization of growers was essential, not only to
eradicate pests and isolate the production region against potential phytosani-
tary threats, but also to keep prices stable.
The flip side of the lack of sectoral organization is the individualism,
or even opportunism of individual growers, and the problems such oppor-
tunism causes large processors. Multinational corporations such as Calavo
have an annual business plan to follow, with specific export volumes to meet.
Calavo found it difficult to comply with its mango-export program because
although agreements had been reached with growers, they often would not
honor the contracts. In other words, contracts are not enforceable. For ex-
ample, close to the harvest day, the grower would receive offers from outside
(U.S.) firms that would pay slightly more than what Calavo had agreed upon
as the purchase price in the contract. When Calavo would arrive to pick up the

28 The standardization of harvesting procedures and the control of pesticides respond

to plant health standards imposed by JLSVs to prevent plagues. Unlike production

activities, such as irrigating, fertilizing, and pruning trees, they have little impact on
production yields.
170  Export Pioneers in Latin America

fruit, it would be gone. “Contract agreements in the Mexican countryside do

not mean much,” said one senior executive of Calavo. In the case of avocados,
producers have no option but to sell the product to registered exporters.
That is, an outside firm cannot simply come on harvest day, buy the product,
and export it to the United States. Only packing companies certified by both
the plant health boards and committees and the USDA are able to export
fruit from the region. Regarding other markets, it is unlikely that French
or Japanese buyers would show up at avocado orchards to buy the fruit.
However, avocado growers are free to sell the fruit to the domestic market
when the price is right, notably when shortages can raise the domestic price
above international levels.29
Lastly, it seems that some mango growers and packers are involved in
money laundering, buying the fruit at high prices and selling it cheaply, eroding
margins and making the mango business unattractive to potential new inves-
tors. In the avocado-exporting industry, most growers and exporters know one
another, and organizations such as APEAM are constantly monitoring prices in
the United States, with representatives stationed there. If an exporter is selling
at a lower price than the rest (dumping or money laundering), it will soon be
detected. Previous experiences with dumping to compete in the European
avocado market taught exporters the importance of stable markets. The in-
teraction between grower and exporter associations in Michoacán to comply
with USDA regulations has so far created the checks and balances needed to
maintain a healthy industry. It is hard to know whether money laundering is
such an important source of income that mango growers have no interest in
improving mango production (and every motive to avoid the scrutiny that
comes with sectoral organization), or whether failed efforts at sectoral coordi-
nation reduced mango income to the point where growers were vulnerable to
the appeal of money laundering as a “complementary” activity.

Conclusions and a Threatening Prospect

This study identified several market failures during the first export and dis-
semination processes. To deal with these failures and related problems, sev-
eral public goods were generated in the region, such as the introduction
and improvement of avocado varieties that were resistant to cold weather;

29 Avocados in Monterrey, Mexico were sold to the final consumer at $4.00 per kilo-

gram, while the price in Japan was $3.00 per kilogram during the same period. Monter-
rey even had to import avocados from California during the fall of 2006.
 Market Failures and Free Trade: Hass Avocados in Mexico  171

regions in Michoacán that were declared disease-free and export-certified;

a pool of workers that moved from company to company; and access to the
U.S. market for certified orchards and packinghouses. Exporters enjoyed some
positive externalities generated by the government, such as the free distribu-
tion of avocados in the 1960s, creating over time a variety of avocado growers
(14,000 growers) that was sufficient to provide the product all year long for
the local and export markets. Promotional support was provided through a
federal matching fund of $4 million and the direct involvement of Bancomext,
the foreign trade support bank. Asymmetric information problems generated
between growers’ potential expansion plans and private banks were resolved
through FIRA (a branch of the Mexican central bank), which provided collateral
to private banks and technical assistance to growers. Lastly, coordination fail-
ures generated by the need to follow strict measures to prevent the spread of
disease in orchards and packing plants were dealt with through the formation
of APEAM, the work of the private, municipal JLSV, and public-private State
Committees on Plant Health. They have successfully coordinated with USDA-
APHIS to comply with U.S. phytosanitary standards.
Local organizations played a key role in shaping the avocado industry.
After a period of uncertain land ownership and political co-optation, orga-
nizations focused on specific tasks, such as eradicating diseases, complying
with USDA fees, forming credit unions, and accessing the U.S. market. The
most relevant organizations today are perhaps APEAM and the JLSV. APEAM is
the association of growers and exporters that works with the USDA to ensure
compliance with phytosanitary regulations. APEAM collects $0.11 (recently
reduced to $0.07) per kilogram exported to the United States to pay for the
USDA inspectors and for promotions in the United States. APEAM also charges
$160,000 ($250,000 in 2010) to new exporters seeking access to the U.S. market.
This approximates the level of cost that the first exporters to the United States
had to pay—that is, to “internalize the externalities.”
The JLSVs—grower organizations that execute federal and state phyto-
sanitary laws—have been able to eradicate avocado seed and stem weevil
pests in specific municipalities in Michoacán. They play a key role in edu-
cating growers on how to improve plant health, certifying orchards on behalf
of SAGARPA, and verifying that USDA-APHIS regulations are followed. They
also indirectly control the supply of avocados from the orchards to the export
packinghouses, allowing for price stability and a secure price per kilo of avo-
cados to growers. The interaction between JLSV and USDA officials, which de-
veloped in a friendly way, guarantees compliance with U.S. standards and thus
access to the U.S. market.
172  Export Pioneers in Latin America

Avocado trends for Michoacán growers and exporters look good for the
immediate future, but prospects are uncertain for the longer term. As of 2007,
Mexican exporters were able to export avocados to all U.S. states, resulting in
a 146 percent increase in U.S. imports of Mexican avocados. The medium- and
longer-term prospects seem more complex. On the one hand, market condi-
tions in the avocado industry are getting tougher. For example, the EurepGAP
norm requires that orchards exporting to Europe comply with a set of food
security, phytosanitary, ecological, and social security regulations. Although
the JLSV and State Committees on Plant Health oversee some of these issues,
not all EurepGAP regulations have been covered by current procedures. It is
likely that other countries, such as Japan, will follow the European example.
This would put exporters in a difficult position because it would require a com-
mitment from the growers.
In the long term, new, highly efficient entrants such as Australia, Chile,
New Zealand, Peru, and South Africa, with state-of-the-art technology and
favorable soil and climate conditions, may well put pressure on, or even dis-
place, Mexican growers and exporters—not only in the international market,
but in the domestic market as well. Developments in Peru highlight the risks.
Peruvian avocado plantations yield between 26 and 30 tons per hectare on
average, with the most efficient producers attaining 40 tons per hectare. In the
Mexican avocado belt, average yields are between 10 and 15 tons per hectare,
with the best growers reaching 30 tons per hectare.
The difference in yield is due to the density of planting. In the traditional
cultivation method, there are about 100 trees per hectare (10 rows, with 10
trees per row, or a spacing between trees of 10 × 10 meters). The Peruvians,
perfecting techniques developed in South Africa, plant 830 trees per hectare
(25 rows, with approximately 33.3 trees per row, or a spacing between trees of
3 × 4 meters). This intensified cultivation heightens the demands on manage-
rial capacity. The trees must be irrigated seven times per day with a broth that
includes all the nutrients needed by the plants. Pruning must be much more
frequent and precise. The dense packing of trees, and pushing productivity to
genetic limits, greatly increase the risks of new plant diseases and pests, thus
requiring constant vigilance to identify and mitigate new risks before they
produce calamities. Peruvian producers can manage these challenges in part
because they are vertically integrated and quite large. They produce, pack, pro-
cess, and market several products—including avocados—therefore they have
the resources and experience with orchard production needed for intensive
cultivation.
 Market Failures and Free Trade: Hass Avocados in Mexico  173

In theory, despite their relatively small size (the average orchard size in
Michoacán is 12 hectares; in Peru, it is 100 hectares), Mexican growers could
adopt more intensive cultivation methods. The forms of cooperation (and not
least the cooperatives) developed in part to meet phytosanitary standards
could be extended to joint investment in and management of the necessary ir-
rigation systems (whose costs could easily be prorated); new pruning regimes
could be developed; initial efforts at statistical analysis of the production of
each avocado plot could be extended; and so on.
However, the current organization and market circumstances of the in-
dustry create disincentives to taking the risks associated with intensive culti-
vation, at least in the short to medium term. First, growers in Mexico are not
primarily exporters: They cut the fruit for export only when they feel the price
that the packinghouses are offering is right. They can afford to bide their time
because the fruit can be “warehoused” on the tree for four to seven months;
and, in any case, they can sell their product domestically. Second, returns in
the industry are currently so high that it is hard to see the need for costly, risky
investments in new techniques. Michoacán’s extremely good weather and
soil keep avocado production costs low. The cost per kilo is about $0.30 (in-
cluding amortization and depreciation), while the domestic price is at worst
between $0.50 and $0.60 per kilo (sold on the tree). The international price
at the pick season is about $1.70–$1.85 per kilo. The upshot is that growers
get returns on their investments ranging from 75 percent to 500 percent.
Moreover, changing to the new system might be quite expensive for current
growers because it would require replanting trees and waiting several years
to restart production. “Why complicate life?”—as one industry consultant put
it—is thus a reasonable answer to the question of why growers do not at-
tempt to emulate the Peruvian example—and an explanation for the limited
R&D efforts in the industry.30 Whether it turns out to be the right long-term re-
sponse to an emergent threat is another question. Put another way, it remains
to be seen whether the export success of the avocado industry in Mexico has
been an occasion to develop new capacities that can be deployed elsewhere
in the economy, or whether it has been a—highly lucrative—occasion to pick
low-hanging fruit.

30 Some R&D has taken place at local universities in Michoacán, but programs are un-

derfunded. APEAM has successfully collected funds for collective purposes, such as
lobbying and marketing campaigns in the United States. More recently, it has started
to allocate some resources for R&D, but not in a significant way.