2004 PRESIM Workshop1 Design of Systems Approaches to Invasive Pest Risk Management 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 2 Project Overview 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 trade- restrictive than a product ban. Will develop several case studies to evaluate the proposed methodology  Avocado imports from Mexico  Citrus imports from Argentina Current status  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 3 Background on Avocados 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:  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 4 Domestic Production and Imports of Hass Avocados Million lbs 97/9898/9999/0000/0101/0202/03 Marketing Year Mexico Chile California

2004 PRESIM Workshop 5 Model Static, partial equilibrium model  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  Derived from weakly separable nested CES utility function for representative consumer in each region  Two substitution parameters: Between avocados and all other goods Between avocados from each supply region Avocado supply  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 6 Data and Key Parameter Values Baseline data is average of 2001/2002 and 2002/2003 marketing years Demand elasticities  SR: Californian producer-level own-price (Carman and Kraft), aggregate avocado  LR: 1.75 times SR elasticities Supply elasticities  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  Assumed 10% growth in real income for all demand regions  Population growth varied from 3.5% to 9% across demand regions

2004 PRESIM Workshop 7 Preference Parameters To calibrate the CES utility function, must choose a set of “preference parameters.”  For example, consider one-level CES: 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  Following Veneables, equate parameter value for Mexican and Chilean avocados  Maintain slight preference bias for Californian avocados

2004 PRESIM Workshop 8 Results BaseShort-RunLong-Run Variable (Million lbs)Percent Change California Avocado Production Mexican Exports Chilean Exports California Producer Price October - April$ April - October$ Producer Surplus$ Millions California-$114.4-$35.9 Chile -$24.4 -$3.9 Equivalent Variation$184.4$116.2 Net US Welfare Change $70.0 $80.3

2004 PRESIM Workshop 9 Future Work Avocado case  Incorporate APHIS risk assessment and the economic analysis (similar to work by Glauber and Narrod)  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