The Tax Loophole That Gave Rise to San Diego’s Avocado Boom | Voice of San Diego

Science/Environment

The Tax Loophole That Gave Rise to San Diego’s Avocado Boom

While the county’s first avocado orchards were planted around 1915, the industry exploded six decades later thanks to congressional bumbling and some sharp-eyed tax planning.

San Diego has long been California’s No. 1 avocado producer, so it might be easy to forget that avocados aren’t native to California.

Indeed, while the county’s first avocado orchards were planted around 1915, the industry exploded six decades later thanks to congressional bumbling and some sharp-eyed tax planning.

The roots of the boom may be traced to the late-1960s and early-1970s, when Congress tried to clean up the nation’s tax code, which then allowed scores of America’s wealthiest families to avoid paying any income taxes at all. As part its tax reform effort, Congress closed a loophole that allowed people to avoid taxes by investing in citrus and almonds orchards.

Congress had long given farmers special tax rules, which were meant to accommodate the unique ebbs and flows faced by agricultural operations. High-income people discovered they could use those same rules to reduce their tax burden by investing in farming operations. Of course, there are other trees, and suddenly non-farmers discovered the avocado – doctors, attorneys and airline pilots. They could defer paying some taxes by investing in farming operations. Some of the investment could be counted as a “loss” and when they did eventually pay taxes, it was often at a lower rate.

For six years, from 1970 until 1976, when the loophole was closed on avocados, Californians planted about 10,518 acres of avocados because of the tax benefits of doing so, according to a 1998 research paper.

In 1970, there were about 18,000 acres of avocados in California. By 1980, that number snowballed to 50,000 acres, half of them in San Diego.

Ron Packard, then a Republican congressman from San Diego, lamented the “gentleman farmers” who were “farming primarily for tax incentives rather than for farming.”

“As a result, it has completely thrown the marketplace out of kilter in terms of production,” he said during a congressional hearing in the mid-1980s.

And while avocados are now the hallmark of California cuisine, at the time a third of Americans had never heard of them. Growers banded together to try and create a market for the newly abundant crop, and hired actress Angie Dickinson to appear in sensuous ads.

Today, avocados are a $154 million industry in San Diego, but it’s become harder to make money on avocados, because the industry is shrinking: That’s down from $170 million a decade ago.

Water rates have soared over the past several years in San Diego County, and the region has also begun to rely more on water from the Colorado River, which is high in salt that can turn avocado leaves brown and generally curb trees’ growth.

The amount of farmed land in the county is projected to shrink by half in the next several decades. Wine grapes and nuts might be options for farmers who are giving up on the avocado but want to keep farming. There are 6,000 farmers in the county, but most farms are small, about nine acres or less.

Thousands of acres of avocados were planted for reasons besides tax incentives, of course, before, after and during the 1970s. Avocados fetched a good price compared to other crops. Avocado trees also begin producing fruit three years after they are planted, meaning a new farmer can start seeing revenue quickly compared with other tree crops.

“If it didn’t take seven years for macadamias to come into commercial production, all of those hills covered with avocados might have been covered with macadamia nuts,” said Charley Wolk, a longtime avocado grower in Fallbrook and former chairman of the California Avocado Commission.

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