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Proposed tariffs on Mexican tomatoes could roil industry

Retail prices could shoot up as high as 85 percent if the U.S. withdraws from the Tomato Suspension Agreement, according to Arizona State University economists.

Lee Allen, Contributing Writer

April 26, 2019

6 Min Read
Fresh tomatoes
Arizona State University economists say tomato prices could rise as much as 85 percent if tariffs on Mexican tomatoes are implemented.Tim Hearden

Tomatoes.  Every state except Alaska grows them with Florida leading the pack, holding claim to 50% of all domestically-produced product, while California grows nearly 11 million tons as part of their processed tomato operations.

And yet we can’t grow enough to satisfy the U.S. market demand for vine-ripened tomatoes, so imports play a big part in filling that need.  Now the possibility looms that prices for the juicy red fruit could shoot up as high as 85 percent if the U.S. withdraws from the Tomato Suspension Agreement with Mexico, according to Arizona State University economists. 

See, Texas consumers could see tomato price spikes

In February, Commerce Secretary Wilbur Ross forewarned of such a withdrawal in order to protect Florida growers who complained that Mexico was dumping its produce at less than fair value. 

In a prepared statement, Ross noted: “To ensure the American tomato-producing industry is protected from unfair-trading practices, the Trump administration will use every tool in the toolbox to ensure free, fair, and reciprocal trade.” 

Although negotiations on the issue have been ongoing for over a year, the two sides have yet to reach any consensus solutions.  The Florida Tomato Exchange asked Commerce to end the suspension agreement and resume its anti-dumping investigation of fresh Mexican tomatoes.

Alleged commodity dumping

The Florida request alleged that Mexico was engaging in commodity dumping --- selling product in a foreign market at a price lower than the domestic price --- and “the suspension agreement, meant to protect the U.S. tomato industry from unfair Mexican trade practices, has not worked as intended --- loopholes abound and enforcement is difficult. 

“Using the suspension agreement as cover for continued dumping has allowed Mexican companies to increase their market share between 30-50 percent while the U.S. tomato producer market share has declined some 25 percent.  While negotiations for change are ongoing, the Mexican tomato industry has shown no interest in a new agreement that would actually stop dumped tomatoes from injuring American tomato growers and packers.  The Tomato Suspension Agreement has always had the right intentions, but it simply hasn’t worked (and) because the 2013 agreement has failed, Commerce should terminate it.”

If the Department of Commerce withdraws from that pact as anticipated on May 7 and applies duties on Mexican tomatoes, prices at consumer checkouts could rise between 40 and 85 percent depending on product variety and season, the ASU economists say.

“It makes no sense that Americans will have to pay significantly more if tariffs are removed on Mexican supplies during the critical winter tomato supply period,” according to Lance Jungmeyer, President of the Fresh Produce Association of the Americas in Nogales, Arizona, where produce trucks enter the U.S.  under the watchful eye of the nonprofit trade association representing 120 companies that distribute Mexican-grown fresh fruits and vegetables.

“Imports serve as a critical shock absorber for American retail markets, given the frequency, severity, and unpredictability of weather events, disease, and labor-related incidents,” adds Dr. Timothy Richards, Arizona State University Morrison Chair of Agribusiness, who evaluated the impact on prices of Tomato-on-Vine, vine ripe, Roma, and Field/Beefsteak tomatoes if the agreement is terminated and duties imposed.

‘A disproportionate price levy’

“If tariffs remove a substantial proportion of the Mexican supply during the critical winter tomato supply period, the U.S. consumer will bear a disproportionate price levy,” he says.”

Should the imposition of duties reduce the supply of tomatoes from south of the border, American consumers during the May to December timeframe could be paying up to nearly 50% more for tomatoes-on-vine.  The sticker shock on a pound of that fruit would be dramatic, rising from a present cost of about $2.85-$2.90 per pound upwards of $4.20 a pound after the impact of duties is absorbed.

And that’s during normal conditions.  The ASU analysis showed prices would skyrocket even further if crop failures or negative weather events were placed into consideration.  Such weather disruptions occur, often during the wintertime when domestic supply is focused on the southeastern U.S., primarily Florida, which is seeking the duty imposition.

“Take January for instance,” reads a press release from FPAA’s Jungmeyer.  “This is when domestic supplies historically see losses due to plant disease (like 2005 when yellow leaf curl virus decimated Florida production by some 30%).  If you couple a case like that with a 50% reduction in Mexican supplies, consumers will be paying 62% more for tomatoes on the vine, 58% more for Romas, half again as much for vine ripes, and 42% more for Field/Beefsteak.  An across-the-board price hike for all varieties demonstrates how reliant the market is on supplies from all regions, including Mexican imports.

“The unmistakable conclusion of the study is that withdrawing from the Tomato Suspension Agreement will cost American consumers substantially more for a product that has become a major part of their daily diet --- and Americans can’t afford this kind of sticker shock.”

Loss of jobs in U.S.

In a letter to Secretary Ross, FPAA’s Tomato Division Chairman Jimmy Munguia advocated for non-termination of the agreement citing not only the possibility of higher consumer prices, but the loss of jobs and the impact on businesses across the U.S.  

By his figures, such termination could impact over 33,000 American workers along with 1.4 million Mexican workers, could result in a complete disruption of the North American supply chain, and had the possibility of escalating a trade war that could threaten passage of the USMCA proposal to replace the old NAFTA pact.

The letter to the Commerce Chairman stated concern that “efforts from certain regional interests” (could) disrupt the normal negotiation processes that has taken place since 1996 and concluded: “By not renegotiating an agreement to stabilize the tomato market, we could be erecting new trade barriers in fruits and vegetables that will directly harm businesses and consumers.”

Theojary Crisantes is Chief Operations Officer for Wholesum Family Farms in Arizona as well as open fields in Sonora and Sinaloa, Mexico.  “An agreement between the two countries is the best course of action.  A tariff will reduce the supply of Mexican tomatoes and during winter months when Mexico represents a substantial part of the supply chain, availability would be severely affected.  If uncertainty remains over the agreement, growers are likely to hedge their bet and lower volumes for the 2019-2020 winter season.”

As the clock ticks down to time for a go/no-go decision on the agreement, Western Farm Press caught up with FPAA’s Jungmeyer as he boarded a plane to Texas to speak to a fresh tomato convention: “We’re not resigned, but realistic,” he said.  “We’ve already held seminars on how to prepare for the eventuality of duties because we need to have the industry ready if the agreement isn’t renewed.

‘Growers will get hurt’

“A lot of folks will be negatively impacted if that happens.  Small and medium-sized companies that handle tomatoes will have a hard time even staying in business.  California growers will get hurt because a lot of tomato farmers in the Western U.S. are involved in Mexico through farm partnerships or other  supply arrangements --- they have to have that as part of their supply chain because of the many varieties grown and the vulnerability of supply shocks due to weather and labor.

“Per capita consumption of tomatoes has come about because of increased availability of more varieties and if the agreement isn’t renewed, we’ll see prices go up to the point where consumers will have to make a choice about whether or not to keep them in their diets.”

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