Is the tomato trade between Mexico and the US heading for a trade war? With the announcement of the US Department of Commerce to withdrawal from the Tomato Suspension Agreement, the future of the Mexican tomato export is insecure. Ending of the agreement could result in higher costs and export issues for the Mexican tomato growers.
What's going on?
The Tomato Suspension Agreement agreement sets different floor prices for Mexican fresh tomatoes during the summer and winter and also specifies prices for open field/adapted-environment and controlled environment production.
The origins for the agreements date back to 1996, when the department initiated an anti-dumping investigation to determine whether imports of fresh tomatoes were sold at less than their fair value in the US. After confirming this preliminarily, eventually a suspension agreement was made up, including a minimum price for Mexican imports. The reference price is to be renewed every five years. In the last chapter of this long case, back in 2013, the US and Mexico again reached an agreement on the trade. More than 600 Mexican growers and exporters signed the agreement, up from 450 growers/exporters who signed the previous 2008 agreement. All fresh or chilled tomatoes from Mexico are covered by price floors.
Lawmakers urge Commerce
Last year, urged by the Florida Tomato Exchange (FTE), the Commission already unanimously decided to conduct a full review on the agreement. With the end date of the current agreement nearing, a group of lawmakers sent a letter to the U.S. Department of Commerce, dated February 1st. "The suspension agreements have not worked and Mexican tomato exporters have used successive suspension agreements as cover for their continued use of unfair trade practices to gain U.S. market share at the expense of the domestic tomato industry", U.S. Senator Marco Rubio (R-FL) and U.S. Representative Ted Yoho (R-FL) wrote, with bipartisan support from 46 Senate and House colleagues.
According to the group, Mexico's share of the tomato market in the United States has risen from 32 percent to 54 percent, while that of local producers has dropped from 65 percent to 40 percent. Florida is the nation's leading grower of fresh tomatoes and its top competitor is Mexico.
Withdrawing from agreement
Last week, the U.S. Department of Commerce announced its intent to withdraw from the agreement. “We have heard the concerns of the American tomato producing industry and are taking action today to ensure they are protected from unfair trading practices,” said Secretary of Commerce Wilbur Ross. “The Trump Administration will continue to use every tool in our toolbox to ensure trade is free, fair, and reciprocal.”
Commerce will notify the International Trade Commission (ITC) of its final determination. "If the Department continues to find sales made at less than fair value in its final determination, the ITC will then complete its own investigation and make a final determination with respect to injury. If both Commerce and the ITC issue affirmative final determinations, an antidumping duty order will be issued", they say.
By statute, the Department of Commerce must give 90 days’ notice of withdrawal. Between now and May 7, buyers and sellers must continue to abide by the terms of the 2013 Tomato Suspension Agreement with Mexico. If an agreement is not reached by May 7, tomato imports from Mexico will have duties applied.
Something similar happened in 2012. A group of Florida tomato growers, backed by producers from other states, petitioned the Department of Commerce and the US International Trade Commission to end the pact. Because the suspension agreement no longer covered substantially all imports of fresh tomatoes from Mexico, Commerce terminated the suspension agreement and the third five-year review of the suspended investigation, and resumed the anti-dumping investigation. This was effective March 1, 2013 - however on March 4, 2013, Commerce signed a new agreement with certain growers/exporters of fresh tomatoes from Mexico, and again suspended its investigation on these imports effective March 4, 2013.
The industry response to the ending agreement is diverse. “The renewed anti-dumping investigation against Mexican fresh tomato imports is a necessary action. Despite a previous accord that banned artificially low prices, Mexican producers have found ways to exploit the agreement and increase their market share", said Zippy Duvall, president of the American Farm Bureau Federation. “Farm Bureau believes in free and fair trade. North American agricultural trade has been an enormous boon for the United States, Mexico and Canada, but the United States must take action when that trade ceases to be fair.”
The FPAA (Fresh Produce Association of the Americas), representing US importers and other companies involved in distributing fresh produce from Mexico, responds with disappointment. “The Tomato Suspension Agreement has brought stability to the U.S. tomato market for over two decades, and it has been updated as the market has evolved,” said FPAA President Lance Jungmeyer. “These updates have resulted in a wide selection of fresh tomatoes for U.S. consumers, while complying with U.S. trade laws, and adding enforcement mechanisms as the agreement itself has evolved. Despite Florida’s rhetoric, the record has shown that both Mexican growers and U.S. distributors have complied with the rules of the agreement.”
FPAA reiterated its view of the importance for Commerce to continue negotiating with Mexican growers toward a new agreement. “There is still time to reach a new agreement that serves the interests of U.S. growers of tomatoes, as well as importers of Mexican tomatoes,” Jungmeyer said. “What is crucial is that the renegotiation is not distorted by the politics of protectionism.”
"The Florida tomato industry seeks to control more than import prices of tomatoes from Mexico sold in the U.S.", Jungmeyer continued. “They are seeking to have second, third and fourth sales covered under the minimum price, including handling and freight charges. This is clearly outside of the scope of the law and is intended to discourage U.S. businesses from selling Mexican tomatoes.”
Jungmeyer suggested that it would be regrettable if this development caused an increase in tomato pricing or a reduction in varieties on supermarket shelves. “American consumers deserve to have free choice and selection of their preferred tomatoes, including vine-ripened tomatoes,” Jungmeyer said.
Over the last couple of years the Mexican tomato acreage has grown heavily, and thanks to the move from open field production to protected cropping so has the yield of the farms. A 2018 USDA report was published last year and offers an insight on the industry. The increase of the tomato operations is largely attributed to the success of exporting tomatoes to the United States. The acreage has been on the rise in the last decade, but this expansion has slowed down over the last years. The area planted is influenced by the behavior of the U.S. market, as growers try to plant only what the U.S. market will absorb besides supplying the domestic market.
The US is the main export market for Mexican tomatoes: the 2018/19 exports are expected to reach 1.7MT, around $1.9 billion worth of value.
A very small amount of US tomatoes are being imported to Mexico - but this is nowhere in comparison to the Mexican export. These are sold in the northern states of Nuevo Leon, Sonora, Baja California, and Chihuahua.