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New tomato suspension deal averts trade war, but Mexican growers say floor prices are too high

Mexican tomato growers and the U.S. Commerce Department were able to come to an eleventh-hour deal on a new tomato anti-dumping suspension agreement, thus avoiding termination of an agreement that has been in place for the past 16 years. But producers south of the border say the excessive floor prices will lock out a large percentage of Mexican production.

Mexican producers and U.S. distributors have been concerned that termination of the agreement would have led to a resumption of the anti-dumping investigation initiated in 1996 at the urging of domestic tomato growers, particularly in Florida, and the imposition of steep duties that would have kept Mexican tomatoes out of the U.S. market altogether.

They also feared that such action by Commerce would lead to a trade war with Mexico that could affect many commodities and many industries to the economic detriment of both countries.

The new suspension agreement, which is tentative pending a 10-day comment period and which is expected to go into effect March 4, increases the reference price, often referred to as the floor price, for tomatoes grown in Mexico and exported to the United States to levels significantly higher than under the previous agreement — in some cases nearly three times as high.

Currently, reference prices for all Mexican tomatoes are 21.6 cents a pound during winter and 17.2 cents a pound during summer. The new agreement sets different reference prices for four different categories of tomatoes, with winter prices ranging from 31 cents to 59 cents and summer prices ranging from 24.6 cents to 46.8 cents, depending on the category.

The Fresh Produce Association of the Americas in Nogales, AZ, which represents U.S. distributors of Mexican-grown produce, including tomatoes, thinks the new reference prices are excessive.

In a press release dated Feb. 4, FPAA President Lance Jungmeyer said, "For months we have been urging the U.S. Commerce Department to continue the U.S.-Mexican tomato suspension agreement, which has brought peace and stability to the U.S. market for fresh vegetables for 16 years. But this agreement goes well beyond what is needed, raises prices unacceptably and is not what distributors had in mind."

Previous floor price increases under the suspension agreement in 1998, 2002 and 2008 were more reasonable for the U.S. tomato buyer to absorb, according to Mr. Jungmeyer.

"This new deal goes past protecting the U.S. industry from injury," he said in the press release. "I can only predict that these prices will lock a big portion of Mexican production out of the market. It will not benefit consumers or the thousands of workers whose lives depend on trade with Mexico. It will also be a thorn in the side of U.S.-Mexican relations for years to come."

In a Feb. 4 interview with The Produce News, Mr. Jungmeyer conceded that the new agreement "is better than a trade war" and it is "better than being locked out of the market" by the resumption of an anti-dumping investigation. But "it is not perfect, and I would say for Nogales, it is not good. It raises prices too high. I think that consumers and tomato buyers will, in general, be paying more for tomatoes, and they won't necessarily be getting Mexican tomatoes."

Mr. Jungmeyer noted that U.S. growers, whether in Florida or elsewhere, "are not bound by the agreement" and can sell tomatoes at any price, as can producers in any other country that exports to the United States. "I'm not sure in the end it is really going to do what it is designed to do," he said.

The Florida Tomato Exchange has a different take on the new agreement. In a statement issued Feb. 2, Reggie Brown, executive vice president of the exchange, said, "Almost seven months ago we began the process to restore fair terms of competition regarding trade in fresh tomatoes with Mexico. Since that time, we have worked diligently with our government to identify the serious flaws in the existing approach and the industry and damage that has been done to U.S. producers and their workers."

Undersecretary Francisco Sanchez and his team "have worked hard to update the suspension agreement to deal with the concerns of domestic producers and to achieve an agreement that more closely follows the statutory mandates," Mr. Brown added in the statement. "In the future, the government will have to affirm the accuracy of Mexican growers' cost of production."

The Florida Tomato Exchange press release also quoted Ed Beckman, president of Certified Greenhouse Farmers, as saying, "The law entitles our industry to fair conditions of trade in fresh tomatoes. That's been the simple goal of this effort. The suspension agreement has failed to change with the times and has not even kept up with inflation," which has been "almost 250 percent since the base year in Mexico."

During the negotiations "between the Department of Commerce and Mexico and their growers, we identified three essential components to any new agreement to bring about fair trade: pricing, coverage and enforcement," Mr. Beckman continued. "We believe that the Department of Commerce and Mexico have struck a deal that meets those three tests, and we're hopeful and optimistic that we'll be able to compete under fair trade conditions."

The new agreement is "certainly better than a trade war," said Jerry Havel, director of sales and marketing for Fresh Farms in Nogales. "That would have been a disaster for everybody." But Mexican growers "are going to have to sell tomatoes for a lot of money" under the agreement, and if they can't get that kind of money, "these guys are going to have to keep them in Mexico. My prediction is that it is going drive this thing to have less tomatoes planted."

The agreement is "definitely a tough one, but I think overall it conserves very well the spirit of bringing order and peace to the market. I think that is positive," Eric Viramontes, chief executive officer of the Associación Mexicana de Horticultura Protegida A.C., or Mexican Association of Protected Horticulture, headquartered in Culiacan, Sinaloa, Mexico, said in a Feb. 4 interview with The Produce News.

Additionally, with the new agreement, "we definitely avoid escalated commercial war between our countries, which is something we were very worried about," he said.

The previous agreement required only 85 percent of exporters to be signatories to the agreement, while the new one requires 100 percent compliance, enforced by the governments of both countries.

"I believe that the enforcement piece of the agreement is going to bring a lot of benefit for both sides of the border," Mr. Viramontes continued. "I believe the objective of some of the domestic [producers] involved was to initiate a new conflict."

That probably would have led to a new anti-dumping investigation and a trade war that would "affect everybody," and it probably would have had a direct effect on consumers with skyrocketing tomato prices, Mr. Viramontes said.

The new agreement not only prevents that but also enables all concerned to continue good relations. It will enhance the industry on both sides of the border.