There has been much discussion surrounding the withdrawal of the Tomato Suspension Agreement in recent months and today, 90 days after the initial termination announcement, Reuters reports the United States will impose a 17.5 percent tariff on Mexican tomato imports.
As the two countries were unable to renew a 2013 agreement that suspended a U.S. anti-dumping investigation, a Mexican official said on Monday that the new rules will be starting this Tuesday.
“As of tomorrow a tariff of 17.5 percent will be applied on the value of the product... Mexican exporters will be affected, it’s going to affect their financial flows but that is going to be directly transferred to U.S. consumers,” Reuters quoted Mexican Deputy Economy Minister Luz Maria de la Mora yesterday. She added that the U.S. measures will remain in place until a new suspension agreement is reached.
“We’re very disappointed but the good news is that negotiations continue, looking for a solution. And we hope that in the coming weeks we can in fact reach an agreement,” said de la Mora.
The Tomato Suspension Agreement has been topic of discussion for the last couple of months.
Higher prices
Earlier, organizations such as the Fresh Produce Association of the Americas claim that US consumers can expect to pay 40 to 85 percent more for vine-ripened tomatoes should the tariffs be applied.
To help answer some of the questions that this issue has brought up, a workshop was held at the recent Viva Fresh Produce Expo. Moderated by Dante Galeazzi, President & CEO of the Texas International Produce Association, the workshop drew industry experts to discuss the potential impacts of the withdrawal of the suspension agreement, including on tomato prices as well as the impact on Texas produce businesses, many of whom rely on cross-border trade.
"This withdrawal stands to create dramatic changes in how Mexican tomato imports are handled,” stated Galeazzi. “We felt it was important to include this workshop to help educate the industry on what to expect and from a business perspective, how supplies could look moving forward.”
Uncertainty likely to fuel price rises
Dr. Luis Ribera, an economist at Texas A&M University’s Center for North American Studies was a speaker at the workshop. He said it's almost a certainty that prices will rise, whether or not the tariffs are applied. Ribera explained that the attention and uncertainty surrounding the withdrawal of the suspension agreement will be enough to agitate the market.
"I do believe that prices will go up due to the tariffs that are expected to be placed on fresh tomatoes from Mexico, but also for the added uncertainty throughout the whole tomato supply chain that could also spill over to other products as well," he said, adding that it will also add to the cost of doing business in general due to the uncertainty.
Ribera provided a recent example of where such uncertainty artificially elevated a market - the avocado market. "Markets react to news, especially agricultural markets and within ag markets, the fresh produce markets due to the perishability of produce," he said. "So even if nothing actually happens, something is already happening as we saw how avocado prices went up just by the news of the possible closure of the US-Mexico border. That didn’t happen but the market reacted. This extra uncertainty makes doing business more costly. As an example, lenders will raise the cost of lending money to producers, cold storage developers, etc. because of the higher risk of getting their money back. It is a ripple effect that could also affect other produce supply chains."
Plenty at stake for Texas economy
Whatever the outcome of the decision on whether or not tariffs will be applied, what is certain is that the Texas economy will have to face some adjustments. Ribera referred to a 2018 report which found that half of all US imports of fruit and vegetables from Mexico - worth $6.3 billion - entered through Texas. The report projected that the percentage of imports entering through Texas will increase by 2025. Of course, tomatoes are not the only commodity crossing the border, but Ribera emphasized that any effect on the cross-border tomato trade will have consequences for the Texas economy and local jobs.
"The study we undertook on the economic impact of fresh produce imports from Mexico shows what is at stake," he concluded. "Just in Texas, the economic impact is around $850 million, and close to 8,000 jobs. Any delays, disruptions or related barriers to the entry of fresh produce causes a ripple effect in terms of economic and employment losses across a wide spectrum of regional economies."
