Deal may push Mexican tomato prices higher

02/11/2013 09:05:00 AM
Tom Karst

Importers project higher prices and reduced volumes by early March, the expected effective date of a new suspension agreement between Mexican tomato growers and the U.S. Commerce Department.

The Commerce Department announced the plan on Feb. 2. The 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 proposal raises minimum prices substantially, in some cases more than double the current floor price for certain products.

U.S. growers had been unhappy with current floor prices for Mexican tomatoes and in 2012 requested the end of a suspension agreement that set those prices since 1996, stopping an anti-dumping investigation.

There are no winners with the new suspension agreement, said Jaime Chamberlain, president of J-C Distributing Inc., Nogales, Ariz.

“I think the American consumer, whether at the retail or foodservice level, will end up paying the price,” Chamberlain said.

He said the market price for Mexican tomatoes will increase and volume will decline when the new prices become effective. The Commerce Department said the prices should be in place by March 4, following a monthlong comment period.

“If you are a repacker, you will see an immediate increase in price,” Chamberlain said.

Prices will be passed down the supply chain to consumers, he said.

The agreement raises the winter period (Oct. 23 through June 30) reference price for open field/adapted environment tomatoes from current levels of 21.69 cents per pound to 31 cents per pound. For a 25-pound carton of Mexican tomatoes, that would raise the price from $5.42 per carton to $7.75 per carton.

For the summer period, from July 1 to Oct. 22, the reference price for open field/adapted environment tomatoes from Mexico was raised from the current level of 17.2 cents per pound to 24.58 cents per pound. That translates into an increase from $4.30 per 25-pound carton in the current agreement to $6.15 per carton in the new deal.

Where as previous suspension agreement had only one reference price for summer tomatoes and another for winter tomatoes, the new suspension agreement also creates new categories for controlled environment and specialty tomato varieties.

Controlled environment tomatoes, other than the specialty varieties, now have a reference price of 32.51 cents per pound in the summer and 41 cents per pound in the winter. That would translate to $8.13 per 25-pound carton in the summer $10.25 per 25-pound carton in the winter.

Specialty tomatoes - grape, cherry, heirloom and cocktail varieties - have reference prices from 35.68 cents to 46.79 cents per pound in the summer and 45 cents to 59 cents per pound in the winter, depending on pack. That would translate to a reference price for loose specialty tomatoes in 20 pound cartons at $7.14 per carton in the summer and $9 per carton in the winter.

Regardless of the size of the price increases, some in the industry said a trade war sparked by a new anti-dumping investigation would be damaging to parties on both sides of the issue.

“In the big picture, I think everybody in the industry would acknowledge that we are glad it has come to a resolution,” said Bruce Peterson, president of Peterson Insights Inc., Bentonville, Ark.

The higher tomato prices from Mexico may hurt smaller buyers more than larger buyers, he said.

The biggest retail and foodservice buyers can easier plug higher prices into their cost formulas. Small buyers depend on lower prices to create margins, Peterson said.

It is disappointing to see the industry spending time and money on the tomato dispute rather than trying to increase consumption of fresh produce, said Joe Comito, chairman of the board for Norwalk, Iowa-based Capital City Fruit Co. Inc. Comito referred to the avocado industry as an example of what should be done instead, with growers from Mexico, California and Chile driving avocado consumption higher with combined promotion efforts.

Consumer reaction to the agreement could be negative, Comito said.

“When this goes into effect, all they need is for the press to pick it up and say tomatoes have increased in price by this certain percentage because of this suspension agreement and consumers will quit buying because the perception is that they are too high,” he said.

Wayne Passoff, owner of tomato repacker Wayne’s World, Chicago, said he didn’t think the government needed to inject itself in the market.

“Let the farmer be the farmer, and let demand and supply direct the price anywhere in the world,” he said.

One concern about the agreement is how pricing of tomatoes will change, said Gary Myracle, executive director of produce field procurement for Associated Wholesale Grocers, Kansas City, Kan. Currently, Myracle said most of AWG’s seven divisions buy Mexican tomatoes.

“The majority of our tomatoes — 75% to 80% — come from Mexico right now,” he said.

The Fresh Produce Association of the Americas, which represents companies that import Mexican tomatoes, was not involved in the negotiations. President Lance Jungmeyer said it’s not a reasonable solution.

Mexican officials who signed the agreement include representatives of grower groups Confederation of Agriculture Associations of the State of Sinaloa, Agricultural Council of Baja California, Mexican Association of Protected Horticulture, Sonora Regional Agricultural Union and National Confederation of Vegetable Producers.

Jungmeyer said many Nogales distributors are concerned about the effect of the price increases on buyer and consumer demand.

“A price increase this high gives the U.S. industry more room to maneuver, it gives them plenty of room to sell at 10 cents (per pound) below that floor price all day and essentially keep Mexico out of the market,” he said Feb. 4.

After being briefed on the deal by the Commerce Department officials, the Florida Tomato Exchange and Certified Greenhouse Farmers released a statement expressing “tentative support” for the revised suspension agreement.

“The agreement as it is currently structured is a step forward,” said Reggie Brown, executive vice president of the Florida Tomato Exchange, Maitland, Fla. Brown said the agreement’s higher prices validate the contention of U.S. growers.

“We still feel very strongly that the cost of production is essential to determining what the correct reference price should be, and we look forward in the future for Commerce to obtain that information and adjust the reference prices on that basis,” he said.



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Garland    
Chino Hills, CA  |  February, 12, 2013 at 11:45 AM

I agree with Joe Comito's analogy to the avocado industry. We, as an industry, should be banning together much more in order to promote increasing produce consumption. Until we get consumers out of the middle aisles and into the produce department, buying more fruit and vegetables, these types of debates seem to be forgetting the "Big Picture." Can everyone not come to an agreement that will benefit the farmers as well as consumers?

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