Markets calm under new tomato agreement - The Packer

Markets calm under new tomato agreement

03/07/2013 11:47:00 AM
Andy Nelson

(UPDATED COVERAGE, 12:34 p.m.) The first week under a new tomato suspension agreement began calmly, with Mexican volumes low enough to keep prices above new market floors.

The U.S. Department of Commerce made the new agreement — approved by Mexican growers representing 85% of exports to the U.S. — official on March 4, a little over a month after the department proposed increases to floor prices on Mexican tomatoes.

Spurred by the Florida tomato industry’s allegations about Mexico dumping product below production cost, the agreement sets floor prices for Mexican tomatoes during the summer and winter, with four price levels covering open field/adapted environment, controlled environment production, and loose and packed specialty tomatoes.

For some products, the floor price more than doubled.

Two days after the agreement became official, market conditions trumped the new price minimums, said Jesse Driskill, operations manager in the Nogales, Ariz., office of Meyer LLC.

“Most of the markets are above the floor prices,” Driskill said. “Markets have strengthened a little bit.”

A cold winter in Mexico has kept the lid on volumes, and Driskill doesn’t see a surge in production anytime soon.

On March 6, the U.S. Department of Agriculture reported prices of $11.95-13 for two-layer cartons of vine-ripened tomatoes 5x6 from Mexico, up from $8.95-12.95 last year at the same time.

For Nogales-based Farmer’s Best, it was also business as usual as of March 6, said Jerry Wagner, the company’s director of sales and marketing.

“We have a new floor price and wish it had been a little closer to reality, and been lower than what was instituted, but we will continue to abide by it.”

Farmer’s Best plans to increase tomato acreage in Mexico for the upcoming season to meet consumer demand, Wagner said.

“As always, we’re very appreciative of the continued support we receive from our customers here in the U.S.”

Driskill is critical of terms of the agreement.

“I’m not happy with it at all,” he said. “Florida has done a masterful job of taking advantage of current laws and regulations and bending them to their benefit.”

Reggie Brown, executive vice president of the Maitland-based Florida Tomato Exchange, was pleased that the Mexican government signed on to the agreement, and that enforcement was boosted by a new role for the Perishable Agricultural Commodities Act branch of the U.S. Department of Agriculture.

Driskill also praised the new PACA role, calling it the “one shining star of the agreement.” The new role will ensure, Driskill and Brown said, that shippers on both sides of the border are playing by the same set of rules.

But the agreement is far from perfect, Brown said.

“We still have concerns that (the new floor prices) don’t reflect the price of production,” he said.

Lance Jungmeyer, president of the Nogales-based Fresh Produce Association of the Americas, is concerned about a scenario in which Florida shippers can sell tomatoes below the Mexican floor prices, effectively shutting shippers south of the border out of the deal.

On the other hand, Jungmeyer said the Mexican industry is happy that the agreement ensures shipments from Mexico can continue, and that anti-dumping investigations won’t.

“If the agreement fell apart we would’ve seen a far worse scenario,” he said. “We got the best of the worst. A lot of distributors are very unhappy with the prices.”

Tommy Wilkins, director of produce procurement for Lubbock, Texas-based retailer United Supermarkets LLC, said the agreement is a mixed bag for retailers.

“I feel the floor pricing is very high, but happy to have an agreement,” Wilkins said. “We need Mexican tomatoes for our (consumers) at certain times of the year. I believe this stabilizes the supply of tomatoes available.”

Paul Kneeland, vice president of produce, floral and seafood for Parsippany, N.J.-based Kings Food Markets, said Kings won’t be as affected as some other retailers, becase it tends to sell high-end product at premium prices.

But the affect on the retail grocery industry as a whole will definitely be felt.

“We know that (consumers) buy less in a short market with higher prices,” he said. “It will affect our margins in store. Obviously retail will have to pass on the cost to the consumer, but how much can be passed will depend on retail ceilings.”

A Commerce Department official said the final agreement had no significant differences from the agreement proposed in February. More than 600 Mexican growers and exporters signed the agreement, up from 450 growers/exporters who signed a 2008 agreement, the official said.

The original 1996 suspension agreement was updated in 2002 and 2008.

New floor prices

The previous floor prices for all Mexican tomatoes — whether grown in fields, greenhouses or shadehouses — was 21.69 cents per pound in the winter and 17.2 cents per pound in the summer.

The agreement sets new prices:

  • Open-field and “adapted-environment” tomatoes are 31 cents per pound in the winter and 24.58 cents per pound in the summer.
  • Controlled-environment tomatoes are 41 cents per pound in the winter and 32.51 cents per pound in the summer.
  • Loose specialty tomatoes are 45 cents per pound in the winter and 35.68 cents per pound in the summer.
  • Packed specialty tomatoes have minimum prices of 59 cents per pound in the winter and 46.79 cents per pound in the summer.

Web seminar on agreement scheduled

The U.S. Department of Agriculture’s Agricultural Marketing Service and the U.S. Department of Commerce’s International Trade Administration will host a web seminar on the new tomato suspension agreement.

Slated for 2 p.m. EDT March 14, the seminar features presentations by Judith Rudman, the trade administration’s director for bilateral agreements; and Brian Wright, assistant regional director for AMS’s PACA division.

The seminar will cover topics including the history of suspension agreements, USDA reporting on tomatoes, dispute resolution and unfair trade enforcement.

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