“It is absolutely one of the more interesting times, I believe, to be on the international side of fresh produce,” said Dante Galeazzi, president and CEO of the Texas International Produce Association, which represents the business, economic and political interests of Texas-grown fruits and vegetables.
Galeazzi has a front-row seat to the potential impact of the Trump administration’s proposed 25% tariffs on imports from Mexico.
“We haven’t seen a tariff situation on fresh produce out of Mexico in almost 30 years since the introduction of the North American Free Trade Agreement,” he said.
TIPA members, which include fresh produce importers, have expressed confusion and concern about the impacts of these proposed tariffs on their businesses. Galeazzi said a challenge has been trying to understand these implications, as no information has been published yet in the Federal Register to help the association and its members prepare and plan.
Galeazzi said TIPA has relied on U.S. custom brokers to help guesstimate how tariffs would work under U.S. Section 332 of the Tariff Act of 1930. But the proposed 25% tariffs on Mexican imports, he said, will fall under the Emergency Economic Action clause.
“There is some level of uncertainty about what’s involved with that,” he said.
This uncertainty makes it difficult for importers to predict exactly what will be needed to comply with the tariffs if they’re enacted, Galeazzi said, and any potential slowdown has a direct impact on the quality of the fresh produce being imported.
“When the [fresh produce] comes off the tree or the bush or out of the ground, they’re ready to go,” he said. “And you can’t stand around figuring out, ‘Did I get the tariff system right? Did I bill it correctly? Did I put enough into the payment system?’ You can do that with electronics or manufactured goods. You can’t do that with fresh produce.”
Benefits of NAFTA
Galeazzi said the availability of fresh produce in the U.S. has expanded significantly since NAFTA’s enactment in 1994.
“Now you see the presence of fresh fruits and vegetables on grocery store shelves 12 months out of the year, whereas prior to NAFTA, it was very common that you saw seasonality,” he said. “That’s because of the international trade.”
NAFTA has also boosted the importance of Texas in the fresh produce supply chain, he said.
“Texas is now a loading location year-round for grocery stores and foodservice, because they can secure what they need all year long — not just when Texas is growing it, but when we’re complemented by Mexico, when we’re complemented by the arrivals of Colombia and other countries from Latin America out of the Port of Houston,” he said.
Galeazzi said for every dollar of fresh produce that comes across the Texas border, it generates more than $2 of economic impact to the state. Combined with the availability of Texas-grown fresh produce, it’s a win-win for the domestic producer and the international producer, he said.
“If you’re a grocery store, you’re able to fill up your store shelves and get everything you need in one state,” he said. “You’re not sending your truck to three or four states to fill your grocery list. You’re sending your truck to three or four warehouses within 20 miles, and you’re filling that grocery list.”
The availability of both domestic produce and imported produce is a major advantage for Texas, Galeazzi said.
“That advantage, then, is not only for the industry, not only for the state, but it also becomes an advantage to the consumer, because the consumers get fresher food options with lower food miles,” he said.
Unintended consequences
If the proposed tariffs do go into place, it will threaten certain commodities, Galeazzi said. The fresh produce industry supplements California-grown avocados with imported avocados. Availability of bananas, limes, mangoes and even berries in the offseason could all be in jeopardy if the Trump administration enacts the tariffs.
“The other challenge too is, yes, we grow certain fruits and vegetables here in the U.S., but we do it during a certain season,” he said. “We are not going to have a lot of the fruits and vegetables that we want right now until it gets closer to May, when a lot of the domestic season opens up; you’re going to have some leafy greens and some squashes, but you’re not going to have anywhere near the diversity of commodities that you are used to seeing in the grocery stores if we do this.”
Galeazzi said TIPA and other organizations have tried to communicate to the Trump administration and legislators the direct impact of the 25% tariffs.
“One of the things that we’re trying to make obvious to our legislators is that tariffs aren’t just a 25% tax on that product, it’s a 25% tax that’s paid upfront,” he said.
An example is to look at an import of 50 loads of avocados that’s worth roughly $100,000 each load. Now, that truckload costs $125,000 with the tariff. And the importer must put the 25% tariff on the load’s value within a month.
“You’re putting up $32,000 or $35,000 for every single truckload — 50 truckloads a week if you’re a decent-sized avocado company,” Galeazzi said. “How many companies have that many millions of dollars’ worth of capital they can just pump out for payments in 30 days? Let me tell you, that’s a super-small number.”
He said that will immediately close the valve of the fresh fruits and vegetables arriving in the country.
“That could not come at a worse time when you have more and more Americans dealing with diet-related diseases, many of which are preventable,” he said. “Should they be eating more fruits and vegetables every day?”
Galeazzi said the other consequence is that the tariffs will likely increase the price of the remaining produce in the marketplace, given its scarcity.
“That’s just Mexico and Canada arrivals at 25%. You are not going to have the benefit of being able to switch to another country easily, because you are looking at a reciprocal tariff plan which goes into place, possibly by early April,” he said. “Almost all Latin American countries have a VAT — value-added tax — and those have been identified as ‘tariffs’ by the current administration. Those countries are going to be subject to a tariff requirement anyway, so you don’t really have any other options to go to for your fresh produce. So, that’s why I’m saying you’re going to be choking off the supply of fresh produce coming into the country.”
Another challenge is that, in many cases, these tariffs will damage hard-fought relationships with other countries in the produce supply chain, Galeazzi said, and those countries facing tariffs will seek out other buyers for their produce.
“When you disrupt supply chains, new supply chains are created and those [previous] relationships become fragmented,” he said. “Even though it wasn’t necessarily the suppliers’ fault, they are — when you look at the system — deemed unreliable because they’re exposed to the potential for tariffs, and that does absolutely disrupt the relationship. It creates additional confusion. It adds a world of variables that complicate everything that comes to fresh produce.”
Challenges abound
“It has been a very tumultuous start to the year,” Galeazzi said. “I think that’s probably an understatement to say the least, because it’s not just tariffs. We have so many different challenges.”
One of those challenges is labor. Galeazzi said he hopes the attention on labor can help the fresh produce industry and agriculture push forward solutions to the H-2A program. Another issue has been the pause in USDA grant funding for its Market Access Program, and the reduction in USDA staffing has also impacted the USDA’s National Agricultural Statistics Service and Agricultural Research Service.
When asked what’s keeping him up at night, Galeazzi cited not only the threats of 25% tariffs on imported goods from Mexico but also water shortages in Mexico that have slowed production, along with domestic water shortages and the potential that tariffs could impact the availability of fresh produce in the U.S., which could directly shift the gains the fresh produce industry has made with consumption of fresh fruits and vegetables.
“My concern is, if you start adding tariffs and you start limiting production and you start limiting our trade partners, do you then again increase the cost of fruits and vegetables, and this time when you increase that cost, do we lose that momentum and go backward?” he said. “Those were hard-fought gains. Those were challenges that we had been working on changing for a long time in this industry and now, unfortunately, we are at a precipice where we could see all those gains be lost, and then some.”
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