The U.S. could be on the brink of a new trade war. And it all comes down to tomatoes.
Florida farmers have used their election year clout to press the Obama administration to revise a 16-year-old agreement with Mexico over the price of imported tomatoes. But the farmers avoid bellicose rhetoric.
“There is no war involved here. There is simply an issue of trying to return to a free and unmanaged trade environment,” says Reggie Brown, executive vice-president of the Florida Growers Exchange, a trade association.
What’s seen as fairness for American farmers is interpreted as just the opposite by growers across the border. The dispute centers around the price of imported tomatoes. Prices have worked against Florida tomato growers in recent years. Last season was particularly tough.
“As a result of last year’s total devastation in the marketplace, we have lost three major tomato producers in the state of Florida,” says Tony DiMare, a third-generation tomato farmer in central Florida. "Our industry is shrinking, and the Mexican industry seems to be growing."
The problem is too much of a good thing. Which is to say, tomato production has been strong in the U.S., as well as Mexico and Canada. And the weather didn’t damage the crop. So there are a lot more tomatoes on the market than usual. In Canada, some tomato farmers have seen the market price for tomatoes fall below the cost of production.
“With surpluses, you tend to get depressed prices. And that has been what we’ve seen out of the course of this market,” says George Gilvesy, general manager of the Canadian trade group Ontario Greenhouse Vegetable Growers.
Gilvesy would not blame Mexico. But that’s exactly where U.S. farmers point their fingers. Tony DiMare says the U.S. industry’s losses can be attributed to “excessive imports and prices on Mexican product that were sold into the United States at less than their cost of production.”
That practice is known as ‘dumping.’ Florida farmers also accused Mexico of dumping back in 1996. The two countries reached an agreement, where Mexican farmers won’t sell tomatoes in this country below a certain price. It’s now slightly less than 22 cents per pound of tomatoes. DiMare thinks that price and the agreement are outdated.
“We’re asking to do away with the agreement," says DiMare. "You’ll have an open-border of completely unrestricted free trade.”
Mexican farmers don’t buy that argument. They suspect election year pandering by the Florida growers and say it’s nothing new.
“This is not something that started last week. They have been in opposition of free market in tomatoes against Mexico since the 1800s,” says Martin Ley. He grows around 22 million pounds of tomatoes a year in Mexico, and distributes them throughout the U.S. and Canada.
Ley sees only one motive behind the move by the Florida farmers: “They are trying to take out of the marketplace their toughest competitor.”
He’s in Washington D.C. this week, representing Mexican farmers in negotiations with the Commerce Department. The Mexican farmers have offered a compromise. But Ley still resents that only the Mexican farmers are required to abide by the price controls. Ley says Florida farmers often sell their tomatoes for less than what Mexican farmers can charge.
“While we’re selling tomatoes for $5 per box, they’re selling tomatoes for $2 to $3," says Ley. "So, when we see those patterns and that behavior, it’s very clear that the suspension agreement and Mexico is not the problem for the Florida growers.” He says the real problem is the way the Florida farmers do business.
Ley insists his company produces cheaper tomatoes because it has invested in the latest agricultural science and technology.
“We have innovated into new varieties and into new tomato types in the marketplace. By giving a tomato that is very flavorful, that is really attractive, that smells really good,” says Ley.
Mexican growers have also been investing in greenhouses. In the past, bad weather would reduce the total number of tomatoes on the market. With the protection of greenhouses, Mexican farmers produce a consistent supply of tomatoes for a market that is already saturated.
Florida farmers want the Obama administration to throw out the old agreement. And Mexican farmers fear the U.S. will hit the industry with a new tariff. Ley expects such a move would cause Mexican farmers to stop shipping tomatoes to the U.S. As a result, consumer prices for tomatoes would rise in this country.
And it’s not just tomatoes in the crosshairs. In past trade disputes, Mexico has retaliated against other U.S. industries doing business across the border, such as U.S. beef, pork and chicken producers. But if the tomato dispute becomes full-blown trade war, Reggie Brown with the Florida Growers Exchange, says the U.S. won’t have started it.
“If there is any threat of war, it is based upon the retaliation threats that have been hurled by the Mexican industry and the Mexican government,” says Brown.
Who started it won’t matter much to U.S. companies that experience collateral damage. That’s why many U.S. companies, including Walmart, have sided with the Mexican growers. American businesses don’t want the tomato trade war to eat into their revenues.