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News and insight for North America's fresh produce buyers
Maura Maxwell

BY MAURA MAXWELL

@maurafruitnet

US consumers will pay for Mexican tomato duties

Prices rise by 40-85 per cent if US slaps duties on Mexican tomatoes, economic study reveals

US consumers will pay for Mexican tomato duties

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US consumers could soon be paying 40-85 per cent more for vine-ripened tomatoes, according to an economic analysis of impending punitive duties on Mexican tomatoes, which are set to go in effect in early May.

The study, carried out by economists at Arizona State University, shows that if the US Department of Commerce withdraws from the Tomato Suspension Agreement on 7 May and applies duties on Mexican tomatoes, consumer prices could rise by up to 40 per cent in the period from May to December.

During other periods, such as the winter, prices for certain varieties like vine-ripened tomatoes, tomatoes on the vine and Romas could increase by more than 85 per cent, according to the analysis, which relies on data from AC Nielsen.

“This makes no sense. Most Americans crave certain kinds of vine-ripened tomatoes, and now they are going to have to pay more, significantly more,” said Lance Jungmeyer, President of the Fresh Produce Association of the Americas, Nogales, Arizona.

Led by Dr. Timothy J. Richards, Morrison Chair of Agribusiness at ASU, the analysis evaluated the impact the withdrawal from the Suspension Agreement will have on prices consumers pay for four varieties of tomatoes – tomatoes-on-the-vine (TOV), vine ripe, Roma, and Field/Beefsteak – under several market scenarios.

Terminating the suspension agreement, the ASU analyst found, will reduce the supply of tomatoes in the US market, and raise prices paid by American consumers, particularly during the winter tomato season (October to June).

“In general, tariffs levied on imports of fresh produce from Mexico are borne disproportionately by US consumers,” said Richards. “In this analysis, we show that retail tomato prices in the US may rise by an average of approximately 40 per cent if tariffs remove a substantial proportion of the Mexican supply during the critical winter-tomato supply period.”

If something were to happen to the remaining supply of US tomatoes during this period, Richards added, the potential impact on retail tomato prices would be even more substantial.

“In this regard, imports serve a critical shock-absorber function for US retail markets, given the frequency and severity of supply shocks from weather, disease, or even labour-related events,” he said.

Assuming that the imposition of duties reduces the supply of Mexican tomatoes by 50 per cent, consumers in the May to December time frame could be paying up to 47 per cent more for TO, for instance. The sticker shock on 1lb of these tomatoes is dramatic – rising from US$2.87/lb at present, to US$4.21/lb after the impact of duties is absorbed, according to the price elasticity analysis.

Prices would skyrocket even more when weather events and crop failures are considered, according to the analysis.

Such weather disruptions occur often during the wintertime, when the sole US supply is in the southeast of the country, primarily Florida, which is seeking the imposition of duties.

Take January, when domestic supplies have historically seen losses due to plant disease, such as in 2005, when Tomato Yellow Leaf Curl Virus reduced production in Florida by approximately 30 per cent.

In such a situation, coupled with a 50 per cent reduction in Mexican supplies, consumers would be paying 62 per cent more for tomatoes on the vine, 58 per cent more for Romas, 50 per cent more for vine ripened tomatoes and 42 per cent more Field/Beefsteaks.

The price increase across the board for all varieties demonstrates how reliant the market is on supplies from all regions, including imports from Mexico. In the above scenario, consumers would go from paying US$2.61/lb (pre-duty) to US$4.23/lb.

In January, in addition to disease loss, domestic supplies also are prone to reductions due to freeze or frost. In a more extreme case in which a 50 per cent reduction in January imports from Mexico and an 80 per cent reduction in US production occur simultaneously, price increases for vine ripe tomatoes are expected to be up over 86 per cent, from US$2.32/lb (pre-duty) to US$4.32/lb.

Another scenario explores what happens when a combination of pressures such as reduced labour, hurricanes, frosts or diseases combine to reduce US production 30 per cent reduction during the crucial January to May time period when most of the US is out of production.

Coupling the above with a 50 per cent reduction in imports from Mexico, prices for tomatoes on the vine, vine ripe, and Roma tomatoes are all expected to be over 50 per cent, and prices for Beefsteak tomatoes would rise by 41.3 per cent.

“The unmistakable conclusion of the study is that withdrawing from the Tomato Suspension Agreement will cost American consumers substantially more for a product that has become a major part of their daily diets,” said Jungmeyer. “Americans can’t afford this kind of sticker shock.”

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