October 20, 2014

Tomato Pasting

David Poppe | 8/1/1995
When Wayne Hawkins went to work for the Florida Tomato Exchange in 1974, there were 475 tomato growers on his mailing list. By 1990, there were about 230. This year, there are 91. "Next year it might be 50," says Hawkins, who is executive vice president of the growers' cooperative association.

Call it the incredible shrinking industry: the state says the number of commercial growers in Florida has dropped from 200 to less than 85 since 1993.

The culprit: cheap tomatoes from Mexico. For decades, Florida and Mexico have divvied up the U.S. market for winter tomatoes, and for most of that time, Florida has captured about two-thirds of the market. Now, however, Mexico is the dominant supplier of winter tomatoes to the U.S.

As recently as two years ago, Florida's share of the U.S. winter tomato market was 73%. Last year, Florida's market share fell to 57%. During the first quarter of this year, it dropped to 36%. That has meant plenty of anxiety in a $700 million state industry that employs roughly 20,000 people.

Most Florida farmers blame the North American Free Trade Agreement (NAFTA) for their plight. But NAFTA alone isn't responsible for Mexico's surging tomato exports. Other causes include low wages and lax regulation, improved farm technology and a more welcoming attitude in Mexico toward foreign farm investors. Then there was last December's peso devaluation, which enabled Mexican farmers to sell tomatoes cheaply in the U.S., while still earning a nice profit on the conversion into pesos.

Angry Florida tomato growers have the support of Florida Agriculture Commissioner Bob Crawford. A spokesman for the commissioner, Terry McElroy, says, "We believe Mexico has been dumping tomatoes. We believe Mexico has been selling at below-market cost, even with the devaluation," in a deliberate effort to corner the tomato market.

That, more than anything, angers Florida growers. NAFTA contains strict provisions against the dumping of winter vegetables, and President Clinton promised Florida's wary Congressional delegation that those provisions would be enforced when he lobbied them to vote for the agreement.

But farm advocates claim the U.S. Customs Service has been slow to flag Mexican dumping since NAFTA passed. One reason may be that Customs checks tariff quota compliance quarterly; Florida tomato farmers would prefer weekly checks so that penalties might be assessed in a more timely fashion.

NAFTA calls for the elimination of trade barriers for tomatoes over a ten-year period and imposes quotas on Mexican imports in the interim. If Mexico exceeds those import quotas, tariff rates "snap back" to pre-NAFTA levels. The import quotas rise by 3% annually until they are removed.

But Mexican farmers seem to have ignored the quotas. For the period November 15, 1994, through the end of February, for example, Mexican tomato exports to the U.S. were 31,583 metric tons over the quota limit set by NAFTA.

For the recently ended period March 1 through July 14, Mexico was permitted by NAFTA to ship 170,465 metric tons into the U.S. tariff-free. By May 20, Mexico was already 50,000 tons over its quota limit, says John VanSickle, professor of Food & Resource Economics at the University of Florida in Gainesville.

Since Mexican tomatoes tend to arrive in surges, prices have fluctuated wildly this year. In early April, for example, a 25-pound box of tomatoes at wholesale sold for $12.23, or nearly 50 cents/lb. But three weeks later, after a flood of Mexican tomatoes hit the market, a 25/lb. box sold for $3.45, or less than 14 cents/lb.

That collapse occurred just as farmers in the Tampa and Ruskin areas were bringing their crops to packing houses for sale. Because tomatoes are perishable, the farmers couldn't wait for prices to rise again. Some farmers reportedly were wiped out.

Adding to farmers' frustration, plunging wholesale prices have not translated into lower retail prices. A May survey by the Florida Tomato Exchange found that Florida supermarkets sold tomatoes for between 89 cents/lb. and $1.29/lb., even though wholesale prices at the time were as low as 12 cents/lb. "You've destroyed the Florida farmer to create more profits for the chain stores," fumes Paul DiMare, president of DiMare Homestead Inc., which farms in Florida, South Carolina, Virginia and California.

Farmers like DiMare blame NAFTA for this, saying it opened the floodgates for cheap Mexican produce. "I don't think you can have free trade with a Third World country," he gripes. "It's the most ridiculous thing I've ever seen. I can't compete with $2.50-a-day labor."

The Florida Agricultural Statistics Service says the average Florida hired farm worker earns $7.82 per hour, some 20 to 25 times the Mexican rate. Plus, Florida farmers cope with environmental, housing and food safety rules that either don't exist or aren't closely enforced in Mexico.

That makes DiMare pessimistic about the future. "I see it just like every other industry that has withered away," he says. "In a labor-intensive industry, you can't compete with a Third World country."

Other farmers and farm advocates, however, say that while DiMare's conclusions may be right, there are reasons for Mexico's rise other than cheap labor and lax regulation.

Jeffrey D. Gargiulo, whose Naples-based Gargiulo L.P. grows tomatoes throughout Florida and in Culiacan, Mexico, notes that NAFTA simply removed an existing tariff of 10 cents per 25-pound box of imported tomatoes. In any case, that's not enough of a tariff to offset Mexico's cost advantages on labor and environmental regulations.

Gargiulo adds that Mexican tomato quality and yield has improved dramatically in recent years because of better growing techniques. On top of that, devaluation made Mexican tomatoes cheap to import to the U.S. and made Mexican farmers eager to get dollars.

"I don't think all of the Mexican product coming into this country is from NAFTA. This is a longstanding trade war that's been going on for 40, 50 years between Florida and Mexico," Gargiulo says.

Agricultural economist VanSickle says NAFTA had less effect on crop prices than he expected, but devaluation had a huge effect. "The devaluation could not have taken place at a better time" for Mexican farmers, he says. They had already incurred most growing costs before devaluation. Then, the devaluation enabled them to sell tomatoes in the U.S. cheaply and still make a profit.

VanSickle is not optimistic winter tomato growers can improve their lot anytime soon without some sort of government protection. Florida growers historically dominated the U.S. market for winter vegetables because of superior growing technology and equipment. With NAFTA encouraging investment in Mexico and easier technology transfer, that edge should disappear. "Technology is going to transfer much quicker," VanSickle says. "We have to be very aggressive if we are going to keep that as an advantage of ours."

But protection doesn't appear forthcoming. A dumping complaint filed by the Florida Tomato Exchange against Mexico with the U.S. International Trade Commission was rejected earlier this year for procedural reasons.

Sen. Bob Graham is considering introducing legislation that would strengthen NAFTA anti-dumping provisions and also address quality and packaging standards for Mexican tomatoes coming into the U.S., says Legislative Assistant Russ Sullivan. Given the deregulatory sentiment in Congress, however, "I think it's going to be an uphill legislative fight," Sullivan says.

The issue is an urgent one for farmers. Hawkins says he believes some tomato growers won't plant for the coming winter tomato season without some government assurance that Mexican dumping will be stopped next year.

"Mexico is going to get much more competitive in our markets," says VanSickle. The federal government, he adds, "has to decide if we are willing to give up this industry or if we are willing to do our part to keep it competitive."

Tags: Florida Small Business, Politics & Law, Business Florida

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