US, Mexico in food fight over tomatoes: How messy will it get?

The tomato, one of America’s favorite vegetables, is the focus of a burgeoning cross-border food fight that Mexican officials say could escalate into a broader trade war.

Mexican exporters currently supply about half the tomatoes consumed in the US. American growers, upset over what they see as a steady incursion of low priced Mexican produce, are trying to quash a deal that has kept the price of Mexican tomatoes low. The move could lead either to new tariffs on Mexican tomatoes or an agreement by the Mexicans to sell their produce at higher prices.

The Mexican government is threatening retaliation if the US tacks on any new tariffs.

“If Mexico’s interests end up being affected, Mexico will respond,” said Arturo Sarukhan, the Mexican ambassador to the US in a statement. “When Mexico aims, Mexico hits the target.”

What does this mean for US consumers? Whether the US action results in higher tomato prices is hard to say. In public filings over the issue, large buyers of tomatoes, such as Wal-Mart, worry that any disruption of a stable and predictable supply of tomatoes from Mexico will hinder their ability to provide consistent pricing to the US consumer.

But the US growers say those fears are unfounded, maintaining that the US has the ability to grow enough tomatoes to keep every salad bar stocked at a reasonable price.

“I don’t anticipate consumer prices will be impacted significantly at all,” says Reggie Brown, executive vice president of the Florida Tomato Exchange, which represents growers there.

The Mexican government, meanwhile, is deeply suspicious over the timing of the tomato flap since it involves growers from politically sensitive Florida. Mexico’s minister of the economy, Bruno Ferrari, told Reuters this week it was “obvious” the request was timed to put political pressure on the White House ahead of the election.

Over the last several months, the Obama administration has become more aggressive in charging importers with dumping. This summer the US charged Chinese companies with unfair trade actions regarding cars and auto parts. The president touted that trade action while campaigning in Ohio, but Mitt Romney called it too little too late. Romney says he would get tough on China regarding trade issues if elected president.

Tensions over tomatoes began to simmer in 1996, when the US growers asked the Commerce Department to initiate an investigation into tomato-dumping by Mexican growers, who at the time had just 35 percent of the American market. That investigation was suspended in 2008 after the Mexican growers agreed not to sell tomatoes for less than 21 cents a pound.

But the tomato-throwing began anew in June when the US growers asked the Obama administration to withdraw the suspension of the investigation and cancel the 1996 investigation itself, an action that could pave the way for a new investigation to be initiated, thereby putting new pressures on Mexico.

“There is certainly the potential for that happening,” says Mr. Brown.

The US growers argued to the Commerce Department that several factors have made the 1996 investigation and 2008 agreement out of date, including changes to the dollar-peso exchange rate, increased costs associated with greenhouse production, and the inflation rate in Mexico that has raised costs for growers there, suggesting they are selling at unprofitable prices to maintain market share.

At the same time, the Mexican producers have doubled their exports to the US while US producers’ share of market has shrunk. According to Brown, of the Florida Tomato Exchange, there were 300 to 400 large US tomato producers with about $500 million in sales in 1996. In 2012, there are fewer than 75 producers with sales of $250 million, according to Brown.

The bulk of the US tomato producers are in Florida and California. Both Congressional delegations, plus agricultural commissions, have been active in supporting the US growers.

On Thursday the Commerce Department issued a preliminary finding that the 1996 investigation should be terminated. On Friday, however, the Mexican producers were meeting with Commerce Department officials in an effort to prevent the withdrawal of the suspension of the anti-dumping case. They said they would put forward a “strong proposal.”

If the US growers initiated another anti-dumping case, the US Commerce Department could potentially start the process of investigating it. Ultimately it could result in tariffs on imported tomatoes if the US government found the vegetables were being sold for less than fair market value.

Although the US grows fewer tomatoes than it did sixteen years ago, the industry exported 284 million pounds of tomatoes, most of them to Canada. By way of contrast the US consumed 6.44 billion pounds domestically.

Although half of those tomatoes now come from Mexico, Brown says the US could supply the nation with all it needs if those exports were curtailed.

“We don’t anticipate any shortages,” he says. “We have had the capacity to supply twice the US consumption in the past.”