Mexican Tomatoes, the Suspension Agreement, and Nogales District

While a large variety of Mexico-grown vegetables and fruits enters U.S markets, tomatoes and avocados catch the most attention, although for different reasons. For the last several months, tomatoes have drawn attention associated with the disputes between the U.S. Department of Commerce and growers in Mexico over the Suspension Agreement on Fresh Tomatoes from Mexico. In an unrelated matter, reports about increasing organized crime activity in Michoacán - the main avocado producing state in Mexico - has caused worries in U.S. markets as avocados enjoy rising popularity among North American consumers. How important are tomatoes and avocados in imports from Mexico through Arizona ports of entry? This article examines tomato imports; a forthcoming article will analyze the avocado situation.

Mexican-grown tomatoes and the Suspension Agreement

Without going into intricate nature of the Suspension Agreement, it is enough to say that at the center of it is a long-standing competition between tomato growers in the U.S. (mostly in Florida) and tomato growers in Mexico. Florida tomato growers have frequently complained about unfair trade conditions due to lower production costs in Mexico that enables direct competition with more expensive U.S.-grown tomatoes. Following recent complaints, the U.S. Department of Commerce terminated the 2013 Suspension Agreement on May 7, 2019, and accordingly, initiated an investigation into supposed dumping practices. On September 23, a new Suspension Agreement, which included stricter inspection protocol, was ready to be finalized. However, a new round of complaints by the Florida growers put everything back on the drawing board. ¹ Finally, on November 22, 2019, the U.S. Department of Commerce announced that with strong support from the U.S. International Trade Commission, the tomato Suspension Agreement would remain in place. ² Consequently, about $2 billion worth of annual tomato imports from Mexico are potentially affected. ³ What would this mean for Arizona?

About 30% of all imported Mexico-grown tomatoes come through the Nogales District

Before we dip into numbers, keep in mind that statistically, the Nogales District includes all six of Arizona’s border ports of entry, together with Phoenix and Tucson, although all tomatoes from Mexico are transported by truck and enter Arizona at a land border. In past years, Douglas and San Luis facilitated between 5 and 8% of imported tomatoes, but since 2016, practically 100% of tomatoes are imported through the Nogales port of entry. Until about 2013, the majority of Mexican-grown tomatoes were shipped to U.S. and Canada markets through the Nogales District. That share was gradually declining from close to 70% in 2013 to less than 40% in 2014, when the Laredo District overtook the leading position with a 46% share. As shown in Figure 1 , by 2018, more than 50% of imported tomatoes entered through the Laredo District. ⁴

Note: All charts in this article are interactive – scroll over columns or lines for more detailed information.

Figure 1. Imported Tomatoes from Mexico by District (% share of total tomato imports via Southern districts only)

It is no surprise that the above trend of the last two decades has caused worries in Arizona’s fresh produce industry, as well as in local and state economic development organizations. What has been happening? Are Texas border ports taking away the trade in tomatoes from Nogales, the “king of tomatoes”? If this is a reflection of Texas ports being more competitive, what could and should Nogales and Arizona do?

Imports of tomatoes through Nogales remains relatively steady

Despite an unsettling image from Figure 1, actually the situation is not that bad. When imports are presented in dollar value (unlike the percentage shares), it does not appear that some large amounts of tomatoes were redirected from Nogales District to Texas ports. Rather, data suggests that imports of Mexican tomatoes through the Nogales District have been relatively steady since the early 2000s. As shown in Figure 2 , imports through the western districts, i.e., Nogales and San Diego, kept more or less steady without major downturns. Oscillations are likely caused by weather conditions that affect volume and quality of production. Even if some tomatoes that would have normally been imported through Arizona ports were instead shipped through Texas ports, this still could not explain the dramatic increase in tomato imports facilitated by Laredo District.

Figure 2. Imported Tomatoes from Mexico by District (dollar volume)

Greenhouse tomatoes and other new trends in Mexico's tomato production

Without fully discounting the effect of competition from Texas border ports emanating from supposedly better infrastructure and more efficient services, a major reason for the above trends (Figure 2) lies in tomato production itself. Most analysts agree that Texas border ports have benefited from two intertwined developments. One is the rise of tomato production in greenhouses versus the traditional field production; the other is the expansion of tomato production in new regions, most notably in central Mexican states. Greenhouses made tomato production possible in regions outside the traditional tomato-exporting regions of Sinaloa and Sonora, where field production enjoys most favorable winter weather conditions. Greenhouse and shade-house production use the so-called protected agriculture technology, which results in substantially higher yields due to better management of irrigation, reduced risk exposure to climate change, and more efficient pest control. ⁵ On top of it, the shorter distances to the U.S.-Mexico border from central and southeast production regions have played into Texas’ ports advantage.

Tomato-producing states in Mexico

According to the report prepared by the U.S. Department of Agriculture Foreign Agricultural Service, Sinaloa growers are the main producers and exporters of fresh tomatoes during the October to May season, while growers on the Baja California peninsula are the main producers and exporters during the summer season (May to October). ⁶ Lately, centrally located Mexican states such as San Luis Potosí, Michoacán, Jalisco, Zacatecas, Puebla, and Morelos have risen to top tomato producers, surpassing both Baja California and Baja California Sur in total annual production. ⁷ Figure 3 shows the most recent top ten tomato producing states. Data apply to estimates as of March 2019 and include cumulative production for last twelve months.

Figure 3 also helps visualize the effect of the changing geography of tomato production on the Nogales District. Exports from states such as Michoacán, Zacatecas, and Jalisco follow the shorter distances to the U.S. through Texas border ports of entry.

Figure 3. Main Tomato-Producing States in Mexico (in metric tons volume)

Competition between producers, not states or regions

In discussing tomato production and exports, the reference is usually made to states. However, it is important to keep in mind that it is not the states (or regions) that produce tomatoes, but the growers - be it individual growers, family owned operations, or big corporations. Growers adjust to changing conditions by adopting new technology and/or by moving the production to new locations where they see advantages. For example, some tomato producers from Sinaloa have expanded their production to Michoacán, Jalisco, and Queretaro. ⁸ They are also increasingly turning to greenhouse and shade-house production. With such strategies, they are gaining access to the summer export window after the Sinaloa winter window is finished by the month of May. Likewise, what is statistically referred to as “Mexican” tomato production includes numerous U.S. companies operating in Mexico. For example, one of the largest greenhouse growers in North America, the NatureSweet company, has been combining the U.S. and Mexican facilities since 1990s. ⁹ Another example, Calavo Growers Inc., a Santa Paula, California, based company has been growing tomatoes in Mexico since 2003 in Sinaloa and Jalisco. ¹⁰ Yet, comparable statistical data are available only for states, districts and border ports. Therefore, caution is required before making a simple statement about Texas ports being “more competitive” or “taking away” business from Arizona, the king of tomatoes.

Share of tomatoes in imports through Nogales District

Worth $576.8 million in 2018, tomatoes accounted for close to 30% of the value of all vegetables imported from Mexico through the Nogales District. ¹¹ This appears significantly lower than in 2010, 2011, and 2012, when tomatoes accounted for more than 40% of all imported vegetables. The drop in relative significance of tomatoes, however, is also a reflection of a growing importance of other kinds of vegetables, such as peppers and squash. Figure 4 shows growth rates in the last fifteen years using the year 2003 as the base year. While the imports of tomatoes were declining in the last few years, the total vegetable imports kept on an upward trend line. The chart also suggests that in comparison with trends in all imported commodities, the import of vegetables, and tomatoes in particular, experienced slower growth.

Figure 4. Nogales District: Imports of Tomatoes, Vegetables, and All Commodities

Suspension Agreement - What is at stake for the Nogales District?

The above data analysis suggest that the Suspension Agreement may directly affect 30% of all vegetable imports from Mexico through the Nogales District. Aside from the probability of imposing import tariffs, the Agreement includes an inspection mechanism allowing the Commerce to “audit up to 80 Mexican tomato producers and U.S. sellers per quarter, or more with good cause.” ¹² As we discussed in an earlier article , tariffs are not a simple matter in the North American trade area. ¹³ The economies of the United States and Mexico are more intertwined than ever. While the cross-border integration is more obvious in manufacturing production, similar processes have been taking place in the agricultural sector. As companies are able to geographically diversify their production, it is more and more difficult to differentiate between tomatoes grown by Mexican growers and tomatoes grown in Mexico by U.S. companies.

Notes

1. U.S. Department of Commerce, “U.S. Department of Commerce finalizes Suspension Agreement on fresh tomatoes from Mexico,”, Press release, September 19, 2019;  Frank Giles, “Antidumping investigation back on for imported Mexican tomatoes,” Growing Produce, October 21, 2019. Growingproduce.com/vegetables/anti-dumping
2. U.S. Department of Commerce. “U.S International Trade Commission affirmative injury vote reinforces Commerce’s Tomato Suspension Agreement,” Press Release, November 22, 2019. https://www.commerce.gov/news/press-releases/2019/11/us-international-trade-commission-affirmative-injury-vote-reinforces
3. “The U.S. Department of Commerce Announces a New Draft Suspension Agreement on Fresh Tomatoes from Mexico,” Trade enforcement, Press release, August 21, 2019. https://www.commerce.gov/news/press-releases/2019/08/us-department-commerce-announces-new-draft-suspension-agreement-fresh
4. The two largest ports in the Laredo District are Laredo and Hidalgo. Other ports: Brownsville, Del Rio, Eagle Pass, Progreso, Rio Grande City, and two airports, Edinburg and Valley International. Source: USA Trade Online.
5. Tom Burfield, “Mexican greenhouse production soars,” The Packer, March 12, 2019. https://www.thepacker.com/article/mexican-greenhouse-production-soars
6. Dulce Flores, “Mexican Tomato Production Continue to Grow,” USDA Foreign Agricultural Service, GAIN Report No. MX7023, June 21, 2017. https://apps.fas.usda.gov/newgainapi/api/report/downloadreportbyfilename?filename=Tomato%20Annual_Mexico%20City_Mexico_6-21-2017.pdf
7. Servicio de Informacion de Agroalimentaria y Pesquera (SIAP). http://infosiap.siap.gob.mx:8080/agricola_siap_gobmx/ResumenProducto.do
8. Dulce Flores, “Mexican Tomato Production Continue to Grow,” USDA Foreign Agricultural Service, GAIN Report No. MX7023, June 21, 2017. https://apps.fas.usda.gov/newgainapi/api/report/downloadreportbyfilename?filename=Tomato%20Annual_Mexico%20City_Mexico_6-21-2017.pdf
9. Tim O’Connor, NatureSweet’s traceability technology, Supply Chain Best Practices, Oct. 2016,
10. Rand Green, “Calavo expands tomato production in Jalisco,” Produce News, April 6, 2018,  
11. Measured in general customs value according to USA Trade Online, the value of all imported vegetables in 2018 through the Nogales District was $2.5 billion.
12. U.S. Department of Commerce. “U.S International Trade Commission affirmative injury vote reinforces Commerce’s Tomato Suspension Agreement,” Press Release, November 22, 2019. https://www.commerce.gov/news/press-releases/2019/11/us-international-trade-commission-affirmative-injury-vote-reinforces
13. Vera Pavlakovich-Kochi, “Taxing Transportation Equipment Imports: Not a Simple Matter,” Arizona-Mexico Economic Indicators, October 10, 2017. https://azmex.eller.arizona.edu/news-article/10oct2017/taxing-transportation-equipment-imports-not-simple-matter