Case Number:400
Case Mnemonic:TOMATO
Case Name:The Tomato Debate between Mexico and the United States
2.) Description
The case between the US and Mexico centers around the import
of tomatoes that hurt Florida tomato growers. According to the
Florida Department of Agriculture, Florida growers produced annual
crop of more than $800 million in tomatoes during the 1980s, but
the figure has been cut in half in recent years as consumers bought
tomatoes from Mexico. During the same period, the number of
commercial tomato growers in Florida fell by more than 200 to less
than 70 (The Washington Post, Oct. 1996). Florida tomato growers
filed a trade complaint against Mexican growers, charging that
Mexico was unfairly selling its tomatoes in the US markets at
below-market prices and costing the Florida industry hundreds of
millions of dollars in lost sales.
Statistics do illustrate the fierce competition between the two countries and exhibit the drop in Florida tomato sales. For example, of the 16.5 pounds of fresh tomatoes that the average American eats each year, about 4.6 pounds are produced in Florida, 7.0 pounds in other states, and 4.6 pounds from Mexico (Palm Beach Newspapers, Dec. 1996).
During the first 10 months of 1995, Mexican agriculture exports to the US rose by 42 percent to $2.9 billion, while US agricultural exports to Mexico fell 44 percent to $724 million (Palm Beach Newspapers, Dec. 1996).
In the winter of 1996, prices for a 25-pound box of tomatoes fell from the usual $10 to $12 to $3, below the $8 cost of production in Florida, and $6 cost of production in Mexico. Florida planted 47,000 acres of tomatoes in 1995, and harvested 14 billion pounds of tomatoes. In 1995, the US imported 1.3 billion pounds of tomatoes from Mexico worth $400 million (Palm Beach Newspapers, Dec. 1996).
Florida and Mexico compete for less than half the year-for the five months between December and April-with the most severe competition in February-March. While Florida growers point the finger at the Mexicans, others attribute Florida's falling share of the winter vegetable market to weather and to Mexico's superior technological choices.
Today, many Florida vegetable farmers use drip irrigation and grow on plastic which cuts costs and often impedes the prevents the production of the best tomato (Sun-Sentinel, April 1996). In effect, Florida's emphasis has been to maximize production with tomato plants developed less for taste than for their proficiency at growing in a muggy climate and for becoming heavy for fruit.
Mexico, on the other hand, is producing and packing vegetables that are equal and often superior to that of US growers. The timing of the harvest is critical to delivering a ripe tomato to a consumer. Mexico has two advantages in this regard - cheap labor and a climate with plenty of sunshine that requires irrigation (The Tampa Tribune, Nov. 1996).
Florida irrigates, too, but it also has heavy rains that mean tomatoes cannot stay on the vine too long as they ripen. If they do, they can absorb water to the point that they crack and split, making them less desirable at the supermarket (The Tampa Tribune, Nov., 1996).
While Mexican growers have pushed forward with the latest farming techniques, Florida's older farmers have resisted change. According to critics, the Florida tomato growers would rather spend their money on lobbyists and trade lawyers than changing the way they farm (Sun-Sentinel, Apr. 1996). In addition, Mexico generally ships vine-ripened tomatoes, while Florida growers commonly pick their tomatoes green and artificially ripen them. Many consumers say the vine-ripe tomatoes are better (The Washington Post, Oct. 1996).
Floridian growers complained to the International Trade Commission that Mexicans were "dumping" their tomatoes. On July 2, 1996, the ITC ruled by a vote of 4-1 that Florida growers were not being "substantially hurt" by tomato imports(Palm Beach Newspaper, Dec. 1996). Florida growers claimed that the lower tariffs on Mexican tomatoes triggered by NAFTA, which required both the US and Mexico to lower tariffs between the two countries, had led to the surge in Mexican tomato exports. The tariff before NAFTA was just US$.14 a pound, the argument hardly looks convincing. If the ITC had agreed that US producers were being hurt by imports, President Clinton could have imposed increased tariffs of taken other steps to limit imports under section 201 of the US trade law. (Palm Beach Newspaper, Dec. 1996).
The farmer growers continued to push the Clinton administration to take action. The Department of Commerce, headed by the persistent Mickey Kantor and with the support of the White House threatened Mexico with tariffs if action was not taken. Commerce announced it was suspending the anti-dumping case because Mexico agreed to a price floor for its tomato exports. (Reuters Business Report, Oct., 1996). According to the agreement, the Mexican growers agreed not to sell tomatoes in Florida for less than US$.21 a pound. In return the Mexican growers would be allowed to export up to their quota, agreed under NAFTA (Latin American Newspaper, Dec. 1996).
Ambassador Kantor settled the tomato issue by getting the Mexican tomato exporters to set 'voluntarily' quota on sales to the US (ibid.). Free traders who believe that quotas are even worse than tariffs because they do not send clear signals to the market. At least with tariffs, free traders argue, competitive producers can still compete by squeezing their costs. With quotas inefficient domestic producers are much better protected (Latin American Newsletters, Dec. 1996).
Many saw Kantor's achievement as a step backward in trade policy (Los Angeles Times, Oct. 1996). The political ruling runs contrary to US efforts over the past three decades to lower trade barriers, a major tenet of NAFTA.
There were surely political pressures that influenced Clinton's decision to support Florida. Florida became on of the few states to switch from supporting the Republican presidential candidate in 1992 (President George Bush) to supporting the candidate in 1996 (President Bill Clinton) (Latin American Newsletter, Dec. 1996). The tomato deal seemed designed to help Clinton win Florida's 25 electoral votes. (Los Angeles Times, Oct, 1996).
3.) Related Cases
Keyword Clusters
4.) Draft Author:Jeffrey Franco (May 1997)
The agreement comes into force once 85% of the Mexican tomato producers. The agreement will last for at least a year after which the reference price may changed if market conditions change.
6. Forum and Scope: UNITED STATES and Bilateral
7. Decision Breadth: 2 (Mexico, USA)
8. Legal Standing: Treaty
9. Geographic Locations
11. Type of Habitat: Dry
12. Type of Measure: Import [STANDARD]
13. Direct vs Indirect Impacts: Direct
Before an agreement was reached, the import of Mexican
tomatoes had a direct impact on the sale of Florida grown tomatoes.
The curb on tomato imports is likely to lead to higher prices in
the US (where tomatoes are already around US$ 1 a pound) as against
the US$ 0.20 Mexican producers are guaranteed under the agreement.
It may also lead to higher prices south of the border: Mexican producers have been selling tomatoes domestically which did not reach the quality required for the US market. If Mexican growers start to curtail their production for the U.S. market, supply to the Mexican domestic market could also fall. (Latin American Newspapers, 12/5/96).
14. Relation of Measure to Environmental Impact
16. Economic Data
Statistics do illustrate the fierce competition between the
two countries and exhibit the drop in Florida tomato sales. For
example, of the 16.5 pounds of fresh tomatoes that the average
American eats each year, about 4.6 pounds are produced in Florida,
seven pounds in other states, and 4.6 pounds from Mexico.
During the first 10 months of 1995, Mexican agriculture exports to the US rose by 42 percent to $2.9 billion, while US agricultural exports to Mexico fell 44 percent to $724 million.
In the winter of 1996, prices for a 25-pound box of tomatoes fell from the usual $10 to $12 to $3, below the $8 cost of production in Florida, and $6 cost of production in Mexico. Florida planted 47,000 acres of tomatoes in 1995, and harvested 14 billion pounds of tomatoes. In 1995, the US imported 1.3 billion pounds of tomatoes from Mexico worth $400 million (Palm Beach Post, Dec. 1996)
The US Agriculture Department issued a finding that Mexican tomatoes were being sold in the US at an average of 17.56 percent below the market price. IF the suspension had not been negotiated, Mexican tomatoes might have been subject to an import duty of 17.56 percent (Reuters Financial Services, Dec. 1996). According to the agreement, the Mexican growers agreed not to sell tomatoes in Florida for less than US$.21 a pound.
17. Impact of Measure on Trade Competitiveness: High
18. Industry Sector: AGRICULTURE
19. Exporter and Importer: MEXICO AND UNITED STATES
20. Environmental Problem Type: Habitat Loss
21. Name, Type, and Diversity of Species
22. Impact and Effect: High and Product
23. Urgency and Lifetime: Low and 1 Year
24. Substitutes: Like Products
25. Culture: NO
26. Transborder: NO
27. Rights: NO
28. Relevant Literature