A 10-day comment period closed Feb. 11 on a tentative proposal from the U.S. Department of Commerce for a new tomato suspension agreement with Mexico that is scheduled to take effect March 4, right at the peak of the season.

The proposed new agreement would mandate that all exporters be signatories, whereas the requirement under the current agreement, that has been in place since 1996, was just 85 percent. It would also significantly increase the minimum reference price for all tomato products from Mexico, in some cases nearly three times as high as under the current agreement.

Grading grape tomatoes on a packingline in Culiacan, Sinaloa, Mexico. The proposed tomato suspension agreement would more than double the minimum reference price of some specialty tomatoes imported from Mexico. (Photo by Rand Green)Growers, exporters, distributors and buyers all face uncertainty as to whether the proposed agreement will be implemented as initially published or whether it will be modified. Many of them feel the new prices are excessively high and will stifle trade. There is consensus that the proposed prices will force a reduction in future years in the amount of tomato acreage planted in Mexico, but to what extent remains uncertain.

For the current year, the tomato acreage is already planted and will be coming into peak production just as the new higher floor prices are set to take effect, with the likelihood that a good share of the crop planted specifically for export may not find a home on the U.S. side of the border.

There is fear that some growers in Mexico and some distributors on the U.S. side may be unable to weather the resulting financial losses.

Many in the industry have said, however, that the new agreement is better than the alternative, which would likely have led to a renewed anti-dumping investigation, the imposition of steep duties that could have kept Mexican tomatoes out of the U.S. market altogether, and a trade war between Mexico and the United States that would have gone far beyond tomatoes.

Tomatoes grown domestically, in Florida or elsewhere, as well as tomatoes imported from countries other than Mexico, would not be bound by the agreement and could be sold at whatever prices the market dictated.

Commerce published the tentative new agreement late Saturday, Feb. 2, and on Monday afternoon, Feb. 4, the Fresh Produce Association of the Americas, which represents importers, distributors and brokers of Mexican-grown produce, held a meeting in its Nogales office to inform members about the particulars of the proposed agreement. “It ended up being about two-and-a-half hours long,” FPAA President Lance Jungmeyer told The Produce News Feb. 5. “At the end of the meeting, there were a lot of sour faces in the room. I think people are really wondering about their future in Nogales.”

Continuing, Mr. Jungmeyer said, “I will reiterate that we are happy not to be fighting a trade war. We are happy to not be trying to fend off an anti-dumping lawsuit. I guess preventing that is better, because we don’t feel that Mexico would get a fair shake in that kind of an investigation.”

The reason the Mexican tomato industry has grown so much over the past decade “is not because of price. It is because Mexico was able to grow a better tomato at the same price,” he said.

Whatever the terms of the final agreement when actually implemented, “I think it is incumbent upon the producers in Mexico and the distributors of Mexican tomatoes in the United States to adapt, to continue to put up a quality pack, to put up a better pack, and that is going to light the way forward,” Mr. Jungmeyer said. “This is going to be a stumbling block. It is going to be a bitter pill for a lot of people to swallow. But in the end, the companies that do survive will be stronger companies for it.”

Among the uncertainties the industry faces is how higher mandated floor prices will affect existing contracts between marketers and buyers if the contracts did not make specific provisions for the possibility of government-mandated higher prices. Some existing contracts do have an “acts of government” clause, similar to an “acts of God” clause, because with the negotiations on the new suspension agreement in progress some marketers anticipated just such a situation.

However, apparently other contracts do not have such a provision. “You have people who have already made contracts that extend into that period, and right now, everybody is trying to figure out what to do,” Mr. Jungmeyer said. “I don’t have an answer.”

PACA law “says if you made a contract, you have to honor that contract,” and now Commerce is saying “you can’t sell tomatoes” below a certain price, which may be higher than the contract price, he noted.

Some people may be able to renegotiate their contracts, he said. “Some buyers want specific tomatoes out of Mexico.” But other buyers “want a tomato, any tomato, at a certain price, and they will break their contracts. I think that is what Florida was banking on all along was to disrupt the marketing season and the long-term business prospects and customer bases that people have built, whether you are a shipper out of Nogales or San Diego or McAllen.”

The companies that “have a keen eye toward the future are going to … dig their heels in and figure out what is a good plan to survive,” Mr. Jungmeyer said. “I am confident that when it is all said and done, the west Mexico produce deal is going to continue to grow,” but it will likely diversify “away from tomatoes a little bit,” and that may be “a healthy thing.”