October, 2012

Fruits of Thought

Florida-Mexico Tomato Battle Distracts From A Focus On Consumers

The dispute between Florida and Mexican tomato growers, along with their importers, has turned into something of a brawl. Unfortunately, the way the issue has been framed is confusing the situation, not clarifying the issues.

Florida started by asking to terminate the suspension agreement, which has governed the sales of tomatoes for the past 16 years. To an outsider, this implies that the Florida growers do not want the government dictating minimum prices. So they come off as pro free trade.

In contrast, the Mexicans opposed ending the suspension agreement. Since the agreement restricts the Mexicans from selling into the United States at prices below those approved by the Department of Commerce, an outsider would assume that the Mexicans are opposed to free trade.

The reality is that the situation is the opposite. The Florida growers are intending to file a new anti-dumping complaint as soon as possible. If they win, and they probably will, the U.S. government would impose heavy duties on Mexican tomato imports.

Well, if the Florida growers would win, doesn’t that mean the Mexicans are doing something wrong? Perhaps in terms of legal niceties, but it is important to understand that the anti-dumping statutes do not require a showing of anything substantively wrong. Under the law, the definition of dumping is simple: Either an item must be sold in the United States for less than the cost of production, or it must be sold for less than it is being sold in the market where it is produced.  

It is notable that the standards for dumping do not include any finding that the seller is receiving government subsidies or anything of that nature.

Under any circumstances, anti-dumping laws are suspect. After all, selling cheaper products benefits consumers. It is not 100 percent clear why protecting producers should be more important than helping consumers.

The standards, of course, make no sense at all when it comes to fresh produce or perishables in general. The idea that someone shouldn’t sell at below the cost of production might make some sense if one is speaking of an item that can be easily warehoused.

The issue is how to maximize returns. Very often, taking a small loss right away is more useful than taking a large loss later. Almost all produce vendors sometimes sell at a loss, so this concept is not very helpful when applied to fresh produce.

Equally, weather and environmental factors dictate where produce is grown, not where it is consumed. A large Chilean shipper will design a program involving millions of cases of fruit and will allocate quantities to Europe, North America, Japan, the Middle East, etc., long before the season even starts. Much of this fruit will be sold on a straight commission basis. Although some adjustments will be made during the season based on market prices, these changes are limited by the need to stay in markets for the long term and the fact that each market has limited capacity. It is great news for producers that the market is strong in Scandinavia, but relatively small additional shipments will make it weak.

Many countries grow produce or specific products for the purpose of export. The domestic market on many of these products is simply inconsequential. So to compare domestic prices to prices in the United States is meaningless.

The political battle is interesting. In the aftermath of the failed talks to merge United and PMA, one sees the great difficulty for any national trade association to always represent the diverse grower base. After all, Florida tomato shippers are pushing for the government to impose high duties on tomatoes imported from Mexico, but others, say Washington apple shippers, are more concerned with keeping Mexican markets open for their shipments.

But beyond politics, the shame for the industry is that the whole controversy distracts from the economic imperative of the produce industry: To produce products that consumers wish to buy at prices they can afford, yet are still profitable for the producers.

Part of the problem is that producers still define themselves too narrowly. By my count, there is only one — count it, one — Florida producer who actually owns assets in Mexico, despite the fact that the Mexican deal has been growing for decades. This has to do with self-identification as a Florida farmer, rather than looking to the consumer and self-identifying as a supplier to those consumers. Legal efforts to impose duties may buy a few years but, in the end, they are a distraction from the imperative of flavor, quality and service.

Products have to be produced by those who can win markets. Florida is right; of course, the suspension agreement should be set aside. But proceeding with a new anti-dumping case is unlikely to serve the industry long-term. This is America, and anyone who wants to sell tomatoes should be able to do so at the price they wish to sell at.

Shakespeare wrote, “First, let’s kill all the lawyers.” In this case, the sentiment means that all these dumping and anti-dumping disputes will not increase produce consumption — only exceptional product, delivered with incredible service and at a great price is likely to do that.

All these negotiations, filings and requests to the government are thus distractions from the truly important work at hand.                pb