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The Florida Tomato Growers Are In The Right Legally, But More Than Tomato Production May Be At Stake In This Battle

Jim Prevor’s Perishable Pundit, September 20, 2012

Our piece — After 16 Years Of Compliance, Florida-Mexican Tomato ‘Suspension’ Agreement Gets Challenged By Florida Growers Claiming Dumping Is Occurring: Is This Just Rent-Seeking? — dealt with the efforts by the Florida tomato growers to overturn the suspension agreement that has governed the tomato trade between the US and Mexico since 1996.

It is in many ways an unusual situation. In the first case, it is odd because the action that Florida is calling for — to drop its anti-dumping case and thus end a restriction on the prices Mexico must sell tomatoes at — is something that Mexico normally would be in favor of. In fact, we can’t recall another case where a US industry started a dumping case against a foreign exporter and that country objected when the US-based industry wanted to drop its case.

The reason Mexico opposes the petition of the Florida tomato growers is not that it wouldn’t like the suspension agreement lifted and the dumping complaint dropped; it is because the Mexicans look at the situation and know there is another shoe ready to drop. Immediately upon the granting of the petition to drop the last anti-dumping case, Florida, perhaps with tomato growers from other states, can be expected to file a brand new dumping case.

In fact — and here is another oddity in the law — as best as we can determine, there is no exemption in US anti-dumping laws for product sold under a suspension agreement. So even though the minimum prices were established by the Department of Commerce, somehow the Mexicans can be held at fault for selling at US Department of Commerce-approved prices.

The issue of dumping is problematic in all cases because it is not clear it is an activity that actually harms the US. After all, if consumers get the opportunity to buy a product — cars or tomatoes — less expensively, isn’t that a benefit to those consumers?

Even if it can be proven that a foreign government is subsidizing sales to the US, the point remains. If the Japanese government is silly enough to want to subsidize the purchase of each Japanese car by $5,000, isn’t the correct response to say “thanks”?

In the case of subsidies, the complication is that such subsidies may be withdrawn. So if foreign governments subsidize car exports to the US, they could make the US industry non-competitive. US producers would close up, the intellectual capital and industry supply chain needed to build cars in the US would dissipate and then, when producing cars in the US is no  longer easily feasible, the exporting country could stop subsidizing exports and later boost up prices to very high levels and profiteer against the vulnerable Americans who have no place else to buy cars.

It’s a theory — but it is hard to think of even one incident in which such a thing has happened in the modern world. After all, those exorbitant profits theorized by this plan create a magnet of a market to bring product in from all over the world. So, even if the Japanese car industry crushed the US, when the Japanese aim to get their exorbitant product payback, they will find Americans buy fewer cars or buy cars from Korean, German, Mexican manufacturers, etc. The payback wouldn’t be there.

Still, at least a focus on government subsidies appeals to one’s sympathy for hard-working producers. Business will be permanently stymied if there is a perpetual risk that random foreign governments will subsidize competition to drive producers out of business.

The problem is that there is no requirement in the anti-dumping statutes to prove that producers or exporters are receiving government subsidies.

The criteria for “dumping” is either that one sells product below the cost of production or that one sells product for less than one sells it in its market of production.

On perishables, though, neither of these definitions make any sense. Because produce is perishable, one can’t hold it just because it would cost more to produce it; one has to think of how to cut one’s losses. There is not the option to warehouse tomatoes as one can, say, chairs. All produce producers, all over the world, sell below production cost many times.

And the price in the home market is irrelevant as well. A big grape exporter in, say, Chile or South Africa, will lay out a marketing strategy allocating grapes to the US, Europe, the Far East, the Mideast, Eastern Europe etc. The exporter may get different returns in different markets.  For that matter, the exporter can ship grapes to Philly and to LA and get different returns, but all this has, literally, nothing to do with the price of grapes in Santiago or Pretoria.

The truth is that the Florida tomato growers know this is all silly, but they are using the tools the law gives them to try to protect their industry.

Indeed, with its rapid building of shade houses and greenhouses, as well as the development of new varieties, the Mexican deal has now become so large and consistent that tomato growers over the whole US feel threatened. They also feel insulted. The Wall Street Journal op-ed by Jim Kolbe titled, The Sunshine State’s Rotten Tomato Fight with Mexico, which we reprinted in our original piece on this subject, actually did the Mexicans few favors.

Many US growers who had preferred to stay out of the battle thought their product and industry was being maligned and have joined with Florida to press this petition. Indeed, the Department of Commerce, under pressure from Mexico, had declared that substantially all of the domestic tomato industry would have to join Florida’s petition. They defined “substantially all” as 85% of the industry. After the Wall Street Journal piece, Florida succeeded in getting about 90% of the US industry to sign on.

When NAFTA was being debated, it showed the limitations of a national produce trade association. How, precisely, could any national association represent the interests of both Florida tomato growers — looking to limit competition from Mexico — and Washington apple growers — looking to export apples to Mexico.

Now, we have similar issues. The law is with Florida on this one. There is no basis for dawdling. The Commerce Department has been acting in violation of the law to postpone action on Florida’s petition and there is no basis in the law for denying the petition. The old anti-dumping case should have been dismissed and the suspension agreement lifted weeks ago.

The substance, though, is not so clear. Florida’s substantive point is that tomato growers there can’t make a living at the prices permitted under the suspension agreement. They say that if we want a domestic field-grown tomato industry, we have to arrange things so that prices are higher. This is probably all true.

They make the point that they are, in fact, just the vanguard of victims of a move to non-US produce production, and that if we value US production of produce we have to draw a line in the sand and yell, “Stop.”

There is more truth in all this than many can be comfortable with.

Still, if we try to limit imports of tomatoes even more than the current reference price does, we will also hurt many. We will hurt US produce growers that want to export to Mexico as their trade will probably be disfavored. Indeed, there is no particular reason to think that Mexican retaliation would be limited to produce, so we may hurt many producers of many products. We will hurt workers, business owners and operators in Mexico. We have a great stake in Mexican prosperity. It is not good for America to have an impoverished land right on our border. And realistically, if we are not prepared to let the Mexicans sell us tomatoes then what, precisely, are we prepared to have them sell us?

And isn’t NAFTA part of a commitment on our part to the belief that the US, Canada and Mexico will all be stronger if we open our markets to one another and produce product where it is most economically advantageous to do so?

There are US growers who own assets in Mexico. There also are US growers that have growing and marketing deals in Mexico. To some degree, what NAFTA is about is saying is that the great customs union of the United States of America, which has helped bring such prosperity to us all over the years, is being broadened in the belief it can make us all more prosperous still.

What to do about the plight of the Florida tomato farmers? The most useful approach is twofold: First, carefully examine the way public policy is making them less competitive. Are real estate taxes the same as in Mexico? Water? Are there extra environmental costs? Have we a labor policy that is conducive to harvesting and packing tomatoes?

In other words, remove obstacles that are preventing the Florida tomato growers from operating profitably. Don’t focus on creating obstacles for others.

Second, we do have a long tradition in America of investing in R&D for the public good. This includes research into better varieties, more effective growing techniques, etc. This could help the industry leap frog the competition by producing a superior product.

If Florida can point to specific unfair trade practices, we would be prepared to help Florida the same way.

But, in the end, our system depends on producers of all sorts producing a product that consumers want to buy at a price that yields a profit. If that is not in the cards, then we have to look to develop alternative crops that can make everyone a winner.

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