Ending Tomato Suspension Agreement shoots prices up by 85 percent

In America, we sure love our tomatoes. We love them so much that in 1994 we preserved our solid tomato trade relationship with Mexico through an agreement to keep supply high and prices low. Now those tomatoes supply about $5 billion in economic impact to the U.S., and it would behoove us to keep that agreement going.

On May 7, the Tomato Suspension Agreement is set to lapse and there’s currently no plan to renew it and keep the ruby red commodity flowing in at the rate it has been for a quarter-century. That means American consumers could soon be paying anywhere between 40 and 85 percent more for vine-ripened tomatoes, according to economic analysis from Arizona State University.

If the U.S. Department of Commerce withdraws from the agreement and applies duties on Mexican tomatoes, consumer prices at the grocery store will shoot up in the period from May to December. And when tomatoes become a stricter commodity in the winter, prices could keep climbing to almost 85 percent more than where they’re at right now.

The mood is quite dire and pessimistic at the moment,” economic advisor Luis Ramirez said. “I think there is a mad dash effort to see if an agreement can be reached before the deadline. The industry in Mexico has made proposals regarding concerns. If Mexican producers are looking at being priced out of the market, they may go out of the tomato market and go into something else, like cucumbers or bell peppers. They will have to go back through a couple seasons to come back to tomatoes. It’s not just a short-term impact. You could see substantial increases in price and far less availability for a long time.”

There’s been a tremendous amount of outreach based on commerce. Currently, there’s a bipartisan effort from leaders out of Arizona, such as U.S. Senators Sinema and McSally, along with leaders from Mexico, who have all signed letters imploring the Trump White House and cabinet members to renew the agreement.

The analysis was led by Dr. Timothy J. Richards, the Morrison Chair of Agribusiness at ASU. He evaluated the impact of the withdrawal and how it would affect prices consumers pay for four varieties of tomatoes including tomato-on-vine, vine ripe, Roma, and beefsteak. Stepping out of the agreement will cut down on supply in the U.S. market as well as raise prices.

“A surge in prices like this would be devastating to tomato volumes that are sold,” noes Lance Jungmeyer, President of the Fresh Produce Association of the Americas said. “At retail, tomatoes are an important companion item. They go into salads, pastas, salsas, sandwiches, so many dishes. If tomato prices go up, consumers start to think about reducing their quantity purchased, or they start looking at making other dishes.”

Supply reduction is a regular issue to a certain degree, but nothing at this scale. Domestic supplies are always prone to loss due to freeze or frost and prices have always ticked up when something like this occurs. But a man-made supply shortage is something we wouldn’t normally expect.

Instead of raising prices of a menu item, a buyer for one of the nation’s largest restaurant chains tells me they would go from putting three slices of tomatoes on a sandwich to just two.” Jungmeyer said. “Most consumers will never notice this, but the produce industry will. That effectively results in 1/3 less volume of tomatoes being purchased by that chain.”

Nick Esquer

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