In light of a continuing cross-border trucking dispute, the Mexican government has added several agricultural commodities to a list of nearly 100 U.S. products that are subject to higher import tariffs.
The tariffs, which range from 5 percent to 45 percent, essentially price many of the commodities out of the market and allow lower-priced imports from other countries to fill the market void.
“We value Mexico so much, and we have a great crop,” says Nancy Foster, president and chief executive officer of the Vienna, Va.-based U.S. Apple Association. “It’s just wrong that suddenly, our apples are 20 percent more expensive. We know they have taste palates that like the taste profile of our apples, and they like our varieties.”
Nevertheless, she says Mexico is within its rights under the North American Free Trade Agreement.
“Frankly, it’s not a total surprise,” Foster says. The U.S. apple industry dodged the bullet the first time and was not on the initial list.
But the longer the dispute continued, she says, the greater the chances were that apples would be included on a tariff list.
Problems began in 2001 when the NAFTA dispute panel ruled that the United States failed to live up to its obligations under the trade agreement and Mexico was within its right to institute penalties.
In March 2009, Congress voted to eliminate funding of the Mexico Cross-Border Trucking Demonstration Project that allowed 100 Mexican trucking firms to operate outside of a trade zone near the U.S.-Mexican border.
In retaliation, Mexico imposed tariffs on several U.S. products, including 20 percent on frozen potatoes and 20 percent on roasted pistachios.
The initial list contained about 99 agricultural and non-agricultural export items, valued at about $2.4 billion.
Despite pressure from several commodity groups, including the National Potato Council, the Obama administration and many Congressional Democrats have failed to restore the funding for the trucking program.
Mexico released a second list, including 54 agricultural commodities, on which higher tariffs would be levied in mid-August. Some commodities rotated off, while others—such as apples—were added.
Adding apples to the tariff list couldn’t happen at a worse time, Foster says.
“We have great yields, and Mexico is price sensitive,” she says.
In 2009, Mexico was the second-largest export market for U.S. apples, accounting for about 27 percent of all exported apples for a value of $206 million.
Foster says she couldn’t estimate how much of the 2010 crop would have gone to Mexico without the tariffs, since it varies, depending on dollar-peso exchange rates, variety mix and price. But it would have been a significant amount.
California apple growers enjoy a unique early market window in Mexico, says Alex Ott, execitve director of the Fresno-based California Apple Commission. But the tariffs are going to create a “much more difficult market to navigate.”
California apples typically compete with carryovers in the market from other export countries.
“If the price is not that great to begin with or they are average, we’re gong to have to start making decisions,” Ott says.
The tariffs also come at a time when California apple growers already face Mexican phytosanitary regulations because of the light brown apple moth.
Losing a large portion of the Mexican market also could have wide-ranging impacts within the U.S. apple market, Ott says.
If the apples can’t go to Mexico, then marketers may dump them in U.S. markets, driving down prices.
“So there are a lot of unintended consequences,” Ott says.
Frozen spuds take big hit
Potato growers who produce for the frozen market—mainly french fries—saw tariffs reduced to 5 percent from 20 percent.
Because Mexico is a price-sensitive market for that product, the reduction may have little effect, says John Keeling, executive vice president of the Washington, D.C.-based National Potato Council.
“What you have there is a situation now where we have a 5 percent [tariff] on our fries going into Mexico and our primary competitor, Canada, has zero tariff on theirs,” Keeling says.
Since March 2009, Keeling says U.S. frozen potato exports to Mexico have dropped to $30 million from $80 million. And one frozen potato processing plant in Washington has shut down, partly the result of reduced exports to Mexico.
“Every single day that the government isn’t trying to resolve things and start a meaningful dialogue, more U.S. jobs are lost,” he says.
Every little bit hurts
Roasted pistachios were on the original list and remain on it with a 20 percent tariff. The latest round of tariffs added a 20 percent tariff on raw pistachios.
Mexico isn’t a particularly large market for California roasted pistachios, accounting for about 2 percent of exports or 2,900 metric tons, says Richard Matoian, executive director of the Fresno, Calif.-based Western Pistachio Association.
Since the original tariffs in March 2009, producers have only seen a 3 percent reduction in exports to that country.
“Still, a market is a market, and any kind of tariff has an impact,” he says.
Contact Vicky Boyd at email@example.com or (209) 571-0414.