A confusing article in the New York Times discusses a possible tomato trade war with Mexico. First, it says:
The United States Department of Commerce signaled then that it might be willing to end a 16-year-old agreement between the United States and some Mexican growers that has kept the price of Mexican tomatoes relatively low for American consumers. American tomato growers say the price has been so low that they can barely compete.
Later, the article adds more detail:
As part of a complex arrangement dating to 1996, the United States has established a minimum price at which Mexican tomatoes can enter the American market. Over the years, Florida’s tomato sales have dropped as low as $250 million annually, from as much as $500 million, according to Reggie Brown, executive vice president of the Florida Tomato Exchange, which has led the push to rescind the agreement. The state is the country’s largest producer of fresh market tomatoes, followed by California.
In the meantime, Bruno Ferrari, the economy minister of Mexico, said the value of Mexico’s tomato exports to the United States had more than tripled to $1.8 billion since the agreement was signed, and the tomato industry there supports 350,000 jobs.
Note the agreement established a MINIMUM price. If the agreement is dropped, then prices can go down further. In this interpretation, the agreement has not “kept the price of Mexican tomatoes relatively low for American consumers”. It has kept them high. This is probably good for Mexican farmers because it moves prices away from perfect competition and towards the monopoly price. It is also good for Florida producers who are competing with more expensive Mexican tomatoes. Obviously, it is bad for American consumers. Overall, we should expect both Mexican and Floridian (?) producers to oppose the end of this agreement.
If the agreement is being dropped to be replaced by free trade, it seems I will be buying cheaper tomatoes.
But, finally the article says:
The agreement, which has been amended since it was struck, sets the floor price for Mexican tomatoes at 17 cents a pound in the summer and 21.6 cents in the winter. American growers say they cannot compete at that price.
So, really what is on the cards is even higher minimum prices. This could still be good for Mexican growers as it should raise prices even more towards the monopoly price. But the problem is that more Florida farmers could then afford to grow and sell tomatoes. Then, the rationing rule that determines who makes the sale becomes important. If domestic growers are favored disproportionately, Mexican farmers will suffer. And I will be buying more expensive tomatoes or growing my own.
There should be some diagram that illustrates this so we can all use it in our Micro classes.
5 comments
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October 2, 2012 at 9:08 pm
Dismalist
I’ll be working on the diagram!
October 2, 2012 at 9:24 pm
Paula
Marketing orders (MO) is an instrument used by USA that manages this sort of pricing for different products if you want to look further on related issues.
October 3, 2012 at 1:57 am
DRDR
The agreement also involves suspending antidumping investigations against Mexican farmers. So we can expect discriminatory tariffs too if this agreement ends.
October 3, 2012 at 10:48 am
Michael
Gabriel Kolko in “Main Currents in Modern American History” argues that the original minimum wage legislation worked in a similar way to this tomato agreement. At the time, the only workers actually covered by the new law were in the textile industry. Many textile factories had moved from New England to the US south where wages were lower. The legislation pushed up wages in the southern mill, which was good for the New England mill owners and their labor force. And not so good for the buyer of textiles.
October 3, 2012 at 1:17 pm
jbchilton
The NYT story is muddled. This story is a bit less so,
http://www.thepacker.com/fruit-vegetable-news/171558761.html?page=2
I found the comments especially interesting. Sounds like the agreement is supported by a Florida cartel of growers, and when it functions to hold prices up it has the effect of creating a Mexican cartel of growers.
Aside from the annals of tomato trade history:
http://www.tomatogardeningguru.com/history.html
In 1887, U.S. tariff laws imposed a 10 percent duty on vegetables, but none on fruit. A tomato importer named John Nix sued the tax collector for the port of New York, Edward L. Hedden, arguing that tomatoes, since they were “really” fruits, should be exempt from the tax. Read Nix v. Hedden, 149 U.S. 304 (1893) here. The botanical claim was not in dispute; tomatoes, as the seed-bearing ripened ovary of a flower, are fruits. Yet in a triumph of ordinary language over scholarly, the highest court of the land ruled in 1893 that the tomato was a vegetable and therefore subject to the tariff.