Breaking News
0

Mexico tariff uncertainty leaves U.S. produce importers in the lurch

Stock MarketsJun 11, 2019 03:20PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Mexico tariff uncertainty leaves U.S. produce importers in the lurch

By Richa Naidu and Lisa Baertlein

CHICAGO/LOS ANGELES (Reuters) - On Friday evening, watermelon importer Scott Vandervoet received a flurry of WhatsApp messages from his fellow Nogales, Arizona produce brokers: U.S. tariffs on all Mexican goods due to take effect on Monday were off after the United States and Mexico reached a migration pact.

With shipping season for Mexican produce such as table grapes, melons, avocados, mangoes and salad mixes at its peak, the brokers were elated. But their relief was short-lived; on Monday, U.S. President Donald Trump threatened more tariffs if Mexico's Congress did not approve the plan.

"I'm beleaguered. We're just on the edge of our seats here. The threat lingers at the back of our minds ... As long as trade is linked to this asylum-seeker situation that has nothing to do with us, we'll continue to be pressured," Vandervoet said.

Anxiety has plagued the industry for two years, starting with agonizing negotiations to overhaul the North American Free Trade Agreement between the U.S., Mexico and Canada, and spiking each time the White House threatened to close the U.S. border with Mexico to halt the flow of migrants.

Worries peaked on May 30 when Trump suddenly announced the 5% levy on Mexican imports to begin on June 10, rising to 25% by October unless Mexico stemmed the stream of Central American migrants crossing into the United States.

Like Vandervoet and his father, most produce brokers have slim margins that would not be able take the hit.

The uncertainty has left importers concerned about meeting orders from grocers and restaurants, and threatens to disrupt supply chains as some Mexican farmers cancel seed orders for next year or put them on hold.

And if the tariffs become reality, importers are going to have to pass the taxes on to customers or risk going out of business.

Piled into 475,207 40,000-pound truckloads, the United States imported nearly $12 billion of fresh fruits and vegetables from Mexico in 2017, the latest year such statistics are available. The goods were mostly brought in via Pharr, Texas and Nogales, according to data from the U.S. Department of Agriculture.

"25% of $12 billion is $3 billion a year," said Lance Jungmeyer, President of the Fresh Produce Association of the Americas, adding the industry's already thin margins would crumble from such a blow, especially those of tomato importers.

In early May, the Trump administration imposed a 17.5% tariff on Mexican tomatoes after the two countries were unable to renew a 2013 agreement that suspended a U.S. anti-dumping investigation). With an additional 25% tariff, tomato importers could be looking at 42.5% tariffs, Jungmeyer said. "That's a lot for people to bear."

Big buyers for tomatoes and Central Mexican lettuce include McDonald's, Burger King and Yum! Brands' Taco Bell, Jungmeyer said.

McDonald's, Burger King and Taco Bell did not respond to requests for comment.

Last week, Chipotle Mexican Grill Inc (NYSE:CMG) estimated a $15 million hit from the tariffs, saying it could cover the costs by raising burrito prices by around 5 cents.

Compounding importers' problems, entry-points were already busy due to the large U.S. appetite for Mexican goods, limiting options for truckers that might want to speed up shipments ahead of any potential tariffs, according to Peter Friedmann, executive director Agriculture Transportation Coalition.

"The ability to move a lot out of Mexico is limited," he said.

'ABSOLUTELY DEVASTATING'

Walmart (NYSE:WMT) Inc, the world's biggest retailer, said on Friday that it was concerned that fresh produce prices would rise if tariffs went ahead. Chief Executive Doug McMillon said Walmart would resist higher prices on fresh produce for as long as it could, adding: "If the customer is focused on avocado prices, we will hold those prices for as long as we can and focus elsewhere," he said.

If other companies followed suit, it would be another big blow for fruit and vegetable brokers.

The produce import industry and supporting businesses account for more than 22% of jobs in Santa Cruz County, surrounding Nogales, according to a 2013 report by economists at the University of Arizona. Trade and support for factories across the border account for another 10% of the workforce.

"Hopefully, importers will be able to pass costs on to the retailer, whether it's Kroger (NYSE:KR) or Walmart, and the consumer will pay the added cost," said Jaime Chamberlain, who heads J-C Distributing Inc. "We're going to try, but if there's no demand for our products at that price, it's going to be difficult."

Kroger and Walmart did not respond to requests for comment.

Chamberlain's family, based in Nogales, has imported Mexican fruits and vegetables for about 48 years for grocers including Walmart and Kroger Co .

"If the 25% goes through, it will be absolutely devastating for the Nogales community. Over 4,000 jobs depend on produce," Chamberlain said.

"I understand why the president wants to do this. But this is very difficult, and will be detrimental to my community, my industry, and my state of Arizona."

Mexico tariff uncertainty leaves U.S. produce importers in the lurch
 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email