2000s Archive

The Price Is Right

Originally Published July 2003
How did the New Deal morph into agribusiness as usual? It’s the economy, stupid.

Each winter, the fields in the northwestern Mexican province of Sinaloa turn lush with vegetables. The farms—many of them relatively big spreads of more than 1,000 acres—grow a wide range of crops: squash, bell peppers, eggplants, cucumbers. Above all, though, they grow tomatoes. Almost 70,000 acres in Sinaloa are given over to them, and in a typical year they ­produce half a million metric tons. Most of those tomatoes have a single destination: Nogales, Arizona. Once they have crossed into the United States, they’ll eventually end up in supermarkets throughout the western part of the country.

Mexican farms have been exporting vegetables to the U.S. since the 1920s. But in the past decade, the importance of Mexican produce to what’s known as the winter market has changed dramatically. Since 1993, exports to the U.S. have risen in value by 60 percent, and Americans now spend $500 million a year on Mexican tomatoes alone.

This has made it easier to find good, cheap produce even in the winter months. But it has been bad for American farmers, and in particular for Florida tomato farmers. Historically, Florida was the primary source of winter produce for the United States. But in the space of just a few years, Mexican imports eclipsed domestic varieties, leaving Florida with little more than a third of the market. And the competition kept prices lower, too. Tomato revenues plummeted, and so did profits.

There were a number of reasons for this shift. Over the years, Sinaloan agriculture—thanks in part to being forced to compete in the U.S.—became more efficient. (Today, the average yield per acre in the region is close to what it is in America.) In the mid-1990s, Mexico’s economic woes forced the government to devalue its currency. That made Mexican goods cheaper for Americans to buy. And then there was NAFTA, the free-trade agreement between the U.S., Mexico, and Canada. Before NAFTA, Mexican tomatoes were subject to a tariff, which kept the price of Mexican tomatoes higher than it would otherwise have been. For Florida farmers, this was a valuable cushion, insulating them from the impact of Mexico’s lower labor costs. But NAFTA got rid of the protection, phasing out all tariffs on fruits and vegetables. The tomato tariff was cut for the first time in 1994, and again in 1995, and last February it was eliminated completely.

As the Florida farmers saw their livelihoods threatened, they responded in a variety of ways. They tried to cut costs and make their farms more efficient. They encouraged customers to “Buy American,” and promoted Florida tomatoes—which are picked in a mature-green state for shipping and then gassed with the hormone ethylene to ripen them—as better tasting. Some just closed up shop. (Between 1994 and 1996, half of the state’s 230 tomato farms shut down.) But the most effective strategy the Florida farmers came up with was simple: Ask the government for help.

In 1996, Florida tomato growers went to the Clinton administration complaining that Mexican farmers were “dumping” tomatoes—selling them below cost—in America. The evidence wasn’t clear, but the administration listened. Within a few months, U.S. trade negotiators threatened to impose hefty tariffs on all Mexican tomatoes unless the Mexican growers acquiesced to a deal that would help protect Florida farmers. Given no alternative, the Mexican farmers essentially agreed to a price floor. Suddenly, price competition was no longer a problem. Mexican shipments hit a plateau. American consumers had to pay a few cents more a pound for tomatoes. And the Florida farmers’ profits, if not as high as they were in the days before Sinaloa became a real competitor, returned.

At first glance, the fact that the Florida tomato farmers got the U.S. government to save their business from foreign ­competition seems rather remarkable. After all, the U.S. prides itself on having a free-market economy. In fact, we pride ourselves on it so much that we’ve spent the past few decades preaching the virtue of competition—and the vice of government interference in the economy—to the rest of the world. But somehow, when it came to winter tomatoes, the government was willing not just to interfere in the workings of the economy, but actually to broker what amounted to a price-fixing agreement. In many industries, this would be unthinkable. (It’s hard to imagine, for instance, the government declaring that no television sets could be sold for less than $150.) But in the topsy-turvy world of agricultural economics, it was not just thinkable, it was business as usual. There are any number of American industries—the steel and aluminum industries, for instance—that rely on the government’s help to stay in business. But no industry gets as much help as agriculture does.

The most obvious—and notorious—examples of government tinkering are subsidies and price supports. The U.S. now spends billions of dollars a year doing things like keeping milk prices artificially high and offering grain farmers a guaranteed minimum income. It also supports peanut and tobacco farmers, and protects the sugar ­industry from foreign competition. And it hands out “emergency” subsidies, too, like the one that continues to prop up the American honey industry.

Subsidies and price supports get a lot of attention, mainly because they come with a hefty price tag, and because they’re a classic example of pork-barrel politics. But what’s striking is that even when it’s not intervening in such high-profile ways, the government is often shaping the course of agriculture. The produce business, in fact, is a perfect example. Unlike grain or dairy farmers, produce farmers rarely get direct payments from the government—and no official price supports, either. Instead, they have to rely on less obvious mechanisms.

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