|Exporting High-Value Food Commodities: Success Stories from Developing Countries (WB, 1993, 119 p.)|
|Appendix The development and performance of case study commodity systems|
As a result of favorable climatic conditions, relatively low labor costs, close geographical proximity, and strong linkages between growers and distributors, Mexico has become a primary winter season (December-April) supplier of fresh vegetables to the United States market. While the U.S. has imported more than a dozen different winter vegetables from Mexico, by far the most important-accounting for nearly one-half of the value of trade, has been fresh tomatoes. The long-term development of Mexico's fresh tomato exports to the U.S. is an interesting case of dynamic changes in developing country competitiveness and access to a major industrialized country market.,
The Mexican-U.S. trade in winter fresh vegetables dates to the early part of this century, when a rail link was established between Nogales, Arizona and the northern part of the Mexican state of Sinaloa, and when several private entrepreneurs invested in irrigation systems and vegetable production. Still, production and trade remained very limited through the 1930s, with Sinoloa's vast irrigation potential remaining largely undeveloped. While production and trade did increase during World War II, substantial growth did not occur until the 1950s, following major investments in irrigation infrastructure by the Mexican government and the completion of a highway system between Nogales and Culiacan in Sinaloa. When Florida, the largest supplier of winter fresh tomatoes, experienced a severe frost in 1957, Sinaloa growers responded to the rising prices by exporting more than 100,000 tons. When Florida recovered and prices fell, so did the supplies and profits of the Mexican growers. Considerable instability in prices, exports, and profits characterized the industry through the 1950s and early 1960s.
Mexico's tomato exports to the U.S. increased sharply from the mid-1960s to the early 1970s, with Mexico's share of the mid-winter (January-March) market increasing from 32.6% in 1965 to 58.3% in 1973. Only an overvalued peso and improved weather conditions and productivity in Florida prevented Mexican growers from further eroding Florida's market position during the mid-to-late 1970s. Several economic and political factors contributed to the major growth in Mexican exports. These included:
1. the 1962 U.S. embargo on trade with Cuba, traditionally an important supplier of winter vegetables (especially tomatoes),
2. the 1964 U.S. termination of the Bracero Program which had facilitated the migration of Mexican laborers to the U.S. to work in agriculture and industry. The return of this labor to Mexico led growers in both California and Texas to give up risky winter season tomato production.
3. a large inflow of U.S. capital and technical expertise to Mexico, with many partnerships or contractual ties formed between Sinaloan growers and Nogales-based distributors.
4. the weakening of Florida tomato production by periodic frosts, rising labor costs, and rising land costs (due to rapid real estate development),
5. a reversal of a prior stagnation/decline in U.S. fresh vegetable consumption, with increased health consciousness and improved distribution systems stimulating increased demand for salad vegetables, and
6. measures by Mexican growers, under the auspices of the National Commission of Vegetable Producers (CNPH), to regulate production and exports so as to prevent oversupply, improve quality, and therefore increase grower profitability.
Mexico's strong competitive position derived from its considerably lower production costs, its greater supply reliability (due to the virtual absence of frosts in Sinaloa), and the quality of its product. With wage costs less than one-fifth those in the United States, with lower land costs, and with water supplies heavily subsidized by government, Mexican pre-harvest and packing costs were one-half or less those of Florida producers, even though the latter attained much higher yields. Low labor costs enabled Mexican growers to produce vine-ripened tomatoes, rather than (the less labor-intensive) mature green tomatoes (as in Florida) which were criticized by consumers as "cardboard tomatoes". However, Mexico's production cost advantage was countered by its far higher transport and distribution costs (including U.S. customs duty), rendering Mexican supplies competitive only in the western part of the United States. In the early 1970s as well as today, the vast majority of Mexican tomatoes are marketed in Los Angeles, San Francisco, and several other western U.S. cities.
Since the mid-1970s the profitability of Mexican tomato exports and Mexico's competitiveness in the U.S. market have fluctuated as a result of changes in weather, adjustments in the exchange rate for the Mexican peso, shifts in Mexican government agricultural pricing and input policies, and changes in the relative costs between Mexican and Florida production. Mexican fresh tomato exports to the United States have remained within range of 275,000 to 350,000 tons, retaining about 50% of the winter market and thus one-fourth of total annual U.S. tomato consumption. While there have been new market entrants, Mexico has remained the dominant supplier of winter vegetables to the U.S. accounting for more than 95% of imported tomatoes. In recent years, Mexican firms have increased exports to Canada and to Western Europe.
Hence, by the early-to-mid-1970s the Mexican industry had reached maturity, with well developed channels for input and credit supply and for product distribution in the United States. This mature industry could survive the macroeconomic instability of the 1980s, the reduction in government subsidies for water and production inputs, and repeated attempts by Florida growers to restrict Mexican access to the U.S. market (e.g. the 'tomato wars'). Effective horizontal and vertical coordination helped to sustain Mexico's exports and grower profitability.
Mexico fresh tomatoes
Sources: Froman (1980), Buckley (1986), and Cook et al. (1991)
While export growth has leveled off, Mexican tomato production has continued to expand at a rate much higher than overall agricultural production. A large expansion has occurred in domestic fresh tomato sales and in production of tomato paste both for export and local markets. While tomatoes form part of the traditional Mexican diet, the continued expansion in production has led per capita consumption to reach levels 50% or more higher than that in the United States. Currently, some 70% of total Mexican production is directed to the domestic market, with the share approaching 50% even from the traditionally export-oriented Sinoloa. With increasing incomes, demand for higher quality has also increased, providing opportunities for direct marketing through supermarkets and in some years leading domestic market prices to match those obtained for exports.
The Mexican fresh tomato industry has several negative dimensions. First, while tomato yields have improved, they still lag well behind those in Florida, despite the planting of similar varieties and the better weather conditions in Sinaloa. Second, while the local market is developing rapidly, it remains constrained by weak infrastructure, including poorly designed and non-hygienic wholesale market facilities. Third, Mexico's fresh vegetable export industry remains very narrowly based with no more than 22,000 growers participating nation-wide (e.g. 0.5% of 45.5 million farmers). The fresh tomato export industry is even more narrowly based. While there are ostensibly 80-100 growers, in fact, only a few dozen individuals or companies control the bulk of production with the other 'growers' added to the lists in order to bypass official maximum planting limits. The tomato export industry is largely confined to the Culiacan Valley in Sinaloa.