As long as U.S. growers export apples to Mexico at below production costs, Mexican apple growers will continue to put pressure on their government to place tariffs on the imports, Mexican industry leaders say.
The state of Chihuahua is Mexico’s main apple-growing region, with about 2,000 growers and 75,000 acres of orchard. Growers are represented by about 20 local grower associations whose presidents make up the board of directors of UNIFRUT (the Regional Agricultural Union of Fruit Growers of Chihuahua).
Carlos Chavez, a UNIFRUT board member, told the Good Fruit Grower that before the North American Free Trade Agreement went into effect in 1994, Mexican apple growers faced little competition from producers out of the country. With an influx of imported apples since then, the prices that Chihuahua growers get for their apples in Mexican markets has declined.
Ten years ago, UNIFRUT members complained to the Mexican government that Washington apples in Mexico were selling at prices lower than they were sold for in the United States and called for a dumping investigation. In 1997, Mexico imposed a preliminary antidumpting duty of 101 percent on U.S. apples.
The following year, the Northwest Fruit Exporters, which represents about 75 shippers in Washington, Oregon, and Idaho, reached an agreement with Mexico to replace the antidumping duties with a minimum price for Red and Golden Delicious apples.
The agreement was to last five years, but, in 2002, at the urging of UNIFRUT, Mexico abruptly ended the agreement and imposed a 47 percent antidumping duty, with exemptions for two Yakima shippers that had responded on behalf of the industry in the initial investigation.
NFE filed a lawsuit in Mexico against the Ministry of the Economy for ending the agreement prematurely. It lost the case, but won on appeal. The court ordered the ministry to restart the investigation, but NFE said it would rather negotiate a new suspension agreement to end the tariff and reintroduce minimum prices.
An agreement was reached, but UNIFRUT obtained a court injunction to prevent it from going into effect. The ministry then said it would heed the court order to redo the entire original investigation.
In September 2005, after a preliminary investigation, the ministry announced duties of up to 45 percent. Jim Archer, manager of NFE, said an announcement on the final duty rates had been expected in late June this year, but it might come later as the ministry was still auditing shippers in mid-June.
Despite the tariffs, Northwest shippers continue to export large volumes of apples to Mexico. It is Washington’s top export market, with shipments topping 8 million boxes last year. A few shippers have low or zero tariff rates, based on price information they supplied to the Mexican authorities. And, shippers facing duties can file an appeal, Archer said. As long as the appeal is pending, they can post a bond rather than pay the duties in cash up front.
Chavez said imported apples set the price on the market, and Mexican growers can’t sell their apples for much more, even though their costs of production have been increasing.
“We don’t want to close the market,” Chavez stressed. “We want an open market with the price above the cost of production for packing and shipping.”
Twenty years ago, any apple grower with three or four hectares (7 to 10 acres) could live in an average way, and any grower with ten hectares (25 acres) or more was a rich apple grower, Chavez said. “These days, for growers with less than 20 to 30 hectares (50 to 70 acres), it’s difficult to make a living because apple prices every year are smaller. We haven’t had an increase in prices for apples for the last ten years, but inputs in the orchard increase every year—electricity, fuel, chemicals, etc.”
Ten years ago, the cost of production for apples in Mexico was one peso per kilo (4.5 cents per pound). In the past decade, costs have doubled, but the prices in the market haven’t moved, Chavez said.
He estimates that storage and packing charges in Mexico are similar to those in the United States, though freight is cheaper for Chihuahuan apples because of the shorter distance to Mexico’s terminal markets.
Hector Ordoñez, who farms in the Cuauhtémoc region, said he’d like to see some kind of price agreement that would benefit both U.S. and Mexican growers. “If we can’t supply the demand, I have no problem with anybody meeting that demand,” he said. “Personally, my way of thinking is if you have quality, it doesn’t matter. You name the price.”
Ordoñez said Mexican consumers are becoming more selective about what they buy, probably because they are becoming more affluent. “There are more rich people,” he observed.
Mexican consumers like fresh, juicy apples, and when they see local apples on the market, they perceive them as being of higher quality—especially the Golden Delicious, he added. “That’s our biggest selling variety, the Golden Delicious. If I have quality, I know I can compete.”
Johan Letkeman Wiebe, president of the apple growers’ association in Cuauhtémoc, said Mexican growers consider imports a big problem because most of the fruit is cheap—sometimes below the cost of production.
Mexican growers face some costs that growers in other regions don’t—for hail nets, frost control, and pumping water from deep wells, for example.
If the imports weren’t so cheap, Mexican growers feel they could compete, he said. “In the United States, they sell lower than the cost of production, and sooner or later the government gives money to the growers,” he said. “We don’t have that here. If we lose money, the government here doesn’t give us money.”
Chavez said the government gives indirect subsidies to growers of oats, beans, and corn in the form of lower-priced diesel fuel. The only help apple and peach growers get is a small subsidy towards electricity costs. “Still, with that small subsidy, the energy cost is very high for us.”
It’s difficult for small growers to obtain bank loans, either for farming or housing, and if they get a loan from the bank, it is very expensive, with an interest rate of 20 to 30 percent, Chavez said. “I think most of the apple growers in Chihuahua—98 percent—depend on their own finances to raise the apples.”
Chavez said there’s been a problem with abandoned orchards in recent years, as some growers have gone out of business. The government does provide help for orchard removal, so unmanaged trees don’t become sources of pest infestations for remaining orchards. He said the federal government pays 25 percent of the cost of removing orchards, the Chihuahua State government pays another 25 percent, and the grower pays the remaining half.
NFE representatives met informally with UNIFRUT members in March this year to explore whether or not the Mexican growers were interested in reaching an agreement. Archer said both sides have expended a lot of energy and legal expenses in the dispute since it began a decade ago, and UNIFRUT appeared to want to end the case and conserve its resources.
“We had a positive meeting with them, and they said they were interested,” he said.
However, during a follow-up meeting with the Ministry of the Economy and UNIFRUT representatives, the talks stalled over a couple of points. The primary issue was whether or not NFE would be representing the whole Northwest apple industry and all the tonnage.
Archer said some NFE members would rather pay a tariff than face a minimum price. “There were some exporters who did not want to be part of a price agreement, and that really stalled us out. The other thing the Chihuahua growers were insistent on was that NFE waive the rights of individual members to file for their own duty rates.”
Doing the right thing
About 20 shippers have filed with the Ministry of the Economy seeking individual duty rates in the hope that they might be lower than the general rate.
“We could not see our way clear to waiving the rights of individual exporters,” Archer said. “We simply refused to do that. I know that was the right thing to do.
“I think it’s become apparent that neither side is going to throw in the towel in this case,” he added.
Archer noted that Northwest apple industry representatives told the Chihuahua growers early in the dispute that they had no objection to Mexican growers exporting to the United States, without duty, as long as the phytosanitary rules were followed. The apple industry also supported the entry of Mexican avocados into the U.S. market.
“In many ways, the industry up here has promoted fair trade, and they would like reciprocity,” he said.
Once the final determination is announced, the NFE board might consider filing complaints with the World Trade Organization or North American Free Trade Agreement, Archer said.