Michigan Apple Growers Fight For Mexican Access

LANSING - Mar 3/05 - MFB -- If Mexico is to be a market for Michigan apple growers, the crop has to improve, according to Don Armock, president of Riveridge Produce Marketing, Inc. in Sparta.

It is the crop -- or the lack of it -- that's kept Michigan apples from becoming a big hit south of the border, but as apple industry representatives concluded several trade mission trips to Mexico earlier this month, it's clear there's a bumper crop of politics involved as well.

It's been a full year since Michigan lauded its first apple shipments to Mexico, a celebration earned after eight years of painstaking attention to Mexican phytosanitary regulations, trade negotiations, logistics of controlled atmosphere (CA) storage inspections and duty costs. Now, nearly three years after the first deals were forged allowing Michigan apples into Mexico, only 748,000 pounds have been shipped.

One reason for the low tally has been the crop. When the Mexico deal was signed in 2002, Michigan's crop yielded only 520 million pounds, well below the previous year's 930 million pounds, and dismal compared to 1999's record harvest of 1,200 million pounds.

In 2003, Michigan rebounded with 890 million pounds, but a poor Washington crop increased domestic demand, and Michigan's crop stayed mostly within the United States. Compounding the situation was that the Mexican CA storage inspector arrived in Michigan three weeks later than planned.

In 2004, Michigan's crop suffered frost and hail damage, but still produced 720 million pounds, enough to export some apples to Mexico, except for one glitch: a 46.5% "compensatory duty" imposed on U.S. golden delicious and red delicious varieties.

The duty was imposed because the Mexican government concluded that certain Washington growers in 2002 had illegally sold red and golden delicious to Mexico below their costs of production -- a practice known as "dumping." According to Denise Yockey, executive director of the Michigan Apple Committee, the duty was imposed on all American red and golden delicious.

"Under the North American Free Trade Agreement (NAFTA), tariffs go away," Yockey said. "But if a practice like dumping is determined to be harmful, Mexico is certainly within its rights to put on a punishing duty like this one. Unfortunately, Michigan didn't ship apples to Mexico until February of 2004, and Washington has been doing business in Mexico for 15 or 20 years. But Mexico held the line that any red and golden delicious apples will bear the duty, so we paid it last year. Obviously, that minimizes what we can do in the Mexican market, but at that point, at least, there was a level playing field."

Using their connections and experience within Mexico, Washington shippers negotiated a deal earlier this year circumventing the duty.

"I'm hearing that as of Feb. 28, Washington shippers will have a floor price to replace the duty," Yockey said. "They've negotiated a floor price that leaves us paying the 46.5% punishing duty. I've also heard that as of March 1, there will be several truckloads of Washington apples waiting to get over the border duty-free. That's good for them. They have a whole lot of apples, and for us, that means those apples won't come here."

The Washington negotiation is completely legal and a smart move, said Ken Nye, horticulture specialist with Michigan Farm Bureau. But, he said, it's also a little frustrating.

"What makes the eastern U.S. apple growers so angry," he said, "is that we didn't do anything wrong to begin with. We weren't even shipping apples to Mexico when the dumping conclusion was reached. But now, we end up saddled with the duty and Washington uses its connections and experience to get around what was imposed because of its own actions."

The only thing left to do for growers and shippers outside the Northwest, then, is to try to level that playing field again. It's why shippers such as Armock and Bruce Heeren, vice president of Heeren Brothers, Inc. in Grand Rapids, took the time and effort to work out individual deals with the Mexican equivalent to the U.S. Department of Commerce.

"We'd like to mirror the agreement that the Northwest Fruit Exporters negotiated," Armock said. "It certainly looks like, if we get everything handled, that we can negotiate separate agreements for Michigan, Virginia and New York apples. We've tried to horse-trade away the duty by agreeing to minimum delivered prices based on our costs in each producing area.

"If those prices work in the Mexican marketplaces, we will be profitable. Remember that the duty is only on delicious varieties, and by negotiating, next year we should be on even ground. But next year, the Chileans will have all their duties gone, too, so there's nothing guaranteed. Mexico can buy from all over. That's the way business goes."

It's encouraging, Yockey said, that Mexico seems willing to negotiate. It gets Michigan's foot in the door for the popular "level playing field" and it opens the door wide for Michigan's market advantage -- flavor.

"Mexico has an emerging middle class, and there's no reason to think that they're any different than U.S. consumers in wanting to try something new," Yockey said. "We're seeing a stronger interest than ever before in export training, but it will take time. If we can find other varieties, along with Virginia and New York, and pursue our own floor prices, we can be a good player in the Mexican market."

Heeren agreed.

"The market down there has a lot of potential," he said. "They have a young population and obviously are gaining economic power. Someday the market will be there as they obtain more wealth, and we have to start working our way in now. Even if we only make a small presence now, Mexico will become a more valuable opportunity."

Mexican consumers will be increasingly interested in Michigan varieties when they learn what Michiganders already know -- that Michigan apples taste better, Nye said.

"Washington's apples look good, but they don't taste as good as Michigan's," he said. "That's what's going to end up being our advantage in the Mexican market. But first we have to get them there."

And Michigan will get its apples there, Armock said.

"We really have an untapped market for other varieties, and there's lots of potential," he said. "We will ship some Romes and jonagolds to northern Mexico, but this year none of us have any. All we need is a normal crop."

Copyright (c) 2005 Michigan Farm Bureau