Tariff to pay for border wall could ultimately hurt consumers in U.S. ‘Will it hurt?’
ALTATA, Mexico - Tomatoes as big and round as Christmas ornaments hang from rows of vines that fill a huge greenhouse from one end to the other.
Juan Ley Jr. reaches up and cuts off a ripe tomato with his pocketknife, slices off a piece and pops it in his mouth. He hands a slice to his father, Juan Jose Ley, who does the same.
“It’s good, huh?” Juan Jr. says. It’s the taste of success. Over four generations, the Ley family has built one of the biggest tomato operations in Mexico, part of a business empire that includes the country’s largest privately held supermarket chain.
The family grows some 1,500 acres of vegetables, mostly tomatoes, in open fields and greenhouses in the coastal state of Sinaloa, the tomato capital of Mexico, and another 100 acres in Jalisco.
Most of the tomatoes the Leys harvest are not sold in the family’s supermarkets. Nor are they tasted in Mexico, where the tomato remains an essential ingredient in the salsas that flavor Mexican cuisine hundreds of years after the tomato was first domesticated by the Inca in South America and later by the Aztecs.
Almost all of their tomatoes are destined for the U.S. winter market, ending up in supermarkets, restaurants and processing plants as far away as Boston and Seattle.
When President Donald Trump’s administration floated the idea of a 20% tax on Mexican imports as a way of making Mexico pay for a border wall, the Leys paid attention.
Building a “great, great wall” on the southern border and making Mexico pay for it was a cornerstone of candidate Trump’s campaign. It anchored his populist message and helped him get elected.
As recently as July, during a face-to-face meeting with Mexican President Enrique Peña Nieto, Trump continued to insist that Mexico “absolutely” will pay for the wall, even though Peña Nieto has said repeatedly that his country will not.
And here is where the tomato comes in.
Mexico is by far the leading supplier of fresh vegetables to the U.S. Nearly 11.6 billion pounds of vegetables valued at $5.6 billion came from Mexico in 2016, according to U.S. Department of Agriculture Economic Research Service data.
On top of the heap is the tomato.
Nearly half of all tomatoes sold in the U.S. come from Mexico, according to an analysis of USDA the agency’s ERS data. In winter, when cold weather makes it difficult to commercially grow tomatoes in most U.S. states except Florida, 70% of tomatoes come from Mexico, according to the Fresh Produce Association of the Americas.
So how, then, would a tax on Mexican imports affect the Leys’ tomato business?
Any tax on Mexican imports would likely be passed on to U.S. consumers, he says. As a result, Mexico wouldn’t pay for the border wall. Americans would. As a businessman, Ley is careful not to take a political stance on Trump or his wall. But he admits he’s worried about an import tax. A large import tax could drive up the price of Mexican tomatoes at supermarkets in the U.S. And that might cause people to buy fewer.
Lower consumption would mean lower profits. So a tax on Mexican imports could hurt his business, even if the cost is passed on to consumers.
In July, the White House and the Republican leadership in Congress abandoned a push to create a so-called “border-adjustment tax” as part of tax reform efforts. A border adjustment tax would have hiked prices on imported goods from all countries, not just Mexico. But it was strongly opposed by U.S. retailers concerned it would drive up prices on clothing, cars, electronics and other goods.
A tax on Mexican imports would likely run into similar opposition.
The Leys, meanwhile, are already taking steps to protect their business.
One possibility: Selling more of their tomatoes to other countries.
“We might have to change and grow something else rather than tomatoes and look for other markets, like Canada,” or Asia, Ley says.
Massive operation
It’s early May, and the winter tomato season in Sinaloa is coming to an end.
Juan Jose Ley drives through the streets of Culiacan, the state capital. He is on the way to inspect one of the family’s greenhouse operations near the town of Altata, a fishing village on the Pacific coast.
As general manager of Del Campo y Asociados, the family’s farming business, the 55-year-old Ley is in charge of one of the top five tomato production operations in Mexico.
A few miles outside Altata, Ley pulls off the highway onto a sandy road. Rows of greenhouses come into view. The 65-acre complex is so big, workers travel from one greenhouse to the other on bicycles.
Wearing a blue dress shirt with the Del Campo logo, Juan Jose Ley steps through a doorway designed to keep out insects. He strolls through the greenhouse, followed by his 27-year-old son, Juan Ley Jr., 27, who works as the company’s grower-relations representative.
Nearby, a worker in a brown polo shirt, 24-yearold Miguel Garcia, pushes a cart between rows of tomato vines, which grow vertically to more than 8 feet. Each time Garcia encounters a cluster of ripe tomatoes, he snips them off and carefully places them in a crate.
Does he know where these tomatoes are going?
“To the United States,” Garcia says.
From the greenhouse, Juan Jose Ley and his son drive to the packing operation.
At one end, workers place crates of tomatoes from the greenhouses on conveyor belts that transport them through a machine that sprays them with water and then vacuums them dry. Women place tiny white stickers with bar codes on each tomato by hand.
Other workers pack the tomatoes in crates, which are loaded onto a truck that delivers them to a central packing plant. From there, the crates of tomatoes are loaded onto a refrigerated semitruck.
Each crate is labeled “Product of Mexico,” along with the date and their destination: DEL CAMPO SUPREME Inc., Nogales, Arizona.
NAFTA’s effect
More produce from Mexico flows through the Nogales port of entry than any other city along the U.S-Mexico border, according to Lance Jungmeyer. He is president of the Fresh Produce Association of the Americas, a trade organization that facilitates the distribution of Mexican produce in the U.S.
During the 2015-’16 produce season from September through August, 6.3 billion pounds of produce valued at $3.3 billion came through the Nogales port of entry, according to USDA data.
Tomato imports from Mexico have soared since the North American Trade Agreement took effect in 1994, allowing the free flow of fruits and vegetables across the borders of Canada, the U.S. and Mexico. Trump has railed against the agreement, saying it has benefited Mexico more than the U.S.
Meanwhile, Jungmeyer worries that talk of a Mexican import tax to finance a border wall is already having a negative effect on Mexican growers, which ultimately could hurt businesses in the U.S.
Mexican growers, he says, “don’t know for sure that they will be able to sell the same number of tomatoes next year that they sold this year and that uncertainty does lead companies to reconsider what they are planting for next season.”
He points out that the produce imported from Mexico is a major economic driver in Nogales, Ariz., and surrounding Santa Cruz County. More than 4,000 jobs and $190.1 million in wages depend directly and indirectly on the fresh produce industry, according to a 2013 University of Arizona study.
It’s mid-June and Juan Jose Ley flies on a private jet from Culiacan to Nogales, Ariz. Traveling with him is his uncle, Diego Ley Sr., the company president who, at 71, appears fit from a daily regime of weight lifting.
They have come for a monthly meeting at Del Campo Supreme, their U.S.-based distribution operation, with Diego Ley Sr.’s 35-year-old son, Diego Jr., who runs the operation, and Del Campo’s sales manager, Jimmy Munguia.
The Leys spend most of the two-hour meeting planning for next winter’s growing season. The possibility of an import tax doesn’t come up. But it is in the back of their minds.
“It’s definitely something that we think about,” Diego Jr. says. “I don’t think it’s something that can devastate our company. Will it hurt it? Probably yes. To what degree? I think that is unknowable.”
When the meeting is over, Diego Jr. drives his cousin, Juan Jose Ley, and father, Diego Ley Sr., back to the small Nogales International Airport, where a private jet waits.
Diego Jr. watches from the tarmac as the jet takes off. As he reflects on their business, he has a feeling of satisfaction.
“What my company grows is part of the daily American diet,” he says. “To share that, it’s like sharing our culture. Even if most people who consume it do not know.”