Mexico is the largest supplier of fresh produce into the United States and for importers it's a relief the country got spared under the USMCA agreement. "We were saved this time. There's nothing being tariffed on us coming out of Mexico so we're fortunate," says Lance Peterson of Super Starr International. "Mexico is a strong component of our sourcing," adds Andrés Ocampo with HLB Specialties. "We are very relieved produce from Mexico is not tariffed, at least for now." Rambutan, mangosteen, lychee, guava, papaya, and dragon fruit are some of the items imported from the U.S.' southern neighbor. HLB also brings in tropical and exotic fruits from Brazil, Ecuador, Peru, and Chile, all subject to a 10 percent tariff, effective tomorrow, April 5. In addition, the company sources lychees from South Africa and young coconuts from Southeast Asia that are subject to a 30-50% tariff. "Our programs out of these countries are expected to be significantly impacted," shared Ocampo.
"While a 10-percent tariff may not sound like a whole lot, our category is always on the edge of what people are willing to pay," he commented. "The price tag on exotic fruits is higher compared to some other categories and an increase like this may make consumers shift away from exotics. A tariff could translate to a downturn in demand, which could result in supermarkets making different choices in terms of the produce items they want to carry. In my view, a tariff is much more complicated than adjusting the price of a product. In fact, it may result in certain products being priced off the shelves." Garrett Patricio of Westside Produce added that "it is a huge hit to imported products with very little wiggle room currently available to offset the considerable cost."
Growers will suffer
Table grapes will also be impacted. From December to June, while the California table grape crop lies dormant, supplies of South American and Mexican fruit fill the U.S. market. Significant volumes will be subject to annual tariffs. While this could result in higher costs for retailers, Ira Greenstein of Direct Source Marketing doesn't think it will work that way. "We are dealing with perishable commodities, and our business is built on supply and demand," he said. "Raising the retail price will only slow down movement and ultimately inventories build and the market drops." Long-term, Greenstein expects that it will be the growers who eventually suffer the most.
Liquidity requirements
In addition to the uncertainty of who will be impacted the most by the tariffs, there is another challenge that importers face, according to Greenstein. "The strength of some importers' balance sheets and their availability to liquid cash to float the financial requirements that paying these tariffs will require could be a problem," he said. "Imagine an importer who brings in 100,000 boxes a week with a commercial value of $20.00 per box. This would require almost a million dollars a month just to pay the tariffs. The government requires this payment almost immediately, adding more stress to companies' cash flows. "Many importers have already made significant financial commitments through pre-season and BOL advances, so the need for additional capital may be required and who really knows how commercial lenders will react to this situation".
© EXP. Group, HLB Specialties, Kavidac Produce, Westside ProducePineapples from Costa Rica, papayas from Brazil, bananas from South America, and melons from Guatemala.
Will Latin America open up their economies?
Andy Thomas-Stivalet of Kavidac Produce also shares his concerns, mainly related to the South American banana industry. He notes that for Honduras for example bananas are the largest export market. All these bananas are destined for the U.S. and account for a large percentage of the country's GDP. "Unless Honduras opens up its economy totally to the U.S., they'll be in a bad position. It's a great thing for American companies if all these new markets become available to them, but maybe not so great for the local economies," Thomas-Stivalet said. He also mentioned that more export-dependent South American countries might suffer in the short to medium term. "They'll look for other markets, but there aren't many. Internally will be impossible, and regionally in South America will be difficult," he says. "Most are still heavily dependent on agriculture and base materials, and all the countries in South America can and do the same thing. I think many will be forced to open up their economies and slowly become more dependent on the North American block, which will grow and benefit from this."
Surprise factor
Wednesday's announcement also had a surprise factor. "Countries that we weren't anticipating being affected by tariffs are now affected by tariffs," says Anthony Serafino of EXP. Group. "Everyone has a worst-case scenario. We got worse than that, and we were not forecasting this in this administration." Unlike shoes or clothing manufacturing, food production can't necessarily be moved to another country like a factory could. "We don't have the ability in our country to grow this merchandise to eat. Produce is not consumer discretionary–we're dealing with items we must consume," says Serafino.
Logistics may benefit
One potential bright spot could be the state of logistics. "We're anticipating imports into our country to decrease so we're watching the shipping line capacity. We're dealing with shipping capacity issues now, and we feel some areas will free up and shipping rates may go down. When goods are more expensive, shipping needs to be more affordable," added Serafino.