The introduction of a 25% tariff on Mexican goods entering the United States has caused a lot of uncertainty in the industry. Rob Cullum from Pacific Produce, the marketing arm of Peruvian producer La Calera, talks about the potential effects of the tariffs on the global fruit trade.
"Basically, nobody knows what will happen," said Rob. "The first effect has been on currency, the US dollar has dropped 2% against the GBP already this week, this may not seem like a lot but in an industry where the margins are small, it has a big effect. Our sector has difficulties in dealing with the volatility of currency. We work with long-term programs with retailers, everybody in the chain from the farm to the retailer would like stable prices, technically the USD devaluing helps us in the UK and Europe in the short term, but the worry is that with all the issues that we are dealing with post-pandemic, we now have the added volatility of the new US administration which seems to have a strategy that can pivot fast. It is not only currency which will be affected but every part of the supply chain energy, shipping etc etc."
Mexico exports a huge amount of fresh produce to the US. The 25% will be added at the border, so the grower gets the same return, but the consumer pays more. The price of fresh produce in the US is already high, so if they add 25% it may affect consumption or decisions for importers/exporters on where to send product.
Limes
"Limes will be affected, but no country can replace the amount of limes sent by Mexico to the US. Limes are also a comparatively cheap fruit per piece, so can they handle a bump in price? What may happen is some Mexican exporters will send more to the EU to hedge their bets."
"Talking to our colleagues in the US it is still too early to know what will happen with lime pricing as a result – the next few weeks will maybe show us a direction – in the end, someone has to pay for the tariff."
Avocados
"Avocados is the big one though," says Mirko Infantes Product Manager for Avocado at Pacific Produce. "Mexico is the dominant supplier of avocados to the US; the country supplies around 85%+ of the US market. Meanwhile, Peru is dominant in the European market, sending around 600 containers each week to Europe. If the US importers want to import Peruvian avocados, say a couple of hundred containers extra it won't make much difference to the US market but if you take 200 containers away from the European market there will be shortages in the summer."
Will Mexico then send avocados to the EU? "We don't know, but if they do the whole dynamic will change. The problem with Mexico shipping to Northern Europe is with certification. Retailers must have certification on the avocados and Mexico has a lot of uncertified fruit. This may result in a two-tier market in Europe.
"At the moment there are a lot of 'what ifs' and everything could change again next week. In the end, the amount of fruit is the same – the change can be the destination splits – Colombia if they avoid tariffs can in theory send everything to the USA for example which can help them in the Summer window when their fruit is less in demand in Europe.
"In theory, the overall price levels should stay the same as if nothing happened but it could be a real bumpy ride with tariffs coming on / going off / getting extra time limits – with currency volatility on top!"
How can we prepare for this?
"We have to understand what is happening, but at the same time not listen to all the noise which is going on," said Rob. "If you work in a market price destination then supply and demand will dictate what happens but if you are trying to make fixed programs that is more difficult.
"We will try to meet our programs and ignore the noise! Overall the reality is that nobody knows what will happen but it will be an interesting Summer for sure…."
For more information:
Robert Cullum
Pacific Produce
Tel: +44 (0) 1865877801
Email: [email protected]
www.pacificproduce.co.uk
