The Effects of Tomato Suspension Agreements on Market Price Dynamics and Farm Revenue

Abstract

Since 1996 there have been several suspension agreements between the United States and Mexico that set reference prices for imported Mexican tomatoes. The 2013 suspension agreement raised the reference prices of Mexican tomatoes by 43%. This study conducts an econometric analysis to examine the effects of reference prices on the dynamics of tomato price and farm revenue. Findings indicate that the suspension agreements have resulted in significant adjustments in the U.S. and Mexican tomato prices, and that the two prices are now more interdependent under the 2013 agreement. Although the 2013 suspension agreement has boosted the prices of U.S. tomatoes, simulation analysis shows that the Mexican industry reaps most of the benefits from increased prices under the 2013 suspension agreement. The findings in this study could inform future trade negotiations.