Why tomato prices may soon double

Whether you call it a "tomato cliff" or "peak tomato," U.S. business groups warn that tomato prices could double if the Commerce Department follows through on a threat it made in September to end the nation's tomato agreement with Mexico, according to Reuters. The Commerce Department and U.S. tomato growers, especially those in Florida, counter that Mexico is selling its tomatoes here below cost and driving American tomato producers out of business.

According to data compiled by Nielsen's (NLSN) Perishables Group and released to the Los Angeles Times by the Fresh Produce Association of the Americas, prices for various tomato varieties will rise by December if the Commerce Department decides to exclude Mexican imports from the U.S. market.

Hothouse round tomatoes, for example, will jump from $2.02 per pound to almost $4 a pound. The price of smaller Roma tomatoes would increase from $1.25 per pound to $3.96 per pound. As a result, the cost of tomato soup, pizza and even sandwiches at Subway -- which faced similar issues in Australia last year -- would skyrocket.

Florida growers aren't buying it and say that the deal that was supposed to protect them from cheaper Mexican tomatoes has instead bolstered the Mexican tomato industry. In 2000, Mexico's fresh tomato exports totaled $412 million; by 2011, they increased to $1.81 billion. As the Florida Tomato exchange told National Public Radio, Florida tomato sales have dropped to as little as $250 million a year since the deal began.

"The Mexican industry has for significant periods dumped product into the U.S. market during the 16 years of the agreement," Reggie Brown, head of the Florida Tomato Exchange, told NPR. “What would happen if the suspension agreement went away is free trade would truly exist between Mexico and the U.S. in the tomato industry.”

Mexico and its supporters, including big produce buyer Wal-Mart (WMT), say their tomatoes are tastier, cheaper and more readily available year-round, while denying that Mexico is dumping them on U.S. markets.

"It would be impossible to sustain hundreds, perhaps thousands, of Mexican tomato companies for years on end selling below their cost. They wouldn't be able to do that,” says Lance Jungmeyer, president of the Fresh Produce Association of the Americas.

The Commerce Department will make its final decision in May, but it's not likely to squash tensions with either side. If it keeps the tomato deal in place, it could potentially kill jobs in a state that's already politically sensitive. If it kills the deal, it could start a trade war with Mexico that would subject American corn, meat and other exports to unwieldy tariffs there. In either scenario, it's American farmers and the consumer's grocery budget that end up getting squeezed.

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