An old friend of mine who lives in New York City called me on Sunday, demanding to know “Why are Cucumbers six dollars in the store right now? Why is produce soooo expensive?”.  My response was, “How much time do you have?”

First things first:  It’s not because of inflation, at least not the inflation that everyone has been talking about for almost two years now.  As I’ve mentioned in previous newsletters, fresh produce may cost more at the store now than it did two years ago, but it’s not because farmers have raised the prices they charge retailers and distributors.  Farmers don’t set those prices; the market does.  But farmers have also not received much or any of the increase that consumers have been paying, except at farmers’ markets or other direct outlets.  Instead, retailers and distributors have been paying farmers almost the same amounts that they were paying in 2022 — and pocketing the difference.  In their defense, like most businesses, they have seen their costs — payroll, insurance, utilities, etc — increase dramatically.  They have been using the increased margins they are making on produce to help offset those costs.

But farmers, too, have seen their costs skyrocket.  Unfortunately, we have also been seeing lower demand for produce, especially organic produce, as shoppers try to economize in the face of their own increasing expenses.  This has made it impossible to push for higher prices.  Meanwhile, the percentage of fresh produce grown outside of the U.S. has continued to increase, year after year, because costs — especially the cost of labor — are so much lower in other c0untries.  And when I say “other countries”, I mostly mean Mexico.

This trend has been primarily driven by the ever-increasing difference between the cost of labor here and in Mexico.  But the outsourcing of American fruit and vegetable production to Mexico has accelerated since the pandemic because of the exchange rate between the U.S. Dollar and the Mexican peso, which makes it even more appealing to grow crops in Mexico and sell them to the U.S.  Until recently, the exchange was 1:16, but after the recent election there last week, it has fallen even farther to 1:18 — even more pesos for every pound of tomatoes grown in Mexico and sold to the U.S.  Or cucumbers.

On the face of it, it may seem like mostly a win/win for both countries: we get cheap produce and they get a source of cash.  But that is only if you don’t look closely at the important reasons why the Mexican peso is worth so little compared to the U.S. dollar.  You probably know some of the big ones, and there are far too many for me to list here.  But one of them is especially relevant, and highly problematic, for agriculture and food production: water.

Like with its neighbors California and Arizona, most fruits and vegetables grown in Mexico come from arid regions where it doesn’t rain much or at all during the growing season.  But unlike those U.S. states, Mexico does not have a modern, well-maintained system of water storage and delivery.  Much media attention over the last ten years has been focused on the perceived overuse of water by agriculture in California, but the fact is that the water system in Mexico is far less sustainable than it is here.  Even during relatively wet periods, many Mexican citizens do not have access to clean, fresh water.  Lakes and rivers are polluted with both industrial chemicals and sewage.  Ground water in agricultural areas is at least as overtaxed as it is in the worst parts of the Central Valley of California, if not more so.  Corrupt politicians have ignored the problems, or even benefited from it in ways that would never happen in the U.S.

Now, the situation has become even more dire due to an extensive, long-duration drought and heatwave that has dried up reservoirs, rivers and wells while killing crops and threatening human lives.  Mexico City, an enormous metropolis of tens of millions of people, is running out of water and taps are running dry — a situation that is almost impossible to imagine happening in a U.S. city.  You may recall the outrage some people experienced when they found out during the California drought that many of the almonds grown in the Central Valley were being exported to China and other countries.  Imagine how the average Mexican feels about having to wait in line to buy water while irrigated farms continued to supply American consumers with tomatoes and cucumbers.

As a result of the heatwave, drought and other climate-related problems, the supply of produce from Mexico has dropped considerably in the last month or two. As with any supply and demand market, this has led to  higher prices for that produce by distributors and retailers.  And as they usually do, they are passing those price increases on to consumers.  Many American farmers are growing less — or no — fresh produce, or have shifted their own production to Mexico.  There is currently a shortage of numerous produce items, and prices for some of the crops Terra Firma grows are the highest they have been since 2020.

To be fair, no one asked American consumers to make a conscious decision to gradually shift almost half of our production of fresh produce to Mexico.  But neither were they not fooled or deceived — all fresh produce sold in the U.S. must be labelled with its country of origin, although not all retailers fully comply with the spirit of the law.  They voted with their dollars, and the produce buyers and their employers who made the decision to keep buying more and more fresh produce from Mexico were rewarded with higher profits for doing so.

U.S. policymakers here have looked the other way while our country has become increasingly dependent for a critical resource — fresh fruits and vegetables — on a country that cannot be depended on to provide it sustainably into the future.  In particular, they have required American farmers to meet a wide range of labor, environmental and public health regulations that are not required of any overseas producers of the same products.  In essence, they are subsidizing foreign producers and hoisting tariffs on domestic ones — the exact opposite of what the European Union and others do to ensure the economic sustainability of their own domestic agriculture.

Last week, Mexican voters made a historic showing at the polls to support and empower the political party of the current President, Manuel Lopez Obrador (Amlo).  With a supermajority in Congress and the election of Amlo’s hand-picked successor Claudia Sheinbaum, the Morena Party will be able to pass sweeping reforms.  Amlo has already targeted the use of Mexico’s limited water resources to manufacture goods for export — primarily beer and soda.  But agriculture uses far more water.

Sheinbaum and her party are not likely completely prohibit the use of Mexico’s limited water resources for growing crops for export.  But the reality is that Mexico simply does not have enough water to grow all of the produce that the U.S. consumes while also supplying its own citizens of this precious resource.  The sooner the U.S. produce industry is forced to accept this, the better.  Fruits and vegetables imported from Mexico should be priced to include, not exclude, the cost of the water that is used to grow them.  That would also level the playing field and allow American farmers to continue to provide a significant part of the fruits and vegetables sold here.

Thanks,

 

Pablito