ARIZONA & MEXICO

could not meet the transportation needs of a highly perishable product. It was then that the farmers
looked into using rail transportation, first, and then trucks to take their product to the U.S. market. Since
the main transportation routes between the producing regions in Mexico and the U.S. markets passed
through Nogales, Arizona, this city became a transportation and commercial hub for the import of fresh
Mexican produce.
Figure 2: Monthly Truck Crossings at Nogales
Source: U.S. Department of Transportation, Bureau of Transportation Statistics; http://transborder.bts.gov/
programs/international/transborder/TBDR_QA.html)
As a point of interface interface between the trucking industries of Mexico and the United States, the city
of Nogales traditionally has offered different services to the fresh produce industry. These include
inspection and sorting, as well as temporary storage, all offered as a trading point in which the U.S.
buyers negotiate prices and volumes with the Mexican sellers, and as a source of financing for some
Mexican farmers.
Traditionally the Mexican farmers sold their product under Free-on-board (FOB) basis at Nogales. That is,
these farmers would take their product to Nogales, Arizona and sell them to the U.S. buyers there.
However, as Mexican farmers have become more successful, they have looked for opportunities to
advance in the value chain of fresh produce to get additional economic benefits. For instance, as a
general rule of thumb for every dollar that the final consumer spends in buying fresh fruits and
vegetables, the farmer receives less than 20 cents. It is estimated that this amount is significantly less for
Mexican farmers since they have to transport their product from the production site, deep in Mexico, to
the U.S.-Mexico border.
Mexican farmers have attempted different vertical-integration strategies to capture a higher percentage
of the value chain. These include consolidating their product at origin to get economies of scale in terms
of transportation and packing costs as well as developing their own marketing labels and opening
consolidation and distribution facilities in Nogales, Arizona. However, until recently most of these
facilities would still sell their products at Nogales, at the prevailing prices paid there. These prices tend
to be significantly less than those prices paid at terminal or intermediate markets. For instance, Table 1
shows the prices paid at different cities in the U.S. for fresh tomatoes in the year 2009. The differences
in the prices of tomatoes between Nogales and the other cities shown in the table cannot be explained
solely by the associated logistics costs. In fact, it can be argued that the difference between prices in
49 • ARIZONA & MEXICO • ARIZONA TOWN HALL • APRIL 2016