ARIZONA & MEXICO

Nogales and the wholesale prices paid in other cities may reflect an inefficient market in which there
may be opportunities to profit from the price differences. 2
Table 1: Wholesale Tomato Prices in Different U.S. Markets 2009
Dallas
Chicago
New York
Nogales
Wholesale average price (US$/#)
0.64
0.54
0.57
0.38
Std. Dev.
0.16
0.15
0.15
0.15
Source: U.S. Department of Agriculture; https://www.marketnews.usda.gov/mnp/fv-home
As part of the evolution of the Mexican fresh produce industry the Mexican farmers, in particular the
most successful ones, have embarked on establishing distribution centers in the U.S. and entering into
more long term contracts with the final distribution agents such as supermarket chains. This process is
also fueled by changes in strategy at the large retailers such as Walmart and Kroger whereby they seek
to acquire fresh fruits and vegetables directly from the farmers if possible. The supply chain of fresh
fruits and vegetables is under pressure to change, i.e., from upstream the farmers seek different
business models that allow them to capture a higher margin of the supply chain; and from downstream,
the large retailers seek to get closer to the farmer to reduce acquisition costs and product waste. Thus,
the business models of traditional brokers and wholesalers that rely on knowledge and close connections
of markets and logistics operators to move products from the farmers to the final market may no
longer be adequate for a flexible market that is based on readily available, real time information.
One of the tenets in logistics is to avoid unnecessary stops and transshipments of any product to
minimize the total costs. This is particularly important for perishable products with a short shelf life. This
is the case with fresh produce, in which non-value added stops should be avoided at all costs. Nogales
has played an indispensable logistics role as a transshipment, processing and distribution node on
virtually the only efficient transportation route between the main winter producing regions of fresh
vegetables in Mexico and the U.S. market. However, this quasi-logistics monopoly is being threatened
by factors such as the full implementation of NAFTA transportation provisions, the change of business
models of the fresh fruits and vegetables industry and the development of new logistics infrastructure
in Mexico.
It is important to mention that winter fresh produce grown in Mexico is sold in practically the entire
United States. The main source of competition for Mexican produce is South Florida. However, the
climatic conditions of Florida usually put its product at a disadvantage vs. the fresh produce grown in
Mexico, mostly in the state of Sinaloa. For all practical purposes, the reach of the fresh produce grown
in Sinaloa is the entire continental U.S. In theory the center of gravity of the U.S. market is located
somewhere around St. Louis, Missouri and the closest route to reach this point from Sinaloa would be
through the border of Mexico with the State of Texas. However, although there is a highway connection
from Sinaloa to the Texas border, this highway crosses through the Sierra Madre Occidental Mountains.
This highway has been historically unreliable because of weather, as well as dangerous and time
consuming to cross. Mexican farmers continued to use the traditional highway through Nogales to
reach the U.S. market. However, a new highway that connects Sinaloa with Texas was opened about
three years ago. This highway cuts the travel time from Sinaloa to Texas considerably. Thus, the logistics
2
Flores H. and JR Villalobos, “Using market intelligence for the Opportunistic shipping of Fresh Produce,” Int. J. Production
Economics, Vol. 142, pp. 89–97, 2013.
APRIL 2016 • ARIZONA TOWN HALL • ARIZONA & MEXICO • 50