Driscoll’s is the world’s largest berry producer, contributing to one third of the six-billion-dollar U.S. berry market . Beginning in the early 1990s, Driscoll’s started investing in growing operations in Mexico, where they found regions with a climate that allowed growing berries in winter months. This timing coincided with the ratification of NAFTA, which went into effect in 1994 and enabled cheaper imports of Mexican-grown berries into the United States .
Below are Driscoll’s growing calendars for several of its primary berries, which show the impact of Mexican farms on berry availability in winter months.
Now that Trump is in office, he is seeking to fulfill one of his hallmark campaign promises to renegotiate NAFTA with an “America first” philosophy. One of the major proposed changes to NAFTA would make it easier for the U.S. to put tariffs on imported food. Currently, anti-dumping action can only be taken if farmers can prove that 1) a foreign product has been sold at an unfairly low price for three years and 2) the cheap imports are hurting the industry nationwide. Under the proposed change, the threshold for anti-dumping claims would be lowered; farmers would only need to prove foreign growers were dumping for a single season, and that this is affected just one region of the country .
The proposed change would benefit growers in the southeastern United States, who directly compete with Mexican growers because their harvest seasons overlap. However, it would hurt many California growers such as Driscoll’s, who operate farms in Mexico and rely on Mexican imports during the winter months. It would also hurt the many American farmers exporting to Mexico, who would be subject to the same regulation as imports from Mexico .
To address this threat, we’ve seen two primary responses from Driscoll’s. First, to address the short-term issue of the NAFTA negotiation, Driscoll’s has teamed up with several other major produce companies to form the Produce Coalition for NAFTA. The coalition formed in August and is working together to garner support for maintaining NAFTA in its current state  . The coalition has also teamed up with other agricultural associations representing major exporters of agricultural products to Mexico such as dairy, corn, and soy, who also stand to lose from the proposed changes. On October 25, the associations co-authored a letter to Secretary of Commerce Wilbur Ross arguing that NAFTA withdrawal would cause “immediate, substantial harm to American food and agricultural industries and to the U.S. economy as a whole” .
Secondly, over the long-term Driscoll’s has made it clear that it is committed to continuing production in Mexico regardless of the outcome of the NAFTA negotiations. According to Garland Reiter, a leader at Driscoll’s, “If you look at the magnitude of the investment in Mexico, there’s no way that’s coming back to California.” He says Driscoll’s will keep growing in Mexico, in large part because it would be challenging for Americans to replace Mexican production with fresh berries from somewhere else .
Given that the outcome of the NAFTA negotiations will likely be determined by political forces over which Driscoll’s has limited control, the company should prepare for a scenario in which they see the cost of Mexican-grown berries increase. Under this scenario, Driscoll’s has three primary options:
- Pass the increased cost on to consumers, and risk volume losses
- Absorb the increased cost themselves, and take the hit to margins
- Seek operational efficiencies to generate savings and offset the tariff increase
I recommend that Driscoll’s start planning for this scenario by exploring option number three, and assess whether there is anywhere in their supply chain where they have unrealized operational efficiencies. This option would minimize the impact of the regulation by protecting both margins and volume. If they are unable to cover the costs of the tariff through supply chain efficiencies, I recommend they conduct a price elasticity study to determine the optimal pricing that will minimize volume loss and maximize unit economics. I do not recommend that Driscoll’s explore shifting production to the U.S., given that the investment required would likely not be offset any tariff mitigation.
Some questions emerge from this analysis that warrant further discussion:
Is there more that Driscoll’s can be doing to lobby the U.S. government and protect NAFTA? Is there a role for consumers, who may bear the brunt of the cost of a NAFTA rewrite, to weigh-in? Which stakeholders should the Trump administration be most concerned with as they seek to renegotiate NAFTA? Is there a scenario in which the best outcome from a political standpoint does not align with the best economic outcome for Americans?
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 Dana Goodyear, “How Driscoll’s Reinvented the Strawberry,” The New Yorker, August 21, 2017, [https://www.newyorker.com/magazine/2017/08/21/how-driscolls-reinvented-the-strawberry], accessed November 2017.
 Dan Charles, “Why Ditching NAFTA Could Hurt America’s Farmers More Than Mexico’s,” NPR, February 16, 2017, [https://www.npr.org/sections/thesalt/2017/02/16/515380213/why-ditching-nafta-could-hurt-americas-farmers-more-than-mexicos], accessed November 2017.
 Driscoll’s, “Where We Grow,” https://www.driscolls.com/about/art-of-growing/where-we-grow, accessed November 2017.
 Patrick Gillespie, “NAFTA talks spark deep divide in American agriculture,” CNN Money, September 12, 2017 [http://money.cnn.com/2017/09/12/news/economy/nafta-agriculture/index.html], accessed November 2017
 Helena Bottmiller Evich and Catherine Boudreau, “U.S. produce growers deeply divided over NAFTA,” Politico, August 25, 2017, [https://www.politico.com/story/2017/08/25/nafta-us-produce-growers-242031], accessed November 2017.
 Ashley Nickle, “Produce Coalition for NAFTA looks to reach consumers,” The Packer, October 27, 2017 [https://www.thepacker.com/article/produce-coalition-nafta-looks-reach-consumers], accessed November 2017.
 “U.S., and Canadian Fruit and Vegetable Companies Unite to Support Modernization of NAFTA”, Business Wire, August 31, 2017 [http://www.businesswire.com/news/home/20170831005799/en/U.S.-Canadian-Fruit-Vegetable-Companies-Unite-Support], accessed November 2017.
 Food & Agriculture Letter on Importance of North American Market, sent to Secretary of Commerce Wilbur Ross on October 2, 2017, http://producecoalitionfornafta.com/wp-content/uploads/2017/10/Letter_FoodAGTrade-Ag-MarketsWithdrawal_171025.pdf.