Shaping The Future Of Mexico’s Produce Supply

A handful of significant trends in Mexico’s industry not only provides opportunity for today’s market, but lays the foundation for future innovation.

Mexico continues to expand its role as a fundamental supplier to the U.S. produce market, capitalizing on its ability to meet market demands. “Almost 90 percent of our produce exports are for the U.S.,” reports Alejandro Vazquez Salido, chief director of ASERCA (The Agency of Marketing Services and Development of Agricultural Markets — essentially the marketing arm of Mexico’s Agriculture Department) in Mexico City. “In 2014, produce exports from Mexico to the U.S. reached $9.3 billion. Vegetables accounted for approximately $4.9 billion, and fruits were about $4.3 billion.

The Fresh Produce Association of the Americas (FPAA) in Nogales, AZ, notes Mexico’s crucial role helps strengthen consistency of supply and diversity of produce offerings year-round. “Consumers want to know they can buy the same high-quality, delicious items in May or November, and growers in Mexico help retailers meet that demand,” says Allison Moore, FPAA director of legislative and regulatory affairs.

Photos Courtesy of CIRULI Bros.

Northgate Gonzalez Markets in Anaheim, CA, operating more than 40 stores, counts on Mexican product to ensure continual supply for customers. “The market is about demand, not supply, and Mexico helps fill what we need for our customers,” says Alfonso Cano, produce director. “As a retailer, you must have what your customers want or they won’t come back to shop again.”

Mexico’s Top 5 produce items exported to the U.S. by volume in 2014 included tomatoes, watermelon, cucumbers, avocados, and peppers according to ASERCA. These same statistics show a 7.4 percent increase in produce exports to the U.S. from 2013 to 2014 and an overall trend of increased exports from 2005 at $4.2 billion to 2014’s $9.3, more than a 120 percent increase in the past decade.

Mexico’s evolution and forecast advancement results in part from continued challenges in U.S. production. As U.S. growers continue to be pressured in labor and water issues, increase production in Mexico is favored, says Chris Ciruli, chief operating officer at Ciruli Bros. in Rio Rico, AZ.

Substantial trends and innovation in Mexico will continue to stimulate growth in coming years. “From blossoming greenhouse production across all elevations in Mexico to new varieties or commodities diversifying imports, buyers count on suppliers selling Mexican produce as crucial partners in meeting consumer expectations,” says Moore.

Trend 1: Increasing Protected Agricuture

One significant, on-going development affecting current and future markets is the continuing explosion of production under protected agriculture. According to Mexico´s SAGARPA (Mexico’s agricultural regulation organization), the national surface of protected agriculture in the country in 2000 was 790 hectares. By 2012, that number grew to 21,530 hectares, and in 2015, reached a total of 23,251 hectares.

AMHPAC (Mexico’s protected ag association) in Culiacan, Sinaloa, Mexico, reports a growth rate in protected ag development of 12 percent annually. “This represents 1,200 hectares a year,” explains Alfredo Diaz Belmontes, AMHPAC’s general director.

“This is happening because the U.S. consumer is looking for protected ag product in the marketplace. We produce a high-quality product, with greater yield, consistency, and more efficient use of inputs than open-field production.” Protected ag investment and benefits are booming. “The investment in shade houses, micro and macro tunnels, and other forms of protected agriculture, is evident in almost every Mexican state,” says Allan Acosta, vice president of operations for Vision Produce Company headquartered in Los Angeles. “These technologies have not only enabled Mexican growers to increase crop yields and improve quality, but also to expand their harvest seasons.”

Jose Luis Obregon, president of IPR Fresh in Rio Rico, AZ, links consumer demand with protected ag benefits. “Protected ag generates higher yields and consistent quality with high water productivity,” he explains. “As resources become scarce and consumer demand increases, it will drive more growers toward protected ag.”

AMHPAC reports top protected ag products include tomatoes, cucumbers and bell peppers. “Mexican exports of those three products to the U.S. exceed 2 million tons every year,” states Diaz Belmontes.

For Ciruli, 100 percent of its tomatoes and colored bells are protected ag. “Our cucumbers and eggplant are probably about half,” adds Ciruli.

The Oppenheimer Group’s program with leading greenhouse grower Divemex (based in Guadalajara Jalisco, Mexico), continues to thrive and innovate. “Divemex offers organic and conventional fair-trade certified peppers, enabling retailers to differentiate and cater to discerning shoppers who share socially responsible values,” says Jason Fung, category development director for The Oppenheimer Group (Oppy) in Vancouver, Canada.

While the bulk of Giumarra’s watermelons are grown throughout the state of Sonora, the company continues to expand its mid-season watermelon program and will have slightly higher volume from Sinaloa and Baja California Sur, with continued testing in Michoacán.

However, the swift growth in protected ag resulted in stiff competition. “We can see persistent low pricing due to oversupply,” shares Alejandro Canelos, chief executive at Apache Produce Imports in Nogales, AZ. “Still, this is excellent news for consumers. More competition always means better quality,more variety, and more consistency over the long term.” Generational succession in the management of Mexico’s growing operations is forecast to result in even fresher ideas. “There is a re-energized desire to ‘conquer’ the U.S. produce market,” says Vision’s Acosta. “As younger generations, commonly U.S.-educated, get involved in the day-to-day management of operations, investments in protected agricultural crops are expected to increase. In the future, more high-value and organic items will be grown using protected agriculture technologies across Mexico.”

Another game-changer in Mexico’s protected ag future is the industry’s recent ability to work with Mexican banks for credit. “In the past, credit and financing was limited for Mexican producers,” reports AMHPAC’s Diaz Belmontes. “We had to come up with our own financing or work with a U.S. partner. Having direct access to financing in Mexico now returns the power to Mexican hands and gives producers greater distribution flexibility.”

Trend 2: Geographical Expansion of Growing Areas

Mexico’s diverse climate is pushing expansion of production for export into non-traditional areas. “Mexico is rife with micro climates allowing different products to be grown — throughout the year in different regions,” says Matt Mandel, vice president of sales and marketing for SunFed in Rio Rico, AZ.

The industry reports production moving further south in Mexico. “People are trying to go into different time zones to extend season,” explains Ciruli. “We now have production coming out of Jalisco and near Mexico City.” Central and northeastern states in Mexico also report a rather large boost. “States like Queretaro, Coahuila and San Luis Potosi have seen an increment in production, because weather and the technologies typically implemented in those states allow growers to have production year-round,” says Diaz Belmontes.

IPR’s Obregon notes many evolving production areas are actually traditional domestic producers. “Traditional producing areas are now shifting toward exporting its own product,” says Obregon. “For example, we see a lot of growth in Chili peppers from these areas.”

Expanding production aims to fill market gaps. While the bulk of Giumarra’s watermelons are grown throughout the state of Sonora, the company continues to expand its mid-season watermelon program. “We are attempting to fill a traditional production gap from early January through mid-March,” says Gil Munguia, division manager for Giumarra in Nogales, AZ. “We will have slightly higher volume from Sinaloa and Baja California Sur, with continued testing in Michoacán and other areas in southern Mexico.”

In the past few years, Organics Unlimited of San Diego, CA, added farming areas in the states of Colima and Michoacán. “The U.S. is a big market for organic bananas,” says Mayra Velazquez de Leon, president and chief executive. “There must be a good, reliable source of organic bananas. If we can transition land in Mexico, the U.S. market gets fresher bananas than those coming from South America.”

Ciruli notes how this year, Mexico filled in on the leafy greens deal during the tough transition to Yuma.

Satenik Bennen, vice president of Nogalez, AZ-based Ta-De Distributing Co., also reports seeing seasonal “spot production” to meet specific market gaps nearer the borders, such as in Sonora.

Trend 3: Development of Alternative Shipping Routes

Logistical developments also contribute to significant evolution in Mexico’s exports. “The new freeway from Mazatlan-Durango increased the crossing of produce through the northeastern borders of Mexico via McAllen and Laredo, TX,” reports AMHPAC’s Diaz Belmontes. “The new Pharr Bridge facilities expanded movement in that area.”

Though Nogales remains the single largest port of entry for Mexican product — crossing approximately 5.5 billion pounds of produce each year according to FPAA — Texas is currently the largest importing state for fresh fruits and vegetables from Mexico. According to USDA Agricultural Marketing Service data, in 2014, Texas crossed a total of around 173,000 truckloads of fresh produce from Mexico (compared to Arizona at approximately 130,000 loads.)

The Texas International Produce Association (TIPA) in Mission, TX, reports Texas is averaging 10 to 11 percent growth year over year for fresh produce. “The main crossing ports in Texas are Pharr (with about 60 percent of the total), Laredo, Rio Grande City and then Progreso,” says Bret Erickson, TIPA’s president.

Yet the industry considers Texas and Arizona ports mutually inclusive. “Companies in both Arizona and Texas are growing, and many Nogales companies are opening operations in Texas too, ” explains Erickson. “This is an expansion, not a replacement. It’s good for everyone when we have different routes for product.”

Increasingly, logistics isn’t just about the shared land border either. “From Veracruz, it is more competitive to go to Boston by boat than overland by truck,” declares ASERCA’s Vazquez. “As other logistics options evolve, we will see more creative transportation options.”

Trend 4: Greater Product Variety

Though Mexico may be synonymous with tomato and watermelon, increased variety also drives expansion. “There is growth in crossings every year, yet it’s different products driving that growth each year,” claims Ciruli. “For example, in the 1970s, you would infrequently see some Mexican strawberries in Nogales; now you see berries everywhere.”

Oppenheimer observed significant growth in the berry category. “This increase has been driven largely by consumer demand for high quality raspberries, strawberries, blueberries and blackberries throughout the year,” reports Oppy’s Fung.

More buyers looking for specialty varieties are credited by industry for also driving diversity. “Specialty eggplant or specialty tomatoes differentiate buyers from their competition,” suggests Ciruli. “We’ll continue to see these come out of Mexico. At one time, Persian pickles was a specialty item, now you can buy them at Costco.”

Ta-De is developing specialty peppers and will soon launch a new mini-pepper label. “We are especially working in the small or mini-pepper category,” says Bennen. “Shishito is one variety we are seeing demand for. They have become popular in trendy restaurants.”

Giumarra Nogales continues to nurture organics as well as other distinct items. “We continued to build our organic produce line each year,” says Munguia. “Mature green tomatoes are considered a niche item to some but have been a high-volume staple of our program since the 1970s. Winter squash has increasingly become popular item. We have more acreage of Butternut, Spaghetti, Acorn, and Kabocha, in organic and conventional lines.”

The “snacking” category opened another line of opportunity. “Snacking fruits and vegetables include different varieties of grape tomatoes, mini cucumbers or mini peppers,” explains SunFed’s Mandel. “It’s really anything geared toward making fruits and vegetables snackable and attractive to a younger audience.”

Northgate looks to specialized items for significant growth potential. “Sales growth isn’t in tomatoes or peppers,” suggests Cano. “It’s in the non-mainstream items, such as guava. The top items are already established, so how do you achieve greater penetration in those? You really want to focus on those items without full penetration yet. For example, if you can introduce guava and lower the retail by 50 percent — you’ll sell more!”

Jose Vargas, produce manager for FoodKing, a five-store discount chain operated by Lowes Markets in Lubbock, TX, reports increasing demand for tropicals. “Our papaya, coming out of Mexico, has been a great seller,” he reports. IPR’s Obregon agrees items such as mangos, avocados, limes, pineapples, and papayas are up-and-coming due to the popularity of Mexican food. “Other growing items include jalapeños, Serrano chili peppers, pasilla and habanero peppers,” he adds.

Canelos of Apache Produce Imports says interesting prospects are organic mini Japanese albino eggplants. Organics Unlimited sees potential in organic coconuts and plantains. “The market for both products increased during the past few years because of health and awareness reasons,” says Velazquez de Leon.

Mexico aims to program its future in terms of U.S. consumer behavior. “We are looking for opportunity for growth based on what the market wants,” asserts ASERCA’s Vazquez.

“For example, gluten-free trends or almonds; we are focusing on supplying what Americans are interested in buying — not just what Mexico wants to produce.”

Trend 5: Advancements in Seed Development

Seed development currently limits expansion in volume and variety of products — especially in protected ag.

“Seed for shade house must be developed specifically for that purpose,” explains Ciruli. “You can’t use open-field seed in shadehouses. So, it takes longer to get the right seeds for protected ag production, and it must be economically viable.” Advances in seed development hold the promise of the future. “Seed and variety development constantly affect the profitability and sustainability of Mexican produce,” states Canelos. “This will never stop, since Mexico continues to explore and develop what it needs to offer the market in the future.”

Munguia of Giumarra explains new variety development affects flavor and profit. “It creates varieties requiring fewer resources to grow,” he says. “It also creates repeat sales, as the consumer comes back to the retailer looking for that same experience.” Bejo Seeds, Inc. in Oceano, CA, has a substantial tomato program with major breeding stations in Guatemala and California. “Improved seed varieties will help to deliver better performing products as significant work is done on consumer attributes as well as industry needs,” states Jeff Trickett, sales and marketing director.

“For example, new varieties are being screened for flavor, texture and color much more closely versus historical programs, which focused mainly on yield from the field, disease resistance, and shipping capabilities.