The Nogales ports of entry were once a one-way street down which vast amounts of produce would travel in relative freedom to the waiting plates of hungry Americans. Now they stand at a crossroads.
Faced with an uncertain regulatory environment, major competition from Texas, changing consumer tastes, and salvos from nature itself, Nogales must make major changes in the way it does business to remain the industry powerhouse in the twenty-first century that it was in the twentieth.
What’s New
Nogales has long been America’s ‘old reliable’ in terms of border trade. For decades, it has been the primary point of entry for the U.S.’s ever-growing hunger for fresh produce from Mexico, and could be counted on to make changes incrementally, with business as usual ruling the day and alterations to the system coming slowly but surely.
But in the last few years—and, particularly since the election of Donald Trump and his promises to strengthen border security and construct a wall to prevent illegal crossings—change is on the horizon.
Necessity is the mother of invention
Changes at the border are reflected not just in the raw numbers, as Nogales battles competition from Texas for fresh fruit and vegetable shipments going to the Midwest and East Coast, but from other influences as well.
Economic factors, geographic convenience, and increased demand from the East Coast all played a part in the shift, but so did the Lone Star State’s determination to provide an upgraded infrastructure for shipping.
“The concerned people and companies of this town have brainstormed ways to improve the infrastructure,” comments Roberto Franzone, director of Arizona Sky Produce, of his home in Nogales. “Obviously, necessity is the mother of invention in this case.”
Weather events
Climate factors are also impacting the way business is done in Nogales. The trade value of goods heading into Arizona—preeminently tomatoes, peppers, and other fruits and vegetables from Mexico—dipped to $19.7 billion in 2016, a loss of about $100 million from the previous two years.
This number may fall further for 2017, as Hurricane Katia (one of several furious storms in the fall) dumped between 10 and 15 inches of rainfall onto Mexico’s primary citrus-growing regions. “The key issue affecting us right now is the effect of weather on production and distribution,” confirms Robert Bennen Jr., vice president of Ta-De Distributing Company in Nogales.
Weather implications extended not only from Mexico but to California, Texas, and Florida. Though shipments from the latter two, Texas and Florida, are not a significant part of Nogales’ produce pipeline, their impact continues to be felt throughout the industry.
The Nogales ports of entry were once a one-way street down which vast amounts of produce would travel in relative freedom to the waiting plates of hungry Americans. Now they stand at a crossroads.
Faced with an uncertain regulatory environment, major competition from Texas, changing consumer tastes, and salvos from nature itself, Nogales must make major changes in the way it does business to remain the industry powerhouse in the twenty-first century that it was in the twentieth.
What’s New
Nogales has long been America’s ‘old reliable’ in terms of border trade. For decades, it has been the primary point of entry for the U.S.’s ever-growing hunger for fresh produce from Mexico, and could be counted on to make changes incrementally, with business as usual ruling the day and alterations to the system coming slowly but surely.
But in the last few years—and, particularly since the election of Donald Trump and his promises to strengthen border security and construct a wall to prevent illegal crossings—change is on the horizon.
Necessity is the mother of invention
Changes at the border are reflected not just in the raw numbers, as Nogales battles competition from Texas for fresh fruit and vegetable shipments going to the Midwest and East Coast, but from other influences as well.
Economic factors, geographic convenience, and increased demand from the East Coast all played a part in the shift, but so did the Lone Star State’s determination to provide an upgraded infrastructure for shipping.
“The concerned people and companies of this town have brainstormed ways to improve the infrastructure,” comments Roberto Franzone, director of Arizona Sky Produce, of his home in Nogales. “Obviously, necessity is the mother of invention in this case.”
Weather events
Climate factors are also impacting the way business is done in Nogales. The trade value of goods heading into Arizona—preeminently tomatoes, peppers, and other fruits and vegetables from Mexico—dipped to $19.7 billion in 2016, a loss of about $100 million from the previous two years.
This number may fall further for 2017, as Hurricane Katia (one of several furious storms in the fall) dumped between 10 and 15 inches of rainfall onto Mexico’s primary citrus-growing regions. “The key issue affecting us right now is the effect of weather on production and distribution,” confirms Robert Bennen Jr., vice president of Ta-De Distributing Company in Nogales.
Weather implications extended not only from Mexico but to California, Texas, and Florida. Though shipments from the latter two, Texas and Florida, are not a significant part of Nogales’ produce pipeline, their impact continues to be felt throughout the industry.
Port in Progress
The Nogales ports of entry are practically a city unto themselves. With over 9,000 people and hundreds of tons of produce and other imports crossing the border every single day, problems are naturally going to arise.
The issues are old and new, ranging from staffing and security all the way down to the sewage system, where cleaning the wastewater that gets dumped into the Santa Cruz River may cost as much as $100 million. A micro-industry has even sprung up selling drinks, food, and other small necessities to truckers stuck in line at the border crossings.
The sewage issue may prove to be one of the most vexing. Cleanup crews began replacing damaged portions of the pipeline in mid-September, but disputes over responsibility for the system’s maintenance—the city of Nogales or the U.S. International Boundary and Water Commission—caused delays and upped costs.
Worse still, the repairs pushed into November during peak produce crossings, cutting off access to Interstate 19 and numerous warehouses in the area. Though trucks could be rerouted, it still caused headaches for shippers and receivers.
Advocating for change Obviously, few are happy with the situation. A recent round-table meeting with federal officials in Nogales drew complaints from local organizations and community members on everything from civil rights to border patrol policies.
There were even protests in June when state agricultural inspectors staged a work stoppage in Nogales, decrying long hours and working conditions. The workers were nonunion and complained of substandard equipment in warehouses and inadequate pay for days that often extended beyond 12 hours, sometimes to even 16 hours during peak seasons.
Twenty-five inspectors were involved in the walkout, which centered on work weeks of up to 90 hours with very few breaks and the threat of retaliation if they refused the shifts. The walkout came at a particularly critical time—the Mexican grape deal—but certainly brought the issues to both the industry and the U.S. Department of Agriculture’s attention. Though there was no immediate resolution, the USDA agreed to investigate working conditions and wage requirements.
Personnel shuffles and wait times
Just two years after a quarter-billion-dollar expansion to the Mariposa Port of Entry, the addition of four new commercial inspection lanes has not alleviated wait times as much as predicted, due to staffing difficulties and high turnover rates.
While port personnel claim there are reduced wait times at peak crossings, off-hours are still understaffed, and wait times continue to lag at crucial times.
“Although the main reconfiguration and remodel was completed in 2014,” notes Bennen, upgrades are still needed due to more shipments. “Imports of produce from Mexico are continuing to grow in volume, as we are now seeing imports via Nogales expanding to additional items not previously shipped through here.”
Initially, there was reason to be hopeful. The new U.S. Customs and Border Protection Agency’s (CPB) port director, Efrain Solis, Jr., had promised to take advantage of new congressional funding to fully staff the facilities, to enhance technology and infrastructure at the “antiquated” DeConcini Port of Entry, and to encourage compliance with programs such as the Trusted Traveler card and SENTRI (Secure Electronic Network for Travelers Rapid Inspection program).
And although many throughout the industry, including the Fresh Produce Association of the Americas, have been working consistently with government entities and regulators to ensure the port is fully functional and staffed, progress is often relegated to one step forward, two steps back process.
A recent setback came just months after Solis took the reins of the CPB and everyone was getting used to the latest regime. Coinciding with the retirement of the port’s longtime assistant director, Joe Agosttini, Solis was abruptly relieved of his duties. His replacement was interim director Michael Humphries, who had previously overseen the Douglas, AZ port of entry.
What’s going well
With every shortcoming, however comes a success. One new CPB initiative, the Unified Cargo Processing (UCP) program, has been in effect since July of 2016 and is said to be drastically cutting border crossing times.
The Greater Nogales/Santa Cruz Port Authority’s chairman, Guillermo Valencia, has estimated that the UCP program has lowered wait times from over three hours to around 30 minutes, and led to millions in savings for shippers.
More than 18,000 trucks, employed by importers certified through the Customs Trade Partnership Against Terrorism (known as C-TPAT), have participated in the program, and its own numbers report an overall average reduction in wait times of 18 percent.
“The port reconfiguration has only helped our deal here in Nogales,” maintains Franzone, “since we can rely more easily on product being ready to ship rather than waiting a day or two for much-needed items to arrive on this side of the border.”
Training options
Another factor promising a substantial decrease in wait time at border crossings is an international training program, sponsored by the Arizona Department of Transportation, in which both American and Mexican drivers and mechanics are given instructions on policy and procedure to increase safety and reduce idle time.
Topics of the two-day course include proper permits, inspection procedures, securing loads, and observing weight limits. Stakeholders hope the training will allow the Nogales ports to move from their current load of around 2,000 trucks per day to their full capacity of 4,400.
While numbers aren’t yet available on the effectiveness of the training program, it sends a message to shippers and brokers that the government is taking port delays seriously and is working to correct them.
Despite the drop in quantity, notes Arizona Sky’s Franzone, “Our company has seen major improvements in efficiency and capacity during the last few years.”
Bennen even manages to put a positive spin on the loss of some shipping capacity to Texas ports: “Texas shipment increases mean that the produce gets to eastern markets sooner,” he observes, “and that is best for the customers.”
The industry obviously agrees there is reason to hope; the Fresh Produce Association of the Americas hosted its annual convention in November, and called the forty-ninth event one of the largest in its history. Trade issues, including North American Free Trade Agreement (NAFTA) modernization efforts, as well as border crossing expansion and the state of the Nogales port, were among the topics discussed by attendees.
Adapting to Change
The competition between Texas and Arizona isn’t slowing down, though one could argue the rivalry is spurring both import hubs to up their game for the betterment of the industry.
Meeting challenges
While the Pharr crossing jousts with Nogales over capacity, the Lone Star State continues to fortify its infrastructure and change its regulations to adapt to the uptick in produce imports. The Texas legislature continues to explore proposals to streamline the border crossing process, from weight limits to inspection protocols.
The measures don’t stop there; construction of a massive warehouse and cold storage facility by the Los Indios crossing in Texas began in November and is projected to finish in February. The new facility will help reduce traffic at the Pharr crossing while accommodating more trucks and shipments from Mexico.
Nogales is reacting with streamlining its ports, upgrading technology, dealing with staffing issues (including a long-awaited infusion of federal dollars meant for training new customs officers), and expanding the Foreign Supplier Verification Program to make food safety rules less costly and time consuming for Mexican exporters.
Mexico, too, has stepped up to meet new challenges and opportunities. The construction of the Baluarte Bicentennial Bridge from Durango to Reynoso may be a boon for Texas ports, but Nogales has not been forgotten. It’s a hotspot for shipments of previously little-known produce, including fruits and vegetables targeted at America’s growing Hispanic and Asian populations, and the explosive demand for organics.
“We have realized a steady and healthy growth in the organic markets in the past five years,” shares Franzone, “and this steady growth allows us to absorb, learn, and educate customers on the other end.”
Seasonal shifts
As the Pharr port has a slightly longer shipping window than Nogales, and can offer better conditions during Arizona’s off period, local companies have come to rely on more specialized items to compensate for the shift in volume during the seasons.
Growers on the southern side of the border have responded by focusing on different products to match the shift. According to Bennen, “What this means is that Mexican growers are continuing to experiment and innovate, expanding production areas and times to meet U.S. demands for these and other items. It’s an exciting time to be in the business.”
Trade bumps
If there is one topic that looms above all others in conversations about altering the future of the Nogales deal, it is, of course, NAFTA. Donald Trump ran on a platform of renegotiating the terms of NAFTA, and while the depth and breadth of those changes are still to be determined, everyone agrees they are coming.
The agreement has been a crucial part of U.S.-Mexico trade for over 20 years, and agriculture and produce have been some of its biggest beneficiaries.
“It’s no exaggeration to say that NAFTA made the current Nogales produce deal what it is today,” observes Bill Graney, who recently retired as the owner and manager of Delta Brokerage Company, Inc. in Nogales. “And it’s just as true that what happens with it in the next few years will make a huge difference in how business is done here.”
Many people in the industry are hoping for a deal that will bolster the North American trade bloc and keep consumer prices low without causing too much political turmoil, while others, like Franzone, urge moderation.
“As long as there is no country that suffers as a result of another’s glory, I think [the United States, Mexico, and Canada] can work out an amicable, thriving relationship,” predicts Franzone. “I’m originally from Canada, now living in the United Sates, and working primarily with Mexican imported produce; this industry makes me proud of my NAFTA roots,” he adds.
Rallying support
Arizona’s four border counties, including Nogales’ home of Santa Cruz, concur on the need for a balanced approach to NAFTA and have formed a coalition to urge protection and preservation of the trade relationship between the United States and Mexico, despite the strong stance of the Trump administration.
Led by Pima County’s international projects coordinator, Teresa Bravo, the coalition hopes to maintain an arrangement that saw the Nogales port of entry ship produce to all fifty states in 2016, contributing to the sustained economic development of both countries. Bennen agrees, saying, “We feel confident officials will negotiate an updated agreement that is a win-win for both the United States and Mexico.”
Another tactic involves combining trade and labor, specifically hiring gaps at the border crossing. A bill by Arizona Senator Jeff Flake sought to secure funding for CPB jobs, but with his retirement, it will likely die on the Senate floor.
Flake’s retirement may not be the only stumbling block in the battle brewing between the Trump administration, border state governments, and NAFTA. Because of the uncertainty surrounding elections and the shifting political landscape, some believe it could be a year or more before NAFTA negotiations are even completed, let alone implemented.
Laws & Orders
In addition to the NAFTA negotiations, President Trump’s hard line on Mexican border security has created a ripple effect that is felt everywhere in Nogales.
“We had twelve years of relative stability in the industry in terms of federal regulation, and it feels right now like no one quite knows what to expect,” says Graney.
Those who expected a business- friendly environment under a Republican administration have been thrown by the specifics of the current leadership’s often hostile relationship with Mexico.
While there are legitimate concerns about border security, especially in terms of narcotics trafficking (fresh fruit and vegetables including bananas, watermelon, and peppers were among recent smuggling attempts), many are concerned continued fiery rhetoric may translate into legislative action that will ultimately hurt the produce trade in both countries (as well as Canada).
Unintended consequences
One prominent example of this law of unintended consequences is the disappearance of bank branches in Nogales. Federal regulations intended to halt money laundering by drug cartels—heavily enforced under the current administration—are taking a toll on the produce industry, which frequently involves regular and substantial transfers of cash between buyers and sellers in the United States and Mexico.
While completely innocuous in the context of the produce business model, it triggers red flags for law enforcement, and the frequency of disruptive investigations has caused a number of large banks, including Citigroup, Chase, and Bank of America, to simply close branches. This has jeopardized thousands of legitimate business accounts and left importers and distributors without adequate and critical financial services, from loans to lines of credit.
Many in the industry cite this chain of events as a perfect example of well-intentioned legislation that exaggerates a real problem to the degree that solutions are developed that ignore the daily realities of doing business across the border.
Additional taxes? Another aspect of the continuing controversy over President Trump’s proposed border wall is a cause of concern for those doing business on both sides of the border.
In July of last year, the administration floated the idea of a surtax on Mexican imports as high as 20 percent to fund the construction of the wall—a figure that would have a massive impact on the billions of pounds of fruits and vegetables that come from Mexico every year.
While the tax might raise as much as a billion dollars to defray the costs of a border wall, the realities of the market make it clear that it would actually be the American consumer, not the Mexican government, who would bear the brunt of the costs, as produce prices would rise to compensate for the additional tax burden.
“This would really have an impact on the industry,” contends Franzone, “and would make it difficult for us to follow through on our commitments to our customers.”
Because of the interconnectedness of so many businesses in Nogales, from shipping and distribution to service and construction, the tax could send shockwaves through the entire local economy. “Hopefully we can come up with another approach,” Graney speculates, “because right now there’s just no way to predict the impact a tax of this nature would have.”
Forward motion
Still, there are many reasons to be hopeful. The Nogales ports of entry have added over a million square feet of additional storage over the last decade, and a $330 million infrastructure upgrade has been completed, including full FAST (Free and Secure Trade) capability for all truck lanes.
In addition, as of last summer, major pushes to ensure compliance with the Foreign Supplier Verification Program was underway through webinars, online resources, and international training programs, all of which were seeing strong support.
The regulatory landscape in Nogales may be changing, but the port and its customers aren’t standing still—they’re moving forward with purpose.
Entering the Future
On the produce side of the business coin, industry members are employing technology, new funding, and relying on the support of local political leaders who are more familiar with the nature of cross-border trade than their Washington counterparts.
“The industry today doesn’t look anything like it did when I first got into it,” reflects Delta Brokerage’s Graney. “But the people who work here now are capable of dealing with things we never imagined having to deal with.”
Tracking the changes is hard enough; rising to meet them will be another thing altogether. Simply spending money won’t be sufficient, as the ports have newly improved upgrades but not enough skilled operators to keep them fully running at their new capacity.
And even if every other factor falls into place, the weather will have to cooperate or no one will be happy.
“We don’t call these challenges, per se,” explains Bennen, they’re more like nudges to “ensure that operators who are on top of these issues remain on top of opportunities with buyers.” He thinks the uncertainty will prove to be a galvanizing point for the industry. “The bar has gone up, and those who step up better bring their best game.”
Image: Alexander Lukatskly, Stockdonkey/Shutterstock.com
