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<body><p>Animal and Plant Health Inspection Service
</p>
<p>Final Rule: Importation of Tomatoes from the Souss-Massa-Draa region of Morocco
</p>
<p>Analysis in support of certification that the rule will not have a significant economic impact on a substantial number of small entities
</p>
<p>Docket No. APHIS-2008-0017</p>
<p>April 2009</p>
<p>This analysis examines impacts for U.S. small entities of a rule that will allow fresh tomato imports from the Souss-Massa-Draa region of Morocco.  The rule will amend 7 CFR 319.56, and is part of a continuing program to allow the importation of foreign agricultural products that APHIS has determined are without significant risk of introducing exotic plant pests into the United States.</p>
<p>The Regulatory Flexibility Act requires agencies to evaluate the potential effects of their proposed and final rules on small businesses, small organizations and small governmental jurisdictions.  Section 604 of the Act requires an agency to prepare a final regulatory flexibility analysis (FRFA) that describes the expected impact of the rule on small entities and the steps the agency has taken to minimize significant economic impacts on small entities.  In place of the FRFA, the head of the agency may certify that a rule will not have a significant economic impact on a substantial number of small entities.  This analysis provides the factual basis for certification of this rule.  
</p>
<p>As background, we provide a brief overview of tomato production and trade by the United States and Morocco.  This is followed with an estimate of price and welfare effects of the rule based on assumed levels of tomato imports from Morocco.  We then describe the expected impact on small entities.
</p>
<p class="default_Text"><u>U.S. Tomato Production and Trade
</u></p>
<p class="default_Text">The United States is a major tomato producer and importer.  The United States produced 1,884,696 metric tons (MT) of fresh tomatoes valued at $1.3 billion in 2007, while imports that year totaled 1,070,806 MT.  Tomato production occurs in many States.  The top ten States (Florida, California, Virginia, Georgia, Ohio, Tennessee, North Carolina, Alabama, New Jersey, and Michigan) accounted for 95 percent of total cash receipts in 2007.
  
</p>
<p class="default_Text">As shown in table 1, U.S. tomato production has fluctuated over recent years, while there has been an upward trend in consumption.  The most recent data show production was 1,773,474 MT in 2003 and increased to 1,869,727 MT in 2007, an annual increase of about 1.1 percent.  Consumption increased over this same period, from 2,570,398 MT to 2,779,733 MT, and U.S. imports increased from 939,445 MT to 1,070,806 MT.  Mexico is the source of the largest share of imports (89 percent in 2007), followed distantly by Canada (10.4 percent).  Other minor suppliers include the Netherlands, Spain, Dominican Republic, Belgium, Israel, Italy, Costa Rica, Poland, and Guatemala.  The United States was a net importer throughout the period with average annual imports (977,211 MT) dwarfing exports (152,626 MT).  Imports represent 36 percent of consumption.  Imports from Morocco are expected to be small compared to an already large import base.</p>
<p>Table 1.−U<u>.S. Tomato Production, Consumption, Price, Exports and Imports, 2003-2007</u></p>
<table><tbody><tr>	<td><p>Year</p>
</td>	<td><p>Production in Metric Tons</p>
</td>	<td><p>Consumption in Metric Tons</p>
</td>	<td><p>Price per Metric Ton</p>
</td>	<td><p>Exports in Metric Tons</p>
</td>	<td><p>Imports in  Metric Tons</p>
</td></tr>
<tr>	<td><p>2003</p>
</td>	<td><p>1,773,474</p>
</td>	<td><p>2,570,398</p>
</td>	<td><p>$1,063</p>
</td>	<td><p>142,520</p>
</td>	<td><p>939,445</p>
</td></tr>
<tr>	<td><p>2004</p>
</td>	<td><p>1,896,671</p>
</td>	<td><p>2,660,936</p>
</td>	<td><p>$1,099</p>
</td>	<td><p>167,513</p>
</td>	<td><p>931,779</p>
</td></tr>
<tr>	<td><p>2005</p>
</td>	<td><p>1,914,361</p>
</td>	<td><p>2,717,953</p>
</td>	<td><p>$1,203</p>
</td>	<td><p>148,099</p>
</td>	<td><p>951,692</p>
</td></tr>
<tr>	<td><p>2006</p>
</td>	<td><p>1,857,298</p>
</td>	<td><p>2,705,479</p>
</td>	<td><p>$1,303</p>
</td>	<td><p>144,198</p>
</td>	<td><p>992,334</p>
</td></tr>
<tr>	<td><p>2007</p>
</td>	<td><p>1,869,727</p>
</td>	<td><p>2,779,733</p>
</td>	<td><p>$1,267</p>
</td>	<td><p>160,800</p>
</td>	<td><p>1,070,806</p>
</td></tr>
<tr>	<td><p>5-Year Average (2003-2007)</p>
</td>	<td><p>1,862,306</p>
</td>	<td><p>2,686,900</p>
</td>	<td><p>$1,187</p>
</td>	<td><p>152,626</p>
</td>	<td><p>977,211
</p>
<p></p>
</td></tr>
</tbody></table>
<p>Sources:  Production, consumption, export and import data are from USDA/ERS, Vegetables and Melons Situation Outlook Yearbook/VGS-2008/May 15, 2008, while price data are from Global Trade Information Services, Inc., country edition, March 2009.  U.S. export price (surrogate for domestic price) and Morocco’s export price are used later in the analysis.<b> </b> </p>
<p class="default_Text"><u>Morocco Tomato Production and Trade
</u></p>
<p>Production of tomatoes in Morocco increased from 1,036,840 MT in 2003, to 1,140,000 MT in 2007. Of this total, greenhouse tomatoes, which are candidates for export to the United States, represented about 47.6 percent. Of the total from pest-exclusionary structures, 74 percent are produced in the Souss-Massa-Draa region.
  Over this same period, exports steadily increased from 203,419 MT in 2003 to 346,259 MT in 2007.  The average quantity of tomatoes exported by Morocco during the period was 251,326 MT. 
</p>
<p>Most of the 346,259 MT exported by Morocco in 2007 went to European Union (EU) countries (302,501 MT or over 87 percent), especially France, which received about 84 percent (255,177 MT) of the EU share.  France and Morocco have a long history of bilateral trade that is likely to continue to be strong.  The largest non-EU importers were Russia (32,406 MT) and Switzerland (10,543 MT).
</p>
<p class="default_Text">The rule is in response to a request from the Morocco Ministry of Agriculture and Rural Development to allow the importation of tomatoes into the United States from the Souss-Massa-Draa region under a systems approach designed to prevent the introduction of plant pests.  A very small amount of fresh tomatoes has been imported from El Jadida and Safi provinces in Morocco and the province of Dahkla in Western Sahara under a similar systems approach that has proven to be effective in preventing the introduction of pests of concern.  It includes production in specified regions and in pest-free growing structures such as greenhouses, trapping requirements, shipping date restrictions, safeguarding of the packinghouse, and export of pink tomatoes.  This rule will require additional trapping and safeguarding within and around the production area because Souss-Massa-Draa is outside the area of low prevalence for Medfly.  
</p>
<p>Trade records show that an average of 91 MT of tomatoes, valued at $209,000, was imported annually by the United States from Morocco between 1998 and 2001.
  The United States has not imported tomatoes from Morocco since 2001.  Although the Souss-Massa-Draa region is a major tomato-producing area of Morocco, the record of U.S. imports suggests that only a small amount may be imported from this newly eligible region.</p>
<p class="plain_Text"><u>Impact of Potential Fresh Tomato Imports</u></p>
<p>We estimate the impact of tomato imports from Morocco on U.S. production, consumption, and prices using a net trade welfare model.  The data used were obtained from the Foreign Agricultural Service (FAS) and the Global Trade Atlas.
  The demand and supply elasticities used are -0.77 (average of 5 estimates) and 0.37, respectively.
 <b> </b></p>
<p>We model three levels of tomato exports to the United States from Morocco, of increasing magnitude: (i) 100 MT, roughly equivalent to average annual U.S. imports from Morocco, 1998-2001; (ii) one percent of Morocco’s average annual world exports, 2003-2007 (2,513 MT); and (iii) five percent of Morocco’s average annual world exports, 2003-2007 (12,566 MT).  The largest assumed level of exports, while equivalent to less than 1.3 percent of average annual tomato imports by the United States during this same period, is twice the level of U.S. tomato imports supplied by all countries other than Mexico and Canada.  </p>
<p>Table 2 presents the changes we estimate could result from the assumed levels of U.S. tomato imports from Morocco.  These include annual changes in U.S. consumption, production, wholesale price, consumer welfare, producer welfare, and net welfare.  The medium level of assumed tomato exports to the United States of 2,513 MT would result in a decline of $1.10 per MT in the wholesale price of tomatoes and a fall in U.S. production of 588 MT.  Consumption could increase by 1,925 MT.  Producer welfare could decline by $1.9 million and consumer welfare could increase by $3 million, yielding an annual net benefit of about $1.1 million. 
</p>
<p>Table 2.−<u>Estimated Impact on the U.S. Economy of Tomato Imports from Morocco for Three Import Scenarios</u></p>
<table><tbody><tr>	<td><p>Assumed annual tomato imports from Morocco, MT</p>
</td>	<td><p>1001</p>
</td>	<td><p>2,5132</p>
</td>	<td><p>12,5663</p>
</td></tr>
<tr>	<td><p>Change in U.S. consumption, MT</p>
</td>	<td><p>77</p>
</td>	<td><p>1,925</p>
</td>	<td><p>9,624</p>
</td></tr>
<tr>	<td><p>Change in U.S. production, MT</p>
</td>	<td><p>-23</p>
</td>	<td><p>-588</p>
</td>	<td><p>-2,942</p>
</td></tr>
<tr>	<td><p>Change in wholesale price of tomatoes, dollars per MT</p>
</td>	<td><p>-$0.04</p>
</td>	<td><p>-$1.10</p>
</td>	<td><p>-$5.52</p>
</td></tr>
<tr>	<td><p>Change in consumer welfare</p>
</td>	<td><p>$118,060</p>
</td>	<td><p>$2,967,880</p>
</td>	<td><p>$14,861,830</p>
</td></tr>
<tr>	<td><p>Change in producer welfare</p>
</td>	<td><p>-$75,120</p>
</td>	<td><p>-$1,887,470</p>
</td>	<td><p>-$9,431,580</p>
</td></tr>
<tr>	<td><p>Annual net benefit</p>
</td>	<td><p>$42,940</p>
</td>	<td><p>$1,080,410</p>
</td>	<td><p>$5,430,240</p>
</td></tr>
</tbody></table>
<p>Note: The baseline data used are 5-year annual averages for production, consumption, prices, exports and imports, as reported in the last row of table 1. The demand and supply elasticities used are -0.77 and 0.37, respectively (see footnote 5). </p>
<p>1 Four-year (1998 to 2001) average annual tomato exports by Morocco to the United States.  Morocco has not exported tomatoes to the U.S. since 2001.</p>
<p>2 One percent of Morocco’s average annual world tomato exports (2003-2007).</p>
<p>3 Five percent of Morocco’s average annual world tomato exports (2003-2007).
</p>
<p>In all three scenarios, consumer welfare gains outweigh producer welfare losses.  Even in the third scenario in which we assume imports will be five percent of Morocco’s average annual world tomato exports (2003-2007, the decline in producer welfare represents less than eight-tenths of one percent of cash receipts received from the sale of domestically produced fresh tomatoes.
  The price decline in this third scenario is less than one-half of one percent.  The price and welfare effects are likely to be even smaller than are indicated by the three scenarios, to the extent that tomato imports from Morocco displace tomato imports from other countries.    
</p>
<p>The Small Business Administration (SBA) has established guidelines for determining which firms are to be considered small under the Regulatory Flexibility Act.  This rule could affect U.S. producers of fresh tomatoes (classified under Other Vegetable (except Potato) and Melon Farming, North American Industry Classification System 111219) and some importers of fresh tomatoes. Vegetable-producing establishments are classified as small if their annual receipts are not more than $750,000.
  According to the 2007 Census of Agriculture (most recent data on farm sizes), there were 25,809 farms producing tomatoes in the United States.  About 68 percent of these farms had less than one acre in tomatoes.  Overall, 25,128 farms (97.4 percent) had a total of 39,879 acres in tomatoes (about 9 percent of the total planted area) and are considered small, with an average of about 1.6 acres and an average annual income of about $8,000 in 2007.  The remaining 2.6 percent of the farms planted a total of 402,346 acres in tomatoes (91 percent of the planted area).  They averaged 591 acres, with an average annual income of about $3 million.  </p>
<p>As shown in table 3, the impact of potential tomato imports on U.S. small-entity producers as a result of this rule will be small.  The annual decrease in producer welfare per small entity is estimated to be less than $34 or about 0.43 percent of average annual sales by small entities, when we assume that 12,566 MT of tomatoes will be exported to the United States from Morocco because of this rule.  The dollar decrease in welfare for most small tomato producers will be even smaller, given that the majority planted less than an acre in tomatoes.   </p>
<p>Table 3.−<u>The Economic Impact of Potential Tomato Imports from Morocco on U.S. Small Entities, assuming Annual Exports of 12,566 Metric Tons to the United States, 2007 dollars</u></p>
<table><tbody><tr>	<td><p>Total decline in producer welfare1</p>
</td>	<td><p>-$9,431,580</p>
</td></tr>
<tr>	<td><p>Decrease in welfare incurred by small entities2</p>
</td>	<td><p>-$848,842</p>
</td></tr>
<tr>	<td><p>Average decrease per acre, small entities3</p>
</td>	<td><p>-$21.30</p>
</td></tr>
<tr>	<td><p>Average decrease per small entity4</p>
</td>	<td><p>-$33.90</p>
</td></tr>
<tr>	<td><p>Average decrease as % of average sales, small entities5</p>
</td>	<td><p>-0.43%</p>
</td></tr>
</tbody></table>
<p>1 From table 2.  
</p>
<p>2 Change in producer welfare multiplied by 9 percent, the percentage of total acreage planted by producers with annual revenues of not more than $750,000, that is, small entities.  We assume that the change in producer welfare would be proportional to acreage share. </p>
<p>3 Decrease in producer welfare for small entities divided by 39,879, the number of acres planted by small entities.</p>
<p>4 Average decrease per acre multiplied by 1.59, the average number of acres per small entity.</p>
<p>5 Average decrease per small entity divided by $7,990, the average annual revenue per small entity.</p>
<p>The rule has no mandatory reporting, recordkeeping, or other compliance requirements.  U.S. entities that may be affected by the rule voluntarily engage in trade transactions.  Any reporting or other requirements will be those normally associated with the regular transactions involved in doing business.</p>
<p>Based on the above information, the rule will not have a significant economic impact on a substantial number of small entities.  
</p>
<p><u>SUMMARY
</u></p>
<p>This analysis examines impacts for U.S. small entities of a rule that will allow fresh tomato imports from the Souss-Massa-Draa region of Morocco.  Morocco exported an average of about 100 MT of tomatoes to the United States annually from 1998 to 2001.  The United States has not imported tomatoes from Morocco since 2001.  We model three levels of tomato exports to the United States from Morocco of increasing magnitude: (i) 100 MT, based on historic imports; (ii) one percent of Morocco’s average annual world exports, 2003-2007 (2,513 MT); and (iii) five percent of Morocco’s average annual world exports, 2003-2007 (12,566 MT).  Even when assuming the largest import quantity and no displacement of imports from other countries, the welfare loss for U.S. small-entity producers is equivalent to only about four-tenths of one percent of their average revenue.
</p>
<p class="default_Text_Char_Char_Char_Char_Char">U.S. producers of tomatoes are predominantly small.  Other small entities that could be affected by the rule include fresh tomato importers.  Based on available information, the rule will not have a significant economic impact on a substantial number of small entities.  </p>
<p><u>PK 4/9/09
</u></p>
<p>� United States Department of Agriculture (USDA)/Economic Research Service (ERS), Vegetables and Melons Situation Outlook Yearbook/VGS-2008/May 15, 2008.
</p>
<p>� Christine Chemnitz and Harald Grethe, “EU Trade Preference for Moroccan Tomato Exports—Who Benefits?”  Paper prepared for presentation at the 99th seminar of the European Association of Agricultural Economics (EAAE), “The Future of Rural Europe in the Global Agri-Food system,” 23-27 August 2005, Copenhagen.
</p>
<p>� Global Trade Atlas, Global Trade Information Services, Inc., country edition, March 2009.
</p>
<p>� United Nations/Food and Agriculture Organization (FAO), FAO statistical data (� HYPERLINK "http://faostat.fao.org" ��http://faostat.fao.org�) and Global Trade Atlas, Global Trade Information Services, Inc., country edition, March 2009.
</p>
<p>� The demand elasticity is from K. Huang, “A complete system of U.S. demand for food,” Technical Bulletin No. 182, 1993, USDA/ERS, Washington DC; and the supply elasticity is from S.R. Hammig and R.C. Mettelhammer, “An evaluation of import tariffs in the Canada-U.S. fresh tomato market,” Canadian Journal of Agricultural Economics, Vol. 30 (1982): 133-152; S.T. Yen, B. Lin, J.M. Harris, and N. Ballinger, “Demand for differentiated vegetables,” paper presented at American Agricultural Economic Association economic meeting, Denver Colorado, August 1-4, 2004.
</p>
<p>� $9.5 million divided by $1.3 billion equals ≤ 0.08 percent.
</p>
<p>� SBA, Small business size standards matched to the North American Industry Classification System 2002, Effective October, 2007 (www.sba.gov/size/sizetable2002.html).
</p>
<p>
</p>
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