The industry cluster specializing in the importation and handling of fresh produce is a key driver of the local economy of Santa Cruz County and to Arizona more broadly. The county’s Nogales port of entry is a top port nationally for shipments of fresh fruits and vegetables from Mexico, the United States’ top source of imported fresh produce. While historically a leader in handling imports, Nogales’ port facilities currently lack a cold inspection facility. This lack of infrastructure is likely a contributing factor to shippers’ decisions to transport highly perishable, high value commodities such as berries and avocados through other ports of entry that have cold inspection facilities.
This study estimates the volume and value of fresh produce currently diverted to other ports of entry that could potentially travel through the Mariposa Port of Entry given existing agricultural production in the Mexican states of Sonora, Sinaloa, Nayarit, and Jalisco (supply) and the estimated consumer demand in the U.S. states of Arizona, Utah, Nevada, Idaho, and Montana (demand), informally known as the CANAMEX trade corridor. Potential increases in trade flows for select perishable produce commodities (asparagus, avocados, blackberries, raspberries, and strawberries) through Nogales are then used to estimate the economic impacts to the Arizona economy.
Furthermore, the study presents a benefit-cost analysis for the project based upon modeled increases in trade flows. Revised September 2019.
Findings
Increasing the share of imports from Mexico flowing through Nogales for asparagus, avocados, blackberries, raspberries, and strawberries to meet the demand of the share of the U.S. population living in the trade transportation corridor ranging from Arizona north to Canada (Arizona, Utah, Nevada, Idaho, and Montana) would lead to an estimated increase of between 108 million and 121 million pounds of additional produce imported through Nogales, representing between $134 million and $150 million per year in additional imports by value moving through the port (2017 prices). An increase in imports of this magnitude corresponds to additional wholesale margins generated for Santa Cruz County fresh produce companies of between $23 million and $26 million per year. That net new economic activity in the state would lead to the following estimated annual economic impacts to the state economy, including multiplier effects:
- Between $43 million and $48 million in additional output (sales)
- Between $27 million and $30 million increase in gross state product (value added)
- Between 214 and 241 additional jobs
- Between $15 million and $17 million in labor income (wages and business owner income) Between $3.7 million and $4.1 million in additional state and local tax revenues
Considering business owner income and profits directly generated by just 25% of the modeled increases in trade flows (held constant over 15 to 20 years), investment in a cold storage inspection facility would have an internal rate of return (IRR) of between 154% and 191%. Furthermore, a benefit-cost analysis of investment in the cold storage facility found that even if only 25% of the modeled trade flows were realized (and held constant over 15 to 20 years), the project would have a benefit-cost ratio ranging from 3.4:1 to 5.1:1 over its functional life. If higher levels of trade flows were realized, the benefit cost ratio could reach as high as 20:1. These metrics of project viability are not inclusive of the aforementioned regional economic impacts, including increases in employment, labor income, and state and local tax revenues that accrue to the state and local economy.
Methods
This study estimates the volume and value of fresh produce currently diverted to other ports of entry that could potentially travel through the CANAMEX trade corridor, from the Mexican states of Sonora, Sinaloa, Nayarit, and Jalisco to the U.S. states of Arizona, Utah, Nevada, Idaho, and Montana. Potential increases in trade flows for select perishable produce commodities (asparagus, avocados, blackberries, raspberries, and strawberries) through Nogales are, in turn, used to estimate the economic impacts to the Arizona economy. In this study, estimates of consumer demand are limited to states within the CANAMEX trade corridor. Current fresh produce shipments through Nogales are destined for markets beyond the transportation corridor examined in this analysis, for example, to California, Oregon, and Washington. Additional demand in the Western U.S. represents additional opportunity for growth, considering that some produce is currently shipped through Nogales for delivery to California, Oregon, and Washington, as well as through trans-shipments to Canada.
This study uses existing value and volume of fresh produce trade flows from Mexico to the U.S. both nationally and by port of entry to estimate potential changes in the shares of perishable fresh produce commodities that might flow through the Nogales port of entry. These shares are based upon estimates of consumer demand within the U.S. portion of the trade corridor and supply produced within the Mexican portion of the trade corridor1. Direct sales and employment impacts are estimated using data on wholesale margins and county-level employment and wage data. Economic multiplier effects and tax impacts are calculated using the IMPLAN 3.1 input-output model.