* Talks over Obama tomato move continue this week
* Decision on trade pact not due until May
* Florida industry official derides warning as "scare tactics"
MIAMI, Jan 24 (Reuters) - U.S. business groups warned on Thursday of skyrocketing tomato prices and a damaging trade war if President Barack Obama's administration follows through on a preliminary decision to end a long-standing tomato trade agreement with Mexico.
"We are concerned as U.S. distributors about the ability to continue to be able to sell Mexican tomatoes with the tomato trade dispute that's going on between the United States and Mexico," said Lance Jungmeyer, president of the Fresh Produce Association of the Americas.
He said a new pricing study had found that U.S. consumers would be hit with huge premiums for fresh tomatoes, with prices doubling or worse, if distributors were forced to withdraw Mexican tomatoes from the marketplace.
Under some scenarios, tomatoes could become "more expensive than steak," Jungmeyer said, adding that prices could quickly spiral to levels "more than the American consumer can bear."
The U.S. Commerce Department signaled in September that it favored ending the 16-year-old tomato agreement on grounds that it failed to protect U.S. growers, especially in Florida, against Mexican tomatoes that are sold in the United States, allegedly below the cost of production.
A final decision is not due until May, but a Commerce official said U.S.-Mexico negotiations over the issue continued in Washington this week.
Terminating the tomato agreement would clear the way for Florida growers, who compete fiercely with Mexico for the U.S. winter and early spring market, to file a new anti-dumping complaint against their Mexican rivals.
Jungmeyer said such a complaint would almost certainly lead to preliminary but "prohibitive duties" that would sharply curb or cut off Mexican supply completely, due to increased costs for U.S. importers and distributors.
That, in turn, threatens to "put the Department of Commerce and Mexican growers on a collision course that would have disruptions to trade all around," Jungmeyer said.
Mexican officials have already raised the threat of retaliation if Mexico's tomato exports to the United States, valued at nearly $2 billion a year, are damaged by the trade dispute and failure to extend the tomato agreement.
'SMACKING OF EXTORTION'
Their warning was echoed on Thursday by Patrick Kilbride, a senior U.S. Chamber of Commerce official, who joined Jungmeyer on the conference call in which they both spoke to reporters.
"In any trade relationship, and especially in one as broad and deep as the U.S.-Mexico relationship, there's going to be a number of areas at any given time where there are disputes," Kilbride said.
"In a number of areas on both sides of the border you're going to have situations where one country or the other could as a legal matter impose some sort of legal restriction," Kilbride added.
"If we go down that path, it really works to the detriment of producers and consumers in both countries," he said. "Our simple point is that this relationship is far too important to let that happen and we want to see both governments working together to create the mechanisms that will defuse these sort of disputes before they come to this point."
Reggie Brown, who heads the Florida Tomato Exchange, said warnings about price hikes and retaliatory measures over the possible termination of the U.S.-Mexico tomato agreement were nothing but "scare tactics" and a "red herring."
"The only reason the price of tomatoes may change in the marketplace would be if in fact the Mexicans have been dumping the product into the U.S. market and they self-correct themselves to get prices that are not actionable under U.S. trade law," he said.
"Why would it ignite a trade war with the Mexican industry simply because there are laws that regulate trade disputes?" Brown asked.
"A random helter-skelter threat or bullying of an industry by unfounded threats of a trade war is a little bit smacking of extortion," he said. (Editing by Eric Walsh)