Producers and consumers split over banana trade
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CTA. 1993. Producers and consumers split over banana trade. Spore 45. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/49133
Single European Market brings new controls on banana imports Bananas come third, after coffee and tea, in the league table of foodstuffs traded worldwide. Production methods vary as widely as the marketing regulations from continent to continent....
Single European Market brings new controls on banana imports Bananas come third, after coffee and tea, in the league table of foodstuffs traded worldwide. Production methods vary as widely as the marketing regulations from continent to continent. Now the European Community, which has the highest banana consumption in the world, has just rocked the complex balance of supply and demand by standardizing the import rules across the Community, to the chagrin of Latin America, the largest area of production. More people eat bananas than any other fresh fruit in the world, and they are the most heavily traded fruit worldwide. More than 95% of the bananas on the world market come from the developing countries, with Latin America far and away the leader at 74% of world exports. Since 1990 the European Community has been the principal importer with 3.498 million tonnes, ahead of the USA with 2.85 million and Japan with 757,000 tonnes. This market is therefore crucial for the exporting countries, but at the moment they are coming to terms with the consequences of having a single rule of access to the European Member States imposed by the Community. This ruling was implemented in Brussels on 13 February 1993, when an agreement was signed bringing in one single rule controlling all banana imports into the EC. The final text was the result of lengthy and difficult negotiations between the Community partners. The 13 February agreement allows for a voluntary limitation of banana imports from Latin America to two million tonnes a year, slightly more than half the estimated total consumption of 3.7 million tonnes in 1993. These imports will be subject to a 20% tax. A tax of 850 ECU per tonne over and above the permitted annual consignment is likely to prove a strong discouragement. In 1992 the Latin American countries sold 2.4 million tonnes to the EC, which, on these figures, is a surplus of some 400,000 tonnes over quota. This means that the expected increase in banana consumption in several European countries can not benefit the Latin American producers of so-called 'dollar bananas.' Protectionism in the European market From 1 July 1993 the EC market will be protected by what is in effect a quota system, but which is more properly called a tonnage-related tariff. The agreement does not exclude imports from non-EC/ACP sources, but subjects them to a tax. In reality, the permitted tonnage from non-EC/ACP countries is very low and has the same effect as a straight import ban. At the same time it effectively reserves almost half the Community's banana imports for EC/ACP producers, to be governed by the terms of the Lom\E9 Convention. This is very different from the previous position. The Treaty of Rome which set up the Common Market in 1957 dropped all mention of bananas after West Germany refused to sign if she were not allowed to import a certain proportion of non-ACP bananas each year. The other partners conceded the point, though the signing of the Treaty was delayed because of it. But the lasting effect was that bananas were the only agricultural product not to be subject to the terms of the Treaty. Latin American anxieties Not everyone Was pleased with February's agreement. If the ACP producers were congratulating themselves on what they considered a famous victory, their counterparts throughout South America looked on as the door to the world's largest market was pulled half shut in their faces. Their only recourse has been to issue strong official protests to Brussels. Guatemalan leaders have appealed for solidarity throughout South America against what the consider to be the injustice of the Commission's decision. In Panama the opinion is that the European authorities 'have no idea whatsoever of the wrong they are doing us.' A spokesman for the Colombian planters assessed the damage likely to be done by the European decision in these terms: a loss of income of more than a billion dollars each year, plus the loss of 200,000 jobs and the disappearance of 35,000ha of banana plantations throughout Latin America in three years. Five of the large banana exporting countries of Latin America (Guatemala, Nicaragua, Colombia, Venezuela and Ecuador) have made a joint protest to GATT, saying that the decision is not in line with the ethos of the organization. An arbitration committee has been set up, but this South American initiative has little chance of achieving anything by way of a change of heart in Brussels, since the EC had obtained GATT's authorization, prior to the signing of the agreement, to exclude bananas from the negotiations of the Uruguay Round. In support of the case, the Latin American producers cite the 'San Andr\E8s Charter', so called from the Colombian island where the region's seven principal producers, who represent more than 65% of world production (Colombia, Costa Rica, Ecuador, Honduras, Guatemala, Panama and El Salvador), adopted a joint stance vis-\E0-vis the GATT negotiations. This charter claims a 'complete deregulation' of the world banana market, and in particular the EC market, and claims as its authority the GATT position on international trade. The charter's principal demand is a 'substantial reduction' of customs fees at the point of entry into the Community (this was 20% before the application of the Single Market regulations), and it rejects absolutely any idea of a quota. Precisely what effect the new European directive will have on the economies of the Latin American exporting countries is difficult to gauge with any accuracy at present. But one thing is certain: bananas are an important source of revenue for them, although they have all been making strenuous and successful efforts in recent years to reduce their very heavy dependence on the fruit. No country now depends on bananas for more than 50% of its foreign exchange earnings, whereas in ]970 two did. At that time the banana accounted for more than 25% of the exports of four of the biggest Latin American exporters. Currently only Panama and Honduras reach the 25% mark. In all the fuss over the limited access to the European market, it should not be forgotten that these countries enjoy an unrivalled position in the North American market. European opinion divided In Europe, Germany, Belgium and Holland, who all voted against the text of the agreement, have complained to the European Court of Justice. Germany's banana imports were completely free of restriction concerning their origin, because of the dispensation they obtained in 1957, and 95% of her imported bananas came from Latin America. As a result, the German housewife was paying $1.66 per kilo against $2.08 and $2.03 in France and the UK respectively. For German consumers, therefore, the new regulation will result in a large rise in the retail price of bananas. At the same time, the new rule will safeguard the protectionist, anti-'dollar banana' policy of the countries who voted for it. France, the UK, Italy, Spain and Portugal have always favoured their former colonies or their overseas territories when it comes to imports. France's late President de Gaulle instituted a rule in 1962 which ensured that bananas consumed in France came from two sources, the DOM-TOM (D\E9partements et Territoires d'Outre-Mer). Martinique and Guadeloupe received a two-thirds share of the French market and the African ACP countries (mainly C\F4te d'lvoire and Cameroon) were awarded the remaining third. The UK kept half its imports for the Windward Islands, a quarter for Jamaica and Belize, and only the remaining 25% for everyone else, including the South American continent. In 1974 Italy made a special arrangement in favour of Somalia, whereby she bought up almost all Somalia`s export crop and this remained in effect until the recent events which have destroyed the Somalian economy. When Spain made her belated entry into the EC she managed to keep the protectionist system which ensured that almost all her banana imports were from the Canaries. Portugal alone has relaxed protection and, since 1985, Madeiran bananas have been in competition with those from Colombia and Ecuador. Nevertheless a system of taxation and adjustment ensure that Madeira has kept its market share of around 40%. A 'swing-wing' productivity If the ACP countries and the overseas territories have found it necessary to insist on a protectionist policy, it is because there is a considerable price difference between their fruit and the 'dollar bananas'. The production cost of Latin American bananas is $245 per tonne, against $354 in Cameroon, $506 in Guadeloupe and $548 for other Caribbean bananas (see table), and from this it is obvious that ACP bananas are far from being able to compete on an equal footing with Latin American ones on the open market. Three big American multi-nationals control most of the Latin American banana production; it is because of their dominance in the banana sector that their products have been nicknamed 'dollar bananas'. It is often said that their obsession with competitiveness and profit has led to human exploitation and environmental disasters. Many factors affect production costs. Firstly, there is the cost of investment, mainly in land and equipment; then there is the cost of packaging and transport, plus inputs. A study carried out by the Association des Produits \E0 March\E9 CEE-ACP (APROMA) for the French Ministry of Cooperation suggests that one hectare of bananas in 1989 cost in investment terms $8000 in Ecuador, $9600 in Costa Rica, and $12,500 in C\F4te d'lvoire. The main difference between dollar bananas and ACP bananas lies in the return on them, and this is in turn influenced by labour costs. In Latin America plantations are modern, intensive and highly-mechanized, and productivity is commensurately high According to the APROMA study it stands at 136 days/ tonne in Costa Rica against 399 days/tonne in C\F4te d'lvoire. Added to this the daily wage of a labourer in Latin America is $10, six times less than in the West Indies. Those in the EC who are most strongly in favour of protectionism have stood firm on this particular point to avoid the other producer countries being forced to lower their production (especially labour) costs down into line with those attained by the US multinationals in Latin America. For reasons of political and economic stability, this is manifestly not an option. So what challenges might those countries producing high-cost bananas expect to face in the future? In the end, even those who defend protectionism know very well that this policy can only be a short-term one, because world trade is working towards a far more open market. France has allowed a three year period till 1996 to help its West Indian producers improve production and promotion and implement a policy of economic diversification; it is no coincidence that a law has been passed in France recently giving special tax allowances for investment in the West Indian tourist industry. Nobody will find it easy to change their long-established production systems - but when the time comes, change they must.