CHAPTER 1

OVERVIEW OF WORLD BANANA PRODUCTION AND TRADE

1.1 Introduction

This chapter introduces the reader to the important distinction between bananas produced for export or otherwise, and presents a descriptive summary of new development in banana production and trade during 1985-2002, including production, exports, imports, world prices and consumption in import markets.

1.2 World Banana Production

Bananas and plantains are perennial crops that grow quickly and can be harvested all year round. They were cultivated on an area of some 9 million hectares in year 2000; world production averaged 92 million tonnes per annum in 1998-2000 and was estimated at 99 million tonnes in 2001. These figures are an approximation because the bulk of world banana production (almost 85 percent) comes from relatively small plots and kitchen or backyard gardens, where statistics are lacking. In many developing countries, the bulk of banana production is self-consumed or locally traded, thereby playing a crucial role in food security.

Bananas fall into two categories:

• Cooking bananas, including plantains and other sub-groups of varieties such as Pisang Awak in Asia.

• Dessert or sweet bananas, where the Cavendish sub-group is prominent with a 47 percent share of global banana production. Almost all bananas traded worldwide are Cavendish.

Figure 1 World banana production by type (average 1998-2000)

Source: CIRAD-FLHOR

It is estimated that world banana production increased by 30 percent over the 1990s, mainly as a result of rising Cavendish output. The total value of international banana trade ranges between US$ 4.5 and 5 billion per year.

Plantains are mainly produced in Africa and Latin America, while other types of cooking bananas are grown in Africa and Asia (see Figure 2). Latin America is the leading region for Cavendish production, followed by Asia. The bulk of other dessert bananas are cultivated in Latin America and Asia. The world’s leading producer of Cavendish bananas is India, followed by Ecuador, China, Colombia and Costa Rica. These 5 countries together account for over half of global Cavendish output (see Figure 3).

Figure 2 Production by region 1998-2000 (000’ MT)

Source: CIRAD-FLHOR

Figure 3 Production of Cavendish by country (percent, average 1998-2000)

Source: CIRAD-FLHOR

World production of sweet bananas increased steadily between 1985 and 2000. Average annual output rose by 49 percent from 42.5 million tonnes in 1985-87 to 63.4 million tonnes in 1998-2000 (Figure 4). This expansion is primarily the result of steady growth in the cultivated area and, to a lesser extent, of a rise in yields (Table 1). From 1985 to 2000 the area rose by 30 percent from an average of 3.1 million hectares to over 4 million ha. At the same time the average yield increased from 13.7 to 15.8 tonnes per ha (15 percent).

Figure 4 Dessert bananas: world production 1985 - 2002

Source: FAOSTAT

Table 1 Dessert bananas: world production, areas and yields 1985 - 2002

Source: FAOSTAT

As can be seen in Figure 4, a slow growth in banana production during the second half of the 1980s was followed by a strong rise in production from 1989 to 1994. It is thought that an expansion in the area planted in Ecuador was responsible for the increase. Banana production somewhat stagnated in the following 3 years, but expanded once again from 1997 to 2000 fuelled by a rapid growth in both area planted (mainly in the Philippines) and rising land yields^[1].

Figure 5 Dessert bananas: world areas and yields 1985-2002

Source: FAOSTAT

1.3 Exports

The world banana market consists mainly of trade in Cavendish type bananas. The Cavendish replaced the Gros Michel as the banana entering international trade due to its resistance to Panama disease and its higher productivity (up to 60 tonnes per hectare in modern plantations). Cavendish bananas for export markets are currently produced all over the world, from small farms to large plantations of thousands of hectares.

Approximately 26 percent of the total Cavendish crop is exported, and 8 out of 10 bananas exported originate from Latin America (Figure 6). The three leading countries are Ecuador, Costa Rica and Colombia. In Asia the main exporter is the Philippines, in Africa Cameroon and Côte d’Ivoire and in the Caribbean the Dominican Republic and the Windward Islands.

Figure 6 Bananas: exports by continent, average 1998-2000

Source: FAOSTAT

Latin America dominates the world banana economy not only because of its share of world trade, but also because of its higher capacity to respond to changing market conditions compared to other regions. In forecasting the evolution of world banana trade FAO has recently used export supply equations for Latin American countries which included relatively high own price elasticities compared to other regions (Table 2). Other authors have also considered it important to include elastic supply responses for Latin America to reflect the region’s ability to easily respond to world prices (Guyomard et al 1999 and 2001). Moreover, supply functions that included trend coefficients to capture past growth not accounted for by prices (such as economies of scale, improved technical efficiencies and technological change) include high values for Latin American countries. Supply-led growth in banana trade induced by productivity gains have been observed throughout the history of the world banana trade (Bucheli 2001).

Table 2 Price elasticities and growth trends of banana export supply functions

Source: Computed from time-series data of FAOSTAT, IMF and CORBANA

World export volumes in the period 1985-2002 increased at the unprecedented rate of 5.3 percent; more than double that of the previous 24 years. The growth was relatively steady until 1997, when exports exceeded 12 million tonnes, a record high. There was some decrease in 1998 due to adverse weather conditions in most producing regions, and from then onwards the volumes have been relatively stable at slightly above 11.7 million tonnes. The value of banana exports increased markedly from 1985 to 2000, but this growth was less noticeable in real terms and fell markedly from 1998 to 2000 as a result of declining prices.

Figure 7 Evolution of banana exports by major regions 1985-2000

Source: FAO

Exports increased in all regions during 1985-2000. The strongest growth was observed in Latin America, which was followed by Africa. In both regions exports doubled, rising respectively from 5 to almost 10 million tonnes and from 200 000 to over 400 000 tonnes (Figure 7 and 8). Exports from the Far East and the Caribbean also increased, but at slightly slower rates. Their respective shares in total exports have not changed dramatically. Latin America increased from 78 percent in 1985-87 to 80 percent in 1998-2000 and Africa from 3 to 4 percent. Conversely the share of the Far East fell from 14 to 13 percent and that of the Caribbean from 4 to 3 percent. In the latter region export growth from the late 1980s to the early 1990s has been partly offset by a decline since the mid-1990s. Conversely in the Philippines, export stagnation in the 1980s has been followed by strong growth since 1992.

However, in the period 1985-2002 not all countries within each region performed similarly. In Latin America, for example, Ecuadorian shipments surged during 1988-1997, while exports rose more moderately in Costa Rica and Colombia, and decreased in Panama and Honduras. In the Caribbean, and after initial rises in exports for almost all countries in the late 1980s, exports fell in the Windward Islands and Jamaica from the mid-1990s. Shipments from the Dominican Republic increased since the late-1990s and the country has now become the largest exporter of bananas in the Caribbean.

Figure 8 Africa, Far East and the Caribbean: banana exports 1985 - 2000

Source: FAOSTAT

Within the group of fruits and vegetables, bananas remained a key commodity throughout the period 1985-2002. The share of bananas in the world export value of fruit and vegetables was relatively stable between 1985 and 2001 at about 4 percent. This compares favourably with other traditional fruits such as citrus whose share declined from 21 percent in 1985 to 15 percent in 2001, but unfavourably with frozen vegetables that increased from 1.9 percent in 1985 to 3.1 percent in 2001 (Figure 9).

Figure 9 World exports of bananas, citrus, apples and frozen vegetables as a percentage of the total value of exported fruits and vegetables (1985-2001)

Source: FAOSTAT

1.4 Imports

The main markets are North America, the European Community, Japan and countries of Eastern Europe and the former USSR (Table 3 and Figure 10). Developed countries account for 83 percent of world banana imports. North America and the EC capture over 60 percent of world imports, while Japan and the ex-USSR about 12 percent. The United States and the EC are expected to continue being major players despite consistently decreasing their share of the world market in the period considered (Figure 11).

Table 3 Banana imports 1998-2000

Source: FAO

Figure 10 Share of banana imports by major import markets 1998 - 2000

Source: FAOSTAT

Net banana imports increased steadily from below 7 million tonnes in 1985-88 to some 11.7 million tonnes in 1998-2000 (Figure 12). This increase of 70 percent contrasts with the slow growth observed in the previous 15 years (1970-1984), when world imports expanded by a meager 17 percent. The expansion was due to, inter-alia, the opening of Eastern European and China markets, low banana prices in real terms and the increase in income per capita in the major banana importing countries of about 2 percent per annum during the 1990s.

Figure 11 United States and EC: share of world banana trade 1985-2000

Source: FAOSTAT

Figure 12 World banana imports volume and value 1985-2000

Note: Values are deflated using CPI in the US
Source: FAO

The growth of imports in developed countries took place predominantly in the late 1980s and early 1990s. Import growth accelerated since 1991 partly due to economic liberalization in some centrally planned economies such as Eastern European countries, Russia and China. In less than 10 years these emerging economies have managed to capture more than 10 percent of the world imports, becoming important players in the world banana economy. Rising populations and purchasing power in some countries of Asia and the Near East have also played a role in the growth of imports during this period.

Figure 13 Banana imports in developed and developing countries 1985-2000

Source: FAO

International trade in bananas follows, to some extent, a regional pattern. For the sake of simplicity, world banana trade can be split into three international trading systems (Table 4). In the first system (“The Americas”), the US, Canada and those Latin American countries which do not cultivate bananas source their fruit in Latin America.

The second system, “Europe”, includes the whole European continent and countries of the former USSR on the demand side, and countries of Latin America, West Africa and the Caribbean on the supply side. Within this system the European Community (EC) has the most diversified pattern of imports due to a preferential trade agreement with ACP countries (Africa-Caribbean-Pacific)^[2] and the access it confers to dollar bananas. In 1998-2000 ACP countries supplied 22 percent of total EC imports while the remainder of imports was sourced in Latin America^[3]. The countries of Eastern Europe and the Russian Federation import the bulk of their bananas from Latin America: in 1998-2000, Ecuador, Colombia and Costa Rica accounted for 98 percent of their imports.

The third trading system, “Asia”, consists of Asian and Near East countries and their suppliers, mainly the Philippines and Ecuador. In Asia, the bulk of Japan’s imports originate from the Philippines, a country which is also the main supplier to China and South Korea. Near East countries import relatively similar quantities from Ecuador and the Philippines. Some minor suppliers to East Asian countries include China (Taiwan) and Indonesia.

Table 4 Banana trade flows by trading system 1998-2000 (000’ MT)

Source: FAO

Import policies vary substantially in each of the major importing countries. During the period under study (1985 - 2000) the US retained its policy of no tariffs, no import quotas, and no phytosanitary restrains to banana imports. Conversely, the EC changed its policies substantially during the period. In 1985-1992 the countries of the European Community used various import regimes, ranging from preferential access to overseas territories and former colonies to free access. However, following the creation of the European Single Market in 1993, the various import regimes were harmonized, and under Council Regulation (EEC) 404/93 the European Union put in place the Common Market Organization for Bananas. Changes in import policies including that of the EC during the period are described in Chapter 4.

1.5 Prices

Over the period 1970-20002 the prices of commodities relative to those of other economic sectors declined at an average 2 percent per annum (FAO 2003a). In the same period, banana prices declined at 1.4 percent. The fall was particularly strong from 1985 to 2000 (-2.4 percent), but prices somewhat recovered in 2001 and 2002, rectifying the medium term rate of decrease back to its historical long term trend decline of -1.4 percent (see Figure 14).

Figure 14 Banana import prices in the United States 1973-2002 (real US$)

Source: IMF and FAO

US banana import prices^[4] were firm during the late 1980s and early 1990s due to higher imports by Eastern European countries, China and the EC. The belief that the EC would increase its banana imports in 1993 and expectations about world trade liberalization following GATT fostered an expansion of banana exports at rates that had not been observed in the previous 25 years. Unfortunately none of these expectations materialized: the high rates of growth of imports of the emerging economies were short-lived; the EC market reforms did not allow banana imports to expand as expected; and the GATT rounds of negotiations to liberalize trade reached an impasse. The expansion of supply and the stagnant demand resulted in a fall in banana prices since 1993. The industry adjusted to the new world scenario and prices somewhat stabilized in the mid-1990s. However, prices fell once again in the late 1990s due to the 1997-2000 economic crisis in East Asia and in Russia that resulted in reduced banana imports to these markets. The former USSR reduced its banana imports by 400 000 tonnes in 1998 and by a further 100 000 tonnes in 1999. World banana prices did not recover until 2001, when supply was curtailed by bad weather in Latin America (see figure 15).

Figure 15 World banana exports and world price indices (base year 1985) in 1985-2000

Source: IMF and FAO

Domestic prices in import markets worldwide have decreased both at wholesale and retail levels during the period 1985-2000. In addition, the shares of import to wholesale prices, and of wholesale to retail prices, have consistently decreased in the period as indicated by the negative rates of growth in Table 5. The negative rates of growth indicate that marketing margins at different stages of the banana chain are expanding. The reasons for increasing price spreads remain to be explored and could be due, inter-alia, to higher costs to comply with new policy regulations at wholesale or retail levels, increases in the costs of packaging due higher standards of product presentation, increases in the costs of storage or of maturing the fruits, higher quota rents, or monopsony rents due to higher market concentration at retail level.

Table 5 Growth of marketing margins: imports to wholesale, and wholesale to retail prices in the United States, France and Japan in 1985-2002

Source: FAO, New York City Wholesale Fruit & Vegetable Report and the World Bank.

Table 6 Evolution of import (f.o.r.), wholesale and retail prices in the United States, France and Japan 1985-2002 (real US$ per kg)

Source: FAO, New York City Wholesale Fruit & Vegetable Report and the World Bank

1.6 Consumption

World consumption per capita of bananas and plantains in the period under study grew at a rate of 1 percent per annum, and signals a shift from the stagnant consumption of the previous 15 years (1970-1984). The increase was due to higher desert banana consumption in the developed world, where the rate of growth was 4.2 percent per annum throughout the period^[5]. By contrast, consumption in the developing world remained stagnant and in the newcomers to the world economy (for example Eastern Europe and China) it increased moderately. World consumption in 1998 - 2000 stood at an average 15.3 kg per capita; developed countries at some 13 kg per capita and developing countries at 21 kg (almost entirely domestically produced). The economies in transition consume small quantities of bananas but these are expected to increase as their economies grow stronger. In the period 1998-2000 the Russian Federation consumed 3 kg and China 3.5 kg per capita.