Bananas

Introduction

Projections were computed using a partial equilibrium, single commodity and multi-country model. The results assume that from 2006, the EC will adopt an import regime based on a single tariff of Euro 75 per tonne for all origins except the ACP suppliers whose bananas will be able to enter the EC at a zero duty. With a different tariff level the results would be different. Various tariff scenarios are explored below. The possible enlargement of the EC to include some Central and Eastern European countries is not taken into account.

Exports

General outlook

World banana exports are projected to reach almost 15 million tonnes in 2010, rising by approximately 28 percent with respect to the volume exported in the base period 1998 - 2000. The average annual increase would be between 1 and 2 percent from 2001 to 2005. The opening of the EC market in 2006 would be reflected by a rise in exports of some 5 percent that year. In subsequent years the growth would return to a more moderate rate of 2 percent per annum.

The projected growth of exports in the 2000 - 2010 decade is lower than the expansion observed in the previous one. Global exports rose by 48 percent from an annual average of 7.8 million tonnes in 1988-90 to some 11.7 million tonnes in 1998 - 2000.^[16] The slower rate of growth projected for 2000 - 2010 can be explained by both supply and demand. On the supply side, structural adjustments have been made by banana producers in the wake of low prices at the end of the 1990s. The area planted to bananas has been reduced, although large differences exist between producing countries. Further, due to the weak financial situation of some banana companies, a reduction in capital investments in the plantations is likely to decelerate productivity growth. The continued spread of Black Sigatoka in some Latin American and Caribbean countries is also expected to reduce the rate of expansion of production and exports. Finally, hurricane activity in the Caribbean and Central America, while unpredictable, is forecast by some analysts to intensify, with crop damages similar to those caused by Hurricane Iris in Belize in October 2001, becoming more widespread. However, plantations have an excellent capacity for recovery.

Outlook for exporting countries

The countries with the highest growth are Ecuador and the Philippines, with annual rates greater than 3 percent. Ecuador, the world’s leading banana exporter, is expected to continue to take advantage of its very low production costs and the well established position of its large marketing companies, e.g. Noboa and ReyBanPac, in the world import markets. Its export could rise by 48 percent to almost 5.8 million tonnes in 2010, accounting for about 39 percent of world exports. Growth may be lower depending on the evolution of Black Sigatoka.

Ecuador’s banana exports are expected to depend increasingly on the performance of larger farms. An agricultural census has revealed that in 2000 Ecuador had some 28 600 banana producing units. Almost 80 percent are smaller than 50 ha and concentrate only 35 percent of the total land planted to bananas. Recent studies have revealed that inflation has increased production costs, making small and low-yielding export-oriented farms un-profitable. The minimum profitable farm size in Ecuador has been estimated at around 60 ha and, in the medium term, only larger and more technically efficient farms are likely to sustain production. Production and export growth are expected to come mainly from increases in productivity, which are anticipated to arise from improvements in technical efficiency and economies of scale.

Ecuador has traditionally been considered a "residual" supplier of large multi-national banana trading companies, for it is mostly in Ecuador where non-Ecuadorian multinational companies acquire additional bananas when their customer demands cannot be satisfied with their own production or that of contract farmers. However, its profile as a "residual" supplier may change should the scenario projected here materialize: following a tariff-only regime in the EC in 2006 banana export prices in Ecuador are forecast to increase by about 3 percent, and Ecuador may respond by rising its share of exports to the EC to more than the 30 percent that it presently enjoys.

Similar to Ecuador, the Philippines is expected to continue taking advantage of its low production costs and its well-established marketing channels in Asia, mostly through multinational banana companies. In addition, banana demand from two of its main markets, Eastern Asia and the Middle East, is expected to experience a steady growth this decade due to rising populations and incomes. The abolition of a law that restricted the area planted to bananas is likely to further boost output. The Philippines is projected to raise its exports by 44 percent to reach almost 2 million tonnes by 2010. The expansion would be accompanied by a reduction in banana export prices of about 1 percent per annum in the decade.

Exports from the world’s second and third largest supplier countries, Costa Rica and Colombia, are projected to grow at a slower rate than Ecuador and the Philippines, i.e. between 2 and 3 percent per annum, rising by 23 and 33 percent, respectively, over the current decade. Most of the increase should happen from 2006, when the opening of the EU market would increase export prices under the current scenario.

The model forecasts banana exports from Costa Rica to reach 2.5 million tonnes in 2010. However, the actual growth will depend on the performance of three banana producing and trading companies, Chiquita Brands, Standard Fruit Company and Del Monte, which together concentrate almost 85 percent of banana exports. The country has relatively higher production costs than its Latin American competitors owing to higher wages and stricter labour and environmental laws and standards. Productivity is also comparatively higher while shipping costs are lower. Its good environmental and social image should be a marketing advantage in some high-value markets such as Western Europe and the United States. Export prices are anticipated to remain unchanged until 2006, when under the current scenario they would increase by as much as 4 percent. As a result, the share of EU imports from Costa Rica from 2005 to 2006 is forecast to increase by about 100 000 tonnes, or 13 percent.

Colombia, the third largest banana exporter after Ecuador and Costa Rica, is projected to raise its banana exports to some 2 million tonnes in 2010. The actual growth will depend on the evolution of the political, social and security situation in the banana production areas of Magdalena and Urabá. The increase of 6 percent in export prices to the EU in 2006 is expected to boost banana production and exports. The share and volume of banana imports into the EU from Colombia are anticipated to remain unchanged until 2005, and to increase one point, i.e. from 17 to 18 percent, in 2006. Prices and exports are forecast to remain stable between 2007 and 2010.

Aggregate exports from other Central and South American banana suppliers are projected to remain unchanged throughout the decade. Aggregate exports would slightly contract in the period 2000 - 2005 and then rise from 2006, reaching about 2 million tonnes in 2010. However, the situation varies across countries in this group. A declining trend would endure in Panama and Mexico. In Panama banana exports have fallen since the year 2000. Farms have closed and production has been disrupted following strikes. Productivity has also been declining due to lower investments in plantations. Revenues from banana exports in 2002 were 109 million dollars, some 10 percent lower than the previous year. Falling output and revenues are expected to continue. Conversely, Guatemala is anticipated to increase banana exports this decade. Output in 2002 is higher than pre-Hurricane Mitch levels (October 1998), showing the excellent capacity of crops for recovery when accompanied by investments in plantation infrastructure. Exports in 2001 were about 14 percent higher relative to the previous year (980 000 tonnes), with sales exclusively to the U.S. market. Based on this scenario, Guatemala is also anticipated to expand exports by about 10 percent in 2006 as overall world markets expand. Honduras exports have already recovered to pre-Hurricane Mitch levels in 1998 but are unlikely to grow further. Production was hit in 2001 by above-normal incidences of Black Sigatoka, and some exports to the EU and the United States were restricted by quality problems. Even if these problems continue, continuing investments by multinationals in Honduras should support a moderate expansion of trade. By 2002, exports had already reached 515 000 tonnes.

The projections model indicates that exports from Caribbean ACP countries (Windward Islands, Suriname, Belize, Jamaica and the Dominican Republic) would decrease by some 30 percent, to approximately 260 000 tonnes by 2010. This decline could be explained by higher production and marketing costs, the continued absence of economies of scale and increasing labour and land costs due to competition from other economic activities. In addition, the preferential access of ACP countries to the EC market would be eroded if the EC moves to a tariff-only regime in 2006. The extent of this erosion will depend on the level of tariff preference granted to ACP countries. Export prices of conventional bananas are anticipated to remain unchanged until 2006, when they are expected to fall by about one-quarter.

The expected decline in exports should not be shared evenly across all Caribbean ACP countries. The Dominican Republic, for example, might enjoy an expansion of banana exports due to a change in the status of the new (2002) version of the EC banana import regime. Approximately half of the Dominican Republic export consists of organically grown bananas. Organic and conventional bananas have very different markets, the prices of the former being higher than those of the latter. The model does not take into account organic bananas, as they represent only a fraction of world exports. However, in the case of the Dominican Republic, these products could mitigate the anticipated fall in export revenues due to price decreases of conventional banana exports. Belize, unlike the other Caribbean ACP banana exporters, currently produces substantially more bananas than current licence procedures for exports to the EC allow. As a consequence, under a tariff-only system Belize may even expand exports to the EC.

Exports from African ACP countries are projected to remain relatively stable at some 450 000 tonnes throughout the decade. Almost all of these exports would come from only two sources (Côte d’Ivoire and Cameroon), with some marginal quantities originating from Ghana and other countries. Exports from Somalia are difficult to predict due to the persistence of political instability. There are concerns about the longer-term competitiveness of African banana exports, since costs remain above the world average. Exports have benefited from preferential access to the EU under the Lomé Convention, but with anticipated changes to that regime in 2006, export prices are forecast to decrease by about one- quarter. African banana exporting countries face structural problems similar to those of the Caribbean countries; however, their competitiveness gap relative to Latin American countries is not as big as that of Caribbean countries. Consequently, their exports to the EC may stabilize after an initial drop in 2006, but they might find some limited market opportunities in other African countries. In Cameroon, the banana sector is the fifth largest export earner, employing some 46 000 workers. The EU is supporting Cameroon’s efforts to boost banana exports to reach the goal of 400 000 tonnes per annum in 2006 from some 180 000 tonnes in 1998 - 2000. The aim is to reduce production, transport and marketing costs so as to allow the country's local producers to compete with the "dollar" bananas from Central and South America once the preferential agreement is modified in 2006.

Imports

General outlook

World imports of bananas are projected to rise to about 14.3 million tonnes in 2010. World imports in 2010 are 4 percent lower than world exports to account for the fruit lost in transit^[17].

The increase in imports is due to an expansion of the demand due to rising populations and incomes, as well as an increase in the quantities demanded due to a slight decline of banana prices. The projected rate of growth is lower than that of the previous decade (60 percent between 1988-90 and 1998 - 2000), partly due to the lower demographic growth for this decade and partly due to the near saturation levels of per capita consumption reached in developed countries. Conversely, banana imports are expected to grow faster in developing and transition countries. While these countries presently account for only one-quarter of world banana imports, they should be responsible for nearly half of the projected increase in global imports. Some of them are expected to become major players in the world banana economy by 2010.

Outlook by importing countries or regions

Developed countries

Rates of growth of aggregate banana imports in developed countries are projected to range between 1 and 2 percent per annum. This increase is relatively small considering that the population is projected to grow by some 0.3 percent per annum, annual income by 2.3 percent and prices are expected to decrease by about 1.3 percent per annum. The slow rise is explained by the near saturation consumption levels already reached in these markets, which result in low income and price elasticities. The model indicates that the United States and Canada would be responsible for almost 80 percent of the increase in world banana imports in the developed world until 2005. However, from 2006 to 2010, the EU would be the main engine of import growth.

The United States and Canada are projected to import over 4.6 million tonnes in 2010 from about 4.3 million tonnes in 2002 and their share of world banana trade is projected to decrease from 39 percent in 2002 to 32 percent in 2010. The two countries are anticipated to have the highest rates of growth of population (0.7 percent) and to be amongst the fastest growing economies in the developed world (2.4 percent). Per capita banana imports are expected to increase by 0.5 percent per annum, from 13.3 kg in 1998 - 2000 to 14 kg in 2010.

In Japan, imports are forecast to increase by about 0.7 percent per annum, or by some 8 percent at the end of the decade, reaching almost 1.1 million tonnes in 2010. The actual rate of growth depends to a large extent on the performance of banana production in the Philippines. Production in the Philippines in 2001 and 2002 was affected by phytosanitary and weather-related problems, and the tight supply was reflected by rising banana import prices and lower imports in Japan. The increase forecast in 2010 is subject to the Philippines’ banana production performing as in the 1990s, which saw sustained rates of growth of exports of some 4.6 percent per annum. Japan has no quantitative restrictions on banana imports, but applies a seasonal import tariff. Therefore, a fall of banana prices imported from the Philippines of 2 percent per annum would be required to equilibrate the demand and supply projected. Population is expected to stagnate at the end of the decade, and imports per capita are projected to increase from 7.7 kg in 1998 - 2000 to 8.2 kg in 2010.

The evolution of imports to the EC depends on the regime adopted in 2006, when there would be a transition from a banana import system based on tariff quotas to a tariff-only system. The extent of the increase will then depend on the level of the tariff levied on bananas originating from non-ACP countries. The results presented here assume that the tariff will be the same as the current tariff for non-ACP bananas within quotas A and B, i.e. 75 Euro per tonne. Under this hypothesis, EC banana imports would increase by some 350 000 tonnes in 2006 from 2005. They would reach about 3.9 million tonnes in 2010, i.e. a 25 percent increase over the decade. The addition of ten new members to the EC was not factored into the projection.

The fall of import prices in the EC would bring the world unit value of imports down by some 10 per cent in 2006, while the quantities traded internationally would increase by some 5 per cent. Other scenarios with different EC tariffs are examined below.

Developing countries

This group of countries shows the highest projected growth in imports. East Asian developing countries are projected to have the strongest growth with an annual rate of 5.8 percent. This is particularly the case for China, where rising population and incomes combined with China’s entry into the WTO are expected to foster banana imports. Overall, East Asian imports are expected to reach almost 1.3 million tonnes in 2010, plus 75 percent over the decade, and prices would increase by between 1 and 2 percent per annum.

In the Middle East, banana imports are projected to rise by some 50 percent to exceed 900 000 tonnes in 2010, mainly due to demographic growth and price decrease. Although Middle Eastern markets absorb fruit from the major exporters such as the Philippines, Ecuador and Costa Rica, they are also supplied by other countries as well on a lesser scale, such as Yemen, Pakistan and India. As these are relatively minor suppliers the model does not address them due to lack of accurate data. In Latin America, import growth is projected to be moderate due to the economic crisis in Argentina, the largest importing country, and its effects on neighbouring countries. Imports are expected to decrease in the short run and start to rise again, although at a moderate rate, from 2004. Total growth would be about 7 percent over the decade. Import prices are expected to decrease initially and then rise at a very slow rate, reflecting the economic recovery of the region.

Economies in transition

Imports into countries of Central and Eastern Europe are projected to rise by some 20 percent to over 900 000 tonnes in 2010. Since some of these countries are to enter the EC prior to 2006, while the current EC tariff-quota regime is in existence, the levels of imports provided through additional import licences could influence their thus far dynamic growth in banana imports and consumption.

Similar results are projected for the countries of the former Soviet Union, where imports would expand at a slightly higher rate to over 700 000 tonnes in 2010. In both cases, the population is expected to remain almost constant. The growth of imports can be explained by rising incomes and slightly decreasing banana prices. In some areas of the former Soviet Union, bananas remain a relatively new addition to the fruit diet, so lower prices could raise growth in demand beyond the projected figures. However, improving the banana distribution infra-structure is probably essential to an increase in consumption.

Prices

The projected variations in export and import prices have already been discussed on a country-by-country basis. This section summarizes the main trends in prices until 2010.

World banana prices, computed as annual unit value of world imports, are expected to decrease by about 1.3 per cent per annum between 2000 and 2010. The rate predicted is smaller than the 3.5 percent annual decrease observed during the 1990s. Import prices are expected to continue converging across regions as they have done in the past 25 years.

The average decrease in banana prices forecast by the model conceals important variations in regional import prices. First, import prices in high value markets such as Japan and non-EC Western European countries are expected to decrease at rates faster than average due to increased imports into markets that are close to saturation. Prices in the United States, Eastern Europe, former Soviet Union countries and the Middle East are expected to remain approximately constant, while those in the EC and Latin America would experience phases of growth and fall for reasons already explained above.

Impact of the tariff level in the European Commission after 2006 on quantities and prices

The EC is expected to move away from a quota system to a tariff-only system by 2006 at the latest. This section examines the incidence of the level of the tariff adopted in 2006 on international trade in bananas and banana prices. It is assumed that bananas exported from ACP countries will continue to enjoy duty-free access to the EC market.

Scenario 1: EC tariff on imported bananas of 75 Euro per tonne

According to the model, if the tariff imposed on non-ACP bananas after 2006 were 75 Euro per tonne, imports into the EC would rise by more than 400 000 tonnes to over 3.7 million tonnes in 2006 (plus 13 percent). Prices in the EC would fall by 20 percent to US$ 580 per tonne. The fact that the percentage change of prices would be greater than that of imports reflects the low price elasticity of demand in the EC. After this initial surge, imports would increase at a more moderate rate from 2007 on. In the meantime, prices would remain relatively stable after their sudden drop in 2006. In 2010, EC imports would reach some 3.9 million tonnes while prices would stand at slightly below US$ 600 per tonne.

The model projects that world imports would increase to some 13 million tonnes in 2006, up 5 percent from their level in 2005. They would reach about 14.3 million tonnes in 2010.

Scenario 2: EC tariff on imported bananas of 200 Euro per tonne

The model projects that with a tariff of Euro 200 per tonne, EC banana imports would increase by some 3 percent to between 3.5 and 3.6 million tonnes in 2006. Prices in the EC would decrease by 10 percent to US $660 per tonne. From 2007, EC imports would increase at a moderate rate to reach 3.7 million tonnes in 2010. EC imports prices would remain relatively stable at slightly over US$ 680 per tonne at that time. World imports in 2006 would increase by 2 to 3 percent from their volume of the previous year, reaching 13.8 million tonnes in 2010.

Scenario 3: EC tariff on imported bananas of 300 Euro per tonne

According to the model, banana imports under a tariff of Euro 300 per tonne would remain almost unchanged in the EC in 2006. They would slightly expand in subsequent years in the wake of rising population and incomes, reaching almost 3.6 million tonnes in 2010.

Prices in the EC would decrease marginally (1 percent) to US$ 730 per tonne in 2006. They would remain almost constant in subsequent years, averaging US$ 730 per tonne at the end of the decade.

World imports would slightly increase (about 2 percent) in 2006. They would rise moderately in subsequent years to reach approximately 13.6 million tonnes in 2010.

Issues and uncertainties

The key policy issue facing the banana trade during the projections period is the choice of tariff by the EC, which is to take effect 1 January 2006. The new import regime can have an effect along the product chain (including producers, traders, consumers and EU tariff revenues), depending on the value of the new tariff and the future of unrestricted duty-free access of bananas by ACP countries. There exists the possibility that a change to a tariff-only system could mean that the EC would capture as tariff revenue what otherwise are quota rents generated by licences and Tariff Rate Quotas (TRQs), if the tariff is higher than the current 75 Euros per tonne for non-ACP bananas.

Three different policy scenarios of tariff rates were simulated in the projections model. Many ACP countries, some of which have bananas as a major export, have production costs above competitor non-ACP exporters, and the level chosen for the tariff can be expected to affect their longer-term viability as exporters. Some ACP producers can be expected to adjust production costs through investments in improved technology, technical efficiency and scale. In all cases an adjustment is required, and producer support via direct aid from donors may be the preferred option for it minimizes the distortion to world trade and allows the targeting of assistance to diversification of the ACP economies.

The other important element is the level of support needed to sustain politically significant production in peripheral areas of the EC, particularly Guadeloupe, Martinique and the Canary Islands. A decline in consumer price within the EC based on a revised tariff-only banana import programme could necessitate further budgetary support for these producers because they are higher cost than even the ACP producers. As attempts are made in the EC to limit such expenditures over all agricultural production this could become a more difficult policy problem over the projections period.

Another element in the EC equation is the potential entry of LDCs into the banana trade under the EBA initiative after 2006/2008. While not likely to affect the outcome of the projections scenarios, since new entrants are unlikely until late in the forecast, new exporters at a zero tariff rate, as currently enjoyed by ACP and internal EC producers, could shift suppliers and prices. However, it is too early to predict volumes, prices or supplies.

The accession of ten new members to the EC opens up other issues not addressed in the model. The level of TRQ to be enjoyed by the new members has yet to be decided on by 1 January 2006. Due to their lower per capita incomes, price rises could have a damping effect on banana consumption and particularly on the good growth in consumption experienced in some of these ten countries. Their view on the tariff to be applied after 2006, which has to be considered when they are full Members, complicates the picture.

Another policy element is Doha Round negotiations, which may result in lower tariffs among important banana importing countries, such as Japan or Korea. There are also other significant developing country importers of bananas that maintain different kinds of restrictions on banana imports. Reductions in these trade barriers can have some affect on the projections outcomes.

Table 2.36. Bananas: actual and projected exports

(*) figures are slightly underestimated due to unreported exports