|CCP: BA/TF 01/5
COMMITTEE ON COMMODITY PROBLEMS
INTERGOVERNMENTAL GROUP ON BANANAS
San José, Costa Rica, 4-8 December 2001
THE MARKET FOR "ORGANIC" AND
1. This document summarizes the most recent information available to the Secretariat on the markets for organic and fair-trade bananas. It examines the current market situation, the prospects and implications for producers. At its First Session the Sub-Group requested that the Secretariat continue to monitor and analyze developments in organic and fair-trade bananas.
2. Bananas are considered "organic" if their compliance with organic standards has been certified by an independent certification organization (for more information see CCP: BA/TF 99/CRS.5).
3. Thus far, the main supplier of organic bananas has been the Dominican Republic. In 2000, its exports totalled some 44 000 tonnes, an 80 percent increase over 1999 exports, exceeding exports of conventional bananas and accounting for more than half of the global supply of organic bananas. Mexico remains the second largest producer with 9 000 tonnes in 2000. The increase in organic banana production in 2000 has been especially high in Colombia (about 115 percent) and Ecuador (about 80 percent).
4. Until 1999, organic production came almost exclusively from small-scale banana farmers. However, large-scale plantations for example in the Dominican Republic and Ecuador have recently started exporting organic bananas. After some years of pilot testing, Dole entered the organic market in 2001 with imports into the United States from Ecuador and Honduras1. Also Fyffes entered the organic trade with imports into the United Kingdom, and Chiquita has started trials2.
5. Estimates of organic banana imports during recent years in major markets are given in Table 1. The annual growth rates have been very high, but organic imports still represent small volumes.
|Region/country||Imports (000 metric tonnes)||Annual growth (%)|
|1996||1997b||1998||1999d||2000d||1998 - 1999||1999-2000|
|USA and Canada||8a||13b||16||23.5||25||50|
|W. Europe e||...||10||13c||23.5||42.5||80||80|
a Buley et al. (1997), Exporting organic products: marketing handbook,
Protrade, GTZ, Eschborn, Germany
b Sauvé, E. (1998), The global market for organic bananas, INIBAP, Montpellier, France
c Based on industry estimates
d Based on industry estimates and country surveys
e European Community and Switzerland
6. For the past seven years demand for organic products has been to some extent driven by food scares. This stance has reinforced the perceived health, environmental and taste benefits from organically grown food. However, so far there has been no scientific proof that eating organically-grown products is healthier than non-organically grown products.
7. Retail prices for organic products are relatively high. Depending on the market, price premiums for bananas (CIF) may vary from 30 percent (EC) to 80 percent (Japan)3. These high premiums are acceptable to only a small group of dedicated consumers. In many countries, most consumers of organic products appear to be willing to pay up to 20 percent more than for conventional products. Expansion of the organic market has to come through sales in supermarkets, the dominant venue for volume fruit sales in importing markets. However, buyers of conventional bananas are considered likely to buy organic only if price premiums decline further.
8. In 2000, imports of fresh organic bananas into the European Community were estimated at approximately 40 000 tonnes. This accounted for about one percent of total banana imports into the EC. An overview of estimated organic banana imports by country is presented in Table 2. The data should be viewed as rough estimates, as standard data collection procedures and customs declarations do not distinguish between conventional and organic imports.
|Country||Imports (000 mt)||Market (%)|
9. The main supplier to the EC is the Dominican Republic (about 85 percent) followed by Colombia and Ecuador (each with 5-7 percent).
10. The United Kingdom replaced Germany in 2000 as the largest European market for organic bananas. This is mainly due to investments by large-scale retailers in the United Kingdom in promotion and increased shelf-space for organic products in general. In 2000 organic banana imports were estimated to account for around 2.5 percent of total banana imports into this country. Together, Germany and the United Kingdom account for about 70 percent of total organic banana imports into the EC. Other significant markets are France and Italy.
11. The annual growth rate of organic banana sales in the EC has been estimated at 80 percent during the last two years. As the case of the United Kingdom shows, growth in organic sales is highly dependent on supermarket strategies. Increasing availability in supermarkets also seems to be a significant factor in the recent fast growth of organic sales in Italy. In France and in the United Kingdom there are indications of a plateau in demand growth for organic bananas in spite of reasonably good growth in overall organic fruit and vegetable consumption. In both markets, organic bananas may have reached a price premium such that market growth is now constrained.
12. Studies in various European countries reveal that more than half of the consumers have a low level of information about organic farming and organic labelling. The consumer is confused and not very well informed by marketers. There also exists some distrust in the reliability of organic labelling on imported products.
13. In Switzerland, annual organic banana imports are estimated at 2 500 tonnes, representing about 3.2 percent of the Swiss banana market. Swiss consumers have a relatively high level of knowledge about the concept of organic farming, which aids in organic banana consumption.
14. Imports of fresh organic bananas into the United States and Canada were estimated at 16 000 tonnes in 1999 and at more than 23 000 tonnes in 2000. Annual growth rates have been 25 percent for 1998/99 and 33 percent for 1999/2000. However, organic bananas still account for only 0.5 percent of total banana consumption. Health concerns and the willingness of a segment of the population in a few major cities to move to organic produce in general, plus the increasing presence of chains of organic supermarkets have helped drive US organic banana demand.
15. While in 1998 the Dominican Republic and Mexico together accounted for 90 percent of organic banana imports into the United States, they now supply only 50 percent, around 25 percent each. Supplies from Ecuador have increased to 21 percent of total imports and Peru, Honduras and Colombia now export significant quantities to the United States.
16. Until April 2000 only one term has been used to refer to both "organic" and "more environmentally friendly grown" products on the Japanese market. Furthermore, incoming bananas have to be "conventionally" fumigated, thereby losing their organic status. For these reasons it is difficult to estimate total imports of organically produced organic bananas into Japan. The figures presented in Table 1 are rough estimates based on partial data.
17. According to these estimates, organic banana imports totalled around 9 000 tonnes in 2000 as compared to 5 400 in 1999, with an estimated annual growth rate of some 80 percent. There is a strong movement towards consumption of "green" but not necessarily organically certified products in Japan. Currently, the main suppliers to Japan are Mexico, the Dominican Republic, Colombia and the Philippines.
18. An important limiting factor for the growth of organic banana sales has been the limited supply, but this is likely to change rapidly now that large-scale plantations are entering the organic market and "new" countries start growing organic bananas. However, no information is available regarding how many hectares are currently under conversion or how many producers are planning to convert to organic production methods. Therefore, both the absolute increase and the rate of future growth in production of organic bananas is difficult to predict. One large plantation can easily alter market conditions in such a low volume situation. There has been a good profit incentive in organic bananas, with price premia in 1999 amounting to nearly 40 percent, 30 percent in 2000 and 25-30 percent in 2001. This is expected to fall to around 20 percent in 2002. However, organic bananas are likely to continue to be more expensive to grow in most production zones.
19. Assuming a continuing world-wide annual supply growth of 65 percent, an organic share of three percent in global banana markets could be reached within three years. However, for continued growth organic bananas have to enter the mainstream market in which much of the additional purchasing is from lower income groups. For this to occur, price premiums will have to fall.
20. In Europe, according to some sources, organic foods could account for as much as 10 percent of the total food market by the year 20064. For bananas, this would require a continuous annual growth rate of close to 50 percent, implying continuing strong demand growth and adequate supply expansion to meet this increase in consumption. Based on the current market share of organic fruits and vegetables in the different European countries, organic bananas could reach a total annual import into the EC of 65 000 tonnes in 2001.
21. In the United States and Canada, sales of organic bananas have been growing at over 20 percent per annum for many consecutive years. The prospects for further growth are good. Since 1999, there has been an increased focus on organic foods by major companies. The implementation of the uniform USDA standards on organic production and labelling is considered positive for the future development of the organic sector in the United States. In addition, some large food product companies are preparing organic product lines for introduction, with accompanying advertising, resulting in enhanced consumer awareness of all organic products.
22. Japan has recently implemented its own national regulations for organic certification and imports. These regulations appear to be quite strict and recognition of non-Japanese certification bodies seems to be especially difficult. This could constrain imports of organic bananas.
23. With higher labour input requirements and limited use of non-renewable resources, organic production seems well suited to small and medium sized farms. However, the entry of larger-scale plantations into organic production may mean that smaller units will be at a cost disadvantage in the longer term. The price premium to producers varies among countries. In the Dominican Republic, the producer price premium varied between US$2.5 and US$3 per box for certified organic bananas compared to the price paid for conventional bananas in 1999-20005.
24. The greatest obstacle for organic banana production is the presence of Black Sigatoka in many banana producing countries, which is generally difficult to combat using organic farming practices. Where Sigatoka incidence is low, sprays with organic fungicides may be sufficient. The development of Black Sigatoka resistant or tolerant varieties could hold one of the keys to expanding the production potential of organic bananas. The success of resistant varieties not only depends on production potential but also on the acceptance by the market of varieties that may differ in taste and appearance from Cavendish bananas.
25. Another technical constraint on organic production is soil fertility maintenance. In some countries organic fertilizers such as manure or compost are scarce.
26. In general, for organic certification a three-year conversion period is required, during which organic production methods are used but no price premium received. Initially production costs may be higher due to necessary investments, and yields usually go down. In addition, different national standards in importing countries may require two or three different inspections and certifications. For resource-poor farmers these investments and certification costs may be excessive. A recognized Internal Control System would reduce certification costs for individual smallholders6.
27. Banana producing countries could consider establishing national organic regulations, as well as a reliable independent accreditation and control system to enforce those rules. When the domestic organic rules are recognized as equivalent to the organic rules of the country to which exports are sent, additional certification costs are avoided.
28. For producers, the main commercial risk of conversion to organic production is the possibility that eventually farm-gate prices will go down. Producers cannot be sure whether after a three-year conversion period price premiums will be as high as when they begin to invest in conversion, making it difficult to estimate whether those investments will pay off.
29. Policy shifts in importing countries, such as the EC decision to use a base period for import licences which pre-dated most EC organic banana imports, can add further uncertainty to what is already a low-volume relatively high-cost trade.
30. There are a variety of definitions of "fair trade". One accepted definition is: "Fair-trade is a trading partnership which aims for sustainable development of excluded and disadvantaged producers. It seeks to do this by providing better trading conditions, by awareness raising and by campaigning"7.
31. For banana producers this means they obtain a price which covers the cost of production and an additional price premium to be invested in social, environmental or quality improvements. Consumers purchase products with the assurance that a higher percentage of the retail price goes to small, poorer farmers, and that the premium goes to social, environmental and other benefits for those producers.
32. Fair-trade labelling initiatives exist in 14 European countries, Canada, the United States and Japan. FLO (Fairtrade Labelling Organizations) has a coordinating role at the international level and holds the register of certified producers for each product type (see also CCP: BA/TF 99/CRS6).
33. According to EFTA (European Fair Trade Association), the 1999 turnover in Europe of fair-trade importing organizations was estimated at approximately US$108 million, and the annual aggregate net retail value of all fair-trade products in Europe exceeded US$234 million, of which US$189 million was food.
34. There are six importers engaged in importing labelled fair-trade bananas into Europe from Colombia, Costa Rica, the Dominican Republic, Ecuador, Ghana and the Windward Islands. The leading importer is AgroFair, a joint venture formed by the Dutch NGO Solidaridad and banana producers.8
35. Total fair trade banana imports increased from around 12 300 tonnes in 1997 to about 22 500 tonnes in 2000 (see Table 3). This increase is mainly due to extension to new EC markets and to a steady increase of fair-trade imports into Switzerland. However, in many countries sales declined after initial success. In the Netherlands, fair-trade bananas gained a 10-percent market share within a few months after introduction in November 19969, but now account for only about 3 percent of the total banana market. There appears to be a tendency among consumers to shift back to cheaper fruit.
Imports in metric tonnes
|Netherlands||5 800||5 200||4 180||3 603||-20||-14|
|3 042||1 580||617||-48||-61|
|6 210||9 866||7 413||11 421||-25||54|
|Switzerland||6 300||7 500||10 778||11 403||44||6|
|12 510||17 366||18 191||22 824||5||25|
* FLO (1998)
** FLO (2001)
36. Switzerland is by far the largest market for fair-trade bananas. Fair-trade bananas are distributed by mainstream supermarket chains and have a market share of about 15 percent10. The success is partly attributed to the high consumer awareness on fair trade issues. Other factors include price parity with conventional bananas11, and a generally open market for imported bananas without quota restrictions.
37. The launch of fair-trade bananas in the United Kingdom in 2000 was successful and within a year the United Kingdom has become the second largest market for fair-trade bananas. In Ireland and Finland fair-trade bananas were launched in 2001.
38. The fair-trade labelling organization Transfair Japan is not involved in the import of bananas. However, there have been fair-trade bananas on the Japanese market, imported from the Philippines by the ATO Alter Trade Japan (ATJ) since 1989.
39. In North America the only food products thus far labelled by the FLO-member organizations TransFair Canada and TransFair USA are coffee and tea.
40. Market prospects for fair-trade bananas in Europe are very mixed. On a European level sales are expected to rise considerably for the coming two years, mainly because of launches in five new countries (Ireland, Finland, Italy, Norway and Austria). In Switzerland fair-trade organizations expect to further increase sales by selling more organic fair-trade bananas. Also in Luxembourg and Sweden, where launches have been quite recent, sales are expected to continue to rise. The growth of sales in the United Kingdom has slowed, and sales reportedly are now fairly static.
41. Fair-trade banana sales in the Netherlands have faced a steady decline since 1997 and there has been no sign of recovery. However, Max Havelaar Nederland started a new publicity campaign in 2001, including spots on television, aimed at reversing the decreasing sales trend.
42. In Germany fair-trade banana sales and total fair-trade sales are decreasing. Intense price competition between supermarkets means fair-trade products have difficulty reaching and remaining on supermarket shelves.
43. Imports of fair-trade bananas into the EC could be hampered following the introduction of the new EC import regime. Most importers of fair-trade bananas and some (smaller) organic importers did not qualify as traditional operators, while non-traditional operators in the A/B quota received import licenses for only 4.6 percent of requested volumes12.
44. Due to competition for shelf-space in supermarkets there is resistance to presenting both fair-trade and organic bananas separately. Supermarkets want a single niche product termed organic/fair-trade. Consumers reinforce this demand by seeking environmentally friendly bananas when purchasing fair-trade products. In general, long-term prospects for fair-trade bananas do not seem very good unless most of the fair-trade bananas brought on the European market are also organic. There is also some concern that the fair-trade movement in general is losing momentum.
45. Engaging in a trade relationship with fair-trade importers offers producers in developing countries a series of advantages, but also some challenges. Producer groups have to comply with the fair trade criteria, which may require considerable investments in terms of money, organization and time. These investments have to be made for the whole group and production area, while sometimes only 30 percent of the produce is sold as fair-trade with a premium. On the other hand, the fair-trade system often offers access to credit, market information and technical assistance.
46. The biggest advantage for producers is clearly the possibility to have a long-term trade relation in which the bananas are sold for a price above cost of production, and which covers reasonable wages for workers. At the same time, this objective poses difficulties for FLO. Production costs have to be calculated objectively and vary greatly between countries, while fair-trade wholesale prices have to be equal, and independent of origin. FLO is also anxious to prevent fair-trade subsidizing inefficient production methods.
47. The revised EC import regime for bananas has added some uncertainty to the fair-trade picture. Competition for quota rents may further reduce the viability of this already marginal marketing effort.
48. Since organic banana production is increasing, the challenge will be to balance this with adequate demand. Although (due to a lack of reliable data on production, demand and prices) developments are hard to project, the possibility of declining farm-gate price premiums within the coming three years must be taken into account when taking decisions on conversion to organic production methods.
49. For fair-trade bananas the main constraints currently seem to be declining demand in some existing fair-trade markets and access to supermarket shelves. However, total fair-trade sales are likely to continue to grow due to introductions in new countries.
50. Absent a well financed public relations campaign or importer government support, fair-trade faces an up-hill effort against strong competition to capture consumers.
51. Finally, fair-trade and organic bananas currently face two common challenges. The first is access to the European market under the new EC import regulation. The other "common" challenge is the demand for fair-trade bananas to be organic and for organic bananas to be socially just.
52. Currently, customs and regulatory authorities have not made a distinction between organic and conventional food products, resulting in a lack of reliable information on organic production, imports, demand and prices. Data presented in this paper draw heavily on voluntary communications by people involved in the organic banana trade. The Secretariat of the Sub-Group is also regularly asked to provide data on and predictions for developments in the organic banana markets. As the only intergovernmental forum focused on banana trade issues, the Sub-Group could play a useful role in facilitating a systematic collection of data and analysis of the market for organic bananas and in the dissemination of results.
1 Stephens, M. (2001) Dole to Offer Organic Bananas, Natural Foods Merchandiser, Penton Media, Inc., United States.
2 Censkowsky, U. (2001) Organic bananas advance in Europe, Eurofruit v330, pp. 40-42.
3 FAO, Commodity Market Review 2000.
4 USDA (1998) The European organic food market, Foreign Agricultural Service, March 1998, Washington, DC
5 FAO/ITC/CTA (2001), World Markets for Organic Fruit and Vegetables.
6 Agro Eco (2001) Smallholder Group Certification, proceedings of the workshop, Nuremberg, February 2001, organized by Agro Eco, Novotrade and Twin Trading, Bennekom, Netherlands.
7 Krier JM (2001), Fair trade in Europe 2001, facts and figures on the fair trade sector in 18 European countries, EFTA, Maastricht, Netherlands.
8 FLO (2001) Importer profiles - FLO Banana Register, Bonn, Germany
9 Eurofruit (1997), EU goes for fair trade bananas, October 1997.
10 Krier JM (2001), Fair trade in Europe 2001, facts and figures on the fair trade sector in 18 European countries, EFTA, Maastricht, Netherlands.
11 Max Havelaar Switzerland (2001)
12 ECBTA (2001). Circular #42/2001, 05/06/01.