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COMMITTEE ON COMMODITY PROBLEMS |
INTERGOVERNMENTAL GROUP ON BANANAS AND ON TROPICAL FRUITS |
First Session |
Gold Coast, Australia, 4-8 May 1999 |
THE MARKET FOR "ORGANIC" AND "FAIR-TRADE" BANANAS |
1. This document summarizes two recent surveys carried out by the Secretariat: one on organic bananas and the other on fair-trade bananas. Dealing with each successively, the paper examines the current market situation, the prospects for market expansion and the implications for small- and medium-scale producers.
2. A certified organic banana is a fruit produced through a specific process whose compliance with legally-based national standards (generally based on the guidelines issued by the International Federation of Organic Agriculture Movements) has been monitored by an independent certification organization (see CCP: BA/TF 99/CRS.5). In the case of bananas, standards were generally established in importing countries.
3. The overall retail sales of organic products were estimated at over US$10 billion worldwide in 19971. More than 100 countries produce certified organic commodities, including a significant number of developing countries. Sales of organics have experienced growth estimated at over 20 percent per annum in major markets over the past 15 years.
4. Sales of organic bananas have developed only recently and still represent very small volumes. One survey2 based on industry sources estimates global imports of fresh organic bananas in 1998 at approximately 27 000 tonnes, compared with total banana imports of over 11 million tonnes. However, imports have been reportedly growing at approximately 30 percent per year. The main markets are the European Community (EC) and the United States, while Japan and Canada also have substantial organic banana imports. The main supplying country is the Dominican Republic, followed by some other Latin American countries (Mexico, Colombia, Honduras and Costa Rica) and the Philippines.
5. The market for organic foods in the EC was estimated at US$4.5 billion in 1997, which represents less than 2 percent of total food sales but makes the EC the world's largest organics market. In 1997, imports of fresh organic bananas were close to 10 000 tonnes, while estimates for 1998 vary between 11 000 tonnes and 13 000 tonnes. Imports of processed organic bananas are estimated at 5 000 tonnes per annum of purée and several hundred tonnes of dried bananas3.
6. The main supplier to the EC is the Dominican Republic, which represented over 80 percent of European supply in 1998 before hurricane George severely damaged plantations. Colombia is the second largest supplier with exports estimated at 2 000 tonnes per year. Israel supplies approximately 1 000 tonnes annually on a more seasonal pattern but export volumes have decreased4 in the past few years.
7. The German market accounts for 40 to 50 percent of total organic banana consumption in the EC with sales at over 6 000 tonnes in 1998. At least 5 importers are active in organic bananas, which are distributed by natural food shops and mainstream supermarket chains, the latter accounting for over 50 percent of sales.
8. The second largest market is the United Kingdom, estimated at 3 000 tonnes in 1998. The market has expanded rapidly due to the strong involvement of the leading supermarket chains. Although organic bananas in the United Kingdom are considered as luxuries and sell at high prices, supermarkets and importers claim that demand greatly exceeds supply.
9. Organic banana sales in France are estimated at slightly less than 2 000 tonnes per annum. Sweden also appears to be a significant market for organic bananas (approximately 1 500 tonnes annually).
a) United States
10. Organic food sales in the United States were estimated to have reached US$4.2 billion in 19975. Since 1990 the annual growth rate has been between 20 percent and 25 percent.
11. Imports of fresh organic bananas were estimated at between 7 500 and 8 000 tonnes in 19966, and at 11 000 tonnes in 1998, accounting for 0.3 percent of total banana consumption. The main suppliers are the Dominican Republic and Mexico, with market shares of 50 percent and 40 percent respectively. The balance originates primarily from Honduras (10 percent).
b) Canada
12. Organic foods accounted for 1 percent of total food sales in Canada in 1997. The United States supplies the bulk of Canadian imports of organic bananas with products sourced in the Dominican Republic, Mexico and Honduras. Total imports of organic bananas were estimated at 1 800 tonnes in 19987.
13. The Japanese market for organic food is estimated at approximately US$1 billion for 19978. Organics are usually found in consumer cooperatives, conventional stores and supermarkets. Imports of organic bananas are estimated at 2 700 tonnes for 19979, accounting for 0.3 percent of the Japanese banana market. Japan's main suppliers are the Philippines and Australia, although some bananas are also sourced in Mexico.
14. In all major markets, the prospects for further growth of organic banana sales appear to be good. The limiting factor is the lack of supply, due to the numerous constraints that beset organic banana production in many tropical countries (see paragraph 20).
15. The prospects for further growth in organic banana sales in the United States are excellent. Sales of organic bananas have been growing at over 20 percent per annum, and its major suppliers are geographically close. Provided supply problems are solved, the market share of organic bananas could easily reach the average share of fresh organic produce (1.7 percent), translating into volumes of approximately 60 000 tonnes per year.
16. Similarly, in the European Community, there is strong demand for organic bananas, especially from large supermarket chains in Germany, the United Kingdom and France. Other countries are witnessing the same tendency (Netherlands, Denmark, Austria, Belgium, Sweden). According to some sources, organic foods could account for as much as 10 percent of the total food market in European countries by the year 200610. Based on the current market share of organic fruits and vegetables, organic bananas could rapidly reach 1.5 percent (45 000 tonnes) of the total EC banana consumption.
17. In Canada, a programme implemented by the International Development Research Centre (IDRC) has attempted to develop imports of a FHIA II banana variety (Mona Lisa) which is resistant to Black Sigatoka and is grown organically in Costa Rica11. After apples, banana is Canada's most popular fruit with an annual consumption of 13 kg per caput. There appears to be scope for a strong increase in organic banana consumption.
18. In Japan there also seems to be a significant potential for organic bananas. The growth rate of organic food sales has been 20 percent per annum since the mid-1980s. According to industry sources, if organic bananas could be offered at a price no higher than 20 percent above the price of conventional bananas, 20 percent of consumers would buy them12.
19. Due to the higher labour input requirements and the benefits of using inter-cropping or mixed farming systems, organic production seems a priori well suited to small and medium farms. Theoretically, it could improve the economic viability of some of those small banana farms which cannot compete internationally with large-scale production units. Depending on the market, the price premium at retail level may vary from 50 percent to 200 percent. The price premium to producers is substantial albeit more difficult to estimate. Industry sources indicate US$11 per box (18.14 kg) as an average FOB price for organic bananas landed in Europe, compared with US$8 for non-organic bananas.
20. However, there are numerous constraints to organic banana production and export. The greatest obstacle is by far the prevalence of Black Sigatoka in many banana-producing countries. So far, no effective organic treatment has been found to fight this fungus. Current research is oriented towards resistant varieties. Soil fertility is also a significant constraint13. Crown rot still raises problems, in particular when transportation is long, although some solutions have been developed to reduce its incidence. More generally, a shift to organic production often implies a re-design of the farming system. In the transition period, the costs may be excessively high for resource-poor farmers14. Suppliers have to make further progress to meet the demand of supermarkets for regular and homogeneous deliveries. Differing national standards for organic products may also be a constraint.
21. Logistics continues to be a significant impediment to the export of organic bananas. Volumes are usually small and thus freight charges higher. Shipments generally must await sailings carrying non-organic bananas on reefer ships or in containers on those same vessels. Countries not on regular banana reefer routes face even greater burdens.
22. On the demand side, there seems to be fewer constraints, as evidenced by the high demand from supermarkets. However, retail firms indicate that prices would have to decrease substantially for organic bananas to obtain a share of the market that would exceed a few percentage points.15
23. There is no single and unanimously recognized definition of fair trade (also called alternative trade). For its proponents, fair trade is a means of helping small-scale producers in developing countries improve their quality of life by providing them with a more profitable and stable trade relationship. The criteria used to determine whether a trade relation is "fair", although not legislatively based, unlike organics, tend to vary according to each alternative trade organization (ATO) but the basic components of fair trade can be summarized as follows:
In the case of bananas, specific social and environmental criteria have been established by the Fair Trade Labeling Organization16 (see CCP: BA/TF 99/CRS.6). By establishing minimum price criteria and eliminating most intermediaries, the fair-trade movement seeks to help growers capture a greater proportion of the economic rent, much as supermarkets in developed countries have attempted to capture this rent by buying directly from producers.
24. Fair trade in food started in the early 1970s with cane sugar and coffee. Traditionally, fair-trade products have been imported by ATOs and sold in specialized alternative shops. A critical step was the introduction in 1988 of fair-trade labels licensed to importers by independent organizations monitoring compliance with their fair-trade criteria. Since then, food products with these labels can also be sold through conventional marketing channels (including supermarkets) and this has substantially expanded the market for fair-trade foods. These now include coffee, cocoa, tea, banana and honey. Banana is the only fair-trade fresh fruit marketed on a large scale.
25. According to the International Federation for Alternative Trade (IFAT), the global turnover of fair trade is approximately US$400 million.
26. The fair-trade movement is developed and well structured in the European Community and Switzerland. A survey released by the European Fair Trade Association (EFTA) in 1998 indicates that fair trade involves 70 import organizations, 3 000 "World Shops" and 50 supermarket chains in 14 European countries17. The retail turnover was estimated to be over US$230 million, with US$140 million in food (60 percent).
27. There is only one fair-trade label and labeling organization per country. In 1996 these non-governmental organizations (NGOs) joined forces to establish the Fair Trade Labeling Organization International (FLO), an NGO which has a coordinating role at the international level and holds the register of certified producers for each product type. Some ATOs import fair-trade bananas without using the FLO labels but they account for a small share of imports.
28. There are more than 5 operators engaged in importing labeled fair-trade bananas into Europe. The leading importer is Agrofair, a joint venture formed by the Dutch NGO Solidaridad and producers in developing countries. Agrofair pioneered fair-trade bananas on the Dutch market and accounts for more than 60 percent of fair-trade banana imports into Europe. The main suppliers are farmers' cooperatives in Ecuador, the Dominican Republic and Costa Rica, as well as a privately owned farm in Ghana. Two importers sell organic bananas from the Dominican Republic under fair-trade labels, mainly in Germany. Retail prices of fair-trade bananas are on average 20 percent higher than those of conventional class-A bananas, except in Switzerland where prices are similar (see paragraph 45).
Table 1: Imports of labeled fair-trade bananas into Western Europe (metric tonnes)
Country |
The
|
Switzerland |
Germany |
Belgium |
Denmark |
Sweden |
Total |
Label
|
Max Havelaar |
Max Havelaar |
TransFair |
Max Havelaar |
Max Havelaar |
Rättvisemarkt |
|
1997
|
5 800 |
6 300 |
- |
180 |
230 |
- |
12 510 |
1998
|
5 200 |
7 500 |
3 042 |
849 |
725 |
50 |
17 366 |
Source: Max Havelaar Netherlands and FLO (1998).
a) The Netherlands
29. Fair-trade bananas have been marketed in the Netherlands since November 1996. Supported by a large advertising campaign, their introduction was an immediate success; the market share exceeded 10 percent within a few months18. Since then, the market share has decreased and is approximately 5 percent, which is nevertheless the highest share for a fair-trade product in the Netherlands. The Max Havelaar Foundation argues that the high cost of import licenses (see paragraph 45), logistics problems and disruption of production caused by difficult weather conditions in 1998 are responsible for this decrease.
b) Switzerland
30. Although Switzerland is not a major market for bananas (imports were at 74 000 tonnes in 1997), consumption per caput is one of the highest in Europe. Fair-trade bananas have a substantial market share (10 percent). They are distributed by mainstream supermarket chains (Coop Schweiz and Migros).
c) Germany
31. The ATO Banafair has imported fair trade bananas in Germany since the mid-1980s (from 500 to 1 000 tonnes annually). Imports of fair-trade bananas with the TransFair label started in April 1998. There are currently several importers of fair-trade bananas active on the German market. The volumes marketed reached 3 000 tonnes in 1998 but this accounts for only 0.3 percent of total consumption. Fair-trade bananas have suffered setbacks on the German market reportedly due to supply-side problems as producers in Ecuador were adversely affected by bad weather conditions.
d) Belgium, Denmark and Sweden
32. Some alternative importers have been importing fair-trade bananas in Belgium (Oxfam), Denmark and Sweden for a number of years, albeit on small scale. Bananas with fair-trade labels were introduced in these countries at the end of 1997. Results so far have been below expectations (see Table 1). In Sweden, only organic fair-trade bananas sourced from the Dominican Republic are marketed.
33. The ATO AlterTrade Japan has imported fair-trade bananas from an NGO in Negros Island (Philippines) since 1989 (approximately 2 000 tonnes were reportedly imported in 1998).
34. In the United States and Canada, the focus of alternative importers has been mainly on handicraft products so far. Some alternative importers sell coffee. So far no banana has been marketed under a fair-trade label recognized by FLO.
35. The release of a survey by the European Commission on the likely consumer demand for fair-trade bananas has triggered renewed interest in these products19. At least 10 percent of consumers throughout the EC would reportedly buy fair-trade bananas at price parity, and 7.5 percent would do so at a price premium of 10 percent. These percentages translate into volumes of 400 000 tonnes and 300 000 tonnes respectively. The survey also indicated that the countries with the highest potential in terms of consumers' familiarity with fair trade and willingness to purchase these products were the Benelux and Scandinavian countries, the United Kingdom and Germany.
36. The first results achieved on the Dutch and Swiss markets may lend partial support to the findings of the survey. In both countries the market share of fair-trade bananas exceeded 10 percent shortly after their launch. Similarly, prospects are for a slow but steady growth of fair-trade banana sales in Denmark and Belgium, but greater promotion and advertising efforts need to be undertaken.
37. Prospects for Germany are mixed. Consumer awareness of fair trade is high (40 percent) and over 15 percent of Germans have already purchased fair-trade products. However, sales of fair-trade bananas may be constrained by the fact that supermarket chains seem to be more interested in carrying organic bananas.
38. There appears to be relatively good prospects in the United Kingdom. Forty percent of the consumers are aware of fair trade and 20 percent have already bought fair-trade products. Products with the FairTrade Mark are available in all major supermarket chains. The Fair Trade Foundation plans to introduce fair-trade bananas from the Windward Islands in the United Kingdom in 1999.
39. The scope for marketing fair-trade bananas in Southern Europe seems to be much smaller. Consumer awareness of alternative trade in these countries is relatively low.
40. In the United States, the TransFair Foundation plans to launch fair-trade bananas in the course of 1999.
41. In Canada, the Fair Fruit Initiative, a group supported by the Sustainable Development Research Institute, seeks to introduce fair-trade bananas in British Columbia jointly with Oxfam Canada. In the long run, Canada could offer significant market opportunities as annual consumption per caput is high.
42. Engaging in a trade relationship with alternative importers in industrialized countries offers producers in developing countries a series of advantages. Higher and more stable prices along with a long-term trading relationship may enable them to improve their income and to make longer-term investments (see CCP: BA/TF 99/CRS.6). In some cases, alternative importers help producer groups, particularly among small farmers, gain access to credit, technical assistance and market information through a more transparent relationship.
43. Several studies show that there are three basic prerequisites for significant and long term development of fair-trade bananas: the bananas must be of quality equivalent to conventional class-A bananas, they must be readily available in mainstream food stores, and consumers must be assured of compliance with fair-trade criteria. Transparency and independent certifying and control systems are needed. Because the term "fair trade" is neither strictly defined nor legally protected20, there is a need for harmonizing and unifying fair-trade criteria, a complex process in which FLO is engaged. Another potential constraint is the volatility of banana retail prices in importing countries, which may penalize alternative importers as they guarantee minimum prices to their suppliers.
44. Importers of fair-trade bananas point to significant logistic constraints. Transportation problems should become less acute as importers exceed a volume threshold enabling them to reserve more container space on regular reefer sailings.
45. Regarding the market of the European Community, industry sources indicate that the need to buy import licenses is the biggest constraint to the development of fair-trade banana sales. Defined as "newcomers" under the European Community's banana import regime, importers of fair-trade bananas must compete for the 8 percent of licenses available to all "newcomers". The most recent allocation was only 276 tonnes per "newcomer"21 for 1999. Thus, they must buy licenses from other license holders, reportedly paying a premium of over 30 percent of the banana CIF price. Sources in the Max Havelaar Foundation indicate that this is the reason why prices of fair-trade bananas are similar to those of conventional bananas in Switzerland, a country where no license is required to import bananas.
46. Although they share several common characteristics (in particular, the search for more sustainability in the banana industry), fair-trade and organic bananas face different challenges.
47. For organic bananas, the primary challenge lies in production. Although market demand is significant, organic bananas will remain a niche market as long as the considerable production constraints are not overcome (in particular Black Sigatoka and soil fertility aspects). In this respect, they may offer good opportunities to small and medium scale producers in countries where Black Sigatoka is absent or less prevalent (for example the Dominican Republic, the Windward Islands, Southern Brazil) but other production and shipping constraints will have to be solved (e.g. no direct banana reefer sailings to Europe or North America). Further research is needed on methods to maintain soil fertility, fight pests and possibly introduce new disease-resistant varieties.
48. As for fair-trade bananas, supply problems are being gradually solved and the main constraint lies in marketing. Further investments in communication are needed to convince both consumers and retailers that higher prices are justified. Contrary to criteria for organic production, which are underpinned by scientific evidence, the social criteria used by fair-trade operators generate less consensus and having them accepted at international level is likely to be more difficult. Current efforts by the Fair Trade Labeling Organization to harmonize criteria and labels are important if the visibility and the credibility of fair-trade bananas is to be enhanced.
49. As the only intergovernmental forum focused on banana trade issues, the Group could play a useful role in:
50. As regards organic bananas, the Group could monitor and analyse developments in production, trade and policies in organic bananas and facilitate information exchange.
1 Kortbech-Olesen, R. (1998) Export Potential of Organic Products from Developing Countries, IFOAM Conference, Mar del Plata, Argentina.
2 Sauvé, E. (1998) The global market for organic bananas, INIBAP, Montpellier, France.
4 Eurofruit (1997) Israeli growers extend their range, October 1997.
5 OTA (1998) 1998 Organic manufacturer market survey, Organic Trade Association, Greenfield, MA, USA.
6 Buley et al. (1997) Exporting organic products: Marketing handbook, Protrade, GTZ, Eschborn, Germany.
8 Kortbech-Olesen, ITC (1998), op. Cit.
9 AMPO (1997) "Bananas to change the world", Japan Asia Quarterly Review, Vol. 24, N.2, page 12-16, Tokyo, Japan.
10 USDA (1998) The European organic food market, Foreign Agricultural Service, March 1998, Washington, D.C.
11 Sauvé, E. & Edwardson, W. (1998), Bringing new bananas to the Canadian market, International Development Research Institute, Ottawa, Canada.
12 Hamilton-Bate, C. (1996) Organic bananas get lift from Japan, Asiafruit, July-August 1996.
13 Van Elzakker, B. (1998) Survey on trade in organic bananas, unpublished paper, Agro Eco Consultancy, Bennekom, The Netherlands.
14 Bainbridge et al. (1997) Potential for fair trade and organic bananas from the Caribbean, Natural Resources Institute, Chatham, United Kingdom.
15 Buley et al. (1997), op. Cit.
16 FLO (1997) Fair trade banana criteria, Fair Trade Labelling Organizations International, International Banana Register, Bonn.
17 EFTA (1998) Facts and figures on the fair trade sector in 16 European countries, Maastricht, The Netherlands.
18 Eurofruit (1997) EU goes for fair trade bananas, October 1997.
19 European Commission (1997) Attitudes of EU consumers to fair trade bananas, The Common Agricultural Policy, Directorate-General for Agriculture, Brussels.
20 Fassa, R. (1998) Rapport sur le commerce équitable, Commission du développement et de le coopération, document de séance, Parlement Européen, Strasbourg, France.
21 Official Journal of the EC (1998) L series, issue n. 333, December, Brussels.