The banana is the world’s most popular fruit. They are worth around i?? 5billion a year globally, and i?? 750million a year in the UK alone. Bananas are produced in more than 61 countries throughout the world. However production is concentrated in a few countries. The Windward Islands have suffered the biggest economic effects of the banana wars which are clear for all to see. Between 1998 and 2000 a third of the banana growers amongst these Caribbean countries have closed down. Reports suggest in St Lucia, that in January 2000 there were only 50% of the number of banana growers that were present in 1996.
For the Windward Islands prices and demand have decreased as a result of a more open market and increased shipments of lower-priced dollar bananas. The problem started when the US (along with Honduras, Guatemala, Ecuador and Mexico) complained about the quota system used by the EU and deemed unfair trade between the EU and ACP countries. ACP countries (African, Caribbean, Pacific) were given preferential trading agreements. This was because of long standing ties with ex British and French colonies. They were bound by the Lome convention which gave preference to bananas grown in ACP countries.
The US objected to the European quota systems and saw it as discriminatory to their interests. The problem US had was they wanted their ‘Dollar’ banana to have better access to the EU market. The US was mainly involved with the dispute because of trans-national companies like Chiquita’s involvement in the US and because this company was willing and able to donate money to the US democrats at the same time they filed a complaint to the WTO regarding the opening of the EU market to Latin American dollar bananas.
The US applied a 100% tax duty on certain products imported from the EU because they felt this was unfair trade and gave MFN’s (most favoured nations) unfair competitive advantage. In accordance to the WTO regulations the EU were told that they were to eliminate trade quotas or bear the force of 100% duty on goods such as Cashmere and Cheese. On the 1st of June 2001 the EU accepted the defeat and instead of eliminating tariffs which would have caused the most damage to the Windward’s, the applied trade quotas to all of the banana producing countries.
The US in turn cancelled these 100% duties which would have cost the EU $500million a year. Banana trade is controlled by a small number of multinational companies. These Companies are: Chiquita (25. 4 percent market share), Dole (25 percent) and Del Monte (13. 7 percent). These three large companies control about 64 percent of the current market and are dominate the banana trade. Other important players are NABOA (Ecuador), and Geest / Fyfes, these companies have a much smaller market share.
The graph below shows the decline in UK imports of Caribbean bananas and the increase of Latin American Dollar bananas. In the period between 1992 and 1998, UK banana imports from the Windward Islands fell from 65% to less than 35%. Many people feel that the increased import of the dollar bananas is due to the fact that they are significantly cheaper (see price comparison between Ecuador and Dominican Republic see below). Source. Fair trade foundation (www. fairtrade. org. uk/unpeeling. htm)
The Supermarket price wars have significantly added to the demise in trade of bananas for the Windward countries. Asda slashed its prices for a kilo of bananas from i?? 1. 08 which had been the average price for the two prevailing years to 85p. This in turn led to other supermarkets following suit thus creating the price war between the leading supermarkets. The reasoning behind this pricing strategy was that Asda new that 95% of people in the UK eat bananas and therefore if they could get these customers into their stores then they could increase sales on other products.
Asda had previously dealt with the Windward Islands, taking approximately 10% of there bananas from these Caribbean islands. But lower prices meant that the Windward’s were receiving less money than they previously were. To make matters worse in 1999 Wal-Mart (the US Company who owned Asda) struck a deal with Delmonte (who mainly produce their stock in Latin American countries). This meant that the Windward’s lost one of there biggest customers. This supermarket war has not led to an increase in sales volume but again reduced the amount of money made by these banana exporting companies.
The reason that the price war hasn’t increased sales volumes of bananas is due to the fact that bananas can not be stored and there for stock piling is an activity that cannot occur. Banana farmers have seen their income fall dramatically, and many are struggling to survive. They have been affected by the significant fall in world banana prices in the 1990s, and have found it particularly difficult to produce sufficient numbers of bananas to the strict quality standards required for a European market. Data on the cost of production of bananas is not easily available.
But the export price of bananas from Ecuador is about $5. 04 per 40-pound box, while the export price from St. Lucia and Dominica is far higher at $8. 71 and $9. 28 per box, respectively. A comparison of these countries reveals the difference between the costs of production in various countries. Basically the variation in production costs due to higher wage rates and social benefit costs in the Windward’s. Also the use of harmful pesticides and fungicides are not used in the Caribbean thus making there crop more susceptible to damage and disease.
This has meant that its harder for the people of the Windward’s to produce bananas to the quality required by the EU and has led to increased purchasing of the Dollar banana. Production costs for Delmonte and Dole are less as they use huge amounts of herbicides and pesticides and because they have huge plantations. The bananas produced by multinational owned plantations are out competing the bananas produced by farmers with small plots in the Caribbean on price, and are constantly increasing their market share as the Caribbean market share continues to decrease.
Large multinationals such as Dole and Delmonte are continuing their successful drive for market expansion in Europe. Even after the WTO’s ruling and the EU’s reform of its trading regulations with ACP countries the US government and US based multinational companies, believe that the EU banana regime should be liberalised yet further. This would be disastrous for many of the small farmers of the Caribbean. Under a completely free market, some of the Caribbean banana states would be squeezed out of the market very quickly.
Because Dollar bananas are produced at less than half the cost of those from the Caribbean. Small plot banana farmers, like those in the Windward Islands, simply cannot compete with the vast capital-intensive plantations of Latin America, which benefit from significant economies of scale. Although we know that Globalisation is the driving force for the years to come, is this going to see the end of banana farming for the Windward’s farmers and is this fair.
The main reasoning behind the Lome agreement was that it would help sustain the banana farmers of the Caribbean, instead the larger corporations like Chiquita, Dole and Delmonte have seen significant increases in profits and the poorer Caribbean farmers are being forced to sell land immigrate or begin to produce illicit substances such as cocaine and cannabis. is this what globalisation is all about increasing the sales revenues of large multinationals and seeing smaller farmers being forced to expand, integrate or diversify.
At the end of the day the WTO should be ready to protect small countries interests. Small countries like those in the Windward’s should be helped, at the moment it seems like the only people who are benefiting from this liberalised trade are those in the western world. For example the Windward’s receive on average 10p a 40pound box of bananas. This is not enough sometimes to pay for the fertilisers and salaries of staff employed to work in these small farms. It is difficult to see why large multinationals like Dole and Delmonte wanted to increase their share in the European market since they already have such a large percentage already.
You can see in the two graphs below that there is definite dominance of the European market by countries in Latin American and from 1991 to 1996 there has been a steady increase in the amount exported to the EU. Source. http://bananas. agoranet. be/MacroEconomics. htm From the graphs above we can see that fair trade doesn’t always mean what it says at the end of the day who is being bullied out the big boys in the banana growing market, no. It’s the small farmers whose countries main exports are bananas. Although we know that Globalisation is a positive force we should be aware of the consequence to the Windward Islands.
They are likely to face huge social and even bigger economic problem in the next few years. Economists have predicted huge unemployment, and the mass movement of illegal immigrants from the Windward’s to the US. The WTO should be encouraging host governments to increase the quota for Fair trade bananas across the globe to ensure the continued trade with the Windward Isles and this would also give the people of these Caribbean islands the chance to diversify, find new outlets and reduce there production costs too.