APPEELING FOR SUPPORT

Ecuador 2013 | AGRICULTURE | FOCUS: BANANAS

Rising costs are hampering the profits of Ecuador's banana exporters, and leading to calls for greater action to combat the sector's downturn.

Although still one of Ecuador's largest export products, increasing costs have led to a decrease in market share in key markets. The sector is now appealing for support in order to drive down costs.

Ecuador exports approximately 250 million cases of bananas every year, consuming just 3%-4% of total domestic production annually. The industry generates $2 billion per year and employs upward of 2 million people. Key markets include the US, the EU, and Russia, with 97% of bananas consumed in the latter sourced from Ecuador. In 1Q2013, overall exports decreased 9% year on year, however, due to poor weather conditions and falling market shares in the EU and US, while still a dominant supplier to the EU, shipments fell from 114 million cases in 2011 to 85 million cases in 2012 due to the lack of an agreement on tariffs with the bloc. While the government works to reach an agreement with the EU, the country's exporters are also losing market share in the US, mainly to Guatemalan fruit, despite the overall increase in banana consumption in the country. While Ecuadorean bananas used to enjoy a 22% market share in the US, that has fallen by 5% or 6% over the last two years. Russia represents 23% of total exports, while the EU represents 40%, 11% of which is re-exported. Turkey is also growing as a strong export destination, while South American countries such as Chile, Argentina, and Uruguay also represent important markets.

The reason for falling market shares, despite tariff challenges with the EU, lies in the high costs faced by Ecuadorean exporters. On top of the $6 cost of bananas per kilogram, additional costs including export fees, Panama Canal charges, and packaging mean final prices can be as high as $10.50 per crate, “whereas the price of bananas from Colombia and other Central American countries stands at between $8 and $9 per box," highlighted Eduardo Ledesma, Director of the Ecuadorean National Banana Association, the 33 associates of which represent 70% of the country's export activity. In order to combat the challenges, the government has allocated $5 million in support of small producers of the fruit. With between 85% and 90% of the country's production maintained by small producers, the support could go a long way to keeping the industry ticking over until a deal can be made with the EU and costs can be brought down. While money will be invested in fumigation to boost quality and production levels, the cash will also be used to buy bananas from producers whose contracts have been unfulfilled, and even shut down exporters who exploit small producers and fail to honor agreements. In other plans, banana-producing areas that are no longer profitable will be shut down and opened up to other products. Further cooperation between banana-producing nations across Latin America is also on the cards as producers across the continent mull a trade alliance that could control 50% of global exports. Such an initiative could support Ecuador's producers, driving up prices in countries like the UK, which is the destination for 14% of Ecuador's direct banana exports. Banana Link, an NGO based in Norwich that works for a fair and sustainable banana trade, indicated that it would support such a move as long as it is in line with WTO rules.

While bananas are a popular fruit for consumption, companies such as DOLE Ecuador are also pioneering the use of industrial bananas in the production of alternative fuels, such as bio-diesel and alcohol. “Instead of producing the edible Cavendish banana, we're planning on producing a banana that can be used just for energy production," said DOLE Ecuador's General Manager Peter Gilmore. Such bananas can be produced on the same farms as edible bananas and do not require aerial fumigation, which could prove attractive for certain struggling producers. “The transition would be seamless, because the same farm that produces edible bananas can grow industrial bio-diesel or alcohol-convertible bananas as well. The country is importing diesel, why not produce it here?" added Gilmore.

The coming year will be crucial for Ecuador's producers and exporters as they seek to wrestle back market share in key markets. State support and a deal with the EU could lead to a turn around in fortunes over 2014, while financial support will help to protect small producers. "The government has set a clear investment framework that offers plenty of legal and tax advantages to investors landing in our country," summarized Roberto Fernández, Manager of Quirola.