Summary
Afruibana has sought to raise the importance of addressing the issue of burden sharing along banana supply chains in the context of the dramatic Covid-19 linked freight and input cost escalation now being faced. Afruibana argues addressing burden sharing and equitable pricing issues is essential to support the necessary ‘ecological and energy transition’ in the banana sector. It would appear important to ensure pricing requirements based on Costs of Sustainable Production (COSP) calculations, form an integral part of EU due diligence requirements aimed at getting to grips with climate and livelihood challenges in the developing world. As the Afruibana letter points out this will require everyone in the supply chain to play their part, through international traders, wholesalers, retailers to end consumers. Equally, in the current context, it is important policy choices made in the EU and UK around the Brexit process do not add to costs along already stressed supply chains.
The Association of Africa Banana Producers, Afruibana, which represents banana producers in Cameroon, Cote d’Ivoire and Ghana has issued an open letter appealing for joint action to build fair and sustainable banana supply chains. The open letter was issued against the background of supply contract negotiations with UK and European retailers for deliveries in 2021. The letter highlighted the cost increases faced by banana producers/exporters and the need for these costs to be reflected in prices paid by wholesalers and retailers to African suppliers. It was maintained in 2022 maritime transport costs were expected to have increased by ‘by more than 60%’, while input costs (cardboard boxes, fertilizers, phytosanitary products etc) are projected to increase by ‘around 20 to 25% depending on the product.’ Meanwhile currency movements are projected to add a further 3% to 5% to operating costs (1).
This gloomy input and freight cost picture was set in the context of declining banana prices in 2021, with the CIRAD observatory reporting ‘the prices of boxes of 18.5 kg even temporarily falling below €10’ (around €0.58/per kg) (1).
Against this background it was maintained fair prices were critical both to establishing a living wage for producers which is being promoted in the framework of the Global Living Wage Coalition and ‘essential investments’ required for the necessary ‘ecological and energy transition’ to occur in the banana sector. It was argued if this necessary ecological and energy transition was to be promoted ‘everyone in our chain, from producer to end-buyer and consumer, must do their part’ (1).
| The Profile of African Banana Exports to the EU27
By far the largest of these main African banana exporters to the EU27 market in 2020 was Cote d’Ivoire (59.9% in 2020), followed by Cameroon (30.2%), Ghana (9.9%). It is noteworthy that as the UK’s departure from the EU market began to draw closer Cote d’Ivoire and Ghana began to reduce their export volumes to UK and expand their export volumes to the EU27 market. Between 2017 and 2019 Ivorian banana export volumes to the UK market fell 59.4%, while exports to the EU27 market grew 27.2% (- 40,670 tonnes, compared to + 67,327 tonnes). Similarly, Ghanaian banana export volumes fell 31.4% to the UK (-10,732 tonnes), while exports to the EU27 market grew 72.4% (+25,532 tonnes). Banana Export Volumes to the EU27 and UK (tonnes)
Source: EC Market Access Data Base, https://trade.ec.europa.eu/access-to-markets/en/statistics?includeUK=true The most dramatic change was in the export destinations for Ghanaian bananas. By 2019 the UK was taking 28.8% of Ghanaian banana exports to the EU28 market compared to 54.3% in 2016. The largest Africa banana exporter, Cote d’Ivoire, proportionately, has less of a presence in organic and free trade banana markets and hence tend to enjoy lower average import prices (3). Both Cameroon and Ghana enjoy higher average recorded import prices on the EU27 market than Cote d’Ivoire (for Cameroon over the past 4 years the average import price difference ranges from between 8.6% and 29.4% higher, while for Ghana the range is from 4.4% to 19.8%) (2). |
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In terms of recent price developments for imports of ACP bananas, EU data shows average import prices for ACP bananas at around €0.80 /kg from January to June 2020, with recent average prices peaking in January 2021at €0.85/per kg. Since February average ACP prices have been below €0.80/kg, reaching a low of €0.77/kg in June 2021 (3). However, these average prices hide considerable price variation, with bananas from the Dominican Republic largely consisting of organic bananas, which serves to raise average prices paid for banana imports form the ACP the Dominican Republic accounts for 28.8% of ACP banana exports to the EU27).
As highlighted in the Afruibana letter, the current issue is how the Covid-19 related burden of escalating freight and input costs in the banana sector should be distributed along the supply chain in 2022. This is an issue which reaches beyond the banana sector, with a range of ACP exporters facing similar challenges. In some instances, these challenges are being compounded by Brexit related cost increases along traditional triangular supply chains
More fundamentally, current price/cost developments need to be seen against the background of the imbalances in commercial relations between agricultural producers and retailers, with these imbalances being particular severe in relations with developing country agricultural producers. Domestically, the issue of this power imbalance along agricultural supply chains has been a focus of EU and UK policy discussions in recent years, although with a marked reluctance to extend regulatory measures beyond domestic producer/retailer relations.
As analysis carried by Banana Link has pointed out ‘while appeals to the goodwill of retailers might provide temporary relief, ultimately the retailers are commercial entities subject to the “iron laws” of a capitalist market economy that require them to keep costs to a minimum and maximise returns to their shareholders.’ Against this background the Banana Link analysis concludes ‘a lasting sustainable solution will probably require market intervention of some sort’ (4).
The current complaint filed with the European Commission (Brussels) by the Association of Banana Producer Organizations of the Canary Islands (Asprocan) ‘to obtain a solution to the situation they are facing due to the modification of the Food Chain Law’, is illuminating in this regard (5). This complaint was filed in response to the amendment of the Spanish Governments 2013 Food Chain Law (Ley de la Cadena Alimentaria) aimed at ‘redressing imbalances in commercial relations between agricultural producers and retailers.’ The specific provision ‘introduced a prohibition on retailers selling agricultural produce at a loss and required retailers to pay producers a price equal to or greater than the cost of production’ (4). Asprocan’s objection hinged around the exclusion of imported products from the scope of such provisions, an exclusion which it was held placed Canarian banana producers at a serious competitive disadvantage (5).
As the Banana Link analysis points out the problem needs to be viewed from the opposite perspective of imports being too cheap rather then Canarian bananas being too expensive. It is suggested prohibitions on ‘below minimum price payments’ should be extended to imported products, through the adoption of pricing obligations which require European buyers to base prices paid on the Costs of Sustainable Production (COSP) calculations. For many years now banana Link has been arguing banana prices fail to cover the Costs of Sustainable Production (5).
This needs to be seen in a context where not only Spain has a legal provision prohibiting the sale by retailers of produce at below cost price, but also Belgium, France, Germany, Italy, Luxembourg, Portugal.
While as Banana Link point out the original premise behind many of these regulatory provisions ‘was to deter predatory pricing by a retailer in an attempt to undercut competitors’ and discourage new market entrants, they could be extended to third country suppliers based on COSP calculations. This would both address the concerns of Canarian banana producers and potentially halting the ‘race to the bottom’, which is such a feature of the functioning of European banana markets. (5)
| Comment and Analysis To combat climate change, the EC is currently working on a new regulatory ‘due diligence’ framework designed to promote the essential global ‘ecological and energy transition’ referred to the Afruibana letter. The EC is also seeking to promote an end to chid labour and a living income for workers in global supply chains serving the EU market.The Afruibana letter represents a first attempt by representatives of African banana exporters to get to the heart of the issue, namely, the distribution of commercial benefits (revenues minus costs) along banana supply chains, from producer to consumer. For as long as supermarkets and wholesale buyers insist on driving down prices paid for bananas it is difficult to see how the necessary ‘ecological and energy transition’ referred to in the Afruibana letter can be realised within the time frame so urgently needed. In the face of the escalating freight costs, which are also feeding through into higher input costs in the banana sector, there would appear to be an urgent need for the EC to take on board the issue of the distribution of commercial benefits along banana supply chains (revenues minus costs), in its pending due diligence regulations, if solid foundations for the necessary ‘ecological and energy transition’ is to be brought about on a sustainable basis. In addition, in the short term there is a need for both the EU and UK to avoid policy choices which add unnecessary costs to banana supply chains, given the extremely difficult international freight situation faced. The UK government in January 2021, for example, inexplicably excluded Ghana from interim arrangements to maintain duty free access to the UK market, which were set in place for Cameroon (see companion epamonitoring.net article ‘Punishing Start to Ghana’s Post Brexit Trade Relations with the UK’, 5 January 2021). This was despite the Ghanaian government believing an agreement on a Ghana-UK Continuity Agreement had been concluded at the end of December 2020, which was directly comparable to the UK-Cameroon Continuity Agreement which provided the basis for the extension on a transitional basis of continued duty-free access. This saw the UK imposing standard MFN tariffs on Ghanaian exports to the UK, including bananas. This was estimated to have cost Ghanaian Fairtrade banana exporters over £177,000 in the first two months of 2021 (see companion epamonitoring.net article ‘Ghana’s Duty-Free Access to UK Market Restored’, 4 March 2021). This stripped revenue out of the Ghanaian banana supply chain which could have been invested in plans to expand organic/Fairtrade banana production in Ghana, a move designed not only to overcome some of the banana pricing challenges faced on the UK market, but also to extend the ongoing efforts to promote the ‘ecological and energy transition’ in the banana sector. While this inexplicable policy oversight was eventually rectified at the beginning of March 2021, the rules of origin/MFN tariff complication continues to be an issue for ‘re-exported’ bananas shipped along Great Britain/EU supply chains. This is proving disruptive of banana supply chains which require the crossing of a GB/EU customs border. While routing adjustments for this trade are possible, the current global freight crisis in hardly the most ideal environment within which to make such adjustments. This issue could easily be addressed by the EU unilaterally extending automatic cumulation to all imports of bananas from countries which enjoy duty free/quota-free access to both the EU and UK markets. On the basis of such a commitment, simplified arrangements for the verification of the county of origin of individual ‘re-exported’ consignments could be set in place along West African-to-UK-to-EU supply chains. This could be based on routine trade documentation, or in the case if Fairtrade bananas, an independently verified place of origin certification schemes. While other Brexit related logistical complications would also need to be addressed, the resolution of the rules of origin/MFN tariff complication would be an important contribution to easing onward shipping challenges for large volume, single product re-export cargoes, such as bananas. Unilateral action by the EU could even set a precedent for parallel UK unilateral action on these critical rules of origin/MFN tariff issues. While the volume of bananas traded along triangular supply chains is limited, any action to remove additional costs within triangular supply chains would be welcomed. However, a much more critical issue is the establishment of a regulatory framework which ensures a more equitable distribution of commercial benefits, as an integral part of promoting the necessary ‘ecological and energy transition’ in the banana sector. This strongly suggest a need to use the current EC ‘due diligence’ regulatory initiative to formally introduce pricing requirements based on Costs of Sustainable Production (COSP) calculations. Calculations which will need to include a component to support the farm-level investments required to make the necessary ‘ecological and energy transition’ in not only then banana sector, but all other major agri-food sector supply chains which serve EU markets and where major climate, and livelihood sustainability challenges are faced. |
Sources
(1) Freshplaza.com, ‘Faced with rising global costs, let us continue to build together a fair and sustainable banana value chain,’ 21 September 2021
https://www.freshplaza.com/article/9357260/let-s-continue-to-build-together-a-fair-and-sustainable-banana-value-chain/
(2) EC, Market Access Data Base
https://trade.ec.europa.eu/access-to-markets/en/statistics?includeUK=true
(3) EC, ‘EU banana market,’ September 2021, DG Agriculture and Rural Development, Unit G2 Wine, spirits, and horticultural products
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/bananas-market-situation-2021-09-23_en.pdf
(4) Banana Link Blog, ‘Could a ban on selling below cost price help banana producers?’, 26 January 2021
https://www.bananalink.org.uk/blog/blog-could-a-ban-on-selling-below-cost-price-help-banana-producers/
(5) Freshplaza.com, ‘Spanish banana sector denounces the Food Chain Law in Brussels’, 2 July 2021
https://www.freshplaza.com/article/9335897/spanish-banana-sector-denounces-the-food-chain-law-in-brussels/