Summary
It is unclear what the implications will be for St Lucian banana exports of Winfresh-UK being placed in administration. While efforts are underway to draw Fyffes into a greater role in the marketing of St. Lucian bananas in the UK, it is unclear whether the inclusion of St. Lucian bananas would add value to Fyffes product portfolio, given the uncertainties surrounding the future of the UK banana market. While in May 2020 the UK proposed to retain in place existing MFN tariffs on banana imports beyond 1st January 2021, the UK food price inflation effects of a no-deal UK departure from the EU customs union could see a further revision of the UK MFN tariff schedule, with a move over to the ‘zero production- zero MFN tariff’ approach long advocated by the global trade liberalisation wing of the Conservative Party. St. Lucian and other ACP Bananas exporters would be highly vulnerable to such a policy shift, with this uncertainty making it extremely difficult to plot a way forward for St. Lucian banana exports as supply contract negotiations for 2021 get underway.
Winfresh-UK, which handles the marketing of Windward Island bananas in the UK, has been placed into administration following a worsening financial position. Most recently Winfresh-UK reported an ‘operating loss of £1.6 million’ on a turn-over of £50.1 million. This compares to a profit of £1.6 million 12 months earlier. (1) The directors of the company lambasted the ‘truly cut-throat, dog eat dog environment where loyalty and relationship count for little or nothing, where everything is transactional and where the most ruthless – not necessarily the fittest – can survive.’
Company director Bernard Cornibert, ‘slammed the low price of bananas at retail, the volatility and uncertainty of the fresh produce market, and the negative economic impact of Brexit’ as factors contributing to the financial losses of Winfresh-UK.
A clear indication of the impending financial crisis facing Winfresh-UK was provided by comments from the Ernst & Young auditor who in 2019 suggested ‘the trading loss, along with net debt of £3.98 million indicated that there was significant doubt over the company’s ability to continue as a going concern’ (1).
The newly appointed administrators highlighted how ‘in recent years the UK banana market has become highly competitive’ with this having ‘impacted the company in terms of volume and pricing’. This has seen the financial position of Winfresh-UK becoming ‘untenable’ as cash flow pressures have mounted (2).
Trends St. Lucian Banana Exports to the UK (sole EU28 market) 2013-2019 (Tonnes and Euro & €/t)
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
| Volume | 12,387 | 8,915 | 8,399 | 7,397 | 8,309 | 9,728 | 6,512 |
| Value | 7,901,014 | 5,914,274 | 6,276,858 | 4,952,542 | 5,833,061 | 5,444,544 | 4,036,152 |
| €/tonne | 638.00 | 663.41 | 747.33 | 669.53 | 702.02 | 559.68 | 619.80 |
EC, Market Access Data Base, https://madb.europa.eu/madb/statistical_form.htm
These financial pressures have seen St. Lucian banana producers going unpaid, with the government of St. Lucia needing to step in to clear the $2.4 million of payment arrears to banana producers (3). The government of St Lucia has also reportedly stepped in to clear Winfresh loans from Barclays Bank. St. Lucia’s Minister of Agriculture Ezekiel Joseph, maintains the administrator should be able to reimburse the government for these payments in due course, following restructuring (4)
According to the administrators, ‘it is too early to define what the long-term prospects are for the company’, with all options being under consideration (5). Minister Ezekiel Joseph, however has sought to argue the placing of Winfresh-UK in administration was part of wider efforts to restructure Winfresh, which is owned equally by the governments of St. Lucia, Grenada, St. Vincent and the Grenadines, and Dominica, although only St. Lucia is still involved in the banana export trade to Europe.
Minister Ezekiel Joseph has sought to reassure St. Lucian banana farmers that exports to the UK will be unaffected. He has indicated Fyffes has stepped in on an interim basis to facilitate the implementation of the ongoing contract to supply St. Lucian bananas to Sainsbury’s, with the potential existing for Fyffes stepping in to play a bigger role in the future (3). Sainsbury’s is only 1 of 5 UK supermarket chains selling Fairtrade bananas, alongside Co-op, Waitrose, Ocado and Lidl which sells either Fairtrade or Rainforest Alliance certified bananas.
Opposition party representatives in St. Lucia have called on the government to ‘come clean’ on the implications for future St. Lucian banana exports to the UK of the placing of Winfresh-UK into administration (6). The potential implications are seen as a matter of national importance given the role bananas play in St. Lucia’s export trade to the UK. In 2019 bananas accounted for 70% of the value of total St. Lucian exports to the UK, which was the sole EU market served, with this banana trade in turn representing 53% of total exports to the EU28 market (7) (for more details see companion epamonitoring.net article, ‘Will St Lucia Continue to Have an Export Trade Relationship with the UK once the UK Leaves the EU Customs and Single Market?’, 20 February 2020).
| Comment and Analysis In recent years the supermarket banana price wars in the UK have even impacted on the price of Fairtrade bananas with the recorded average unit price of bananas imported from St. Lucia in 2019 being under 83% of the peak level attained in 2015, while the average price in 2018 and 2019 was only 90% of the price obtained in 2013 and 2014.This needs to be seen in a context where supermarkets like Sainsbury’s have a choice of no less than 6 different country suppliers of Fairtrade bananas (St. Lucia, Dominican Republic, Ghana, Cameroon, Colombia, and Panama), with the import tariffs on bananas from Colombia and Panama having been reduced progressively since 2013.This has seen a gradual squeezing out of traditional CARICOM bananas from the UK market. Between 2013 and 2019 the volume of bananas from traditional CARICOM suppliers imported into the UK fell 37.4% compared to only a 1.4% fall in overall extra-EU UK banana imports. Over the period from 2003 to 2019 the decline was even more pronounced with UK imports from traditional Caribbean banana suppliers falling a massive 71% in the context of 44% increase in overall UK banana imports from non-EU sources. Specifically, in regard to St. Lucia, UK import volumes fell 80% between 2003 and 2019 with an 80.7% decline in the value of imports, despite the shift over to exclusively Fairtrade sales since 2007. Covid-19 related production, trade and market disruptions alongside ongoing Brexit uncertainties could well prove to be the straw that broke the camel’s back, in terms of St. Lucian banana exports to the UK. The placing of Winfresh-UK into administration can be seen as symptomatic of this wider situation. It remains to be seen whether the specific niche market nature of St. Lucia’s banana offering is sufficiently attractive for Fyffes to bring to bring St. Lucian bananas into its product offering. Fyffes is already ‘the largest importer of Fairtrade bananas in the world’ (8). A lot however will hinge around future developments on the UK banana market. This will be critically influenced by the outcome of the ongoing EU-UK trade negotiations. While in May 2020 the UK committed to maintaining existing MFN import tariffs on bananas, the food price inflation consequences of a no-deal UK exit from the EU customs union could lead to a further revision of the UK MFN tariff schedule. It has been estimated that the application of the May 2020 UK MFN tariffs to imports form the EU27 would impact on 85% of existing UK agricultural imports from the EU, which account for fully 40% of agricultural products consumed in the UK (9). Given the potential political fall-out this could generate in the context of the worst economic recession in the UK in the past 100 years, this could see a renewed impetus to calls for the application of “zero production-zero tariff” approach to the UK’s future MFN tariff schedule (see companion epamonitoring.net article, ‘Ghanaian Exports to the UK and the Outcome of the UK’s MFN Tariff Review’, 2 June 2020). Banana imports would be in the front line of any such moves, given the absence of any commercial banana production in the UK. By eliminating tariffs on all sources of bananas, including those currently imported into the UK under the FTAs concluded by the EU (and which have largely been rolled over as UK-only Continuity Agreements) which currently attract a duty of €75/tonne, any such move would seriously transform the market situation in the UK facing by St. Lucian banana exports. New UK MFN Tariff Schedule for Bananas
UK Global Tariff: Search Engine, https://www.check-future-uk-trade-tariffs.service.gov.uk/tariff?q=070410&n=25&p=1 This prospect is generating profound uncertainty in the banana sector in the context of the launching of contract negotiations for the supply of bananas to the UK market in 2021 (see epamonitoring.net companion article, ‘Tariff Treatment Uncertainties for Future EU/UK Trade Also Complicate Commercial Contract Negotiations for Some ACP Exporters’, 3 September 2020) This needs to be seen in a context where the market position of St. Lucian bananas has been facing increasing competition from dual certified Fairtrade/Organic bananas. Production conditions in St. Lucia simply don’t permit a conversion to organic forms of production (see companion epamonitoring.net article ‘Will St Lucia Continue to Have an Export Trade Relationship with the UK once the UK Leaves the EU Customs and Single Market?’, 20 February 2020). Beyond the banana sector it needs to be recognised that ongoing EU/UK trade uncertainties are compounding the existing Covid-19 related disruptions. Covid-19 disruptions are already seeing UK buyers systematically moving away from commercial relationships with partners whose capacity to adjust to the profound changes underway is limited. Continued uncertainty over the basis for future UK/EU trade relations and consequent UK trade policy choices is only likely to extend this newly emergent trend. Against this background, Winfresh-UK may not be the only ACP exporting body confronted with existential level financial challenges in the coming months, as contract negotiations for the supply of goods to the UK market in 2021 get underway. |
Sources
(1) fruitnet.com, ‘Administration for Winfresh UK’, 27 July 2020
http://www.fruitnet.com/fpj/article/182482/administration-for-winfresh-uk
(2) eadt.co.uk, ‘Mounting cash flow pressures force leading UK banana supplier into administration’, 27 July 2020 |
https://www.eadt.co.uk/business/winfresh-banana-suppliers-in-dunmow-in-administration-1-6764272
(3) Minister for Agriculture on Winfresh and banana Farmers in St. Lucia’, 10 August 2020
https://www.youtube.com/watch?v=9ZmB-5WqzbA
(4) SLP CALLS FOR CLARIFICATION OF WINFRESH FATE
https://www.youtube.com/watch?v=Payhcoemh9w&feature=emb_rel_end
(5) foodmanufacture.co.uk, ‘Banana supplier Winfresh UK enters administration’, 28 July 2020
https://www.foodmanufacture.co.uk/Article/2020/07/24/Banana-supplier-Winfresh-UK-based-in-Essex-enters-administration
(6) dbstvstlucia.com, ‘Gov. Told To Come Clean On Future Of Winfresh And Local Bananas’, 21 July 2020
http://dbstvstlucia.com/2020/07/21/gov-told-to-come-clean-on-future-of-winfresh-and-local-bananas/
(7) EC, Market Access Data Base
https://madb.europa.eu/madb/statistical_form.htm
(8) Fyffes, ‘Fairtrade’
https://www.fyffes.com/our-passion-for-fruit/organics-and-fairtrade#fairtrade
(9) Dmitry Grozoubinski, ‘The UK’s New Tariffs under No-Deal: Unsustainable’, blog post
https://www.slideshare.net/DmitryGrozoubinski/the-uks-new-tariffs-under-nodeal-unsustainable