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Contributions from
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Tribune
Cheap bananas – or fair ones?
The World Bank calls for reforms
8-9/2003
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Cheap bananas Ð or fair ones?
Farmers and plantation workers are being exploited
By Carolin Callenius
The facts are well-known: the working conditions on Latin America's banana plantations are dreadful, trade union work is obstructed and the environment is disregarded completely. But what is happening at present is described by the 30 NGOs that have joined forces in the European Banana Action Network (EUROBAN) as a "race to the bottom", to ever lower standards, by the banana companies.
Together, three international concerns, Chiquita, Dole and Del Monte, control two-thirds of global banana exports. Of those, Chiquita (formerly the United Fruit Company) is still the market leader despite high market losses. Chiquita not only trades in bananas but also produces them on its own plantations or has firm supply contracts with growers. The company has its own fleet of ships, ripening installations, and distribution structures in the consumer countries.
Multinationals put pressure on production costs
However, despite their oligopoly and vertical integration the companies have little room for manoeuvre on sales prices. Bananas are cheaper than ever before. During the last 10 years the world market price has dropped by 1 per cent per year, complains Cyrus Freidheim, CEO and Chairman of Chiquita. Worldwide overproduction is mainly responsible for that, but also the negotiating power of supermarket chains such as Wal-Mart. The power of the banana companies is largely restricted to their relationship with the actual producers, who underbid each other on production costs, ecological standards and workers' rights.
That is why all three companies are investing in new banana-growing regions such as India, Indonesia and Northeast Brazil, where they find location advantages such as even cheaper labour, weak trade unions, relaxed environmental protection rules and low taxation. But costs also vary greatly in the traditional cultivation regions of Central and South America. In Ecuador, the cost of producing one banana is half that in Panama. The reason: the workers have no rights, no social security; they live in poverty and hardship.
By contrast, Chiquita found production at Panamanian PAFCO, a wholly-owned subsidiary, too expensive. It sold PAFCO earlier this year. Despite radical downsizing of its regular workforce the company is said to have suffered losses totalling US$ 90 million over the last six years. A cooperative of its former workers bought the plantation for US$ 20 million. A 10-year contract to supply Chiquita was concluded at the same time. This was how the concern shifted the risk of a bad harvest and the responsibility for maintaining minimum social standards on to the producers and on the other hand secured the right of first refusal for itself – a good business deal. For the new owners the business is not so good; they carry the risk of a drop in prices. The chairman of the cooperative has already given notice that it can no longer assume the costs of the social services provided by the previous company, such as for domestic electricity supply, refuse disposal, drinking water and school buses. In the long run, the people are threatened by working conditions like those in Ecuador. However, buying the company offered them the only chance of survival.
Battle for market share
The EU introduced a Single European Market import regime for bananas (SEBR) on July 1, 1993, and the so-called Banana War for market share has raged since then. The European market is important for the banana trade in terms of quantities: every third banana exported is eaten in Europe, every tenth in Germany. Also, due to the SEBR importers can skim off additional profit (quota benefit) because in the EU the price level is 38 per cent higher than that of the world market. According to the original SEBR, a quantity quota was reserved for bananas from European producers (mainly France and Spain), who receive generous subsidies, and another quota for the former colonies in Africa, the Caribbean and the Pacific region (ACP countries), whose bananas may be imported duty-free. The remaining half was foreseen for imports from Latin America which were subject to duty. There were also quotas for the licences required for imports: 66.5 per cent for the traditional importers (based on the last three reference years), 30 per cent for European importers who also traded with the EU and ACP countries, and 3.5 per cent for companies new to the market.
But there was opposition against that. At the instigation of Chiquita (linked with big donations) the USA together with Mexico, Guatemala and Ecuador lodged a complaint with the World Trade Organisation. Chiquita emerged from the dispute as the clear winner. The WTO ruled that 83 per cent of the quota must be allocated to first importers according to historic market shares. Thereupon the SEBR was reformed in July 2001 and the Banana War appears to have been settled for the time being; but the future remains uncertain. On the one hand, the EU has assured the WTO that the quota regime for bananas will cease to apply by 2006 and a pure Customs system introduced. On the other hand, 10 new countries will accede to the EU in 2004, and it is still uncertain if these will agree to a higher price for bananas arising from the subsidising of banana producers in European countries' overseas territories and the preferential treatment of ACP bananas. Poland in particular has so far imported large quantities of cheap Ecuadorian bananas. And Ecuador is already threatening with a new complaint to the WTO because the duty-free import of ACP bananas in the new EU member countries is illegal.
The ACP countries fear that a liberalisation of the banana market in 2006 will seriously worsen their position. Low duties on dollar bananas would force the Caribbean smallholders out of the market. Since a large section of the population of St. Vincent, St. Lucia and Dominica live from the banana sector, the result would be mass unemployment and poverty. The producers in Latin America fear that liberalisation could lead to price dumping, which would worsen their situation even further. Finally, the EU fears that lower prices would mean higher compensation payments to European producers would be necessary.
Future of a sustainable banana policy
As with all mass agricultural products, the basic problem of banana production is that it can be expanded at will and therefore flood the markets. Economists call that a buyers' market. The result is that the external macroeconomic costs (meaning the social costs) cannot be taken account of in world market prices. Expansion of production is at the expense of families who already live from banana-growing. The free market will aggravate this problem. At present, only one possibility can be seen of how at least a small number of the banana producers can be helped: the 'Fair Trade' in bananas which increasingly is taking place in One World shops and even in supermarkets. The clearly higher price benefits the banana producers directly. In addition, due to the sale of bananas that have been marketed in Germany since the end of the 1980s via Banafair, support can be given to banana workers' trade unions and organisations that stand up for political and social changes in their countries.
That this is not enough in view of the coming market liberalisation is clear to all involved. Therefore EUROBAN initiated a discussion process and commissioned Anna Dickson, a political scientist at the University of Durham, UK, to develop proposals for a new international agreement on bananas1. The most important proposal of her study is that an agreement between banana producing and consuming countries should balance supply and demand and lay down social and ecological standards. However, it is extremely doubtful whether the main export countries, the banana companies and the import countries can agree. Similar agreements for other products (coffee, cocoa) have failed so far. Another proposal, which should enable market access for above all smaller producers, aims at linking import duties with ethical and ecological criteria. But the WTO rules to date do not provide for this.
The proposals of the EUROBAN study make clear that a simple solution on how the free play of market forces can be brought under control is not yet in the offing. There is a lack of the necessary international instruments and of the common political will to combat the worsening working conditions and ongoing overexploitation of nature.
Toward an international agreement on bananas. A discussion paper prepared by Anna K. Dickson. EUROBAN May 2003. www.bananalink.org.uk
Carolin Callenius, based in Stuttgart, works as a freelance journalist on developmental issues and as a trainer and consultant on subjects regarding policies on agriculture and women.
carolin.callenius@web.de
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