As the category with the most recognisable consumer brands and largest multinational companies, the banana sector appeared to be particularly susceptible to global economic instability.
The dominance in the market of global giants Dole, Chiquita, Del Monte and Fyffes, among others, has kept market competition strong, but political, rather than financial, issues have been prevalent in the sector this quarter.
First of all, Dole successfully battled against two consolidated lawsuits by purported Nicaraguan banana workers due to lawyer misconduct. The ruling judge in Los Angeles agreed with Dole that the workers’ claims that a pesticide used in the 1970s made them sterile should be dismissed because of a pattern of “deliberate and egregious misconduct” by lawyers in Nicaragua who recruited the complainants.
Meanwhile, claims the company funded Colombian terrorist paramilitaries so it could grow bananas in Colombia were rubbished. In a statement, Dole said the claims were based on false confessions from convicted Colombian terrorists who were seeking to reduce their jail terms. The claims against Dole were filed in a lawsuit at Los Angeles County Superior Court last month.
Companies sourcing from Colombia faced difficulties last month as around 17,500 banana farm workers went on strike. The action put a halt on the industry, which exports around 234,000 18.14kg boxes a day. The workers, in the north-western Urabá region, were unhappy about their pay and working conditions, and won an eight per cent wage hike for the first 12 months of the two-year contract and a cost-of-living adjustment for the next year. They also won benefits including funds for housing and recreation, and pay for the days lost to the strike.
During the industrial action, which affected production for around two weeks, importers looked to Ecuador to plug the gap in supply, but there were still some shortages in Europe, which kept the market strong.
The strikes on the islands of Martinique and Guadeloupe that halted production in February and March had repercussions in the following weeks. Widespread industrial action across the regions meant exporters could not capitalise on the French overseas region, which has become attractive as it deals in the euro - which remains strong.
One importer tells FPJ: “The strikes went on for several weeks in the region as everyone is demanding more money and it is all about negotiation; often outside the banana industry itself as it is not always banana-led.”
Elsewhere, industrial action in Puerto Moín in the Limón Province of Costa Rica put a slight hold-up on proceedings, but this was quickly resolved and the Central American country remains very strong in the UK market.
The market was quite tight at times last quarter as the industrial action took its toll, leaving healthy prices for fruit still being returned in Europe - the price unchanged at €16.19 (£14.10) in the last two weeks. One insider warns this may not last for long though: “The market looks relatively good for the next three months, but demand does traditionally take a dive in the summer because competition from then abundant soft fruit in the British season and [demand for] stonefruit is particularly high. Also, children are on their school holidays so, with bananas such a staple lunchbox snack, demand naturally dips. This normally leaves us with five to 10 per cent off the market so it does look like there will be some oversupply but it is something we plan for and expect. I expect there will be a surge in production in September and there doesn’t look like there will be a crash at any point, hopefully.”
There were relatively few weather issues this quarter. An earthquake in Honduras caused a scare, but there are few signs of hurricanes in the Windward Islands - which is not in an El Niño year - and this proves encouraging for importers of the product, which is said to be of “excellent quality” at the moment.
The issue of banana export tariffs continued to rumble on this quarter and trade talks last month between Andean Pact countries and the EU over a new lower banana entry tariff failed to resolve the dispute. ACP countries have made it clear that any proposal to reduce the tariff on bananas for Latin American countries will damage the position of ACP fruit in EU markets and claims that any tariff below €150 would end banana exports from ACP countries. It is believed that Africa’s top banana export countries are seeking €500 million in compensation from the EU as part of a deal to end one of the world’s longest-running trade disputes.
One industry insider tells FPJ: “I don’t suppose the issue will be resolved completely in the next year, but the tariff will probably be reduced. It is a question of how the level will affect the ACP countries and their protection, and whether the EU will be leaned on. The dollar area will then obviously be helped in the European market and it will depend on volumes as to whether we are short from week to week. At current levels, there is no reason why the tariff will not hold prices and needn’t necessarily be a concern, but the ACPs are seeking an edge.”
The main issue affecting shipping to the UK this quarter was fuel prices, with charges continuing to be volatile - prices in Rotterdam rose to $382 (£240) per tonne last week. “With the dollar weakening, it has certainly helped in terms of cost but looking across the whole year, fuel costs are continuing to rise, which affects shipping deals that are agreed on a long-term basis and are subject to fluctuating surcharges,” says one importer. “You can hedge against fuel prices of course, but charter arrangements susceptible to fuel costs are much more common. Any gains made on currency are lost on fuel surcharges.”
Another importer said: “We hear from the banks that sterling is undervalued, but it is a difficult market and all we can do is sell bananas.”
SHAPLEY DOLES OUT MARKET VIEW
Last year I joined Dole Fresh UK and I can now give some insight into how I think the banana category has performed and where it may go in the future, writes Dole Fresh UK customer strategy and marketing manager Giles Shapley.
I do count myself fortunate to have been involved in the industry over the past 25 years in a variety of roles. These include direct practical experience on the shop floor with Sainsbury’s in the early 1980s, and commercial experience with Geest soon after. In the 1990s, I moved on to the world of market research with AGB (now known as TNS) where, for 10 very happy years, I supported the growth of the category through the UK Banana Group. After a six-year operations and marketing stint with Safeway and a couple of roles back in the research and food consultancy world, I now find myself back in the world of fresh produce.
There have been some significant changes in the category in the last quarter of a century and many have been well documented, such as the continued dominance of the major multiples. However, if I look back on the banana industry and ask what has really changed and ask if we as an industry have moved forward, the position is less clear. It is certainly true to say that the advent of category management has brought a profusion of new products to the fixture for our customers. When I first started working out of a Sainsbury’s store in Dorking, we offered just one product, conventional bananas sold by the bunch. The sector today offers small bananas, snacking bananas, organic and Fairtrade, as well as ready-to-eat and ripen-at-home lines.
Clearly, all of these meet different consumer needs and, at first glance, the independent observer could state that this is a positive example of providing the customer with what they want. However, this process of change has not delivered value or real growth to the retailer, distributor or grower. It has merely added complexity to the supply chain at a cost not reflected in the retail price. A decade ago, the consumer could buy two apples for the price of one banana, today the position is reversed.
In today’s difficult economic climate, the produce market is proving itself to be extremely resilient. Volumes of core lines including bananas have been maintained over this period with only the more exotic and premium lines suffering in the wake of changing consumer behaviour. The real challenge for the UK banana industry in the coming years will be to drive consumption of the fruit beyond those enjoyed today. With levels of customer penetration already high, the focus needs to be on increasing both the frequency of purchase and the volumes bought on each occasion. It is staggering to report that almost a third of all banana volumes are bought by only 10 per cent of banana purchasers. Such statistics show that there are significant numbers of buyers who buy and consume on an infrequent basis and it is these that the industry needs to target for future growth.
In summary, the proliferation of banana products and low prices has done little to increase consumption of this healthy, popular fruit. The challenge therefore remains for the industry as a whole, including, retailers, distributors, ripeners and growers, to explore new ways and means for taking this industry into the next decade.
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