Ecuador’s internal revenue service Servicio de Rentas Internas made a call to order earlier this year to two subsidiaries of the banana export giant Noboa Group for the non-payment of taxes. That move may be a sign of a shift in the government’s regulation of the banana sector, a change underpinned by the passing into law of the so-called Banana Act last March. The legislation states that the minimum price paid by exporters must cover the producer’s average cost plus a reasonable profit.

The debate between both sides over the payment of fair prices for bananas to producers continues to rage. Under the new law, the government is expected to exert greater control, forcing producers and exporters to sign purchasing contracts in line with a price agreed between the two parties, thus regulating the market to avoid ongoing discussions about a reference price. Until now, this reference has always been set by the government, since growers and exporters were unable to agree an amount.

It is no surprise that this new law has not ironed out the ups and downs of this debate. On one side you have the producers, who are generally risk-averse and of course, the government. Their main arguments are in favour of industry regulation to avoid “unfair” competition. On the other side, there are the defenders of free trade, larger enterprises that regulate purchases in Ecuador and adjust demand according to international market prices.

One economic argument is to achieve a pricing balance during the production year, with a period of good prices for growers far above the reference price and a period of lower prices, which have to be at least equal to the reference price that producers receive - or should receive. Most discussions centre around what level the lower prices should be at, but the Banana Act still includes a reference price - the law only ensures certainty in terms of time, as contracts cannot be signed for less than a year.

Among the biggest opponents to Ecuador’s Banana Act are producers who don’t have contracts. Until they are regulated, they cannot market their products abroad and have to sell them on the domestic market. Given that contracts must be registered with the government, it’s fair to say that bureaucracy can be a silent accomplice to the ineffectiveness of the law.

The struggle between ideologies is clear. President Rafael Correa continues to pursue a general policy of regulation, which has even slowed trade agreements that neighbours such as Colombia and Peru have tried to forge with major buyers such as the EU and US.

Ecuador’s banana sector is dependent not only on its exports and imported inputs from the EU and US, but also on the political issues that surround it.

Jahir Lombana lectures in global trade and competitiveness at Universidad del Norte in Barranquilla, Colombia.

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