The latest round in the supermarket wars brings a stark warning to banana growers of perils to come. Because bananas are now the most popular fruit, they have become a key battleground on which supermarket chains choose to challenge their competitors. Prices for some categories of bananas have become a benchmark by which supermarkets believe they will be judged.
Rightly or wrongly, buyers for major chains seem to believe that customers notice, consciously or unconsciously, any discrepancy between them and their rivals in prices of core lines. Unfortunately, this factor seems to be gaining ascendancy over the laws of supply and demand.
This has been reflected in new lows quoted for economy packs, down to as little as 64 pence a kilo, reported in the Fresh Produce Journal last week. This low contrasts with the annual average of monthly prices for bananas in leading UK supermarkets which in the five years from 1997 to 2002 inclusive, remained within the range of 104 to 99p per kilo. Moreover, these low prices come at a time of unusual tightness in the market, due to the coincidence of heavy rains and floods in a number of supplying countries. The normal expectation would be for higher, rather than lower, prices in those circumstances.
If all bananas were sold at these recent low prices, there would be no Caribbean-banana trade. Fortunately, some supermarkets still offer consumers a range to choose from, and it is the readiness of consumers to buy premium packs, including both Fairtrade bananas and other special pre-packs, displaying, for example, a Caribbean origin, that enables the industry to survive.
But at the end of the day it is the lowest price that sets the tone of the market, and this will inevitably effect the premium that Commonwealth Caribbean products can command in an increasingly competitive market. The latest developments cannot therefore augur well for the very uncertain future that lies ahead for banana growers, particularly the most vulnerable in the Caribbean.
For these low price levels have also been reached while the EU tariff quota regime is still in operation, thereby effectively limiting the volume of bananas entering the EU market. This regime is due to end by January 1 next year. There would then be no quantitative limit on imports. Since there is normally a structural surplus of bananas, the removal of tariff quota restrictions seems bound to lead to an increase in supplies and consequently to fiercer competition for markets and lower prices.
However, the new regime will impose an up-dated tariff system. At present there is a reduced rate tariff of e75 for third countries, which is limited to a quota of around three million tonnes for the enlarged community. Above that quota, imports attract a duty of e680. The commission has proposed replacing the two-tier tariff by a single tariff of e230, with no volume limitation. This is intended, in principle, to provide the same degree of protection as the current regime to Caribbean and African growers, whose bananas enter duty-free. The commission claims that e230 is designed to be neutral in its effect on overall import volumes.
The commission’s proposal has proved highly controversial. The Caribbean fears that the tariff will not suffice to prevent a collapse of prices because of the dynamic effect of removing the existing quotas. But Latin American suppliers argue that there should be no increase in tariff at all, notwithstanding the removal of quotas, and that any increase will unfairly increase protection for ACP supplies. Some EU member states, led by Sweden, also argue that there should be no increase in the tariff, precisely because this would ensure a fall in prices and thus benefit consumers.
Latin American countries have the right to submit the issue of the new tariff to arbitration. Under provisions agreed in the WTO at Doha, the arbitrator has a precise remit, which is to determine whether or not the tariff “would result in at least maintaining total market access for MFN [that is Latin America]) banana suppliers”. No one can anticipate how an arbitrator would interpret this. There is a real risk that arbitration would result in a tariff level so low as to destroy the Caribbean trade, because it would lead to higher volumes and still lower prices, but too high to meet Latin Americans demands.
Several Latin American countries, including Ecuador and Costa Rica, have suggested that a better solution would be to retain the present system for a further period, while more satisfactory alternatives were developed. That certainly seems a sounder policy than acquiescing to a new regime on a basis that risks destroying the Caribbean industry and reducing consumer choice.
At the end of the day, the crucial need is for growers to receive a fair return for their product. Bananas are a tropical product requiring a great deal of careful treatment and handling in the developing countries where they are produced. They are also labour intensive and provide a vital source of employment in those countries. Those factors ought, in equity, to receive some recognition in the retail price.
The real nightmare is that a combination of unlimited supplies, under the proposed new regime, and continued warfare between supermarkets will spark a race to the bottom, in which the more vulnerable will go to the wall, entailing the loss not only of the Caribbean trade but probably others. Among the growers there will be survivors but no winners, because in a race to the bottom only those that are willing to accept the lowest wages and poorest working conditions will survive.
Consumers will enjoy lower prices but less choice. But small growers in the Caribbean will lose out as will those who wish on grounds of equity, to see a fair deal for all developing countries and particularly for small island states with highly vulnerable economies.
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