Wholesale market prices have been strong this quarter, as a host of factors combined to strengthen a global market. Some analysts interpret this as demand outstripping supply, as some production centres struggle to bounce back from the impact of hurricanes, as is the case in Jamaica. And there has also been unseasonable weather in Central America, and a La Niña effect in Ecuador causing flooding and supply disruption.
While some of those countries that have suffered may not send to the UK, it is the knock-on effect that this market is feeling. “For example, if they have extreme weather in Honduras or Guatemala, this might test the loyalties of those countries that have traditionally supplied the UK, and they might instead look to fill the gaps left in other markets,” says one trade insider. “There is no doubt that these problems with supply have created a good market.”
One of the other factors at play this year is the strength of eastern Europe. It seems that finally all the promise of the former Soviet bloc, in terms of improved spending power, is starting to make itself felt. “Eastern Europe is now significantly more stable,” says one market analyst. “The standard of living has risen, and so has people’s purchasing power. Previously doing business with Russia was risky, even three years ago. But now that has changed.” Another massive market that has been opening up on the quiet is Turkey. With a population of 70 million, its demand for supplies of a commodity such as bananas should not be underestimated.
All these factors are serving to put pressure on the UK market, and even divert fruit away. And that pressure is, theoretically at least, being brought to bear on the supermarkets to increase what they pay for fruit, and the price point at which they are offering it to shoppers.
But theories do not always work out in practice. “I would say the biggest issue we are still seeing is the depressed pricing in supermarkets,” says another trader. “We are still looking at 77p a kilo for loose fruit, and that is despite the fraught period we have had with storms and so forth, and just getting the fruit here.”
Checking the statistics shows that bananas certainly appear to be going against the trend in retail pricing, with almost all other fruit categories seeing their prices rise. Loose bananas, however, have experienced a drop in price of 2.7 per cent year on year for the four weeks to February 24, according to TNS data. The only line to fare worse is pineapples, with a drop of 4.2 per cent.
And the price-cutting does not appear to be favouring anyone, with both volume and expenditure in the category well down - even taking into account that pre-packs’ expenditure fell by 1.3 per cent, and volume by two per cent.
But continuing to play this price-slashing game in the banana aisles means the major multiples could soon be left with egg on their faces. “The dangerous scenario is that if the supply base and growers do not get a reasonable return for their produce, it may well end up in Europe or the eastern bloc countries, and we could see shortages in the UK over the next few years,” warns one trader. “That is the reality, and you will find there are certain companies that are just not going to come here anymore.”
Just as worrying is the indication from the figures that, despite apparently permanently depressed retail price points, uptake of the fruit is just not increasing. “The biggest concern has to be that bananas are truly out on a limb, while other fruit categories are showing good growth,” says the same trader. Soft fruit, for example, has experienced a 14.5 per cent price per kilo rise year on year, and volumes have risen by more than seven per cent and expenditure by a staggering 23 per cent. Clearly, with all the talk of inflation in the UK economy, the major retailers are using bananas to keep the price of an average basket low, and keep up their image as consumer champions. “If the price deflates, we know it doesn’t boost sales,” says one insider. “There is just so much revenue being lost.”
This supermarket-retail picture is, of course, in stark contrast to the wholesale market picture, with average prices last week across the UK up a staggering 70 per cent on the same point in the season last year, and still rising week on week, reaching 1700p a carton on some markets. “Right now, going to the wholesale market is certainly a good option,” says one trader. “And all the signs are that the market will continue well for the next quarter.”
Looking ahead to the next quarter, April, May and June are months in which demand traditionally picks up. But with staggered school holidays this year over a six-week period from mid-March to late April, performance in April will be a tough one to call. Nevertheless, going forward, the next few months should be a buoyant period for the fruit.
Opportunities to increase consumption are being missed. Supermarket in-store magazines are making a little effort at suggesting alternative uses, but what the trade lacks here is a promotional body.
But with the prevailing pricing strategies and buyers potentially looking to Europe to buy fruit, or even a shortage in the UK over the next year or two, would there be the fruit to promote?
BANANAS TOP OF TREE FOR CORBANA
bananas are our leading agricultural export ahead of both coffee and pineapples, accounting for 7.1 per cent of total export revenue and 33.5 per cent of agricultural export revenue, says
Jorge Sauma Aguilar, who has headed up Costa Rica’s National Banana Corporation (Corbana) for almost 14 years as its chief executive officer.
The public non-governmental body, created by national law in 1971, has been designated as the regulatory body of the Costa Rican banana industry.
Our two main markets are the European Union and the US and, in the EU, we have a 23 per cent share of the banana market.
The UK is a gradually increasing market for us, and we have almost doubled our exports from 478,173 tonnes in 1995, to 855,610 in 2006. We have been concentrating our promotion in the EU on three countries - the UK, Germany and Belgium - and focusing not so much on the taste and quality of our bananas, but on how they are produced. We say that they are the world’s best bananas because of the environmental conditions they are grown under and the workers’ social conditions.
I believe it is these social and environmental aspects that give our bananas their advantage over the competition. In Costa Rica, we have been making great social advances continually since the 1950s, with a benefits structure and protection for our workers and the environment. And now 99 per cent of all our banana farms are GlobalGAP certified.
In Costa Rica there is full freedom of association, whether it be through membership of a co-operative, union or workers’ committee. We provide our workers with all sorts of benefits, from baseball and football pitches to schools and housing. In fact, workers’ benefits represent 10 per cent of the cost of production. They are paid 30 per cent more than the agricultural minimum wage, and are the most well-paid workers in the whole agricultural sector. When you consider that our workers are paid $16 (£8) a day, and yet we have to compete with the Philippines and countries in Africa where wages are much lower, it means we have to find many efficiencies, while maintaining our environmental and social indices.
This is one of our primary challenges - to sustain competitiveness. Our productivity is very efficient, and we produce 2,585 cartons (18.4kg) per hectare. We are also working on a number of research projects with scientists in the UK and the Netherlands, including a genome study project, and have a pesticide reduction plan to reduce our use of agrochemicals by half over 10 years. As an industry, we are also looking to establish more sustainable, clean production, and have invested heavily in a biological control laboratory which opened on November 16 last year. We also have the challenge of improving our logistics infrastructure, including our ports, to make sure we are operating as efficiently as possible.
Looking forward, we also need to maintain a good position with the EU. Traditionally, EU policy has favoured ACP countries, and Latin American countries have been seen as banana republics dominated by the large transnational companies.
But in Costa Rica, this is not the case - 50 per cent of our production comes directly from local producers and not through the large multi-nationals, and also we send 50 per cent of our exports to the EU. Our position is always to seek bi-lateral and multi-lateral negotiations. After all my years in this sector, I really think that there cannot be stability if there are winners and losers - the only solution is to find a scheme under which everyone will benefit a little, and at the moment we think the tariff is too high.
The banana market is a complicated one, and we all depend on the climate as producers. I think that what we need to do is to try and find more solutions among ourselves, as we could all have a good market if only we could find some way of working together better.
Growing bananas is the easy part - but I believe that worldwide, other production countries need to ask if those that work in the sector have adequate housing, clean water, electricity and access to education and health services. This is what is most important.
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