Europe and Latin America look set to declare a truce in their 16-year-old trade war over bananas, putting further downward pressure on prices. Simon Wilson asks: who gains?
What 'banana wars'?
For 16 years, Latin American banana producers, who make up an increasing chunk of the £10bn annual global market, have protested over the preferential treatment the European Union gives to less cost-efficient producers from Africa, the Caribbean and the Pacific. Many of these 'ACP' countries are former colonies of Britain or France protected from EU import tariffs that are imposed on their competitors.
What's the latest news?
The dispute one of the longest-running in world trade looks set to end. Last week the EU's current trade commissioner (and soon-to-be foreign affairs supremo) Catherine Ashton said that she hoped to announce the terms of a settlement soon, after heated negotiations in Geneva. It is thought the EU will agree to cut import tariffs on Latin American bananas from €176 per tonne to €148, and then gradually to €114 over the next seven years. That would almost eliminate the protection given to ACP producers. And according to a recent study by the Geneva-based International Centre for Trade and Sustainable Development, it would result in a surge of cheap Latin American imports and price falls in Europe of around 12%. ACP countries are not happy but are expected to get €190m of "development aid" as a sweetener.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Are bananas really such a big deal?
Bananas are the world's favourite fruit, and its fourth most important crop after rice, wheat and maize. Poor-country producers are highly vulnerable to price fluctuations, and employ thousands of people doing difficult work for poverty wages. Indeed, campaign group Banana Link says that prices paid to producers are already one-third lower than they were seven years ago. In turn, that puts pressure on the wages and conditions of already-desperate workers, both in small territories such as the Windward Islands (where 80% of producers have gone out of business since 1992) and the industrial-scale giants of Ecuador, Costa Rica and Brazil.
Latest Videos FromMoneyWeek
Will our bananas now be cheaper?
They already are. In the UK, for example, prices have been falling anyway as overall imports have surged from 545,000 tonnes in 1992 to 927,000 tonnes in 2007. And during that period, bananas from traditional Caribbean providers slumped from 70% of the total to just 30%. Cheaper Latin American "dollar" bananas (produced by US-owned conglomerates such as Chiquita and Dole) now make up about half of our imports.
So what's really behind the price cuts?
The supermarkets. Bananas are Britain's most popular fruit we munch 140 million of them each week and the country's single biggest-selling food item. Only petrol and lottery tickets contribute more to a supermarket's top line. That means banana prices are vital if we think bananas are cheap, we will tend to associate that supermarket with low prices in general. That's why the UK's big grocers are so keen on intermittent banana-price wars. The most recent came to a head earlier this month, when Asda, Aldi, Tesco and Morrisons were all charging around 35p a kilo. That's cheaper than bananas have ever been in real terms. Prices have risen since, but are still low by historic standards.
Who wins from this banana bonanza?
No doubt a consumer who lived solely on bananas would be quids in. But as Felicity Lawrence, a Guardian journalist and writer on trade issues, puts it: "If anyone thinks supermarkets are in the business of simply handing cash back to customers, they are being naive." While the supermarket giants such as Asda were busy slashing banana prices this year, they were also happily hiking them on other common items such as tea. As for suppliers, Asda's produce director Alex Brown says that banana price cuts don't affect what it pays suppliers. Even so, it puts huge pressure on suppliers who are committed to pay higher prices to producers under fair-trade guarantees (25% of the UK market). So while consumers may love low prices, farmers and producers in poor countries hardly share their enthusiasm.
Are cheap bananas a good thing?
YES
Bananas are the biggest-selling food item in UK supermarkets, so rock-bottom prices can only be good for consumers.
Low banana prices are good for supermarkets, since they attract customers into the store.
The supermarkets say they are taking the price hit themselves and not lowering the price paid to their suppliers a win-win.
NO
Banana price cuts are not sustainable they are a promotional ruse which creates no lasting value for the store or the consumer.
As giant retailers force matching price cuts from competitors, they do indirectly force down the average price paid to suppliers.
Low prices threaten the livelihoods of already poor farmers and plantation workers in developing countries.
