The fool’s bargain of West African bananas’ producers who have demanded to sign the West Africa-EU EPA

25 July 2014 by Jacques Berthelot

We know that the main reason for the acceptance by the West Africa’s Heads of State to sign the regional EPA with the EU on July 10, 2014 in Accra comes from the pressures of Ivory Coast, and secondarily of Ghana, who risked losing duty free access to the European market mainly for their exports of bananas, of respectively 252,639 tonnes and 42,840 tonnes in 2013.

But the signature’s ink had barely dried that the EU signed on July 17 a free-trade agreement with Ecuador, the world’s largest banana exporter, with 5.8 million tonnes in 2011. This agreement will reduce tariffs on its exports to the EU of € 132 per tonne currently to € 117, the level obtained by Latin American countries in early 2012 after the conclusion of a free trade agreement with the EU: Colombia, Peru, Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua and Panama. Despite their additional cost to export to the EU, Ecuador remained the largest exporter to the EU, with 1,361,000 tonnes in 2013, ahead of Colombia with 1,199,000 tonnes. Ecuador will also benefit from the gradual reduction of customs duties for these “dollar bananas”, at 75 € per tonne by 2020.

That is why Eduardo Ledesma, president of the Association of Banana Producers in Ecuador (AEBE) welcomes this “wonderful” and “terribly positive” agreement given the alignment of tariffs on those of Colombia and other non-ACP countries of Latin America [1].

According to a CTA [2] article in May 2014 “The concern is that as tariff reductions are progressively extended under existing EU FTA agreements, so the established highly competitive dollar zone will become an increasingly attractive investment location. This poses real challenges for even the most competitive ACP banana exporters, who will face increasing competition for banana sector investment, in a context of growing market concentration and the stripping of value out of some EU banana supply chains as a result of the banana pricing policies of some EU supermarkets [3], “given the tendency of some European supermarkets to use bananas as loss leaders to attract customers [4].

However, if some compensation was granted to ACP and EU banana producers to cope with increased competition from these “dollar bananas”, they are insufficient because they have not been revalued after the free trade agreements concluded in 2012.

Moreover, the erosion of preferences for ACP bananas is threatened by potential entrants related to the on-going negotiations for other free trade agreements, including with Mercosur (Brazil), India and the Philippines soon. Brazil wants to have a tariff quota at reduced duties of 200,000 tonnes while India, the largest world producer of bananas with 30 million tonnes, has begun to organize for exports. And negotiations are considered for a free trade agreement with the Philippines, the second largest exporter with 2.6 million tonnes in 2012, but with only 700 tonnes exported to the EU in 2013.

Now it is useful to compare the competitiveness of ACP bananas exports of sub-Saharan Africa – essentially Ivory Coast, Cameroon and Ghana – on the EU market from 2006 to 2013, as reflected in the volumes and CIF prices, both in euros and dollars, in comparison to the main sources of the EU28 bananas imports: Caribbean ACPs, French bananas (Guadeloupe and Martinique), “dollar bananas” from Latin America and from all extra-EU sources.

Origin and CIF prices of EU28 bananas imports from 2006 to 2013

Source: Eurostat; * the volumes and CIF prices refer to all bananas, including dried ones and plantains, because Eurostat has changed its trade codes for fresh bananas in 2012. But the difference is insignificant as fresh bananas accounted for 98.3% of all extra-EU imports, on average as in 2013.

Without going into a detailed analysis, it is pointed out that, despite duty free exports to the EU and significant aid granted by the EU to ACP producers of sub-Saharan Africa as well as from the Caribbean – particularly to offset the loss of competitiveness due to reduced tariffs on Latin America’s exports until 2012 – their exports to the EU have increased by only 3.4% from 2010 to 2013 against by 6.4% for the Latin America’s exports of “dollar bananas”. The essential reason lies in the lower CIF prices of dollar bananas than of ACP bananas, be they expressed in euros or in dollars. Undoubtedly there are some quality issues involved, especially for bananas from the Dominican Republic, given the importance of organic bananas. But most important to note is the considerably lower price of bananas from Ecuador which, along with the reduction of tariffs it will receive, will boost its EU market share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. at the expense of Ivory Coast, Cameroon and Ghana.

The moral of the story is that the blindness of Ivory Coast and Ghana to demand that the West Africa’s Heads of State sign the regional EPA will be very costly to the 341 million citizens of West Africa in 2014 – and soon of 516 million in 2030 –, with no real benefit for Ivory Coast and Ghana which will lose EU market share in the medium and long run for their bananas exports and probably also for their exports of pineapple and processed coffee and cocoa.

Jacques Berthelot

économiste français, ancien maître de conférences à l’École nationale supérieure agronomique de Toulouse ancien titulaire de la Chaire d’intégration économique européenne à l’Institut National Polytechnique (INP) de Toulouse et chercheur. Il est notamment spécialiste des questions relatives aux APE (Accords de partenariat économique).



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