9. Bananas

Paradise or jungle?

In Honduras, countless banana plantations had to close down in 1994. Over 4000 workers lost their jobs overnight. These redundancies were a direct effect of the EU's new banana policy that became effective in 1993, involving a quota arrangement and import duties for bananas from a number of countries including Honduras. Honduran exports plummeted by as much as 90%. The banana sector in other Latin American countries was also badly hit by the new EU regulations. Worst off are the producers, the plantation workers and the farmers. This is illustrative of the world of the banana trade, where farmers are totally dependent on traders, and where plantation workers have no rights.

Nevertheless, 1994 also brought good news for the banana producers. In a number of European countries, efforts are being made to put a banana on the market that has been grown in a people- and environment-friendly way. But with the EU effectively protecting its market, there is as yet no room for such fairly traded bananas.

In Central America, there is a legend telling of the creation of the banana. The story takes us to an idyllic scene comparable to the Garden of Eden. A group of people, sitting on the banks of a murmuring stream under a huge, shady tree, are enjoying the peace and quiet. They are chatting until the moment God joins them.

This is happening on a Saturday, just after the creation of the world. In those days, God used to mingle with the people and speak with them from time to time. Moreover - so the story goes - the Creation was not yet completely finished, a few things were still missing. So God asked the people if they could think of something they would like to be created.

After a moment of consideration, they started to talk about it. Everyone agreed that it had to be a fruit, a fruit which embodied all qualities and had no shortcomings. In other words, they decided to ask for a perfect fruit. God agreed and inquested what that fruit should be like. Then all of them gave their opinions, first Diego the Toothless: "A fruit that is easy to chew, Lord, so that those who have no teeth can eat it." Then came Pedro Lazybones: "That it is not too much trouble to peel it, as it is with the pineapple."

Everyone said what the fruit of their dreams should be like. It would have to be nutritious, edible in its entirety, easily digestible, not stringy, not liable to rot, not too sweet or too sour, not too hard or too soft, edible for children and adults, capable of being harvested throughout the year. When they could not think of any other qualities, the people fell silent and looked at God expectantly. Then God said: "Perfect things do not belong to this world. I am always pleased if the people can improve them. Should the opposite be true, the world would be very boring. In this case, however - because of your unanimity - I will respect the voice of the people and make an exception. But only this time." And then God created the banana.

It is only a story. But it reflects the importance of the banana in the daily lives of the people in Central America. However, the idyllic scene in this story is in striking contrast with reality. The unanimity described in the story has disintegrated into oppressive and exploitative labour relations. The luxuriant garden has seriously been harmed by the range of chemicals used in large-scale banana cultivation. The direct relationship between demand and product has been overrun by a jumble of political trade interests and regulations. The world of the banana bears a greater resemblence to a jungle rather than to a neat Garden of Eden.

9.1 The international banana market

The trade in bananas has boomed. After coffee, it ranks second - in money terms - in the trade in foodstuffs. In the fruit trade, the banana is number one. Being a much sought-after export article in a brisk international trade, the banana is a highly profitable crop for several developing countries. It provides them with sorely needed foreign exchange. World banana production amounts to some 50 million tonnes per year. The cultivation of bananas is concentrated in Africa, Asia and Latin America because it is subject to climatic conditions. In 1970, Latin America was the main producer with around 60% of total production. Asia ranked second with 24%, while Africa accounted for 10% of total world production. But in a period of twenty years, there has been a clear shift in the volumes produced per continent. In 1992, Latin America's share had fallen to 43%, whereas production in Asia was up to 40%. Production in Africa remained stable at 10%.

A major part of the banana crop is traded at local markets. The two biggest banana-producing countries, India and Brazil, are hardly involved in the international banana trade at all. Only 10 million tonnes (i.e. 20%) of total world production is exported, Latin America accounting for three-quarters of this amount. The Latin American export banana thus playing a leading role. Latin American banana exports are dominated by three transnational companies (TNCs): United Brands (United Fruit Co.), known to the consumer under the name Chiquita; Castle & Cook (Standard Fruit Co.), with the brand name Dole; and Del Monte. These three TNCs account for almost 60% of the entire world trade in bananas, which allows them to control the market and, to a considerable extent, set the rules of the game. This oligopolistic structure of the banana trade is largely connected with what is sometimes referred to as the vertical integration of these companies. They own large-scale banana plantations, special refrigerated ships and distribu-tion facilities. Such vertical integration is only feasible for large corporations and allows them to achieve considerable economies of scale and comparative advantage over smaller producers and traders. It enables them, for instance, to continuously supply quality products at a relatively low price.

The United States, Europe and Japan are the main importers of bananas, together purchasing around 80% of all exported bananas. The US imports only from Latin America; Japan mainly from the Philippines, but also from China and South-Africa. Europe imports bananas from various regions: from former colonies (the so-called ACP bananas) and from Latin America (dollar bananas). But Europe is also a producer of what have come to be known as Community bananas. Community bananas come from Spain, Portugal and Greece, and from French overseas territories such as Martinique and Guadeloupe.

The banana sector has been an important pillar of the Ecuadoran economy since 1950, when favourable natural conditions on the coastal plain and a rising price level led to a rapid expansion of production. In 1952, Ecuador had already become the world's biggest exporter. In the late 1980s, the approaching integration of the European Union and the opening up of new markets in the former socialist countries led to high expectations of growing demand for bananas. In anticipation, Ecuador expanded its production of bananas more than any other country. Large and medium-sized producers increased their area of farm land and invested in higher outputs per hectare. Small farmers, in particular cocoa producers, converted to small-scale banana cultivation. Total exports thus doubled from 1,360,000 tonnes in 1986 to over 2,700,000 tonnes in 1991. After petroleum, the banana export is the country's main source of foreign exchange, accounting for 22% of its export earnings in 1992.

To encourage investment in new production techniques, Standard Fruit Company (SFC) introduced a method that was soon adopted by other exporters. SFC concluded contracts with major producers for a period of five years, under which the producer agreed to supply exclusively to SFC. In exchange, the so-called 'productor asociado' received credits and permanent technical assistance.

This exporter-producer relationship stepped up productivity on the plantations. But SFC took no responsibility for the working conditions of the plantation workers. Conflicts about working conditions and payment were thus shifted on to the 'independent' producer. In addition to these associated producers, there was also a group of independent producers who served as a buffer to accommodate fluctuations in the demand for bananas on the world market. They sold their bananas through the traditional system of 'cupos', which means that exporters purchase part of the crop to increase the volume of export when necessary. This system is governed only by the laws of supply and demand, without any of the parties entering into obligations through contracts or loans. The only facility provided by the exporter is the packaging. Transport is normally arranged by the producer or an intermediary.

The position of this group of producers is even poorer than that of the 'productor asociado'. They have no guarantee that there will be a buyer for their fruit, which makes their dependence complete. The exporter has absolute power because he controls the export facilities. In fact the trader dictates the price. The only choice the producers have is between selling their crop or letting it rot. Only a minor portion of the volume exported by the export companies is also produced by them. For example, the biggest national exporter, Noboa, produces only 20% of the bananas it exports and buys the remaining 80% directly from other producers.

The banana sector provides work to at least 123,000 persons. According to the secretary of the Federación Clasista de Trabajo del Oro, affiliated to the FUT (Federación Unitaria de Trabajado- res), the rate of unionisation among employed plantation workers is extremely low. The large companies have succeeded in breaking the union's power by paying the formal minimum wage to the union members and higher wages to the other workers. The union members are also given the hardest work to do on the plantations. Not surprisingly, only 200 plantation workers are now members of the union. The position of workers has deteriorated as a result of the international banana crisis. Plantation workers are no longer given permanent contracts. Because Ecuador's labour legislation entitles workers to a permanent job after one year, the large businesses force them to renew their annual contracts under fictitious names each year. Moreover, 'recalcitrant' workers or union members are put on a black list.

9.2 European banana policy

Europe is the world's biggest importer of bananas with some 45% of total exports. That is one reason why the European Union's policy concerning the banana trade has a strong impact on the international trade.

Historically, special ties have developed between certain producing and consuming countries, often within the context of their common colonial history of repression and dependence. This has resulted in a diversity of different trade regulations in the individual European states.⁽¹⁾

⁽¹⁾ Until 1 July 1993, the EU applied three different regulations: I. On the basis of a special protocol in the Treaty of Rome, Germany was permitted to import bananas tariff-free, regardless of the country of origin. II. A standard tariff rate of 20% for bananas enjoying no preferential treatment was applied by Belgium, Denmark, Ireland, Luxembourg and the Netherlands. III. Banana imports into France, Greece, Great Britain, Italy, Portugal and Spain were governed by the 20% tariff for dollar bananas in combination with a variety of additional national regulations.

This caused no problems until the single European market was to be implemented in 1993, when a variety of relations, interests and regulations had to be 'harmonised'. Already complicated in itself, this process was exacerbated by two more or less incompatible trade agreements which the European Union had signed: Lomé IV and GATT. During the various GATT rounds, a process of trade liberalisation was set off.

This was clearly in contradiction with the Lomé Convention between the EU and its former colonies in Africa, the Caribbean and the Pacific (ACP), which had been drawn up from a development policy perspective. A policy that recognised that trade can contribute to development. The fourth Lomé Convention was signed on 15 December 1989, and included a so-called Banana Protocol. The Banana Protocol gave special concessions to ACP countries. It said that no ACP country should, as a consequence of the establishment of the single European Market, be placed in a less favourable position with respect to banana exports to the EU.

World banana exports 1992

World banana imports 1992

Significance of banana exports 1992
Banana exports as a % of total exports

Source: UNCTAD, Commodity Yearbook 1994

The price of 1 kilo Chiquita bananas

Source: Solidaridad, De gelekoorts, 1994. The Banana Regulation

The European Union's new banana policy, as laid down in Regulation 404/93, became effective on 1 July 1993. It seeks to combine two of the Community's objectives: creating an integrated market for bananas and ensuring access to that market for ACP and European suppliers. It involves a combination of tariffs and quotas. Community bananas form a special category.

They are not subject to any customs duties, because they come from European territory and do not enter the Community anywhere. Yet, a ceiling has been placed on the import of Community bananas; imports exceeding the quota are subject to a levy. ACP bananas may be imported tariff-free up to a certain maximum. In this case, too, a levy of 750 ECU per tonne is imposed when the quota is exceeded. Community bananas were assigned a quota of 854,000 tonnes, whereas the ACP quota was established at 857,700 tonnes.

Besides the Community bananas and the traditional ACP bananas, the Regulation also includes provisions for non-traditional ACP bananas (i.e. bananas that come on top of the fixed quota) and the so-called dollar bananas. The latter are produced in Latin America and owe their name to the fact that they are traded by North American TNCs. To protect Community and ACP bananas from competition of cheap dollar bananas, a quota for dollar bananas was fixed at 2,000,000 tonnes - a decrease of 600,000 tonnes compared to 1992 imports. Moreover, imports of these bananas are subject to a tariff of 100 ECU per tonne, and an additional levy of 850 ECU is imposed on every tonne in excess of the quota. This put the dollar banana in an impossible competitive position. The Latin American producing countries challenged the arrangement and submitted their complaint to a GATT panel.

The European Commission then tried to ease the pressure by making a reconciliation proposal on 14 December 1993. Four countries from the dollar zone gave up their resistance in exchange for a gradual enlargement of the general dollar quota from 2 million tonnes to 2.1 million tonnes as of 1 October 1994 and 2.2 million tonnes from 1 January 1995. It was also agreed that the import tariff would be reduced from 100 ECU to 75 ECU per tonne. On top of that, the four countries concerned - Costa Rica, Colombia, Nicaragua and Venezuela - were offered a guaranteed proportion of the total quota through the application of a system of export licences. Together they account for 51% of the dollar quota, that is 1,122,000 tonnes. Of the export licences, 70% is handed over to the national governments and 30% is issued directly to the traditional exporters.

This compensatory arrangement, the co-called Framework Agreement, has created bad blood among the other Latin American producing countries. They feel that the European Union has managed to break their opposition to the arrangement by pursuing a sly policy of divide and rule. The TNCs are also unhappy about the Framework Agreement. Their former export position is threatened, now that national governments are entitled to distribute export licences. Despite all these objections and despite the condemnation of Regulation 404/93 by the GATT panel, the Framework Agreement was included in the last phase of the Uruguay round in April 1994. All in all, it has made the whole regime even more obscure and more complex.

In this Caribbean country, banana production is in two main regions: the north-east and the south- west, i.e. the valley of the Rio Yaque del Norte and the area surrounding the cities of Azua, Neiba and Tamayo and Bani. Banana production in the north-east is principally aimed at export; that in the south-west is for the domestic market. An exception is the organic farming intended for the European and North American markets, which takes place in the south-east. The organic crops were, until recently, only bought by the Mercantile Food Company and distributed in Europe through Fertilia. In the north-east, bananas are bought by Fyffes and Chiquita. Fyffes does not grow any bananas itself; this company only buys from national producers. Chiquita obtains around 30% from its own plantations; the rest is also bought from national producers.

In the north-east, the banana production was set up at the beginning of this century. In the 1930s, it was entirely in the hands of Grenada Fruit Company (later internationally known as Chiquita Brands). When Grenada withdrew from the Dominican Republic in the 1950s, banana production declined. In 1989, exports were down to 10,000 tonnes.

In connection with the integration of the European market, production started to recover in the late 1980s and early 1990s. The growth was mainly caused by the fact that Fyffes presented itself as a buyer. Fyffes purchases bananas in the harbour from independent producers, mostly small farmers. The company clearly wants to retain the possibility of withdrawing whenever it sees fit. Firstly, it makes provision for the fact that European legislation is not yet fully crystallised, and secondly, the fluctuations in world market sales apparently lead it to consider the Dominican Republic as a buffer supplier for the time being.

Loss of jobs

The public debate provoked by the EU Regulation induced several pseudo-conflicts of interest. First there is the one between ACP producers and dollar zone producers. Although it is unarguably true that the Lomé Convention played an essential role in the political commotion about the trade regulations, and it cannot be denied that the ACP producers sorely needed protection against the cheaper dollar banana, it is evident that the regulations do not take the producers' interests as their starting point. The quota system is based on traders' market shares, not on producers' production volumes.

Also the implementation of the regime in practice proves beyond doubt that it is not the producers, but the traders who are being protected, more specifically the European traders against the American traders. The mere fact that the former were handed 30% of the dollar quota on a silver plate says it all. The idea behind it might be that in the year 2003, after the termination of the Lomé Convention and the Banana Regulation, European businesses should be able to compete with their bigger brothers in America. It is obvious that the arrangement offers a certain degree of protection to the ACP producers as well. But the question remains whether this regulation ensures the most effective form of protection, particularly in the longer term. Another pseudo-conflict is the one between unrestrained free trade and protection. A great deal of criticism on Banana Regulation 404/93 comes from strong advocates of neo-liberalism, who are averse to any type of regulation. An example is the World Bank report 'EU Bananarama III'. It runs down the European regime, arguing that free trade is much cheaper for the consumer and that assistance to ACP countries can be provided in more efficient ways. It conveniently forgets that the international banana trade is fully controlled by a small number of TNCs so that there is virtually no scope for competition.

There are even persistent rumours of price-fixing. The Windward Islands may serve as an example to illustrate that the arrangement does not automatically protect producers in the ACP countries, and may indeed get them into trouble. The British firm Geest, which until recently held an exclusive monopoly regarding the banana exports of the Windwards, took advantage of the dollar zone licences it had obtained for free by setting up banana plantations in Costa Rica. The major financial restructuring that accompanied it had grave consequences for the producers on the Windwards. Their income fell dramatically: by over 45% between July 1993 and November 1994. One out of every five banana farmers was unable to cope with this loss of income and went bankrupt.

Of all banana-producing countries in Latin America, Honduras was most badly hit by the introduction of the European Union's banana regime. Exports to the EU fell from 193,500 tonnes in 1993 to 25,600 tonnes in 1994 - almost a 90% drop. Such a massive loss of sales cannot but be a downright disaster for the country. The closing down of banana plantations leads directly to job losses. Assuming an average output of 2000 boxes per hectare per year (this is a low estimate), the drop in exports is equivalent to the annual yield of some 4,500 hectares. As the bigger plantations need one person per hectare on average, this means a loss of over 4000 jobs in direct production. This figure is increased by all those depending indirectly on the banana industry.

Fair trade in bananas requires:

a fair price: a minimum price of 6 dollars per 40 pounds, increased by 1.75 dollars for social and ecological investments. For organically grown bananas, an additional sum of 2.50 dollars is paid.

continuity: long-term cooperation with producers, guaranteeing them a certain level of sales and income.

direct purchasing: bananas are purchased directly from the producers in the South.

All the trading partners - producers, small farmers' organisations or plantations - must satisfy a number of social and ecological criteria, such as minimum working conditions, the right of trade union membership, and the limited use of pesticides and artificial fertiliser.

9.3 Fair trade

The effects of the EU's Banana Regulation are not entirely positive, especially when considering the position of producers and plantation workers. Also, the production of bananas involves high social and ecological costs. The fair trade alternative, launched by the Dutch development agency Solidaridad and now taken up by Euroban, aims to protect small and medium-sized producers as well as plantation workers. To achieve that aim, a basic requirement is ensuring alternative market access for people-friendly and environment-friendly bananas. This initiative is not new. In the recent past, bananas from Nicaragua were traded in various European countries. These were mainly sold in World Shops to support the Sandinista revolution. Chamorra's defeat of the Sandinistas put an end to this trade in 'Nicabananas' in many European countries.

The introduction of bananas grown under agreed social and ecological conditions on the European market should provide an impetus to more sustainable production, trade and consumption of bananas. Currently (September 1995) two basic lines can be distinguished in the development of fairly traded bananas. Firstly, efforts are being made to cooperate at a European level on political lobbying in Brussels, actively supported by NGOs in Germany, the Netherlands and Great Britain. The aim is to refine the existing Banana Regulation by establishing a special counter for licences for bananas grown under specific social and ecological conditions. This is essential because the banana market is almost completely impenetrable to new initiatives. The quota arrangement has artificially constricted the market and on the existing market situation, there is virtually no room for fair trade bananas. A second, parallel activity is the formulation of a market strategy. Exploratory talks are being held with existing market operators to investigate whether alliances can be formed in order to put a fair trade banana on the market. Roughly speaking, there are two possibilities. The first is to seek contact with a market operator holding sufficient import licences and performing the three market functions that are vital to importation: that of importer, clearing agent and ripener. This strategy only stands a chance of success if the market operator concerned expects to benefit from it. Benefits might include an extension of his market and contacts with new producers. For the fair trade initiative, the guarantee that the relevant social and ecological criteria are really being met is essential. Besides collaboration, another method could be the establishment of an independent firm for the marketing of fair trade bananas. The advantage of this strategy is that it offers the possibility of involving producers. As partners in the business firm they could have a say in policy formulation and have a share in the profits. From the perspective of development policy, that would be an interesting option. The disadvantage, however, is the difficulty in obtaining licences. In order to keep open this possibility, exploratory talks are going on with secondary market operators: clearing agents and ripeners. All links in the chain of banana trade are being examined for their potential usefulness with respect to fair trading. Intensive talks are being held with producers, both in the dollar zone and in ACP countries; various marketing options are being examined; and the lobby aimed at European politicians is taking shape. This provides a solid basis for making this ambitious project a success. At present it is hard to tell how good the chance of success is, but the prospects make the effort more than worthwhile. We do not cherish the illusion that fairly traded bananas will be able to bring back paradise. But we do believe that this initiative may provide a way out of the banana trade jungle for many producers.

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