European trade rules and threats to Fairtrade bananas

Bananas in the UK

Today, bananas are the UK’s most popular fruit with around 863,000 tonnes shipped into the country in 2003. They are also the highest value grocery item that supermarkets sell and a significant contributor to supermarket profits. As a key promotional item, there is fierce competition among the large supermarkets (multiples) to offer the cheapest bananas so when one multiple cuts prices, the others normally follow suit. {{more}}These price cuts are then passed down the supply chain to suppliers and ultimately banana growers.

Lower-cost fruit is available from ‘dollar banana’ producers in Central and South American countries such as Ecuador and Colombia because production is easier and cheaper on huge plantations located on level plains. Higher-cost producers though, such as those in the Windward Islands, whose small-scale farms are spread out over difficult, hilly terrain, are either being forced out of the market or have to sell at or below the cost of production. It is these marginalised smallholders that Fairtrade aims to help by setting a minimum guaranteed price for bananas sold with the FAIRTRADE Mark.

Fairtrade bananas have been shipped to the UK since 2000 and now, one-in-five of all Windward Islands bananas carry the FAIRTRADE Mark. This means that farmers get a higher price for their bananas and a premium which is invested in commercial, social or environmental projects. To date, Fairtrade bananas have generated premiums in excess of US$1m for projects including:

l Construction of a pre-school building in the community so children no longer have to walk four miles to school.

l Purchase of school furniture meaning that that children can attend class all day rather than just the morning or afternoon.

l Installation of street lights

l Renovation of 12 farm access roads

l Construction of a community centre for meetings and social gatherings

l Support to farmers to meet EUREPGAP standards

The new EU tariff proposal

The highly damaging and divisive banana dispute of the 1990s between the EU and the US, Honduras, Guatemala, Ecuador, Panama and Mexico ended in April 2001 when the EU agreed to end its import quota arrangements for bananas which ensures preferential treatment for African, Caribbean and Pacific (ACP) producers. The EU agreed that by 1 January 2006 it will be replaced with a single “neutral” tariff at a level that continues to deliver existing protection and market access. [… ] With the loss of quotas, there is no certainty that any rate will be able to replicate a situation equivalent to the current import position.

Catastrophic Impacts

The small family farmers of the Windward Islands, with their relatively high costs of production, face increasing difficulties competing once low-cost suppliers expand their presence further in the UK market. These low-cost suppliers already exert a downward influence on prices overall and could squeeze the Windwards’ farmers out of the market.

The continuing importance of banana exports has been starkly demonstrated by the severely negative impact on macro-economic stability in Dominica that resulted from the decline in foreign exchange earnings and employment with the recent contraction of the industry. Between 1992 and 2003, annual export volumes fell from 58,000 tonnes to 13,000 tonnes.

Amos Wiltshire, banana farmer and National Fairtrade Coordinator for Dominica, explains how hard the low prices hit the island: ‘When prices dropped farmers lost interest and trust in the industry. The economy went down to zero because bananas are the heartbeat of the country… Everything was going haywire: increasing crime, youth violence, youth delinquency. We even had families torn apart because there was no income, nothing coming in, husband couldn’t maintain their families. Thousands of Dominicans all over the small islands were doing next to nothing. There was a real exodus from the country because things were so bad. It was a total downturn in the industry, total collapse. Prices were too low, it was forcing farmers out. Depots were closed. No one was bringing in fertilisers. Even the remaining farmers couldn’t survive’.

In order to deal with greater competition and uncertainty, farmers are being forced to adapt. The Windward Islands have started producing organic bananas and most importantly ensuring that more of their production qualifies for Fairtrade certification. Farmers have also recently begun diversifying into the production of other Fairtrade-certified products such as coconuts.

Hand-in-hand with these efforts, countless supporters in the UK have worked consistently to build the demand for Fairtrade bananas in their local communities, all in support of sustainable livelihoods for workers and farmers in the industry. If the Caribbean banana industry loses its market as a consequence of the EC proposals, the outcome will be the destruction of a vibrant and successful Fairtrade industry.

What is happening next?

On 30th March 2005, six Latin American countries – Ecuador, Costa Rica, Colombia, Panama, Honduras and Guatemala – filed a request to the WTO to arbitrate their banana dispute with the European Union. It seems clear that a lengthy, costly battle will be fought with little or no prospects of a fair outcome for those who actually grow bananas. Tens of thousands of family farmers and unionised plantation workers are likely to lose their livelihoods if the tariff-only proposals are implemented.

For this reason, the Fairtrade Foundation supports the growing calls for a postponement of the implementation of the single-tariff regime in favour of the continuation of the current quota system.

What is the UK government doing?

The UK government’s position so far has been to support the Commission’s proposal of €230/tonne. If the tariff turns out to be too low for the Windward industry to survive, the government may propose some form of transitional aid for diversification.

The UK is likely to play a critical role in facilitating a resolution to this dispute, since it holds the EU Presidency in the second half of 2005. The results of the WTO arbitration are likely to be announced in July, so there is still an opportunity for an agreement to be negotiated with the Latin American exporting countries and the ACP.

Whatever the outcome of the arbitration process, we call on the UK government to proactively support the maintenance of the current regime, until a system can be introduced that supports socially and environmentally sustainable production, and enables small banana farmers to continue participating in world trade.