Banana deal struck
31 December 2009
While earlier press reports suggested that a final resolution of the banana dispute could be held back by US and ACP concerns or linked to deals on other commodities (sugar, rum, tobacco), this has not proved to be the case, with a final deal being initialled on 15 December 2009. Parties who initialled the deal included the USA.
The deal will cut tariffs from €176/tonne to €114/t by 2017, with an immediate reduction to €148/t once the agreement has been signed by the parties, probably in around four months’ time. In exchange, Latin American banana exporters will drop all actions against the EU in the WTO and will not seek further tariff reductions on bananas in the Doha Round. Parallel to this, the EU has agreed on the approach to be adopted in dealing with ‘tropical products’ and ‘preference erosion’. In a side agreement, the EU has agreed to make available some €200 million in new funding under the ‘Banana Assistance Measures’ programme.
ICTSD reports that a deal is likely to reduce ACP banana exports by 14%, while Latin American banana exports would grow around 17%. While overall imports of bananas into the EU have increased from 545,000 tonnes in 1992 to 927,000 tonnes in 2007, the share of traditional Caribbean suppliers has slumped dramatically. In 2008, Latin American suppliers accounted for 72.5% of the 5.4 million tonnes of banana sold on the EU market, with the ACP accounting for 17% and EU producers 10.5%. The conclusion of the banana deal is expected to facilitate EU FTA negotiations with Colombia, Peru and Ecuador, which are being accorded a high priority by the Spanish presidency of the EU.
In terms of the price effects of a deal, press reports note that banana prices on the UK market have already been falling. Indeed a report in the UK industry paper, the Grocer, notes that while fruit-and-vegetable prices have fallen 9.9% in the year to November 2009, banana prices in the UK have seen a 36% fall. Other media analysis however suggests that this is largely being driven by the pricing policies of supermarket chains in the UK, which use low-priced bananas to bring consumers through the door, hence the periodic outbreak of ‘banana wars’ among UK supermarkets.
In response to the deal, some African banana exporters are reported to be looking to develop national and regional markets for bananas.
Editorial comment
Press reports would suggest that the future price impact of the WTO banana deal needs to be seen within the context of the treatment of bananas by supermarket chains. This raises important issues about the functioning of the supply chain for bananas. Any EU programme of accompanying measures for ACP banana producers could therefore usefully include the launching of an investigation into the functioning of the banana supply chain and specific initiatives to strengthen the commercial position of banana growers within the various supply chains serving ACP banana exporters.
Assistance could also usefully be provided to ACP producers to restructure trade and production, in order to successfully serve increasingly differentiated EU banana markets (see article ‘World Banana Forum Launched’ for the scope in this regard). Assistance with certification costs of small-scale producers and verification of compliance are obvious areas for such support.