The Fairtrade Foundation has published a report highlighting the impact of UK retailers’ “banana wars” on banana producers. In the past decade, the UK has been in the forefront of a consumer move to fair-trade bananas – 35% of all bananas sold in the UK are now certified as fairly traded. The same period has also seen relentless retailer price wars, which have led to a 40% decline in the “typical UK retail price of loose bananas” from £1.08/kg in 2002 to £0.68/kg in 2013, in the context of a doubling of producer input costs. This contrasts with a 4% increase in the retail price of bananas in Italy, a 7% increase in Germany and 10% increase in France over the same period.
The report seeks to analyse the functioning of UK banana supply chain and “assess how far a falling retail price translates in problems for producers”.
In the UK, seven large retailers control over 80% of all banana sales. Some retailers maintain that there is no direct relationship between the costs they incur in procuring bananas and the price they charge consumers. However, the Fairtrade Foundation asserts that there is “a clear long-term correlation between retail prices and prices paid in banana producing countries”. This is based on an assessment of the average import prices of bananas, taking into account inflation.
The Fairtrade Foundation research in the report shows that “the declining value of the export price combined with increases in living costs has made it hard for workers to achieve progress in earnings.” In addition, the research shows that “small farmers are under pressure to match the prices paid to large plantations”. It states that “average prices in countries that supply Britain’s banana market are failing to keep pace with the costs of sustainable production,” and that “the pressure on price has driven a trend towards… the marginalisation of smallholder producers.”
The report maintains that the Fairtrade minimum price (i.e. the price below which prices should never fall) is commonly taken as a market reference price rather than the absolute minimum price that it was intended to be. According to the Fairtrade Foundation, “the pressure to reduce prices… means that no one in the supply chain – retailers, banana companies or growers – [is] able to adequately reinvest profits in improving the sustainability of the banana industry.”
As a result of these findings, the Fairtrade Foundation calls on retailers to:
- “take their ethical responsibilities seriously”, resist pressure to “drive down prices at all costs” and make a commitment to pay a fair price for bananas that covers the costs of sustainable production;
- adopt policies to ensure a place for smallholder farmers’ production on UK banana markets.
It calls on the UK government to:
- amend the Groceries Supply Code of Practice to cover overseas producers that supply major UK retailers through third parties;
- “investigate the UK retail market in bananas and its impact on the sustainability of the banana supply chain and the situation of banana farmers and workers”.
It calls on the EU to:
- “investigate the retail pricing tactics on bananas of retailers across Europe” and “evaluate the impact of low retail prices on the long-term interests of banana producers and European consumers” – and make a commitment to act on these findings;
- promote the creation of “an ombudsman similar to the UK Groceries Code Adjudicator in order to regulate buyer power in the retail industry, starting with bananas”.
The Foundation also calls on governments in banana producing countries to:
- take a lead in setting living wage levels in the banana sector; and
- recognise the role of trade unions in collective bargaining in the banana sector.
It has been recognised in recent years that inequality in power relationships along supply chains can potentially lead to abusive practices that can undermine the agricultural base (see Agritrade article ‘ EC proposes action to improve functioning of food supply chain’, 9 December 2009). This has led to the elaboration of policy measures to avert the emergence of such practices. In the sugar sector, measures have included making inter-professional agreements between sugar beet growers and millers mandatory. In the dairy sector, it has been left to national authorities to decide whether a mandatory or voluntary approach to milk supply contracts should be adopted.
At the national level in the UK, given the structure of the retail sector, with a high concentration of sales through multiple retailers, these concerns have led to the establishment of the Groceries Supply Code of Practice and the creation of the post of UK Groceries Code Adjudicator.
The findings and recommendations of the Fairtrade Foundation report potentially constitute an important new policy area for ACP–EU dialogue across a range of sectors where the value of traditional preferences is being eroded, most notably in the banana, sugar and horticultural sectors. Questions arise over whether ACP governments should be adding their voices to calls for:
- the extension of the Groceries Supply Code of Practice to cover overseas producers;
- this approach to be generalised across the EU;
- the matter to be taken up in joint ACP–EU forums for dialogue on trade issues.
This would appear to be a relevant issue, since how supply chains function within more deregulated EU sugar and banana markets is likely to have an important bearing on the commercial and development benefits derived from future preferential access to the EU market in these sectors.