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Growing competition in differentiated product markets

06 October 2011

With US$200 million in exports of organic bananas expected this year, the Dominican Republic continues to be the world leader in the international trade in organic bananas. This is up from US$70 million in 2010, with a major expansion of consumer demand for organic bananas seen to be under way. Organic banana exports from the Dominican Republic have risen dramatically since 1989, when no organic bananas were exported.

This forms part of wider efforts to differentiate Dominican agricultural products on quality grounds. In June 2011 it was announced that some 400 companies in the Dominican Republic were set to receive fair-trade certification.

Similarly, in July 2011 the launch of the Dominican Republic’s first coffee origin brand, ‘Barahola Coffee’ was announced. It is hoped that the registration of this brand will bring additional income benefits for the 7,294 growers involved in the production of this distinct coffee.

However, quality-based product differentiation is also a strategy that competitors beyond the ACP are also trying to develop. Press reports indicate that in the first quarter of 2011, Peruvian exports of organic bananas grew 48.3%, with organic banana exports now representing 37% of total Peruvian banana exports. It is anticipated that by the end of 2011 the total value of Peruvian organic banana exports will reach US61.7 million, 8.6% up on the 2010 export value. In Peru, the organic banana sector has been highly dynamic between 2005 and 2010, with exports growing at ‘an average annual rate of 32.3% in value terms and 21.9% in volume terms’. It is anticipated that this export growth will maintain its momentum in the coming years in the face of the growing interest in organic production because of its higher profitability and the implementation of tariff reductions agreed as part of the recent FTA accord with the EU.

In Ecuador, banana exporters are complaining about the slow pace of trade negotiations with the EU, given the earlier conclusion of FTAs by Ecuador’s competitors Colombia and Peru. Currently the EU is the destination for 41% of total Ecuadorian banana exports.

Editorial comment

While quality-based product differentiation represents an important vehicle for ACP producers to maintain their market position in the face of preference erosion, it needs to be borne in mind that their competitors in neighbouring non-ACP countries may well be following similar marketing strategies. This highlights the need for constant dynamic innovation within strategies to market quality-differentiated products. The growing emphasis on fair-trade certification in the Dominican Republic can be seen as one means of multiplying quality distinctiveness (e.g. combining organic and fair-trade certification), in order to maintain a competitive edge in the marketplace.

The dangers of complacency in marketing of quality-differentiated products is illustrated by developments in the Jamaican coffee sector, where a high dependency on the Japanese market has seen export earnings and prices fall dramatically in the face of the economic difficulties besetting Japan. That such economic setbacks can occur in a product as distinct in its qualities as Jamaican Blue Mountain Coffee serves as a warning to ACP sectors pursuing quality-based product differentiation strategies, emphasising the need for constant innovation (see Agritrade article ‘ Market diversification is key to price premiums for Blue Mountain coffee’, April 2011).

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