Ecuador needs open banana markets to absorb productivity growth

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Ecuador needs open banana markets to absorb productivity growth

Weather issues affected 5,000 hectares of banana plantations in Ecuador during the winter, which will impact production until late-2012. For the longer term however, Banana Exporters Association of Ecuador (AEBE) executive director Eduardo Ledesma expects increased productivity will push up volumes substantially. He tells about the issues that need to be solved both abroad and at home if the country is to capitalize on this position.

Ledesma says many banana plants were put under stress by the cold winter conditions this year, leading to a prolonged effect on production for about five to six months.

"I think that in June we will have 13-20% less fruit, and from that we can predict that in December we will arrive at 260-270 million cartons, and not the 285 million cartons we had last year.

"At the moment market prices have started to fall because of the effects of the normal competition that exists with seasonal fruits at this time of year, while people also go on vacations and don't buy as many bananas.

"Logically, the markets remain but with prices that are lower and with lower consumption."

He highlights that Europe accounts for 40% of Ecuador's banana exports with Russia as the leading importing nation at 22%, while the U.S. accounts for 20% of shipments.

Ledesma believes Ecuador can maintain its 20% share in the U.S. but that percentage is unlikely to move much given the strength of Guatemala. Elsewhere, he says the Ecuador's foreign ministry is aiming to seal better deals for exporters.

"What we want to do this year is consolidate our markets to reach an agreement with the European Union to compete equally with our competitors like Colombia, Costa Rica and others in Central America.

"We are in negotiations with China so that we can arrive at an agreement or a special rate for China, so we can retake this market that was once open but was drowned out by the Philippines with zero tariff entry; we currently have a 10% tariff rate in China.

"It is probable that we can negotiate a deal in Turkey too, while negotiations continue with South Korea, Japan, Iran and Brazil, but this is something that our government need to achieve through agreements, hopefully within the lowest possible timeframe."

Ledesma says Turkey charges an ad valorem tariff of 145% on Ecuadorian bananas, while Brazilian trade issues are also prohibitive.

"In Brazil we would like to enter with zero tariffs, as there are no Ecuadorian bananas entering there at the moment at any price."

Productivity growth

The executive highlights the opening of new markets is very important for the industry given a projected rise in productivity.

"I think every year it will improve somewhat. Today we have a productivity of 1,400-1,500 cartons per hectare, and we think that in two years we could reach 2,000 cartons per hectare.

"This means Ecuador could export 450-500 million cartons, but this depends on the market and will depend on the level of production we have, and how the bananas respond to the global economic conditions if there is lower consumption."

He adds the country is fortunate not to have many disease problems either.

"We have Black Sigatoka disease but it is controlled, we don't have Fusarium Wilt, and we don't have some of the problems that countries like the Philippines and other countries have."

He believes Ecuador could be very competitive under the right tariff conditions given the country's lower pesticide use compared to some other banana exporters.

"There is significant potential and we could place our bananas at convenient prices as we know we have a superior quality to our competitors, and that our fruit is much healthier because of our environment.

"Costa Rica fumigates more than 60 times a year and Ecuador fumigates just 20 times a year, so our bananas are not as contaminated as in Costa Rica and other countries."

In contrast, Ecuador's southern neighbor Peru has made strides in organic banana production without pesticide use. Ledesma says it is possible that organic production could take hold in his country once more.

"Ecuador was in the position of becoming the second-biggest exporter or organic bananas with the possibility of being number one, but unfortunately many growers, because of the effects of production costs and inputs, it wasn’t favorable and they decided to pull out.

"In any moment Ecuador could recover this industry and surpass Peru, because we have the conditions for it."

Fixing local issues

While Ecuador needs better trading conditions abroad, it also needs better regulation at home. The Ecuadorian government fixes the banana price but Ledesma claims it is done ineffectively.

"This price that they fix annually should be fixed earlier in November of every year, so that the contracts can be in effect at the start of January in the next year, and last a year until December.

"Right now the prices are not dictated during that time, but in the month of January, and that is the month when you have high season with prices that are much higher above the official price, and a good portion of growers don’t want to sign contracts with exporters and moreover they would prefer to sign when the low season starts.

"But at that time exporters in contrast don’t want to sign contracts because they already have their assumed and acquired obligations, so we need to have a permanent situation that tries to avoid what has always happened in Ecuador."

He says under the current system there is still a great deal of speculation from growers and exporters, which damages the country's image.

"If the authorities do not apply the regulations and law proficiently - and they haven’t done so to date - they won’t be able to control and they won't be able to manage the price in an official way; if this is the case then it is preferable that the banana law be repealed so that trade, through supply and demand, can direct prices."

He says a national census is needed for better understanding of the industry in terms of its size and potential, as well as a register of companies that don't comply with regulations.

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