DISTRIBUTED AT

EUROFRUIT
THE INTERNATIONAL MARKETING MAGAZINE FOR FRESH PRODUCE BUYERS IN EUROPE

EUROFRUITISSUE 444 2011 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV-DEC

SEPTEMBER 2011 ISSUE 444

www.eurofruitmagazine.com

EARL START Y FOR EUROPES APPLE AND PEAR SEASONS

Opportunities to expand in Russia and eastern Europe Walmarts Asda/IP model offers fresh sourcing blueprint
MARKETS

CAMPAIGNS

THE BOARDROOM

Tesco sets out its stall

THE GROCERY GIANT ON HOW IT WILL HELP SUPPLIERS EARN MORE AND WHY ITS NEW SOURCING MODEL ISNT ALWAYS DIRECT
THE RIPENING ROOM THE BOARDROOM MARKETS CAMPAIGNS THE CONVENTION CENTRE THE FIELD THE PACKHOUSE DISPATCHES

What the Arab Spring will mean for fresh produce sales in the Middle East

Round-up of key news and comments from the Global Table Grape Congress 2011

THE BOARDROOM

COMMENT Ecuador

State affairs still play their part

barranquillaPolitics continue to be at the heart of everything that goes on in the Ecuadorean banana trade, but a new law enacted by the present government may result in subtle changes to the export sector.
Jahir Lombana PhD UNIVERSIDAD DEL NORTE
lombanaj@uninorte.edu.co Jahir lectures in global trade and competitiveness at Universidad del Norte in Barranquilla, Colombia.

E
able profit.

cuadors Servicio de Rentas Internas (sri), its internal revenue service, made a call to order earlier this year for the non-payment of taxes to two subsidiaries of the banana export

the market. However, she asserts, this quintet engages in fierce competition not only for the spot market in Ecuador but around the world. In fact, as far as the competition in Ecuador itself is concerned, there are more than 140 exporters able to compete for local production, which certainly is very few when considering there are almost 11,000 producers. One economic argument to strengthen their position is to achieve a pricing balance during the production year, with a period of good prices for growers far above the reference price and a period of lower prices, which have to be at least equal to the reference price that producers receive (or should receive). Most discussions centre around what level the lower prices should be, but the Banana Act still includes a reference price the law only ensures certainty in terms of time, as contracts cannot be signed for less than a year. OPPOSING VIEWS Among the biggest opponents to Ecuadors Banana Act are producers who dont have contracts, a group which justifies the absence of information and the urgency in enacting the law. Until they are regulated, they cannot market their products abroad and have to sell them on the domestic market. Given that contracts must be registered with the government, its fair to say that bureaucracy can be a silent accomplice to the ineffectiveness of the law. Another important group that stands against the measures enacted by Ecuadors government are the opposition political parties, particularly the rightwing Partido Renovador Institucional Accin Nacional (Institutional Renewal and National Action Party,) led by renowned banana tycoon lvaro Noboa, who has also stood for the Ecuadorean presidency four times his most recent defeat came at the hands of the present left-wing incumbent Rafael Correa.

giant Noboa Group. That move may be a sign of a shift in the governments regulation of the banana sector, a change underpinned by the passing into law of the so-called Banana Act last March. The legislation states that the minimum price paid by exporters must cover the producers average cost plus a reasonThe debate between both sides over the payment of fair prices for bananas to producers continues to rage. Under the new law, the government is expected to exert greater control, forcing producers and exporters to sign purchasing contracts in line with a price agreed between the two parties, and thus regulating the market to avoid ongoing discussions about a reference price. Until now, this reference has been always set by the government, since the growers and exporters were unable to decide on an agreed amount. It is no surprise that this new law has not ironed out the ups and downs of this debate. On the one side you have the producers, who are generally riskaverse, and of course the government. Their main arguments are in favour of industry regulation to avoid unfair competition. On the other side there are the defenders of free trade, larger enterprises that regulate purchases in Ecuador and adjust demand according to international market prices. Gabriela Caldern de Burgos, a researcher at a thinktank called the Cato Institute, justifies this opposition to the Banana Act on the basis that Ecuadorean banana traders as a group are commonly described as an oligopoly, with five multinationals managing

Under the new law, producers and exporters are expected to sign purchasing contracts in line with a price agreed by both

28

september 2011 - eurofruit magazine

THE BOARDROOM

A recent clash between the two forces resulted in the closure of two of the Noboa Groups subsidiaries: Banana Continental (Banacont) and Industria Cartonera Ecuatoriana, for apparently failing to meet payments of income tax in 2010. That was the verdict delivered in Guayaquil by sris municipal director, Juan Avils, who said that of 200 companies asked, those two were the only non-compliant ones and should therefore be closed temporarily for a week, with the option to extend the time if they do not meet the obligation. Noboas lawyers have called this political persecution, while Douglas Romero, financial director at Banacont, estimated losses at US$4m for the week of closure. He argues that the effect of the closure goes further, to workers and transporters along the supply chain. Banacont belongs to the Noboa Group and, since 2010, has become the main exporter of bananas in the group, which also includes firms such as Exportadora Noboa, Frujasa, Industria Cartonera Ecuatoriana and at least 100 companies involved in finance, media and construction in Ecuador and other countries. According to the local banana export organisation, the Asociacin de Exportadores de Banano del election between left- and right-wing, and that provides the market with signs of uncertainty. The struggle between ideologies is clear: protection of producers up against the free trade orientation of the market, which has gradually been taking hold of the global environment, at least in the case of bananas. President Correa continues to pursue a general policy of regulation, which has even slowed trade agreements that neighbouring countries like Colombia and Peru have tried to forge with major buyers such as the EU and US. In the recent past, Ecuadorean private firms lobbied for the US to extend unilateral tariff preferences. It is possible that they may be extended, but the uncertainty of opinion regarding the safety of a free trade agreement has left Ecuador in a disadvantageous position. In this context, Ecuadors banana sector is dependent not only on its exports and imported inputs from the EU and US, Ecuador (aebe), last year Ecuador exported 265.59m boxes, with Banacont the second-largest exporter with a market share of 9.17 per cent (24.36m boxes), behind Ubesa with 12.69 per cent (33.71m boxes). During the period January-April 2011, however, Banaconts share had fallen to 7.68 per cent (8.19m boxes) of total exports (106.54m boxes). In the same period, exports from Ecuador were sent to four main destinations regions: the Baltic and North Sea (23.57 per cent), Russia (22.5 per cent), the Mediterranean (20.14 per cent) and the US (18.4 per cent). Noboa and Correa have an open ideological conflict, but its political importance has always been synonymous with economic uncertainty. The political balances in Latin America vary from election to
ABOVEA united front to promote

Ecuadors banana sector is dependent not only on its exports and imported inputs from the EU and US, but also on the political issues that surround it

but also on the political issues that surround it. _ E

Ecuadors banana exports to Europe belies the divided opinions that continue to shape the industry behind the scenes

30

september 2011 - eurofruit magazine