COMMENT

Opinion
Jahir Lombana
ECUADORS BANANA ACT HAS NOT IRONED OUT THE DEBATE
Ecuadors internal revenue service Servicio de Rentas Internas made a call to order earlier this year to two subsidiaries of the banana export giant Noboa Group for the non-payment of taxes. 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 socalled Banana Act last March. The legislation states that the minimum price paid by exporters must cover the producers average cost plus a reasonable prot. The 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, thus regulating the market to avoid ongoing discussions about a reference price. Until now, this reference has always been set by the government, since growers and exporters were unable to agree an amount. It is no surprise that this new law has not ironed out the ups and downs of this debate. On one side you have the producers, who are generally risk-averse 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. One economic argument 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 at, 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. Among the biggest opponents to Ecuadors Banana Act are producers who dont have contracts. 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. The struggle between ideologies is clear. President Rafael Correa continues to pursue a general policy of regulation, which has even slowed trade agreements that neighbours such as Colombia and Peru have tried to forge with major buyers such as the EU and US. 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. Jahir Lombana lectures in global trade and competitiveness at I Universidad del Norte in Barranquilla, Colombia.

This week on Twitter

2011 Portobello & Golborne Road markets will have their English Apple Festival 21-22 (& maybe 23) October. @RBKC_Markets Working on the #understandingblackberries campaign today. Why not check it out www.facebook.com/ berrybuddies @BerryBuddies When you step through the doors of PizzaExpress today you will notice some changes. An updated menu and a cool new design. @PizzaExpress BBC lming about fruit and vegetables in 17th century. Introduction of new varieties & new production methods. Fascinating stuff. @MarketFood

This week on the currency markets

There was hard evidence last week that at least three countries are worried about the overvaluation of their currencies, writes Moneycorps Chris Redfern. Japans nance ministry announced that it had sold 4.5 trillion yen (35.4 billion) on 4 August to depress its currency. It worked, but within a week the yen was back up to where it had started. In Switzerland, the economy minister announced an 870 million franc (656m) package to help counter the impact of the francs massive overvaluation. Brazils central bank cut its benchmark interest rate from 12.5 per cent to 12 per cent, despite an ination rate well above its target range. But nobody can be heard to complain that their currency is too weak. Sterling was one of a group of half a dozen currencies that happily drifted in the wake of the storming Swiss franc. The US dollar, way back in second place, did better than expected after a very disappointing set of employment data, which showed zero jobs growth in August. It was the fourth consecutive month in which non-farm payrolls grew by less than 100,000 and it raised anxiety about the global outlook for the economy. The shortened weeks tail-end Charlie was the euro, where events are conspiring against resolution of the southern debt crisis. This means that more than six weeks on from the summit agreement, the process is bogged down and a successful outcome looks even further away. I

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1. NZD 2. AUD 0.2% 3. NOK 0.6% 4. ZAR 0.2% 5. SEK 0.7% 6. CAD -0.3% 7. EUR 0.4% 8. USD -1.2% 9. JPY 1.3% 10. CHF 1.3% 5.2%

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07/09/2011 16:38