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Banana
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Prices
- Banana Terms of Trade
- Retail prices
- Banana production costs
- Banana price links
When analysing banana prices, it is important to note that as the world banana market is geographically fragmented, mainly due to transport costs and diverging import policies in the consuming countries, such as the EU banana regime, it is not possible to have an international banana price as such. However, taking into account that the US banana market is free of tariffs or quantitative imports restrictions, we could consider the evolution of banana prices in USA as a useful approximation in order to obtain the historical trends. The analysis of data for Bananas, Central America and Ecuador, F.O.B. US ports (US$ cents per lb) summarized in the following chart shows that the terms of trade for bananas, as it is the case for many other commodities, have experienced a long term deterioration in real terms.
Evolution of banana terms of trade 1961-2007
Source: UNCTAD Secretariat from Commodity Price Bulletin
In general, banana market prices at the international level are determined by demand and supply availability. Supply factors would include weather conditions (for example, Mitch Hurricane in 1998 destroyed crops in Central America, with the corresponding supply reduction and increase in prices), diversification of supply sources, area available for banana production, yields, etc. Demand from banana consumers would depend on income growth and economic evolution in the different countries, population growth, consumer preferences, banana import regimes, etc. Although the banana market presents an oligopolistic structure, this does not actually mean that transnational marketing companies have a great power to set selling prices for bananas, particularly during the nineties with increasing competition exiting among them. Their position as price makers is not so clear. If any of these companies tried to increase prices unilaterally, it would imply a lower ability to compete with the other companies selling bananas, and consequently a loss of market share. In addition, the dominant position of these large banana marketing companies has been challenged by some other importing groups that have appeared as a result of efforts of producers to directly market their bananas outside the multinational channels. Therefore, banana price formation is most determinant at the retail stage, particularly due to the increasing dominant position of distributors (supermarket chains).
Banana retail prices in selected consuming markets
(US$/kg)
January 1994 - December 2005 (monthly basis)
Source: UNCTAD Secretariat from FAO Statistics
Retail prices in the United States are generally lower than in the other countries, mainly due to the lack of tariffs or quantitative import restrictions for bananas in USA and the lower transportation costs from the supply areas (sea distances are shorter). On the European side, there is a certain degree of convergence in retail prices in the European countries, what could reflect the emergence of the single market in the EU, after the EU Banana Regime in 1993. The higher prices in Japan may be due to the higher level of tariffs, the higher wages at the retail level and the lower level of competition in the Japanese retail sector.
On the producer side, transnational marketing companies have a higher power to set the prices they pay to producers for their bananas. Prices at this stage depend considerably on the bargaining power of producers in order to negotiate their contracts with the companies that distribute or market their bananas. In Ecuador or Costa Rica, the world largest banana exporters, the government sets a minimum price to be paid to growers with the objective of protecting national producers (referential price in Ecuador was 2.90$ per box of 43 pounds in December 2001).
Due to the diverse banana production systems in the different countries and the limited availability of appropriate homogeneous production price data, it is quite difficult to make accurate international comparisons of production costs. However, there is a consensus on the existing analysis of the banana market in that banana production costs are lower in Asia, South America and Central America than in the Caribbean. In the large size plantation production systems of Philippines, Colombia or Costa Rica, economies of scale are higher while they enjoy a more developed technology, allowing for lower production costs. Labour costs, as in Ecuador, are much lower. On the other hand, Caribbean producers face higher costs due to the steepness of the land, the small size of farms as well as the low quality of soil and unfavourable weather conditions such as the frequent occurrence of hurricanes. Transport costs for Caribbean bananas are also higher because ships need more calls in ports, as the amounts of bananas they export are not enough to fill one ship. As an approximation, the following chart presents the evolution of banana export unit value prices in representative exporting countries.
Banana export unit values ($/ton), 1961 - 2006
Source: UNCTAD Secretariat from FAO Statistics
The comparison between export unit values in relevant exporting countries shows much greater values for Caribbean countries as Jamaica or St. Lucia. The lowest export unit costs appear in plantation systems in Philippines and in South American countries as Ecuador and Colombia, where labour costs are lower. Central American countries as Costa Rica, where wages are higher, show higher export unit values but still lower than those of African countries as Côte dIvoire, which stand at intermediate levels. This graph shows the gap in competitiveness between the different producing areas.
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