Giovanni Anania - Centro Rossi Doria · [Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014] …few facts about the world banana

[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014] 1 / 25

Global value chains for food and nutrition security [Rome, 25-26 September 2014]

Developments in global value chains for bananas: trade policies, multinationals, shipping modes and product differentiation.The case of Cameroon exports.

Giovanni AnaniaUniversity of Calabria, Italy

[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014] 2 / 33

about the paper

an opportunity for putting together ideas and doing some explanatory research

the paper - a very preliminary, incomplete draft

three (distinct) sections:

the main factors shaping changes in global value chains for bananas

the case of Cameroon banana exports a stylized model of the value chain of Cameroon

banana exports

criticisms and suggestions very welcome!

[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

…few facts about the world banana market

a growing industry - world production and trade more than doubled since 1990

highly concentrated - Ecuador alone 34% of world exports, top five exporters (Ecuador, Philippines, Guatemala, Costa Rica and Colombia) account for 88%

imports highly concentrated as well - main importers are the EU (23% of world imports) and the US (19%)

involves relevant issues for South-North as well as South-South relations

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU import regime for bananas, meant to protect (a) domestic producers from imports and (b) African Caribbean and Pacific (ACP) exporters from Latin American ones

changed several times over the years

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

tariff rate quotas on MFN and ACP exports

elimination of country-specific allocations within the ACP quota (1998)

increased market power of traders holding the licenses at the expenses of producers and exporters

abolition of licenses, quotas administered on a ‘first come, first served’ basis (2001)

canceled market power of license holders, created new opportunities for non-traditional traders

elimination of the quota system (2006, 2008) canceled quota rents and expanded further

opportunities for non-traditional trade links 5 / 33

[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

‘tariff only’ import regime (2006): MFN quota canceled, MFN tariff set at 176 €/t (in-quota tariff was 75€/t, out-of-quota tariff was prohibitive); out-of-quota ACP exports now subject to the 176 €/t tariff (was 380€/t)

significantly increased market access for MFN exporters, but also for ACP ones

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU imports from MFN countries

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU imports from MFN countries

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU imports from ACP countries

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU imports from ACP countries

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

Economic Partnership Agreements (EPA) with many ACP countries (2008): ACP quota canceled, signatories allowed unlimited duty-free exports

greatly increased market access for ACP exporters, at the expenses of MFN ones

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU imports from ACP countries

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

EU imports from MFN countries

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

the December 2009 WTO agreement on bananas: progressive reduction between 2010 and 2019 of the MFN tariff from 176€/t to 114 €/t

progressively increased market access for MFN exporters; preference erosion for ACP ones

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

(EU) trade policies do matter

trade agreements between the EU and eight Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) and Andean (Colombia and Peru) countries (2010) : progressive reduction between 2010 and 2020 of the tariff imposed by the EU on their banana exports from 176€/t to 75 €/t (instead of 114 €/t) [similar agreement reached with Ecuador (2014)]

increased market access for these exporters, at the expenses of ACP ones (their preference eroded by 39€/t in 2020)

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the introduction of refrigerated containers

bananas were traditionally shipped in dedicated refrigerated vessels (reefers)

large multinationals own their own fleets of reefers and charter them

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the introduction of refrigerated containers

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the introduction of refrigerated containers

relatively recently, the largest shipping companies (e.g. Maersk and MSC) introduced refrigerated containers (comparable shipping costs, but lower handling costs and damages to the fruit)

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the introduction of refrigerated containers

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the introduction of refrigerated containers

in 2009 1/3 of bananas shipped in refrigerated containers, a share which is rapidly increasing

the number of reefers declined by 8% between 2000 and 2008, and by 19% by 2008 and 2013

the introduction of refrigerated containers reduced barriers to entry in the trading link, making it possible for small and medium operators to trade relatively small volumes of bananas without having to rely on space in conventional reefer vessels controlled by large multinational firms

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the changing role of multinationals and retailers

40% of world banana trade in 2013 was handled by four companies only: Chiquita (13%), Del Monte (12%), Dole (11%) and Fyffes (6%)

the same share was 65% in 1980 and 60% in 2002

Chiquita, Del Monte and Dole are highly vertically integrated

they are gradually reducing direct involvement in banana production (purchasing bananas from large producers under multi-annual contracts instead) and concentrating on the shipping, ripening, trading and marketing links of the chain

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

market power and international price transmission

Average Unit Value of Ecuador banana exports to the EU at the EU border (US$/t)

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

market power and international price transmission

Average Unit Value of Ecuador banana exports to the EU at the EU border (US$/t)

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

market power and international price transmission

Average Unit Value of Cameroon banana exports to the EU at the EU border (€/t)

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

market power and international price transmission

Average Unit Value of Dominican Republic banana exports to the EU at the EU border (€/t)

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the changing role of multinationals and retailers

a rapidly increasing concentration in the retail sector, an increasing volume of bananas being shipped in refrigerated containers, and the end of the EU import regime based on quota licenses, all have contributed to the progressive reduction of the capacity of multinational companies to exercise market power

large retailers are able to dictate quality standards and acquisition prices for bananas

some of them started buying bananas directly from independent exporters and producer cooperatives, bypassing multinational firms

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

undifferentiated vs. differentiated bananas

effective banana differentiation (i) makes sales expand, (ii) increases the price paid by the consumer and (iii) creates a necessary condition to increase the share of the value captured by actors in the links of the chain closer to production

producing organic, Fair Trade and environment-friendly bananas has been the major way pursued to try to differentiate bananas

Fair Trade and organic bananas are behind the excellent performances of the banana industry in the Dominican Republic and Peru

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

Conclusions (1)

trade policies (progressive elimination by the EU of its quotas system), technical innovations in international transportation (the introduction of refrigerated containers), changes in consumer demand (increased demand for organic and Fair Trade bananas) significantly affected global value chains, reducing the importance of the (still predominant) ‘traditional’ value chain controlled by large multinationals, and allowing for the development and rapid growth of alternative ones, based on innovative trade relations and (often) generating a more equitable distribution of the value than in the ‘traditional’ value chain

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the Cameroon banana exports value chain

a clear-cut example of ‘traditional’ value chain

Cameroon, is the 7th largest banana exporters in the world (1,5% of world market, 5.2% of EU imports)

three firms produce all Cameroon bananas exports, 93% is produced by only two firms – PHP and CDC

PHP (51% of exports in 2013) is controlled by Compagnie Frutière (a multinational firm) and Dole

CDC (42%) is owned by the Government of Cameroon

organic bananas are not considered an option, while a small share of exports is Fair Trade certified

since this year PHP provides technical assistance to allother firms

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the Cameroon banana exports value chain

Compagnie Fruitière

in addition to its own bananas, exports on a commission basis half of those produced by CDC and those of the third, smaller, firm

handles all banana exports from Cameroon in its own facility at the port of Douala

is responsible through African Express Line, its own sea shipping company operating a reefer fleet, of the international transportation of all banana exports from Cameroon

owns ripening facilities in several countries in Europe

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the Cameroon banana exports value chain

while this assures an easier and more efficient vertical coordination – from production practices to the supermarket shelf – which is in everybody’s interest, it also poses evident questions from the point of view of the distribution of the value of the bananas produced by the independent firms among the actors involved along the chain

all firms share an interest in expanding production and exports, reduce production costs, improve product quality, increase product differentiation/reputation at the retail level, and reduce transaction and handling costs within the country

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

the Cameroon banana exports value chain

the interest of Compagnie Fruitiére is to use its evident market power to maximize its own overall profits (which include those of its shipping and ripening firms and those from its operations in the banana sector in Ivory Coast and Ghana), under the constraint of making the other two firms obtain the minimum level of profits needed for them to decide to continue to produce bananas

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

a model of the value chain of Cameroon banana exports

under this assumption

a reduction in the import tariff an exogenous increase in the acquisition price by

the retailers a reduction in the production costs of bananas a reduction in the production costs of the

transportation and ripening serviceswill all translate in an increase of the profits of the multinational, while those of the independent firms will remain unchanged

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[Giovanni Anania, University of Calabria, Italy, Global value chains for bananas, Rome, 25 September 2014]

Grazie!