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The Big Question: Why are bananas so cheap, and what does it mean for producers?

Posted: Tuesday 6 October 09, 11.16am GMT

Source: By Michael McCarthy, Environment Editor, The Independent, Tuesday 6th October 2009

Why are we asking this now? Because Asda, Britain's second-biggest supermarket chain, has just slashed the cost of its bananas to 46p per kilo, down from 84p/kg in August, and 99p/kg last Christmas.

So? Supermarkets are always cutting prices, aren’t they?

It’s special for two reasons. One, bananas are the top selling item in British grocery – the trade is worth nearly £600m per year. In terms of value, only petrol and lottery tickets outsell bananas in supermarkets. This means that banana prices have become a key weathervane, like the prices of traditional staples such as bread and milk, of supermarket prices in general. People notice banana prices. If shoppers think you have cheap bananas, they may think your prices are lower across the board. Secondly, and more importantly, in real terms these are probably the lowest prices for bananas that have ever been charged.

Well that’s great, isn’t it?

It very much depends on who you are. If you’re a banana consumer (and most of us are), your weekly banana bill has been cut by half in less than a year. There’s a recession on, and every little helps. Bring on the banana fritters and the banana splits. On the other hand, cutting the price in half, and perhaps saving you 50p per week, might represent disaster for thousands of farmers in the developing world, who grow bananas – and barely make a living doing so – and have seen the prices they receive steadily drop over the last decade. These are tough times for the public in Britain, but they are desperate times for poor farmers in countries such as Costa Rica and Ecuador.

So why do Asda say they are doing it?

Alex Brown, Asda’s produce director, says that the company’s job “is to do all we can to help cut the cost of living for families across the UK, and there’s no better way of doing that than by lowering prices on core staples that go into millions of shopping trolleys every week.”

Is that the real reason?

Well, it sounds heart-warming, and it may well be part of the reason. But supermarkets are very competitive, and industry observers see the move principally as a commercial attack by Asda on its rivals, who are being forced to cut their own banana prices to match. The point is, the cuts they have to make in turn may hurt them much more. Tesco, for example, sells many more bananas than Asda does, so the cut into its profit margin will be correspondingly greater. Sainsbury’s and Waitrose only sell Fair Trade bananas – fruit with a guaranteed price to the producers – so their margin hits will be greater too. Waitrose says the banana war is already costing it £100,000 per week.

Is Asda passing on the cut back to the growers?

It says it isn’t. Mr Brown says: “We’re footing the bill so can guarantee the move won’t have any impact on the price we pay our suppliers.”

So that’s all right then?

It’s not all right at all, according to experts on agriculture in developing countries. Asda may take the price cut itself; it doesn’t mean other firms will when they are forced to follow suit. More than that, slashing prices lowers the idea of the value the public gets of bananas and there is a long-term negative impact, as the whole industry shifts to lower profit margins and lower prices; in the end this definitely hits the banana producer.

Why should we worry about banana producers?

Because banana production is the archetypal example of how agriculture in the developing world can perpetuate social injustice and trap people in poverty. Bananas are the most popular fruit in the world – shoppers spend more than £10bn on them annually, and they are the world’s fourth most important crop after rice, wheat and maize.

Banana production is consequently an operation on a gigantic industrial scale and is dominated by just five huge companies, Chiquita (formerly United Fruit), Dole, Del Monte, Noboa and Fyffes, which control 80 per cent of the global trade between them.

They grow bananas in vast monoculture plantations in tropical countries, employing tens of thousands of workers. But, according to the Fairtrade Foundation, many of the workers are paid pittance wages insufficient to provide for their families – less than £1 per day in some cases – for working long hours in very difficult conditions, and often prevented from forming trade unions to protect their rights and improve their working lives.

The situation of small independent banana producers is also precarious, and in the Windward Islands in the Caribbean, which were once the mainstay of Britain’s banana supplies, 20,000 out of 25,000 banana farmers have gone out of production since 1992.

Every time the price of bananas in the rich countries falls, there is pressure on the big producers to cut the wages and benefits of their workers to maintain profits, and often impossible pressure on independents to match the low prices. Between 2002 and 2008, supermarket price wars saw the price of loose bananas in the UK slashed by 41 per cent, but Asda’s latest price cut is something again.

Why is it different from other price cuts?

Because it takes banana prices to a historically low level, almost certainly below the cost of growing them, picking them and shipping them across the world. The Fairtrade Foundation, which now gives its accreditation to a quarter of the bananas sold in Britain, has been tracking banana retail prices in the UK since 2000 (when they were at 90p per kilo) and the baseline of the graphic it has used was set at 65p, as no-one ever expected prices to fall below that. Now Asda has cut them to 46p – way off the graph.

“We’ve never seen this,” Harriet Lamb, the Fair Trade Federation’s executive director, said yesterday. “It never even occurred to us we would see prices go this low. This is the lowest level since records began after World War Two, the lowest level in absolute terms ever. It is completely unsustainable. It is ludicrous. It is just Asda playing games. It is also completely pointless, as their rivals will all follow suit. The point is what the long-term impact will be for farmers and workers in the banana industry. It is clearly impossible to cut prices by this much without making the deepest cut of all – to producers’ livelihoods.”

Is Asda’s big banana price cut a good thing?

Yes

  • It will help with most families’ weekly shopping bills, as bananas are the most widely sold grocery item
  • It will encourage other supermarkets to cut their prices in a bid to follow suit
  • Any cost savings in the recession are worth having

No

  • If imitated widely, it threatens the livelihoods of thousands of poor farmers and plantation workers in the developing world
  • It is not a realistic price, merely a sales gimmick to get people through the door
  • It is not likely to last as it is unsustainable in real terms

Posted by
Jennifer Todd
Secretariat

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