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Spain: Why controlling the supply isn't a good trade practice
With the price of a box of bananas falling steadily since week 12, which reached the unprecedented price of $18.00 spot box, producers are trying several strategies to restore the Ecuadorian fruit's nominal market value.
First, there was talk of a large banana strike and the closure of the main roads in the producing provinces. Spurred by the protests of the producers of other crops, such as rice, corn, and African palm, among others, the country's highways have once again been blocked and protesters are burning tires. Protesters want the minister of agriculture, Ruben Flores, to step down; accusing him of being inexperienced and of colluding with the export sector due to the crisis of the price of the box. At the beginning of week 18, the price continued low and stood at $7.60 spot for a 22XU box of bananas.
One of the ideas the producers have suggested is to control the supply. This practice consists of cutting the bananas for a certain period and discarding them to regulate the supply to achieve a rebound in prices.
This practice is carried out under certain regulations among Canarian producers that have an average production of 400 million kilos. Approximately 3.7 of this production is subjected to this control.
This practice was very fashionable until very recently due to the different criticisms received by the banana sector in the Canary Islands, especially due to the subsidies that the sector receives from the CAP (Common Agricultural Policy), which amount to 141 million euro, i.e. 50% of the total subsidy for the Islands.
The control of the supply hasn't been overcome and it's still being carried out but with a certain social tinge, as the production that was previously destined for waste in the ravines is now being donated to food banks and used as a food supplement for ranchers. The control of the supply has regulations set by the EU, and the idea is to favor approximately 14 thousand direct and indirect jobs generated by the activity. The idea is also to defend a decent price in the market, which has several competitors, mainly from Africa and from dollar countries. The Canaries only live on tourism and banana production, which is why they have a strategic alliance with this sector.
In Ecuador, the control of the supply, which some think may be a strategy to improve the price of the box, might not work out as such. It's not a measure to be taken lightly and that will only succeed in increasing prices for a very short time.
It is a strategy that requires planning from all producer organizations. Establishing weekly production volumes and assigning quotas for associations, as the producers from the Canaries do.
In addition, producers should take into account the 14 million euro in subsidies that the producers from the Canary Islands receive, which allows them to carry out this practice. There have also been complaints that only a few benefit from this practice. Nobody knows how many producers would voluntarily accept this strategy in Ecuador. Hopefully, producers won't have to take extreme measures, such as the control of the supply, to improve prices. An advance contract is a promise of purchase that works very well for many small and large producers, so we must insist on the formalization of producers and the requirement of compliance by the exporter.
Publication date: 5/4/2018
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