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Brexit, a threat to Costa Rican bananas
Bananas are one of the most sought after Costa Rican products in the British market. In recent years, the fruit has not only left a deep impression on the palate of Europeans, but has become a symbol of the complex processes that the United Kingdom will have to face after Brexit.
The issue is relevant for Costa Rica, because the UK is the second most important customer for the banana producers that trade with the European Union (EU).
However, enthusiastic consumption is not enough and Brexit is putting some pressure on exports. With the impending divorce, Costa Rica could lose the tariff preferences to export to the British market which were obtained with the Association Agreement between Central America and the European Union (Aacue).
Bananas are popular in the British market. The fruit is one of the most successful Costa Rican products in the international market. In 2017, banana sales in the United Kingdom alone generated profits totalling $ 94 million, a figure that represented 18.56% of all transactions in the European Union, according to data from the Foreign Trade Promoter (Procomer).
In the previous year, banana sales to the EU generated profits totalling $ 507 million, and in 2016, the figure reached $ 522 million, so there was a deceleration of 3% between both years.
Currently, Costa Rica enjoys preferential conditions and pays a tariff of 75 Euro per tonne of bananas. This competitive rate was achieved thanks to the conditions that were negotiated in the Aacue, which came into force in 2013.
However, Brexit constitutes a threat to banana exporters if the United Kingdom doesn't readjust its trade policy. Internationally, it is hoped that the British market will keep the conditions of previous commercial agreements in order to maintain relations with its partners.
If the conditions set by the Aacue were not kept, the scenario would be dramatic for Costa Rica. The country would no longer pay the preferential tariff of 75 Euro per tonne of bananas, since the tariff outside the Aacue is 114 Euro, according to Karina López, coordinator of market research at Procomer.
Another element that puts pressure on the British is that in 2020, the EU market will be further liberalised for Latin American imports. At the moment, the European market has a banana stabilization mechanism in place that allows a maximum volume of exports for each country, and if the nation exceeds the limit, it loses the tariff preferences, going back to the ones set by the WTO.
But when the market is liberalised, Ecuador, Panama, Guatemala, Peru, Nicaragua and Honduras will be able to export as many bananas as they want at a price of € 75 per tonne. In the case of Costa Rica, the tariff conditions would be maintained due to the conditions achieved through the Aacue.
Months ago, John Fonseca, Vice Minister of Foreign Trade of the Solís Rivera administration, said that the British were planning to replicate the conditions set by the Aacue in order to maintain commercial relations with the Isthmus. With the change of local government, the authorities prefer to be cautious.
Karina López, coordinator of market research at Procomer said that "most likely, the United Kingdom will replicate the current conditions. I don't see them charging us a tariff of 114 Euro, because the big corporations would put pressure on the United Kingdom for it to bring the normal conditions back."
Corbana agrees with this and doesn't believe that the tariff will go up, given how several Latin American countries won this commercial negotiation with the EU before the WTO. Jorge Sauma, general manager of the banana company, believes that what may happen is an imposition of more phytosanitary controls.
What other options are there?
Although Procomer remains confident, it is still advising exporters to diversify their markets. The authorities recommend looking for alternative destinations in Eastern Europe, the Nordic countries or Finland.
Italy could also become a new niche market. In this market, Ecuador and Colombia account for 67% of all banana imports and these countries increased their shipments by more than 9% between 2013 and 2017, while Costa Rican transactions fell by 3%.
Publication date: 7/6/2018
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