Worldwide oversupply pushes banana prices down

There is currently a worldwide oversupply of bananas. Traders in Europe, Russia and the U.S. pointed out that prices are low due to a large supply. In China, prices fell because of a large domestic crop and increased imports. In Latin America, several countries started producing bananas, creating new competitors for Ecuador. In the U.S., for example, multinationals seem more prone to sign contracts with growers outside Ecuador. In Ecuador, a proposal was made to reduce the price next year to ten cents per box. The Philippines faces increasing competition in the banana market, as other countries in South East Asia are exporting to the archipelago's traditional markets. And while El Niño may take a negative toll on the harvest in South America, its impact may be positive in Australia. The weather phenomenon will likely guarantee fewer hurricanes in Australia: a reassurance to the growers there.

The impact of El Niño on bananas is still unclear. The weather phenomenon usually has the most influence around Christmas. The last El Niño had a great impact on Ecuador's banana production. At the moment, there are no problems, and this means that there are enough bananas available. Even countries in Africa or China, which have their own banana sector, register demand for the South American bananas.

Oversupply in the second half of the year and the low prices that followed will inevitably result in losses. This is also the reason why a lot of fruit is being shipped to Eastern Europe, Southern Europe, the countries around the Mediterranean and the Middle East.

On the U.S. spot market, bananas from Central America are yielding little; however, the bulk of sales are under contract. It is striking that multinationals are increasingly opting for bananas from Central America, Nicaragua, Guatemala and Mexico. Fortunately for Mexico and Guatemala, the impact of El Niño in these countries is less severe than in South America, although their winter, with a greater amount of rain, is still a time when the pressure from pests and diseases is stronger. In any case, they are working hard to control and prevent pests and diseases as much as possible. Compared to South America, no serious issues have been registered in Central America when it comes to pests and diseases.

In the first eight months of this year, Central America exported nearly 3.5 million tonnes of bananas worth $ 1.4 million. The largest exporter was Guatemala, with 1.6 million tonnes, followed by Costa Rica (1.3 million tonnes), Honduras (405,000 tonnes), Panama (135,000 tonnes), Nicaragua (8,660 tonnes) and El Salvador (1,274 tonnes).

Next year, the price of bananas may drop by 0.10 US$. This proposal was made to the members of the Banana Consultative Council, which is responsible for the annual setting of prices. This year, the price stands at $ 6.55 per box and the country has likely exported about 310 million boxes of bananas.

The administrative restrictions imposed to the import of bananas from Ecuador make this country less attractive to European importers. The country is still the main supplier for Europe, partly because Ecuador has an advantage in the volume available. Other countries have opened their borders, although it will take some time before this has a significant effect on the market.

The Chinese market is quiet compared to last year, when the country's traditional banana suppliers suffered the impact of climatic conditions. On destinations like Turkey and, by extension, Iran, Ecuador faced competition from Costa Rica and the Philippines. Compared to these countries, Ecuador's fruit is expensive. The cost price for Ecuadorian banana growers is at odds with the global economic climate.

As far as quality is concerned, long distances are not an obstacle for bananas to be competitive, but due to political unrest in different regions, companies are less inclined to ship bananas to these destinations. In order to penetrate new markets and remain competitive against other countries, Ecuador must continue focusing on improving productivity and prices must be adjusted to the current situation, according to an exporter. By this he means factors such as the rising dollar, low rouble and the world conflicts. The Ministry of Agriculture (MAGAP) plays an important role in this; policies should be adjusted because of problems with companies in the past, which are hindering the rise of a new generation of exporters.

An exporter with sales in countries like Morocco, Tunisia, Nigeria, New Zealand, Japan, Uzbekistan, Russia and China reported that Black Sigatoka has hampered production in Ecuador. The disease struck some growers who were supplying the exporter, resulting in a forty percent drop in the volume available. Next year, more growers fear the return of the banana disease, especially in Los Rios, where there are 40,000 hectares of plantations. The fear of the Panama Disease TR4 has resulted in the introduction of measures to prevent an outbreak. As a result of El Niño, production has been estimated to drop by about twenty percent.

The Central American country has good market prospects in the Russian market, where class 2 fruit stands at a price of $ 11.50 per box (18.4 kilos). Class 2 bananas are shorter than the Class 1. While the logistics and the growing conditions in Costa Rica have room for improvements, the fruit perfectly endures the long 18 day journey by sea to Russia and the four extra days it takes to reach Kazakhstan.

Banana production concentrates in the northern region of Piura, where some 7,000 hectares of bananas are cultivated. Of this, ninety percent is organic. Another important region is Tumbes, which accounts for another 4,000 hectares. While producers in Piura are all associated in a cooperative, growers in the rest of the country are more fragmented. Banana growing is a profitable business in Peru. About seventy to eighty percent of the sales are made by Dole to North America.

The situation for South Africa's banana sector is changing rapidly. Large growers in the north of the country are affected by strikes, but the consequences of this are still unclear. Additionally, some plantations are threatened by the Panama disease. In Mozambique, several companies have been affected by it and there are fears that the disease could spread to South Africa. Neighbouring Zimbabwe stopped exports to South Africa because of the unfavourable exchange rate. Growers successfully lobbied in 2012 to abolish the South African boycott and now growers themselves have stopped exporting.

The European banana market is under pressure, according to a Polish trader. The supply of bananas remains high, there is more local fruit on the market and the exchange rate is also not the most favourable. The average European eats ten kilos of bananas per year

Poland has ten importers who import 2.44 billion Euro' worth of bananas per year. In the first eight months of this year, the imported volume increased by 18.4 percent. The bulk of these bananas come from Ecuador, Colombia and Costa Rica. Due to the large import volumes, importers may be facing losses. Although an average Pole consumes seven kilograms of bananas per year, this is insufficient to absorb the surplus. Importers, however, expect a growth in consumption, as compared to other countries, banana consumption in Poland is small. Scandinavians, for example, consume an average of eighteen kilograms per person.

Importers have brought too many bananas into the Russian market, which has resulted in oversupply; therefore, the price in Russia could drop to about forty to fifty rouble (0.57 to 0.72 Euro) per kilo in St. Petersburg, which lies below the production cost, according to an importer. Ecuador is the largest supplier of bananas to Russia. In the coming month, consumption will reach between 1.3 and 1.4 million boxes; that is, between 25 and 27 million kilos. Demand for bananas is especially noteworthy during the first quarter of the year, which is a time when there is no local fruit available and bananas are a relatively cheap import product. Bananas are usually available even in the remotest corners of Russia.

Major imports from South America have caused banana prices to plummet. Even though the market is stable, logistics operators have consequently set their eyes more on Europe. A trader explains he is only shipping small volumes to North America, but the prices are too low, so now he is looking at the other side of the ocean.