What’s a fair price for a banana?

Dangerous things, bananas. They may look innocuous and yellow, but wars have been fought over them, governments toppled, populations held in servitude by mighty corporations. We’ve come a long way from the United Fruit Company and its CIA plots, as detailed by Peter Chapman in his book Jungle Capitalists. But the ethics of bananas are back in the news this week.

According to the Fairtrade Foundation, there has been a decade long price war over Britain’s favourite fruit. The supermarkets have been competing to deliver the cheapest bananas. While the price of other foods has gone up, the price of bananas has fallen by 40% in the last ten years.

Cheap deals for British shoppers – but someone always has to pay somewhere down the line. Someone far away in the supply chain, well out of sight. In this case, farmers in Ecuador, Costa Rica or the Philippines. To make matters worse, the price of inputs such as fertiliser has gone up, making bananas more expensive to produce. Producers are squeezed between rising costs and falling returns. “Ultimately,” says the Foundation, “the price wars are funded by the people who can least afford it – the small farmers and plantation workers who have to work harder and harder for wages that are worth less and less in their communities. As a result, a product that is worth billions of pounds in global trade relies on poverty level wages for the people who grow it.”

The reduced wages for farmers have environmental consequences too. In order to compensate for lower prices, farmers intensify production, using more water and chemicals. This is a short term strategy, risking soil exhaustion and biodiversity loss. More intensive production also increases the risk from diseases such as Black Sigatoka, a problem that threatens the future of banana cultivation on a fairly epic scale, as I’ve written about before. In short, the current banana market is socially, economically and environmentally unsustainable all at once.

This Fairtrade fortnight sees the launch of the Make Bananas Fair campaign, which aims to highlight the problems and improve wages and working conditions for farmers. Despite the above concerns, the campaign actually starts from a strong base. 35% of bananas sold in Britain today are Fairtrade. Sainsbury’s, Waitrose and the Co-operative only sell Fairtrade bananas. It’s up to the other supermarkets to follow suit, and to encourage them to do so, the campaign has scored the supermarkets on their ethical performance.

This may need tougher action too, as there appears to have been a market failure here. Britain’s grocery trade is dominated by 7 big companies. With all of them locked in competition to deliver low prices, there may not be enough players in the market for it to correct unsustainably low prices. The Office of Fair Trading might want to look into that. Consumers can sign a petition to the Business Department to investigate unfair pricing too – it’ll take you one minute, if you want to go there next.

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19 Comments on “What’s a fair price for a banana?”

  1. DevonChap February 25, 2014 at 8:11 pm #

    I’ve looked at this report (the full one not the press one you linked to) and this doesn’t make any sense. The claim is that the UK supermarkets selling bananas at a loss has driven down prices banana growers receive. This report makes the ages old mistake of assuming a correlation is a causation but not causal evidence is presented, just a hypothesis.

    The main issue is that while UK consumer prices have fallen, they have risen is Europe and the US (p24 of the full report). Given that these are much larger players in the global banana markets than the UK the question this report doesn’t ask (because it would destroy its arguments) are why banana sellers sell to the UK if they could get higher prices from Europe and the US? The answer is they wouldn’t. Non Fairtrade UK supermarkets pay world prices for their bananas just as Carrefore and Walmart do. The difference between the selling price and the global price is their margin. UK retailers sell bananas at a loss, European and American ones don’t. The people who suffer are the shareholders of the UK supermarkets, not the banana growers.

    Apparently it is a market failure that major supermarkets are giving British consumers millions of pounds in subsidised bananas. Children in poverty should pay more for their fruit. And what is the Fairtrade solution to this non existent problem? Regulation, a minimum price for bananas! Forgetting that this would just be profit for the supermarkets without any guarantee the producers would see a penny.

    The solution is to persuade customers to buy Fairtrade bananas. Sainsburys only sells Fairtrade bananas so pays the growers above market prices and sells them to consumers cheaply. Everyone wins, except Sainsburys shareholders but why do we care about them? If the company didn’t think it was worthwhile (concepts of loss leaders) they would stop.

    • Jeremy February 26, 2014 at 11:22 am #

      Interesting that you should pick up on the question of why they can’t just sell elsewhere. I thought the same thing while reading the media report, and went and checked in the longer report to see if it addressed it. It doesn’t directly answer that question, but it does provide the context that explains it. The series of trade liberalisation agreements through the 90s opened up banana exports in ways that were broadly positive, but banana producing countries invested in the hope that they would see increased demand. That didn’t happen, and production increased while demand stayed flat. That oversupply created a buyer’s market and an opportunity for retailers to step in.

      In that context, it makes sense that if the Tesco guy comes calling, you take the call because you may not be able to sell elsewhere, however much you’d like to. You might love to get a slice of the US market with its minimum prices, but how do you do that? If you’ve always sold to Britain, how are you going to distinguish your product now that Britain thinks its too expensive? Bananas are, after all, a very generic product.

      The other nuance that is that it isn’t so much that low supermarket prices are pushing down prices for producers, but that smaller producers that have traditionally supplied the UK market are being displaced by larger plantations. That’s clear in the source of imports, with a move away from the smallholder model of the Caribbean to the plantation model of Central America. Creative destruction to an economist, impoverishment to the Windward Islands.

      You don’t seem to have understood the recommendations though – I didn’t see any call for minimum retail price regulation. If you’re talking about Fairtrade’s minimum price, that’s a fixed price for the producer, not the consumer. As far as I’m aware, nobody is suggesting the government should start dictating supermarket prices.

      • DevonChap February 26, 2014 at 11:54 am #

        Page 48 for a positive reference to minimum pricing of alcohol as a model. They also want to scrap large parts of competition law to allow the supermarkets to collude to raise the prices of bananas. How you would stop at bananas and not lead to general cartels and price fixing isn’t explained.

        According to the DEFRA and the ONS the average wholesale prices of bananas in the UK has been fairly static. So little sign of the supermarkets pushing down the price. As you say, bananas are generic, so you can sell to other markets if you try. If the producers aren’t looking for new markets then that is their fault, but even this report has no evidence of UK supermarkets specifically squeezing their suppliers so I doubt that is happening.

        As you can see it is utterly specious to link UK supermarket prices wars and global banana prices. Either Fairtrade are economically illiterate or dishonest.

        Gosh, larger farmers are more productive than small ones. How unfair. Since our prosperity is based on increasing efficiency of our economy you seem to want to hold poorer countries back to less efficient methods of production and therefore higher prices, lower sales and poverty Creative destruction is needed to advance. Sticking with inefficient methods is impoverishing the Windwards. Perhaps if the Windwards smallholders merged to create larger plantations they would be able to compete.

        What I think is driving this bit is dishonesty from Fairtrade is that I suspect one of the entirely Fairtrade banana supermarkets is telling Fairtrade they can’t take the losses from selling Fairtrade bananas and they are going to bring in non-Fairtrade ones as their cheap bananas to cut costs. But Fairtrade mounting a campagin to boost a supermarkets profits doesn’t give them the same halo as parading Foncho around.

        • Jeremy February 26, 2014 at 12:51 pm #

          The reference for the alcohol pricing is offered as an example of how governments can pursue social goals through pricing, not as a model to follow. It’s highly disingenous to take that one passing reference and then summarise their entire ‘solution’ as demanding government price regulation!

          Retailers are quite capable of agreeing to some minimum pricing without creating a slippery slope towards cartels. That’s what the retailers have in the US have done, and it seems to be working there.

          Yes, bananas are offered as loss leaders, but what that actually costs the supermarkets and how they deal with their suppliers is secret, as the report says very clearly. And I already said that I’m sure many producers are looking for other markets, but that it’s a buyer’s market and it’s not that easy.

          I think you’re being harsh with Fairtrade, as you’re a cynic and you’re predisposed to object to anything that stands in the way of business. Did you not notice the introduction to the research, where they say this is a ‘hypothesis’ that they’re exploring? Have you missed the thrust of almost all their recommendations, which are almost all towards further investigation? The petition doing the rounds is for an investigation, not for regulation.

          It’s a far more considered approach than you suggest, that resists easy solutions.

          I will give you your final point – I know campaigns have to make things punchy to get the attention of the general public, but the Foncho thing is very simplistic.

          • DevonChap February 26, 2014 at 2:00 pm #

            That the link between supermarket banana price wars and low incomes for banana farmers made by Fairtrade is a ‘hypothesis’ is only mentioned once in small type in the report and the nowhere in their press releases. Those present it as fact. That is the dishonesty and I don’t think that is harsh. Also the request for investigation is linked to setting the terms of those investigations to come out with the answer they want. Loading the dice not open investigation.

            It is clear they have looked for evidence that UK supermarkets have pushed down prices and its absence suggests it isn’t there. Hiding behind commercial secrecy is another Chinese whisper against the supermarkets. Quite how much the price war is costing the supermarkets is irrelevant as that is not money the farmers would ever see.

            If banana prices are held down by overproduction the solution is to reduce production or increase demand. If anything the supermarket price war is increasing demand so is pushing up global prices slightly. Regulation against “excessive price competition” is not the solution (That is what they say in ‘What needs to happen?’ on p49 of the full report in case you think I’m exaggerating – I don’t think you have read those two pages very carefully)). Regulated prices would just benefit the supermarkets and raise food prices in the UK even higher. As I say, taking bananas out of the mouths of children in poverty to increase Tesco’s profits.

            Retailers are not allowed to agree minimum prices between themselves (not here or in the US). They can individually sign up to a third party system such as Fairtrade but if the supermarkets met together it would be illegal and rightly so. Fairtrade doesn’t understand or like competition. If one sentence in their letter to Vince Cable the complain about the UK supermarket sector being both concentrated and competitive. Why I do care about the first as long as it is the second?

  2. Jeremy February 26, 2014 at 2:44 pm #

    There are long sections on how the supermarkets have cut out the fruit companies and moved towards direct trading, so their dealings here are entirely pertinent. Fairtrade doesn’t accuse them of being secretive, it’s business sensitive information.

    How would Fairtrade load the dice on an EU or business department investigation? All they can do is raise the issue. Any further action would have to be working with the supermarkets, and they’d have far more influence on the scope of it than Fairtrade.

    You’re opposed to any kind of intervention in markets, so you’re reading this entire report as a threat – jumping to conclusions, reading the worst possible interpretation into everything.

    I think you’re missing the point of this sort of campaign. The end goal is to improve the livelihoods of developing world farmers (who are entirely absent from your viewpoint). Fairtrade would be happy for that to happen through consumer choice, corporate responsibility, a voluntary agreement or legislation. Ideally, a campaign like this highlights the issues and kickstarts debate which leads to constructive action and never needs to get as far as legislation.

    As they say on page 49 right next to the ‘what needs to happen’ line that you’re so worried about: “while we would like to see retailers take the initiative to buck the trend and break out of the price war that has progressively depressed prices
    to unsustainable levels, if they are unwilling – or unable – to do so, then government has a clear responsibility to facilitate a transparent and responsible approach to investigate the situation and, if necessary, act on its findings…”

    • DevonChap February 26, 2014 at 3:03 pm #

      Clearly you have no experience of government. You get the answer you want in a report by setting its terms. Fairtrade clearly want the terms set just so then, regardless of the case, the answer they want comes out.

      They have not evidenced that the supermarket price wars are causing unsustainable prices. So why should supermarkets stop and why if they won’t why should the government intervene and force consumers to pay higher prices?

      The only evidence they say links the supermarket price war and lower producer prices is “no-one has disputed our hypothesis.” The quality of that argument is so poor. This is what I really don’t like about ‘ethical’ organisations. They are prepared to lie and bend the truth for ‘the greater good.’

      Lets take this simply:

      1) Is there any evidence UK supermarkets pay less than European or US supermarkets for bananas? – No.

      2) Is there any evidence that price competition in the UK between UK supermarkets lowers the price banana producers receive? – No

      3) If prices were higher in the UK would producers necessarily get that extra money? – No

      4) Are the only people losing money in the banana price war UK supermarkets? – Yes.

      So why are cheaper bananas a problem that needs market collusion or government regulation to solve?

      • Jeremy February 26, 2014 at 3:24 pm #

        And you’re assuming Fairtrade gets its terms without question. Clearly you have no experience of campaigning.

        Let me run through your numbered points.

        1) Is there any evidence UK supermarkets pay less than European or US supermarkets for bananas? – No, but we don’t know.

        2) Is there any evidence that price competition in the UK between UK supermarkets lowers the price banana producers receive? – there is plenty of evidence that smaller producers are being priced out.

        3) If prices were higher in the UK would producers necessarily get that extra money? – Yes, if part of an agreement to raise prices for producers

        4) Are the only people losing money in the banana price war UK supermarkets? – No, which is why Fairtrade are involved.

        The fact that the farmers in developed countries are completely invisible in your analysis here just proves why Fairtrade’s work is so necessary, and why I will continue to write about them, with or without your approval.

        • DevonChap February 26, 2014 at 4:10 pm #

          Point 1 is the key one, Without evidence UK supermarkets pay less than there is no way their price wars can lower producer prices. If you don’t have evidence you can’t just allege it.

          Point 2 is linked to point 1. Since the money producers receive isn’t reduced by our price wars it can’t be pricing out smaller producers. That is a wider issue and given global oversupply its the markets way of telling them to get efficient or get out.

          Point 3 if if if. The French consumer pays more and farmers don’t see it.

          Point 4 – since the answers to points 1-3 are still no they haven’t in anyway proved their case.

          You don’t see that the fact that the false assertion that UK supermarkets price wars lower the money producers get devalues the whole report. If I lie in the first part of a witness statement in court but am truthful for the rest, my whole evidence is tainted. Same here. Fairtrade need to be careful. If they keep lying one day they will get exposed and that will taint their brand. Perhaps I have no experience of campaigning which is why I recoil at the lying.

          Sloppy false analysis won’t help farmers in developing countries but makes western liberals feel fuzzy and warm.

          • Jeremy February 26, 2014 at 4:19 pm #

            Then sign the petition, let’s have a proper investigation and settle the case.

          • DevonChap February 26, 2014 at 4:43 pm #

            Ok, when they offer to pay for it, rather than let the taxpayer pay tens of thousands pounds to further their political objectives.

  3. Jeremy February 26, 2014 at 4:58 pm #

    The taxpayer chips in tens of thousands to support arms fairs and underpin the price of nuclear power. The banana farmers of Costa Rica are welcome to my halfpenny worth of taxes.

    • DevonChap February 26, 2014 at 5:13 pm #

      They wouldn’t be getting it. Lawyers would.

      Costs nothing to think logically though. That is where Fairtrade falls down here, “Think of the banana farmers! Won’t someone please think of the banana farmers!”

      • Jeremy February 27, 2014 at 9:37 am #

        And your position is what exactly – ignore the banana farmers?

  4. Tegan Tallullah February 26, 2014 at 6:35 pm #

    I think the investigation is a good idea and I will sign the petition. Ideally I would like the banana farmers to get a fair price, AND British consumers to have affordable fruit. If the supermarkets profits get squeezed in the middle I don’t see that as a problem to be honest. Even if they make a loss on bananas, they still make billions of profits from everything else, so I’m not inclined to feel sorry for them!
    Also I’ve noticed when doing my shopping that bananas tend to come in either organic or fairtrade, but not both. I’m always wondering which is better…

    • Jeremy February 27, 2014 at 9:49 am #

      Loads of people buy Fairtrade bananas already, so they’re not unaffordable. Nobody would be unable to afford bananas, though some might have to buy them less often – say 75 a year rather than the average 100 a year. Doesn’t seem like much of a hardship to me if it keeps the developing world farmers in business.

      We should also keep some perspective. When bananas were first introduced to Britain they were a luxury reserved for royalty and the showy dinner parties of the wealthy. Unsurprisingly, being a very soft and damageable fruit that is grown on the other side of the world. The fact that such a thing is accessible to us at all is pretty remarkable.

      • DevonChap February 27, 2014 at 8:12 pm #

        Of course one of the reasons loads of people buy Fairtrade bananas is that they are subsidised by the Sainsburys, Waitrose and Co-op. If they bought fewer because the price was higher (which is what we would expect) then those Fairtrade farmers would make less money.

        Think for the banana farmers. Won’t someone please think of the banana farmers!

        • Jeremy February 28, 2014 at 3:45 pm #

          The theoretical people moving from 100 to 75 bananas a year would be moving from plantation fruit to fairtrade smallholder fruit. Somebody would lose out, but it would be the corporate run large scale farms.

          Fine by me – it there’s an oversupply and somebody has to cut back production, better that it’s the corporate plantations than pushing traditional smallholders into destitution. I’m aware that’s not the economic thing to do, but you and I disagree on whether economics gets to decide everything.

          • DevonChap February 28, 2014 at 4:41 pm #

            My point is that currently people buy more Faritrade bananas than they otherwise would do because of the supermarket price wars that Fairtrade are complaining about. So stopping the price war would – all things being equal – mean less money for banana farmers. Its fairly basic economics. You can stick your fingers in your ears but doesn’t make it less real.

            My hard economics finds it hard to see why those efficient corporate plantations would be driven out of business. Economics gets to decide things because, at the end of the day, it is better at describing the economy of the world as it is, rather than as you wish it to be. You may want people to value cooperatives and stuff but most don’t. So unless you force them to buy Fairtrade bananas those 75 expensive bananas will probably be corporate ones with the higher costs just going into the pockets of the supermarkets or plantation owners.

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