Russia-Ukraine Conflict Affecting the Ecuadorian Banana Industry

Published 2022년 3월 15일

The conflict between Russia and Ukraine has been affecting the Ecuadorian banana industry. Russia imports 79-84 million Ecuadorian banana boxes every year, and Ukraine imports 6-10 million boxes yearly. The war is preventing the delivery of Ecuadorian bananas and many other products to both Russia and Ukraine. Already shipped containers are being rerouted to other markets creating an oversupply and causing a price drop. Additionally, the ruble depreciation is creating a demand drop for Ecuadorian bananas, leaving suppliers with excess supply. Shipping companies are taking alternative routes or canceling existing routes. This causes problems to Ecuadorian banana shipments since it is a highly perishable product. Also, many Russian banks are out of operations or avoiding international transactions, which prevents Ecuadorian producers and exporters from collecting their payments.

The conflict between Russia and Ukraine has been affecting the Ecuadorian banana industry. In 2021, Russia was the largest export destination for Ecuadorian bananas, holding 20% of the total exports. According to the Central Bank of Ecuador (BCE), Russia imports 79-84 million boxes of Ecuadorian bananas every year, and in 2021, the country imported 83 million boxes. Russia has become a significant market for the Ecuadorian banana industry, which led to the establishment of a direct commercial route to Saint Petersburg, where Ecuador exports 1.5 to 2 million banana boxes weekly. Ukraine has a smaller market share of Ecuadorian banana exports. According to BCE, yearly, Ukraine imports 6-10 million Ecuadorian banana boxes and in 2021, the country imported about 9 million boxes. Ukraine’s Ecuadorian banana exports market share has increased from 1.64% in 2018 to 2.58% in 2021. Together, both markets hold about 23% of the total export market of Ecuadorian bananas, a share that is highly affected by the current conflict between the two countries.

Source: Central Bank of Ecuador

The conflict between Russia and Ukraine is causing many negative effects on the Ecuadorian banana industry. Issues with freight logistics are impeding the delivery of bananas, and many other products, to both Russia and Ukraine. During the first week of March, Ecuadorian banana exports that were already at sea on their way to both countries had to be rerouted to alternative Eastern and Mediterranean markets. Many Russian ports where Ecuadorian bananas are delivered are still in operation, which allowed for 65% of already shipped bananas to be delivered during the first weeks of the conflict. On the other hand, the Odesa port in Ukraine, which receives most of the Ecuadorian banana exports, is currently out of operation, preventing product delivery and affecting the industry since it cannot receive the usual 180,000 boxes of Ecuadorian bananas weekly.

In addition, many of the biggest shipping companies have suspended operations in the conflict area, complicating the delivery of any product to either Russia or Ukraine. European regulations are requiring shipping companies to conduct container revisions, making companies take alternative routes or cancel those routes. This creates shipping delays, which are not an option for bananas since they are highly perishable products that are not suitable for storage or long transits.

The rerouting of bananas to European countries is creating an oversupply, which is decreasing the price of Ecuadorian bananas. In addition to the rerouting, price speculation allows buyers to lower their offering price. According to Tridge’s Engagement Manager in Ecuador, Douglas Montiel, during the first week of the conflict, the offering price of banana boxes decreased from over USD 6.25 to USD 4 to USD 5 per box. During the second week of the conflict (W10), the price dropped even further from USD 2.50 to USD 2.75. A lower purchase price creates massive losses for Ecuadorian producers and violates the minimum sustainability price equivalent to USD 6.25.

Russia is causing additional problems to the Ecuadorian banana industry. The ruble has lost 40% of its value since the Russian invasion of Ukraine started. The value decrease has lowered the purchasing power of Russians, which will drop the demand for many products, including bananas. In addition, many Russian banks are out of service or are not permitting international transactions, which prevents Ecuadorian producers and exporters from collecting their payments.

Banana production in Ecuador will also be affected due to this conflict. According to the Ministry of production, Ecuador imports USD 220 million in production supplies from Russia every year. USD 175 million of these production supplies correspond to prime material for agricultural practices and USD 45 million correspond to production supplies. There will be a shortage of many production supplies, as Russia supplies 38.24% of the fertilizer utilized in Ecuador, and its shortage will decrease production and increase production costs. To reduce the effect the Russian supply shortage will have on the Ecuadorian industry, producers will need to find new suppliers as soon as possible.