Ecuador Prepares for Challenges Facing the Banana Industry in 2021

Decrease in Exports for First Six Months of 2021

According to the Banana Marketing and Export Association (Acorbanec), Ecuador exported 194.64 million boxes in all of its markets within the first half of the year. This means 9.32 million boxes less compared to the same cycle last year, a drop of 4.57%. Despite the drop, there were markets that saw increases in imports, such as Africa that had a 47.38% increase, Eastern Europe, with a 26.86% increase, the United States at 7.64%, and South America, with a 4.77% rise.

Source: Tridge

In the case of Russia, Ecuador’s primary market, banana exports contracted by around 5% in the first six months of the year due to a drop in the price of oil, increased tariffs, and shipping freights that have made banana imports more expensive. While the contraction in purchases in some of the markets are associated with the effects of COVID-19 on the economies, oil prices, and even an increase in tariffs, the decline mostly has to do with logistics and issues in container shortages than pandemic-related repercussions.

According to Marianela Ubilla, president of the Ecuador Banana Export Association (AEBE), the largest banana export association in Ecuador, and CEO of Agzulasa, “While there has been some demand decreases from the pandemic notably from the Middle East, Asia, Russia, and the Europe Union. we expect demand to pick up after Week 40, as the vacation season comes to an end.”

Broadening Trade Agreements with the Eurasian Zone

Ecuadorian banana exporters have been facing limitations in several Asian countries due to the high payment on tariffs. In China, bananas are subject to 10% tariffs, while banana imports in South Korea and Japan are subject to 30% and 10-20% tariffs respectively. Adding to that is the shortage of containers in Latin America to Asia has made transportation more expensive. While the customers in Asia are more willing to pay a premium for the products, they often require the highest quality fruits and particular specifications that can be tricky to meet.

In a conversation with Tridge, Exporter Jaime Villavicencio of Agrochoice has mentioned how “China is not a very stable market due to the constant shift of demand depending on the supply available in the country. Prices tend to fluctuate and go down to as much as USD 2 per box if there is sufficient supply sourced from neighboring countries such as the Philippines. Russia, in contrast, is a more stable market in terms of the demand”.

For the Ecuadorian banana industry, there is an urgency for a trade agreement with the Euroasian zone. The absence of these agreements makes local exports uncompetitive as each exporter faces their own issues, whether in packing requirements, certifications, or payment terms.

Tackling the Challenges

Along with the cooperation of the Banana Marketing and Export Association (Acorbanec) and the Ecuadorian Banana Regional Corporation (Agroban), the AEBE acts as a cluster in requesting to the Ecuadorian government to seek a broadening of commercial horizons especially with China, Japan, and South Korea where tariffs and regulations are directly damaging sales to the industry. “There are 277 export companies and around 8000 growers. The goal is to build a more competitive industry within the whole supply chain and represent the interests of all the parties involved,” says Ms. Ubilla

For the cluster, however, the need for trade agreements is not the only challenge to attend the next half of the year. Exporters are facing high transport costs and higher raw material costs for packaging such as cardboard. They are also facing a reduction of around 5% on their production due to climatic factors involved. For Mr. Villavicencio, all of those factors contribute to small producers not being able to reach all markets. “It is important that the government plays a key role in normalizing prices, so all entities will be able to trade smoothly,” he added.

The cluster has made significant progress in establishing a dialogue with Ecuador’s president Guillermo Lasso in order to express the industry’s most urgent concerns. In a meeting held in July, the union proposed several measures to be taken to support the sector. This includes the implementation of simplified unified return of taxes in an equitable manner for the export sectors, which would help exporters reduce the impact of increases in cardboard and plastic costs and the reduction of shipping space and increased freight rates.

Another important subject discussed was the threat of tropical Fusarium oxysporum race 4, a tropical fungus first registered in Colombia in August 2019. Even though the fungus has not been detected yet in any Ecuadorian plantation, the government has agreed to take preventive measures and prepare for possible detection of the disease by establishing phytosanitary measures.

Ms. Ubilla, as president of the Association, remains optimistic that with joint efforts of both the union and the government, banana exports in Ecuador can overcome the situation. “Last year, despite the pandemic, we recorded the highest export in history with 380 billion boxes exported in total. In addition, what is being viewed currently as an oversupply has more to do with issues in logistics and container shortages than there actually being excessive supply in the market. Ecuadorian bananas have shown the growth potential to overcome current challenges.”

 Sources

• Interview with Expert Marianella Ubilla
• Interview with Expert Jaime Villavicencio
• Agronegocios. "BANANEROS SE REUNIERON CON EL GOBIERNO DE ECUADOR PARA ACTUALIZAR MEDIDAS DE FUSARIUM."
• El Univero. "Exportación bananera cayó 4,57 % el primer semestre por reducción de compra en varios mercados."
  
• Mundo Sputnik. "Las ventas del banano ecuatoriano a Rusia caen por el clima y la escasez de contenedores."
  

• Primicias. "Sector bananero busca mejorar lazos comerciales con Japón, Corea y China."