Rise of the Banana Prices: Ecuador Market Outlook

Fresh Banana

Russia

Ecuador

Published May 7, 2021

The banana sector in Ecuador, which despite the health crisis in 2020 grew by 5.6%, has started the year with a drop of 2.4% in exports in comparison to the previous year. Political tensions, volcano eruptions, and unfavorable weather conditions in the country have contributed to a gradual increase in prices for bananas worldwide. At the same time reductions in imports for bananas in Russia, Eastern Europe, and the Middle East have caused Ecuador´s exports to drop in Q1, as these countries are been affected by high prices and a reduction of import licenses.

Ecuador´s Q1 Drop in Exports

In 2019, there were several social protests in Ecuador where the country was forced to move its capital Quito, to another city, just before the COVID-19 crisis, causing an economic recession. In 2020, banana plantations were hit hard by the eruption of the Sangay volcano in September, which repeated in March 2021. All of this happened while there was a decline in banana prices due to weakening global demand in 2020. Despite having two rough years in a row, the Ecuadorian banana sector grew by 5.6% in 2020, even when the Ecuadorian economy fell by 8%. The reason for this is the export growth in different countries that Ecuadorian bananas have been having in recent years. However, the global banana market has shown a considerable decrease in consumption in 2021 in key importing markets, causing banana prices to rise.

According to the Banana Marketing and Export Association (Acorbanec), sales from January to March reached 102.11 million boxes, that is, 2.22 million boxes less than in the same period of 2020. Of the total boxes exported, 29.39% went to the European Union; 20.65% towards Russia; 11.49% to the United States; 10.99% to the Middle East; 7.18% to Eastern Europe; 6.90% to Africa, among other markets.

Cristina Uribe, a commercial associate from Ecuador´s banana exporter Tropical Fruit Export, told Tridge; “we definitely have felt the decrease in European shipments, but what is even more worrying is the current mobility restrictions that the sector is facing, as it has been affecting the quality of the product that is been exported, and together with the current container shortage crisis, the sector is indeed facing logistical challenges.”

Decrease in Imports and Strong Impact on Global Prices

The reduction in demand in Russia, the Middle East, and parts of Europe caused banana exports to suffer a slight drop in the first quarter of this year. In The banana sector in Ecuador, which despite the health crisis in 2020 grew by 5.6%, has started the year with a drop of 2.4% in exports in comparison to the previous year. While reductions in demand for bananas in Russia, Eastern Europe, and the Middle East have contributed to the drop, political tensions, volcano eruptions, and unfavorable weather conditions in the country have contributed to a substantial decrease in exports.

Russia, shipments fell by 8.19%, in the European Union by 3.29%, and in the Middle East by 28.43%. In addition to this, at the end of February and March, there was a reduction in purchases in Algeria and Iran due to the reduction in the import licenses and the outflow of foreign currency. Exports to Turkey also plunge due to the fact that this country practically covers its demand by 80% with its own banana production.

Another factor that affected sales this quarter is ashfall and rains, as the quality of bananas was hit hard by the eruption of the Sangay volcano. During the first two weeks of March, the producing areas of Guayas, Cañar, and Los Ríos were affected by the ashes emanating from the volcano; while heavy rains flooded plantations especially in Los Ríos, affecting more than 1,400 hectares. All these factors contributed to reducing the export of bananas in Ecuador considerably.

Ecuador´s 2021 Export Outlook

Bananas from Ecuador have unexpectedly increased in the US market, a less traditional destination for them. After floods swept across Central America in November 2020, banana production was hit hard in Guatemala, Honduras, and other countries in regions that focused primarily on supplies to the United States. Thus, the majority of Ecuadorian exporters reoriented to the American market, and banana exports to the Russian Federation fell in the first quarter of 2021, while the United States purchased more bananas from Ecuador. According to Acorbanec, 11.73 million boxes were placed in the US market in 2020, reflecting a 17.83% increase from the previous year.

Due to current logistics challenges, Ecuadorian banana exporters tend to be more focused on expanding to the US market even though the sea freight is more expensive. According to Uribe, “the US is a more stable market than the EU, where low and high exporting seasons change each year.” The Ecuadorian banana sector is also seeking an expansion of trade horizons especially with China, Japan, and South Korea.

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