VALUE CHAIN ANALYSIS OF CAVENDISH BANANAS IN ECUADOR

A. FARM LEVEL ANALYSIS:

Ecuador is a major exporter of bananas across the globe due to its special characteristics of soil and climate
and the Ecuadorian banana is known for its quality and flavor in the international markets.

 Ecuador is the only country in the world to impose a mandatory minimum official price to be paid
to farmers. Ecuadorian bananas are primarily Cavendish as the variety caters well to the semi-arid
and subtropical climate, though the country produces more than 500 varieties of bananas such as
Plátano Verde or Plantain, Plátano Maduro, Orito, Red Banana, and Manzano, among others.
Cavendish cultivation is highly concentrated in three provinces across the country, viz., El Oro, Los
Rios, and Guayas. According to the Survey of Surface and Continuous Agricultural Production
(ESPAC 2013), El Oro constitutes 43.27% of the total banana production, Los Rios 28.84%, Guayas
23.16%, and Otros 4.74%. The country produced 7.1 million metric ton of bananas in 2015, 6.5
million metric ton in 2016, and 6.2 million metric ton in 2017 while the total production of
Cavendish bananas stood at 5.3 million metric ton in 2015, 4.8 million metric ton in 2016, and 4.7
million metric ton in 2017.
 Type & Size of Farms: There are above 6500 growers engaged in the cultivation of Cavendish
bananas out of which 79% are small-scale farmers, 16% are medium-sized and 5% are large
cultivators while the average size of a farm is 23.3 hectares. The small producers are primarily
situated in the El Oro province while the large growers are gathered in the Guayas and Los Rios
provinces. The small and medium-sized farmers sell the produce to the large exporting companies
which are further engaged in trading and retailing of the bananas in the domestic and the
international market.
 Factors Affecting Farm Price Margin: The Cavendish bananas are harvested year-round, usually
weekly. The production process ranges from the sowing of the seed to the harvest of the fruit at
the end of the course of one year. Apart from input costs including seed and fertilizer purchases,
firstly, the factors affecting the farmer’s margin include:
Input Cost: The farm input cost consists of the purchase of seeds, fertilizers, and crop protection
chemicals which amounts to a total of USD 0.08 per kilogram of Cavendish banana produced.
Labor cost: It constitutes costs relating to weed cutting, applying crop protection chemicals,
covering bananas with insecticide-treated plastic bags, cutting yellowed banana leaves, and
propping plants with wooden poles for stability, among others. The labor cost amounts to USD
0.02 per kilogram of the bananas produced. According to the Ministry of Agriculture, Livestock,
Aquaculture and Fisheries (MAGAP), labor costs constitute the largest share in the total cost of
production at 48% in small farms, 45% in medium-sized farms and 40% in large farms.
Harvesting cost: Usually, harvesting of the fruit-laden bunches is a manual task which translates
into a comparatively low harvesting cost and the transportation cost incurred in order to transfer
the same to the packaging facility are both part of the total labor cost which further play a major
role in determining the farm-gate price. These costs constitute the other farm expenses which
cost USD 0.01 on average for one kilogram of bananas produced.
 Minimum Support Price (MSP): The farmers have been guaranteed minimum support price at
USD 6.30 for a 41.5-43 pound or a 22XU box for export as of 2019, a figure up from USD 6.20
during the previous year which has significantly increased the prices of the bananas as compared
to its competitors, thus, lowering the exports to Germany by almost 20-25% in the beginning of
2019 as reported by the Banana Marketing and Export Association (ACORBANEC). Moreover, the
vulnerability of the Cavendish growers to price fluctuations in the domestic as well as
international market due to a proposed bill to restrict the area expansion under Cavendish in
2018, is expected to offset the effect of government subsidy and hence, affect the farm variable
cost.
Certification: The small-scale farmers in the country are increasingly seeking Fair Trade
certification and the FAIRTRADE Mark on produced bananas for subsistence guarantee at USD
9.60 or more as non-fair-trade wages can be as low as USD 3 per day since the Fair-Trade
Minimum Price and the Fair-Trade Premium would ensure better economic condition and
sustainability for the producers. Moreover, Ecuador is the only country where the price of each
box of bananas is fixed between the producers and the exporters and mediated by the
government which is known as the “Banana Law”. As such, the law has a significant impact on the
price decision of the stakeholders which ultimately translates into the value added to their
margin.
 Ability to Forward Integrate: Currently, the independent Cavendish banana growers in Ecuador
lack marketing muscle to forward integrate. Only a few farmer cooperatives have been able to
incorporate a successful cooperative model to integrate the various stages in the supply chain by
eliminating the role of intermediaries. One such cooperative is the El Guabo Association of Small
Banana Producers (ASOGUABO) formed in 1998, now with above 2000 small-scale farmers and
access to the international market. As such, successful cooperative involvement and fair-trade
participation in the future may ensure better pricing for the farmers and enhance the outreach of
Ecuadorian Cavendish on a global scale with an upgrade in the quality of bananas.
There is no value addition at this level as this is the first level in the supply chain.

B. AGGREGATION/ TRADE LEVEL ANALYSIS:

 Factors Affecting Price Margin of Aggregators and Traders: The various factors in the aggregator
or trade level that have a significant impact on determining the price margins for the stakeholders
at this level are:
Role of Middlemen: The stage following cultivation forms a long chain with intermediaries or
middlemen, aggregators or packaging facility, and exporters as the primary stakeholders. The
small-scale independent growers are heavily dependent on the intermediaries or middlemen who
are at a comparative advantage of being local and have transportation facilities across the region.
Thus, they can gather the confidence of the growers to act as logistics service providers who
transport the produce from the farm field to the aggregators or packagers for final trade.
However, the margin covered for the transportation cost incurred by the middlemen may be
erroneous on the part of price and stocks as the small farmers lack knowledge on farm-gate price.
Role of Traders: The traders are responsible for transporting the commodity to the end
consumers for in-home consumption.
 The final price at this level stands at USD 0.36 per kilogram and the value added between the
farm level and aggregator or trade level is USD 0.09.

C. PACKHOUSE/ EXPORT LEVEL ANALYSIS:

 Factors Affecting Price Margin of Packhouses:

Packaging: The various costs affecting the margin of the packagers include labor costs involved in
the removing of plastic from the harvested banana stalks, picking flower remains off the fruit,
cutting, making banana clusters, sorting and grading, blanching for maintaining an attractive
structure, sticking company labels on each banana cluster, coating through wax, rice starch etc.,
packaging costs for packing the fruits into corrugated cardboard boxes or crates, and loading the
boxes onto suitable vehicles. The labor and packaging costs amount to USD 0.01 per kilogram and
USD 0.02 per kilogram.
 Factors Affecting Price Margin of Exporters:
Exporting: Previously, the export companies used to determine the prices paid to the growers but
the reformation of the Banana Law, in 2011, changed the norm and hence, unscrupulous pricing
has come to a halt within the Ecuadorian boundary. The large international trading companies
such as Chiquita (USA), FYFFES PLC (Ireland), Dole (USA), Fresh Del Monte Produce (USA), Bonita
(Ecuador), and Otros control the sizing, sorting, grading, blanching, coating, packaging, and export
of the freshly harvested fruit in Ecuador. There also exist some national-level exporters in Ecuador
such as UBESA, Oro Banana S.A., Reybanpac, Palmar, Ginafruit S.A., and EXBAORO who purchase
the fruit from the small and medium level growers to complete the quota assigned. The demand
from these exporters is usually high with no stringent quality standards which is advantageous for
the producers and exert positive impact on their price margins. The various costs involved in the
export level include freight and transportation costs amounting to USD 0.06 per kilogram,
branding costs at USD 0.01 per kilogram.
Comparative Advantage: From the perspective of exports, the total demand for bananas from
Ecuador is hugely determined by the demand for Cavendish bananas from the member countries
of the Organization for Economic Co-operation and Development (OECD). The comparative
advantage for Ecuador lies in the production of bananas during the high-demand or high-price
season in winter through January to March as compared to the export competitors in the Central
American region which produce bananas during the low-price or low-demand season when the
price per box drops as low as USD 2.00.
Tariff and Non-Tariff Barriers: Amongst the non-tariff measures, empirical observations have
shown that the Sanitary and Phytosanitary Standards (SPS), Technical Barriers to Trade (TBT) in
developed countries, labelling regulations, labor requirements in EU member countries, that is,
the UTZ Child Labor, various certification requirements and consumer branding inflict higher costs
and significantly impact the price markups for the Cavendish banana exporters in Ecuador. On one
hand, the progressive banana cargo tariffs from USD 0.13 to USD 0.24 reaching till USD 0.28 per
box since 2017 have had a negative impact on the exporters. On the other hand, Ecuador’s
accession to the trade deal with the European Union on the elimination of high tariffs and TBT, in
January 2017, has exerted a positive influence on the price for exporters in the country.
 The final price at this level stands at USD 0.49 and the value added between the aggregator or
trader level and the packhouse or exporter level is USD 0.13.

D. FREIGHTFORWARDERS & IMPORTERS

 The market for bananas in Qatar is showing an upward trend with a corresponding increment in
the import value of bananas by 40% during 2002-2006.
 Quality International Fruits and Vegetables W.L.L is an active importer of fruits including
Cavendish bananas and has set its priority in bringing quality products directly from the
agricultural farms of various countries across the globe.
 The total export growth of bananas from Ecuador to Qatar stands at 4% per annum between
2002-2006. Consumption is growing strongly and the market for Cavendish bananas in Qatar is
totally reliant on imports from countries like Ecuador.
 Relative to other countries in the Middle East, Qatar has above average per capita consumption
of bananas. Some of the active importers of Cavendish bananas in Qatar are Sublime Company
Qatar, Santos Global Inc, and Houran International Group.
 The variable costs involving transportation stands at USD 0.22 whereas the final price at this level
is USD 1.05.

E. WHOLESALERS & DISTRIBUTORS

 FRESH TRADING AND CONT. W.L.L is one of the major importers and wholesaler of fresh
Cavendish bananas.
 Abdul Aziz Trading Est. is one of oldest and major company in the market for fresh fruits including
Cavendish banana in the State of Qatar. It is a distribution center for a complete range of fresh
produce with imports from countries like Ecuador to ensure its customers can rely on complete
assortment of the fruits throughout the year.
 Wholesalers and distributors in the country are aiming to become to become ISO 22000:2005
certified to increase confidence of retailers to opt for their fruits.
 Wholesalers and distributors supply the fruits to macro markets like hotels, catering businesses,
restaurants, and the local markets in Doha Qatar. The dispatch and distribution process involve
the demand for labor, thereby resulting in higher labor costs of USD 0.09 and distribution costs of
USD 0.11.
 Thus, the final price at this level is USD 1.53.

F. STORAGE

 Major companies such as Fruitlineqatar Logistics is focused on delivering high quality fresh fruits
and market services in Qatar. The company has a pack-house to clean, sort, grade, and neatly pack
the Cavendish bananas under strict hygienic conditions.
 Fruitlineqatar is able to meet the highly specific requirements for storage, handling, and transport
of fresh bananas, such as temperature, atmosphere and relative humidity through its advance
logistics systems and storage facilities.
 The cost of storage facilities stands at USD XX due to higher cost of outsourcing storage that
includes banana ripening rooms and cold storage systems that ensure optimum temperature and
conditions for the bananas with efficient cooling.

G. RETAILERS

 The banana consumption is gradually increasing in Qatar due to its increasing level of imports of
different bananas including Cavendish bananas in the country.
 Carrefour Qatar is one of the major retail outlets operating in the country that offers Cavendish
bananas to meet consumer demand.
 Similarly, other retail outlets such as Lulu Hypermarket, Spinney’s, and wholesale market, offers
different varieties of bananas to meet the consumer demand.
 Such retail outlets are focusing on procuring different fresh fruits including unique assortment of
bananas to meet increasing consumer demand for varieties. This, has in turn, resulted in the
retailers incurring marketing and administrative costs of USD 0.24 and USD 0.27 respectively.
 Thus, the final price at retail level is USD 4.83 per kg of Cavendish bananas.