12 Feb 2019

The race to the bottom for low-cost bananas has a price

As supermarkets compete for customer traffic with low-priced bananas as bait, farmers and workers are losing out. Can a push for sustainable bananas counter this slide?

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A worker at a banana cooperative in Ecuador.
Image © Stefan Lechner

While the costs of banana production have increased, retailers keep pushing prices lower in a price war, with bananas often used as a loss-leader to entice shoppers into stores. This price pressure can leave banana growers unable to cover the costs of production, threatening their livelihoods.

A group of industry experts made the case for paying a fair and sustainable price for bananas, as part of the Fruit Logistica trade fair in Berlin on 7 February.

‘It’s a scandal, what’s happening in this country, that three of the four big supermarket chains are trying to lower the price,’ says Frank Braßel, Deputy Director of Oxfam Germany. The price war reaches far beyond German retailers. ‘That has very negative effects, especially for small producers.’

Ecuador, where small and medium producers account for about 70 percent of banana production, is a case in point. ‘The banana industry employs more than 2 million people in all the value chains inside our country, so it’s really important to us,’ notes Ecuador’s Minister of Agriculture, Xavier Lazo Guerrero. Shaping the future these small producers face is a priority for Ecuador’s government, which has introduced specialized credit schemes, a governmental minimum price, and other supports for banana producers.

‘I don’t think price pressure is helpful,’ explains Marike de Peña, a banana grower and coordinator of the Banana Network of CLAC, the Fairtrade producer network in Latin America and the Caribbean. ‘Retailers [must] understand that you cannot have a sustainability goal without paying a sustainable price.’

Rebalancing power in the supply chain: Fairtrade as part of the solution

As Northern supermarket chains increasingly take ‘a bigger share and have more power,’ says Oxfam’s Braßel, it ‘means they also have more responsibility. They can have a very positive impact if they take a preference to buy from smallholders or […] farms which comply with labour laws.’

Fairtrade offers one avenue toward fulfilling that responsibility. It guarantees a minimum price to producers, which serves as a safety net and aims to cover the costs of sustainable production. The Fairtrade Premium, an extra sum on top of selling price that farmers and workers invest in projects of their choice, provides additional benefits to producers and their communities. Fairtrade also enables better social conditions, for instance by requiring a democratic cooperative structure for farmers, and mandating a base wage, fair contracts, and health and safety measures for workers.

‘We’re hugely supportive of Fairtrade,’ says Aisha Aswani, Ethical Trade Manager at Co-op, the UK-based customer-owned cooperative supermarket. ‘It’s one of the few models that empowers the producers and the workers along that supply chain to decide what’s right for them.’

2019 Fruit Logistica Banana Panel 800
Panelists at Fruit Logistica event, from left: Aisha Aswani of Co-op, Frank Braßel of Oxfam Germany, Marike de Peña of CLAC, Ecuador Minister of Agriculture Xavier Lazo Guerrero, and Michel Scholte of True Price.
Image © Eric Fichtl

Ending the loophole of ‘externalities’ through a true cost

There is growing recognition that the commercial production of many products has negative impacts on the environment and society – termed ‘externalities’ – which have not been methodically evaluated or captured in the retail prices of goods. A variety of stakeholders are pushing businesses to account for and internalize ‘external costs’ as part of doing business.

Michel Scholte, director of economic research institute True Price, is one such voice. At Fruit Logistica in Berlin, he explained their recent study which found that Fairtrade banana production incurs 45 percent fewer external social and environmental costs as compared to the sector average – US$3.65 for Fairtrade versus US$6.70 for a standard 18.14kg banana box.

The study suggests most of this difference is due to the higher incomes or wages and better social security protection for Fairtrade producers.

‘A true price is the market price of a product … plus the net social and environmental externalities … across the total value chain of a product,’ says Scholte. ‘So the whole value chain should be considered.’

Scholte points out that there is ‘a global trend … in line with true pricing’, from the IMF exploring the true costs of energy to the expansion of carbon trading schemes and the global movement toward living wages and living income.

For de Peña, who leads the largest banana cooperative in the Dominican Republic, paying the true cost is common sense: ‘With externalities, I think it’s clear – you simply say there are costs, and costs need to be covered […] there just should be one definition of sustainability – it should be economically, socially and environmentally sustainable. And we should understand that sustainability has a price.’

‘Somebody is paying the price for the externalities,’ Oxfam’s Braßel emphasises. ‘It’s a damage in the society and in nature which somebody has to pay… Us as consumers or the supermarkets don’t pay for it. But somebody has to pay for it. It’s something that supermarkets could look much more into in a positive way.’

Will retailers respond?

Some retailers are rising to meet the challenge. Lidl recently began switching its entire banana supply for stores in Germany, Switzerland and Belgium to Fairtrade. Co-op was the first UK retailer to convert 100 percent of its banana supply to Fairtrade. Co-op’s Aswani feels that ‘It’s really important to articulate the positive impact that Fairtrade has had along the supply chain and bring that to life for customers… One of the things that we’ve really focused our attention on is developing long-term strategic relationships with our suppliers.’

Will other retailers follow suit, and stop the race to the bottom for ever-cheaper bananas?

When people make a choice to purchase a more sustainable banana, they are voting with their wallets and sending a message to retailers. Trade can be a powerful force for development, and consumers can push businesses to stop hiding behind the language of ‘externalities’.

For Aswani, retailers have a key role to play: ‘If we’re not having those conversations and our buyers are not receptive to listening and working on a common solution that is in the best interests of everyone in our supply chain, at the end of the day we will not have the products to sell – and that means we’re all out of business. So it’s in our interest to actually find that solution together.’

Sustaining livelihoods and bananas into the future

More needs to be done. Fairtrade is focusing on enabling workers on banana plantations to earn a living wage. This has included baseline research to understand the impact of Fairtrade for banana workers, reviews of the relevant Fairtrade Standard and Fairtrade Minimum Price, programmes and partnerships targeting improved wages and productivity, and other activities.

‘What we are doing during 2019 is introducing in Fairtrade not just that you should have a minimum salary as established by different governments … we are analyzing to have a base wage. If you are a Fairtrade certified plantation, you should always do better than just paying the minimum salary,’ explains de Peña.

It is clear that responsibility to ensure sustainable farming must be spread throughout the supply chain – if we want to keep enjoying the fruits of banana growers’ labour, we can’t pretend this is an issue for these farmers and workers alone.

‘We know that in order to survive as a business, we need to think differently,’ says Co-op’s Aswani. ‘Not everyone realizes that yet, but what I think we can do is make that argument much stronger and clearer – the business case in doing the right thing.’

Without more attention on the true costs of production, says de Peña, ‘We will really need to ask ourselves if we will have agriculture in the future… Sustainability is not an option, sustainability is a must.’