After being predicted for years, and always deferred by serious climate vagaries, it has finally arrived: an overabundant banana supply, in the context of a market slowdown (heatwave alongside a substantial and concentrated supply of competing products), has caused the biggest banana crisis for decades. One thing is for sure, we will emerge from this crisis one day. Nonetheless, the driving forces behind it and future crises are still in place.
The expression “a perfect storm” is a neat way of describing the current situation on the world dessert bananas market. This storm is the consequence of worldwide overinvestment, both to increase productivity and to extend surface areas dedicated to the export banana. This investment expenditure (fertiliser, treatment products, irrigation, disease management, creating or extending surface areas, etc.) was made possible by a period which was overall favourable in terms of world prices. Without wishing to go over the top, the 2017 crisis is bringing an end to a glorious decade.
So ultimately what were the mechanisms driving this roaring decade? In short, it was the climate. The proliferation of more or less serious climate incidents undermined production capacities, and therefore world exports, on a very regular basis. Strong winds, tornadoes, the El Niño phenomenon, cyclones, floods, etc., punctuated the sector for more than a decade. Had the intensity of the damage been less strong the entire balance would have crumbled. True, 2016 did see some damage. You will recall Cyclone Matthew which ravaged Martinique, massive floods in the Dominican Republic or strong winds in Cameroon, etc. Yet this was insufficient to curb an expanding world supply. Especially since the diabolical pairing of El Niño (2015-16) and La Niña (2016-17) did not have the devastating effects of their illustrious predecessors (1982-83 and 1997-98). It is even said that in the Pacific, it contributed to the record Ecuadorian exports in 2015 and 2016, with more than 310 million boxes per year. Furthermore, for the moment, things are going the same way in 2017 (as at the end of August). We can also point to the absolute productivity records announced by Costa Rica, with nearly 2 900 crates per hectare in 2016. Certain operators have even spoken of a figure of 3 000 crates per hectare for 2017. It is true that conversely Colombia suffered heavily from the drought caused by El Niño. Yet this only meant a stronger recovery from late July 2016, and throughout 2017. True, the production cycles were a bit off schedule, but were greatly amplified.
This expression also has a sense of absolute and total. Namely, things have gone wrong outside the banana sector too. In 2017 it took the European market fourteen weeks to get off the ground in terms of import prices. The supply was such that, although the driving force of consumption was still running at top speed, this was at the expense of prices. Then rates started to rise, but this was short-lived. After barely two months’ respite, the summer heatwave of early June swept away all hopes of saving 2017, economically speaking. Consumption of all bananas stopped dead in its tracks. The summer fruit production calendars of the various Member States largely overlapped, increasing the volumes to market. The banana machine, completely seized up in terms of price, though still highly prolific in volumes on the market, saw one of its worst summers in recent decades. A few figures can confirm this sad but predictable tale. Taking volumes first, never has the EU-28 imported so many bananas. According to our sources, in late August 2017, extra-Community imports (MFNs + ACPs) increased by 7.5 %, thereby exceeding 3.7 million tonnes, as opposed to just under 3.5 million for the same period in 2016. Out of the first 31 weeks of 2017, weekly imports were less than or equal to those of 2016 in just six weeks. For 25 weeks, volumes to market were greater than in 2016. For the 1st half of 2017, consumption (imports + European production) was up by 4.5 % from 2016. The catch-up effect in Eastern Europe, but also increases in certain supposedly mature markets, helped absorb the surplus supply. Yet this came at a cost! The CIRAD barometer representing the European market has never fallen so low. In late August, it dropped below 10 euros per box, as opposed to more than 13 in 2016 and 2015. In Eastern Europe, the situation is dramatic, with average prices of between 6 and 7 euros, and clearance prices which might slump down to 3 euros (or even less for certain batches). Further East still, in Russia, though the market is used to excesses, at both the upper and lower ends, a sad new record was set, with weeks 30, 31 and 32 spent below 5 USD/box CIF into St Petersburg. The Mediterranean, Middle East and Near East markets suffered from the same depression, qualified by operators as historic.
Both upstream and downstream companies have done their sums, and found major losses. The sole lever at their disposal is artificially reducing the supply through destruction. Colombia, Costa Rica, Ecuador and the Dominican Republic have all announced self-regulation policies. The effects of these sacrifices would be magnified by a summer fruits season curtailed by a fortnight, and the adverse impacts of spring frosts on grape and apple harvests (smallest European harvest for ten years). Conversely, factors such as the rise in the euro against the US dollar or cheap freight could remotivate exporters. Hence we might imagine that these factors are unable to change the economic hand. Furthermore, for example the absence of a consumption dynamic or the supply difficulties in the US States hit by cyclones are not fuelling any optimism on the world’s number two market.
The series of cyclones, ravaging the production zones of the major and minor Caribbean islands (especially Guadeloupe and Martinique) since early September, is affecting the short-term supply to France. As dramatic as it is for French producers and local populations, the effect is much more minor for the rest of Europe: 200 000 t out of a consumption of 6.2 million tonnes. Especially since, as we have said, production capacities are increasing across the board. Hence despite the big fall in Dominican production in late 2016, import prices collapsed in 2017.
The sheep-like behaviour of the operators is a classic recurring theme of economic literature. Its effects are reinforced by the fact that the banana is an annual and even infra-annual plant. Since an established banana plant bears more than one cluster per year, the effects of deliberate destruction are short-term, unless more radical measures are taken such as coppicing (cutting the pseudo-trunk). So the production base is intact. As for new planting, investment will be delayed if the project is already advanced, and in some rare cases, abandoned. In short, if the market restarts (which will be in October), it will do so in a context where the potential is still in place, or even still on the rise. As the same causes will produce the same effects, we can predict with near certainty the next supply crisis. This also confirms the second principle of thermodynamics: any physical system, left to itself, such as a living being, tends to become disorganised. Once again with a touch of cynicism, all that is left for us to do is wait for the climate to prevent production from reaching its potential. Consumers, besides the Europeans, will also need to play their part by consuming more and more bananas. As for Europe, the main question is until when the public will keep scoffing down an additional 200 000 to 300 000 tonnes per year, thus keeping prices lucrative throughout the chain.
Finally, it has always been the case that the little people have suffered from the follies of the great and powerful. And it is the small producers and labourers who are bearing the brunt of the current crisis. Once again, this proves that agriculture and food are not just another couple of sectors. And no, deregulation is not the source of all virtues. In the run-up to the revision of European public banana policies, this crisis will at least have had the virtue of reiterating the principle to the political decision-makers, as well as the most liberal operators
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