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COMMITTEE ON COMMODITY PROBLEMS |
INTERGOVERNMENTAL GROUP ON BANANAS AND ON TROPICAL FRUITS |
First Session |
Gold Coast, Australia, 4-8 May 1999 |
PROJECTIONS FOR SUPPLY AND DEMAND OF BANANAS TO 2005 |
1. For the purpose of economic analysis, banana production has a complex dynamic structure. As an annual crop, bananas are generally harvested well within the year of planting. However, the capital investment required to establish a banana orchard could be similar in magnitude to that required for perennial tree-crops, which is normally higher than that required for the establishment of an annual crop plantation. Also, because of these factors, the response of banana supply may be faster and stronger to rising prices (due to the relatively short growing cycle), and slower and/or weaker to declining prices (due to the significant investment in the ground). Also, in some producing areas, few alternatives to bananas can be grown and marketed economically.
2. In order to capture more accurately the intricate relationships between supply and demand, and their effect on trade flows and price levels worldwide, a spatial model of the world banana market was developed for this projections exercise.
3. This model simplifies the world banana economy into various major exporting and importing regions, and balances supply and demand among these, taking account of import policies and transportation cost differentials between exporting and importing regions, as well as population and income projections in importing countries. Price changes, at the import and export levels, are endogenously determined and are fully utilized by the model to project exports and imports.
4. This projections exercise uses the 1993-95 period as a base. However, in some instances more recent trends in actual imports and exports were used to obtain a more updated and realistic balance of world banana trade. The projections were also made on the general assumption of a continuation of the production and trade policies prevailing during the base period. A notable exception to the latter was made for the EC, to account for the most recent changes to the rules governing the imports of bananas into the Community1. The income assumptions used for these projections are based on the September 1998 World Bank GDP2 projections, which were revised downwards for some countries after the economic and financial crisis of 1998.
5. World net import demand for bananas is projected to grow by about 1.9 percent annually, from 10.3 million tonnes in 1993-95 to 12.8 million tonnes in 2005 (Table 1). As re-exports are an important feature of banana import trade for some countries, net import statistics are a better reflection of actual market requirements. Through the projection period global per caput imports would increase to 4.2 kg, a reflection of increased consumption in both developed importing countries (reaching 8.5 kg) and developing importing countries (1.2 kg). In the United States, which would remain the single largest importing country with a 32 percent market share, per caput imports would reach 14.1 kg per year in 2005. In the EC, the second largest import market at a projected 27 percent market share, net imports would be about 9.1 kg per caput; however, per caput consumption would of course be higher when domestic EC production is included. The figure could reach 11.2 kg per caput. 3
6. Imports by developed countries are expected to grow by 1.5 percent per year, reflecting relatively good growth in North American markets, in a few non-EC Western European countries, and in the countries of Eastern Europe. Developing countries would enjoy a much higher growth rate, approaching 4.6 percent in the period to 2005, bringing their imports to some 2.1 million tonnes per year, or 16 percent of the world total. China, from a relatively small base, stands out as a relatively strong-growth market.
7. For the EC, overall import demand was projected on the basis of the tariff-quota fixed for third country imports as well as the quotas for ACP suppliers. On this basis, EC import demand would reach 3.4 million tonnes in 2005, a growth rate of less than one percent from the base period. Imports into Japan are also projected to grow by less than one percent annually to just over one million tonnes by 2005, or 7.9 kg per caput. Slower income growth than that observed between 1983-85 and 1993-95, as well as low population growth and an aging population would constrain consumption growth.
8. Imports into economies in transition during the period between 1983-85 and 1993-95 saw annual growth rates of more than 20 percent. The growth rate to 2005 is expected to be only about 1.6 percent due to the slower income growth projected in many of the countries concerned. In absolute terms the amount of banana imports by the economies in transition would reach 1.4 million tonnes. Per caput imports in the area of the former USSR are expected to amount to only 1.9 kg by 2005.
9. World net exports are expected to grow by 2.2 percent per year, to reach 13.7 million tonnes by 2005 (Table 2). The expected annual growth rate in Latin America and the Caribbean, the world's largest exporting region, would decline from 6.5 percent to 2.3 percent; the growth rate of exports from the Far East would drop from 4.7 percent to 1.0 percent while that in Africa would decline from 6.4 percent to about 4.7 percent per year.
10. Ecuador, the world's largest banana exporter, would export about 1.6 million tonnes more bananas in 2005 than in the base period. Export growth is projected at 3.8 percent per year, which compares to a growth rate of 12.4 percent per year in the previous decade. In Colombia banana export volumes would reach 1.6 million tonnes by 2005, compared to nearly 1.5 million tonnes in the base period. Costa Rican exports would grow by some 400 000 tonnes from the base period to 2005, but the growth rate would decline to 1.7 percent per year compared to almost 7.8 percent during the previous ten years.
11. Much attention has been placed on the devastation to banana production in Central America caused by hurricane "Mitch". For purposes of these projections, it is assumed that countries affected by "Mitch" would have fully recovered by 2005, with projected volumes of 700 000 tonnes for Guatemala, 620 000 tonnes for Honduras, 80 000 tonnes for Nicaragua and 800 000 tonnes for Panama projected as exports by that date. No account is taken of possible decisions by multinational companies concerned with production in these countries to diversify their investments to other supplying countries in the region.
12. Mexico's projected exports would grow close to 12 percent annually, to 265 000 tonnes by 2005. Most of this growth, however, had already been achieved in the late 1990s. Mexico enjoys geographic proximity to its major market, reducing transport time and cost. During the previous ten-year period Mexican exports had risen by an average annual rate of 8 percent. Stable exports are projected for Venezuela at about 50 000 tonnes, while the decline in Brazilian exports is expected to continue due to the arrival of Black Sigatoka in the country and due to intense competition from other exporters in Brazil's traditional markets.
13. Between 1983-85 and 1993-95 exports from the Caribbean area rose by 8.9 percent per year. However, during the period 1993-95 to 2005 little, if any, expansion is envisaged. Total Caribbean exports are projected at 354 000 tonnes in 2005 compared to 363 000 tonnes in the base period. Stricter adherence to quality standards demanded in importing markets, more intense competition with supplies from other origins in traditional importing markets, and the appearance of Black Sigatoka in some producing areas, such as Jamaica, are expected to combine to restrict exports.
14. In Asia, the Philippines is expected to continue to dominate the export trade, with some growth allowing its exports to reach about 1.3 million tonnes in 2005. The area under cultivation in bananas has been restricted by law in the Philippines for quite some time. On the assumption that these restrictions remain in place, increased yields and reduction in post harvest losses would be the main factors contributing to the increase in exports. Banana exports from Vietnam could grow rapidly to about 8 000 tonnes. Other Asian countries are not expected to play a significant role in the export trade by 2005, even though several have considerable production potential.
15. In Africa, exports from Cameroon and Côte d'Ivoire are both expected to grow at over 4 percent per year, based on comparatively good agronomic conditions, relatively low labour costs and market opportunities within the new EC banana import regime. Cameroon would see a rise in exports to some 242 000 tonnes by 2005, while those from Côte d'Ivoire might reach 284 000 tonnes. Some recovery would occur in shipments from Somalia to 30 000 tonnes in 2005, while Ghana would also export small quantities.
16. World net exports and imports of bananas are projected to balance by 2005 at about 13.7 million tonnes, including loss-in-transit volumes. However, this balance would be attained only by a decline in real prices as a result of a sharp decrease in import demand growth rates and the lag in production adjustment in face of decreasing prices. This situation reflects the fact that while banana trade is demand-driven, production responds differently to rising prices as compared to declining prices. Thus, a price rise in one period results in a long run increase in production based on increased investment, while reduced prices do not curtail supply to the same degree. Other reasons why supply may not adjust quickly to changes in real prices include government policies isolating producers from world prices and higher prices enjoyed by producers with access to some protected markets.
17. Within a projected price decline of 18 percent, a decline of some 25 percent could be seen in North American import markets, and a smaller decline of some 6 percent would be observed within the EC market. Reductions ranging between 20 and 22 percent are projected in other markets, including non-EC Western Europe, Eastern Europe, the area of the former USSR, the Near East, Japan and other importing countries in Asia including China, the Republic of Korea, China-Hong Kong SAR and Singapore, and in New Zealand. If banana imports were some 10 percent higher than projected, mainly through greater imports into China and the area of the former USSR, the real price decline would be lower; 20 percent in North America, 14 percent in Japan and 16 percent in Eastern Europe and the area of the former USSR. In Asia, the real price decline would be limited to 10 percent. These real price declines represent a continuation of recent trends. For instance, the real import price of bananas in the United States declined by some 20 percent between 1983-85 and 1993-95.
18. This declining price scenario could be modified to some degree by other events including storms and hurricanes, as well as other adverse weather phenomena, changes in energy costs, which affect input usage and productivity, and returns on alternative tropical crops. In the particular case of bananas, an increase in imports by China or recovery in consumption in the area of the former USSR would alter the price situation significantly, as may changes in trade policies by major importers. Also, should there be more rapid economic growth than that assumed for this projections exercise, demand for bananas could strengthen thereby supporting higher price levels.
1 For the purposes of this projections exercise it was assumed that the EC banana import regime as laid down in Commission Regulations (EC) No. 1637/98 of 20 July 1998 and No. 2362/98 of 28 October 1998, would be in place from 1 January 1999 to the end of the projections period. The main features of this regime are outlined in document CCP: BA/TF 99/8.
3 Bananas produced in Martinique, Guadeloupe, the Canary Islands, Madeira, and other EC territories are not reflected in the import or export volumes, as they are not considered to be traded internationally. However they were taken into account during the projections estimations as the total supply of bananas, not only imports, has an effect on the demand outlook. Domestic banana production in the EC is projected to increase from 682 000 tonnes in the base period to 808 000 tonnes by 2005.