Table of Contents

I. INTRODUCTION

II. FOOD SECURITY

III. THE WORLD BANANA MARKET AND ITS LINKAGE TO LOCAL ECONOMIES

IV. CASE STUDY OF COSTA RICA

A. FOOD SECURITY CONSIDERATIONS

V. CASE STUDY OF ST. LUCIA

A. FOOD SECURITY CONSIDERATIONS

VI. SUMMARY AND CONCLUSIONS

I. INTRODUCTION

1. The World Food Summit in 1996 addressed the linkage between trade and food security. The 61^st Session of the Committee on Commodity Problems (CCP), in February 1997, underlined the importance of export earnings of developing countries to improve their food security, noting that trade and food security was one of the themes addressed by the World Food Summit. The 62^nd Session of the CCP agreed to review at its next session the functioning of its intergovernmental groups, including the adaptation of their work programmes to the World Food Summit Plan of Action. The 62^nd Session of the CCP also suggested that the linkages between food security and trade could be a matter for future consideration. In the context of the Plan of Work and Budget for the biennium 2000/2001, it is envisaged that more intensive work on the linkages between food security and trade will be undertaken.

2. At its 15^th Session in May 1997, the Intergovernmental Group on Bananas recognized the importance of banana production and exports as sources of income and rural employment, and their linkage to infrastructure development in the developing countries concerned. As a result, it requested the Secretariat to undertake in-depth studies on the impacts that changes in supply and demand of bananas could have on income, employment and food security.

3. As a first step in responding to the Group's request, and given the complexity of the issues involved, the main objective of this document is to highlight the major issues and linkages between banana exports and income, employment generation, and food security. It draws on case studies for selected banana exporting countries from different regions with diverse banana sectors. It is not the intention of this document to evaluate or judge the advantages and/or disadvantages of the different production and export systems, but to illustrate the different ways through which changes in supply and demand could affect a country's economy, its banana sector and the livelihood of the people who depend on it.

II. FOOD SECURITY

4. Food security is defined as a "situation in which all households have both physical and economic access to adequate food for all members, and where households are not at risk of losing such access."¹ The concept of food security embodies dimensions of availability, stability and access. Adequate food availability means that, on average, sufficient food supplies should be available to meet minimum nutritional needs. Stability refers to minimizing the probability that, in difficult years or seasons, food consumption might fall below requirements. Access draws attention to the fact that, even with bountiful supplies, many people still go hungry because they do not have resources to produce or purchase the food they need. In addition, if food needs are met through exploitation of non-renewable natural resources, or degradation of the environment, there is no guarantee of food security in the long run.

5. Food security can be defined for the world as a whole, for individual nations, regions or households. Ultimately food security concerns the individual or family unit, and its principal determinant in most cases is purchasing power, or income adjusted for the cost of what income can buy. Similarly, purchasing power at the national level, the amount of foreign exchange available to pay for necessary food imports, is an element in national food security; and therefore export performance is a fundamental enabling factor.

6. International trade thus has a major bearing on the access to food via its effects on income and employment. Agricultural exports in general and in this review banana exports, can be significant to economic development and in attaining food security at the regional and household levels. For instance, among major exporting countries, banana export revenues in 1997 represented nearly one quarter of Ecuador's total value of merchandise exports and about 16 percent of Costa Rica's. During the same year, St. Lucia and Dominica accounted for only 0.5 percent and 0.25 percent of world banana exports, respectively, but the value of this trade approximated 60 percent of St. Lucia's total export revenues and nearly 30 percent of Dominica's.

7. In the context of a commodity exporting country, the availability of adequate economic resources to be able to afford to purchase food items which are not produced domestically is a crucial point. In many banana exporting countries, farmers have chosen to produce bananas for export as a cash crop, instead of basic food crops for their own consumption or for domestic marketing. As such, whether at the national, regional or household level, the income derived from the sale of bananas by smallholders, or from the wages earned by labourers in banana plantations, may constitute a crucial component of their food security.

8. External factors, such as policy changes or currency devaluations in banana importing countries, seasonal price reductions in oversupplied markets, or weather-induced supply contractions, may well have important implications for the food security of a significant proportion of the rural population in some banana exporting countries. Given that many households are highly dependent on the banana export sector for their main source of cash income, the food security situation of these families can vary significantly with major supply or demand changes. The recent events surrounding hurricane "Mitch" in Central America are a clear example of how external influences to the banana market, in this particular case affecting supply, can have profoundly adverse effects on the food security situation at the national, regional and household levels.²

III. THE WORLD BANANA MARKET AND ITS LINKAGE TO LOCAL ECONOMIES

9. For those countries whose economies are highly dependent on a few export commodities, an external factor affecting supply or demand, and which causes a significant shift in their competitive position, will have major ramifications on their domestic economies. The total impact that such changes could have on income and employment is the sum of various types of effects.

10. Primary (or direct) effects are those directly attributable to the commodity, such as the loss of income and employment attributable to a contraction in production, not compensated by higher prices. Secondary effects are those which affect other sectors that are interlinked with the sector under study (mainly through the exchange of goods and services). In the case of bananas, these sectors include fertiliser, pesticides, cartons and packaging materials, farm machinery, shipping, etc. Tertiary effects are those borne by the sectors from which banana workers buy goods and services. These sectors encompass most of the economy, but prominently include housing, clothing, food, medical services, education, etc.

11. In those countries whose economies are not highly diversified, if an important sector experiences a major setback, it is unlikely that the other sectors of the economy are able to absorb the labour and other factors freed by the contraction. Many of the major banana exporting countries fall into this category, and thus are vulnerable to major shifts in the supply or demand of bananas.

12. As previously mentioned, a key element to food security is the sustainability of the system providing that security. Thus, the process of producing and exporting bananas, or indeed any crop, must be one that preserves the integrity of the environment so that the economic gains of today are not realized at the expense of environmental degradation, which may adversely impact upon the ability of this or other income-generating activities to continue to support food security in the longer run. Although this is an important aspect, the case studies below focus mainly on the relationship between banana exports, employment and food security.

IV. CASE STUDY OF COSTA RICA

13. In 1997, Costa Rica's gross domestic product (GDP) was approximately US$9.76 billion, made up chiefly of light manufacturing and mining (24.4 percent), agriculture (22.4 percent), and tourism and related activities (18.3 percent).

14. Agriculture has traditionally been and remains a particularly important sector of the economy of Costa Rica. Throughout the nineties, the agricultural sector contributed between approximately 15 and 22 percent of Costa Rica's GDP, and agricultural exports averaged close to 59 percent of the country's total merchandise exports. Banana exports presently represent the second most important export item after aggregated textile exports, and accounted for 16 to 28 percent of merchandise exports during the nineties (Table 1).

15. In 1997, Costa Rica's agricultural export revenues totalled US$1.64 billion while agricultural imports totalled US$337 million, or less than one quarter of the value of agricultural exports.

Table 1. Costa Rica - Total Merchandise Exports, Agricultural Exports and Banana Exports, 1992 to 1997

Source: FAOSTAT

16. The banana and coffee industries are key commodity sub-sectors within the agricultural sector. An expansion in the banana industry in the late eighties, coupled with decreases in world coffee prices resulted in banana exports becoming the largest source of foreign exchange earnings among agricultural commodities for Costa Rica every year since 1990.

17. In 1997, total employment in Costa Rica was estimated at 1 227 333 and agricultural employment at 252 718, or over 20 percent of the total (Table 2). The banana industry employs more workers than any other single agricultural commodity sub-sector or industry in Costa Rica. Approximately 33 000 individuals were directly employed (i.e. on farms and packinghouses) by the banana industry in Costa Rica in 1997. Direct employment in the banana industry increased by more than 250 percent between 1987 and 1994, decreased between 1994 and 1996 and now appears to have stabilized. Direct employment in the banana industry in 1997 generated over 13 percent of total agricultural employment (compared to 7 percent in 1990).

Table 2. Costa Rica - Total Employment, Agricultural Employment and Banana Direct Employment, 1990 to 1997

Source: Banco Central de Costa Rica, Indicadores Económicos, Producción y Empleo, 1998 and Ministerio de Economía, Industria y Comercio, y Ministerio de Trabajo y Seguridad Social, Encuesta de Hogares de Propositos Multiples Modulo de Empleo, 1996. CORBANA, Costa Rica: Estadísticas de Exportación Bananera 1997

18. Approximately 63 000 people are estimated to be employed indirectly by the banana industry (e.g. workers at port facilities, agricultural inputs and service suppliers, etc.) bringing the total employment figure in the sector to nearly 100 000 jobs, or about eight percent of the country's total employment.

19. Most agricultural workers are classified as unskilled labour, which has the lowest minimum wage level of all categories. In 1997, however, the average wage for workers on banana plantations (i.e., direct employment, not including professional workers) was reported to be about double the national minimum wage (of Colones 41 059 or approximately US$177 per month) for unskilled labour. Limited statistical information supports this, although a complete survey of banana workers' wages was not available. On some farms, workers receive in addition to their wages certain benefits, such as housing, running water and electricity, as part of their employment package.

20. It is noteworthy that the number of women per 100 workers in the banana industry is reportedly higher than the national average of 29.4, with most of them working in packinghouses. In many, if not most cases, women working in the banana industry provide a second source of income for households of workers on banana farms. This is important since, because of the relatively isolated rural locations of many banana farms and limited local transportation, there are fewer opportunities for alternative employment. This severely limits opportunities for secondary sources of income.

A. FOOD SECURITY CONSIDERATIONS

21. Since 95 percent of the area devoted to banana production is concentrated in the Atlantic Zone, and given the relationship existing between direct employment and banana production area, it could be estimated that approximately 31 000 workers were directly employed by the banana industry in the Atlantic Zone in 1997. As the banana industry creates about 1.9 indirect jobs for every direct job, it would be responsible for approximately 90 000 jobs in total (direct and indirect) in the Atlantic Zone. This would represent close to 97 percent of total employment, and 89 percent of the total workforce (i.e. employed and unemployed) in that region.

22. By employing 9 out of 10 potential workers in the region, the banana industry is clearly a pivotally important sector in the economy of the Atlantic Zone. Furthermore, the average monthly income for the Atlantic Zone is higher than for any zone of the country other than the Central Region, where the capital city of San José is located. Also, according to survey work by the Ministries of Labour and Social Security and of Economy, Industry and Commerce³, the share of households below the extreme poverty level⁴, and the share of households not having satisfied their "basic" necessities⁵ in the Atlantic Zone in 1996, were the lowest among all zones but the Central Region and the Pacific Central Zone (which are both more urbanized areas).

23. In summary, it is evident that the banana industry is an important element of the economy of Costa Rica. Furthermore, as a result of the Atlantic Zone's heavy reliance on direct and indirect employment from the banana export industry, any significant contraction in the industry would have serious regional consequences. Also, the employment and income generated by the banana industry make significant contributions towards household food security for a large segment of the population. Detailed data at the employee or household level are not yet available concerning this specific and important linkage, but it is anticipated that research will be carried out in this key link, with a view to reporting back to the Sub-Group at its next meeting.

V. CASE STUDY OF ST. LUCIA

24. Agriculture and tourism are the main sectors of the economy of St. Lucia. In 1997, the island had approximately 600 000 visitors, with estimated expenditures of EC $766.2⁶ million. With a GDP of EC $1.55 billion, it is clear that tourism is the most important sector in terms of its contribution to the economy.

25. Export data for St. Lucia are shown in Table 3. Much of the decline in export earnings between 1992 and 1997 can be traced to the decrease in the value of banana exports, which have fallen from EC $185 million in 1992 to EC $86 million in 1997. However, in 1997 bananas still accounted for 59 percent of total merchandise exports. The contribution of banana exports to total GDP peaked at 34 percent in the mid-eighties but declined to 20 percent in 1990, and to 13 and 8.7 percent in 1996 and 1997⁷, respectively.

Table 3. Total, Agricultural and Banana Exports and Bananas as a Percentage of Total Exports, St. Lucia 1992-1997

Source: Government of St. Lucia, National Statistics Department.

26. Banana production in St. Lucia is characterized by a large number of small producers with small parcels of land on highly sloped terrain. The primary factors of production of the banana industry are labour, purchased inputs such as fertiliser and pesticides, and land. Given the highly sloped terrain, very little mechanization is possible. Estimates are that labour constitutes 50 percent of the total cost of production of bananas.

27. The major impact of the banana industry on the factor markets of St. Lucia is through the provision of employment opportunities and the generation of income for smallholders. However, the estimation of total wage-earning employment is complicated by the fact that some farmers make use of family labour. Most family workers, unlike their hired counterparts, are not paid wages.

28. Of the 55 700 persons employed in St. Lucia in 1997, 11 050 (or 19.8 percent) were employed in the agricultural and forestry industries. As bananas are by far the biggest crop produced on the island, it could be safely assumed that the vast majority of agricultural employment is related directly or indirectly to banana production.

29. Based on non-rigorous sampling, it was estimated that one full-time worker for every hectare of production is required to complete all non-harvest related tasks. Thus, on 5 362 ha under banana production, roughly 5 300 full-time employees would be required. An additional 4 000 workers are needed on a part-time basis for harvesting and transporting the fruit. Another 200 individuals are employed at the port and in clerical and administrative positions. This computation gives over 5 500 full-time and 4 000 part-time workers directly employed by the banana industry in St. Lucia. With a population of 150 000, it is clear that the banana industry is an important source of employment and wage income in rural St. Lucia.

30. Declining production and exports have had negative implications for the viability of St. Lucia's banana industry. Grower prices are established on the basis of the value of bananas in the import market (mainly the United Kingdom). From this value, the transportation and handling costs at the ports, which include a large fixed component, are deducted. In other words, the per unit cost of transportation varies inversely with the size of shipments. Thus as export levels decline, the marketing margin between the grower and the import market must widen to cover the costs incurred as the fruit moves through the marketing system, forcing grower prices to decline. For instance, prices paid to growers decreased from around EC $0.16 to EC $0.10 per kg over the period 1995 to 1997, when export volumes declined from 112 800 tonnes to 71 400 tonnes. As the price paid to growers declines, export volumes decline further. In other words, decreased production and declining prices serve to reinforce each other. Also, in the face of tighter quality requirements in their import market and falling prices, the number of active growers fell from 7 049 in 1993 to 5 698 and 5 270 in 1996 and 1997, respectively.

31. The daily agricultural wage ranges from EC $25 - EC $40. Using an indicative agricultural wage of EC $35 per day and a four-day workweek, the average weekly earnings of banana farm workers are EC $140. Using an estimate of 5 300 full-time farm workers employed by the banana industry and assuming that 50 weeks per year are work-weeks, the aggregate wages paid to banana workers is approximately EC $37.1 million (US$13.74 million). The additional 3 975 workers employed as harvest labour working two days per week are assumed to earn an indicative daily wage of EC $40. Again, assuming 50 workweeks per year, EC $15.9 million (US$5.88 million) are paid to part-time workers. Collectively, these two figures provide an estimate of EC $53 million (US$19.63 million) in wages paid to farm workers. This figure assumes that own and family labour are compensated at the same level as hired labour, and does not include the wages paid by the grower's association and other industry organizations to their employees, nor does it account for the wages paid to those who transport the bananas from the farms to the ports. However it provides a rough indication of the contribution from the banana industry.

A. FOOD SECURITY CONSIDERATIONS

32. In St. Lucia, a large proportion of the arable land is devoted to production of bananas intended for the export market. In turn, St. Lucia is required to import a number of foodstuffs, both to meet the demand from the tourist industry and to meet the needs of the permanent residents of the island. The major food items not produced (or not produced on an adequate scale) in St. Lucia, include rice, wheat, meat and poultry, and dairy products (Table 4).

Table 4. Imports of Selected Commodities, St. Lucia, 1993-1997

Source: Government of St. Lucia, Government Statistics Department.

33. Given the relative importance of tourism, and the foreign exchange it generates, while it can not be denied that banana export revenues contribute to the ability of St. Lucia to import basic foodstuffs, it can not be immediately concluded that they are a crucial factor in supporting the country's food import bill. However, in the provision of income for rural dwellers, the banana industry does play a crucial role. The wages paid to farm workers and/or the return to own and family labour in rural St. Lucia is vital to the ability of rural households to purchase food.

34. A rough estimate provided by extension personnel of the Government of St. Lucia is that rural dwellers purchase approximately 60 to 80 percent of their food. Thus, a significant contraction in the banana industry would result in sizeable unemployment which, in turn, would result in negative implications for the food security situation of those households dependent upon the banana industry for their income. Topographical and market considerations place a limit to the number of feasible alternatives to banana production.

VI. SUMMARY AND CONCLUSIONS

35. While world banana exports are valued a total of over US$5 billion per year, making them clearly a vital source of earnings to many countries, it is at the local and regional level where a strong bond is established between banana-generated income and household food security. Export volume or price changes bring about income changes for those directly employed in banana production, both as smallholder farmers and as wage earners on banana plantations. In addition, secondary and tertiary industries and their employees also feel the impacts of those changes.

36. Although this document identifies some of the main linkages between the banana export sector and food security in two case studies, further work is required to assess more deeply the role of banana-generated income at the household level, and of the whole sector in relation to other food security parameters such as sustainability.

37. In-depth household survey work is required to determine explicit and detailed linkages between banana earnings and family food security, not only in the countries herein examined, but in others where bananas are an important economic activity. An examination of the relation of plantains to food security would also be another area for possible examination.

^{1 Food and International Trade. Technical Background document No. 12. World Food Summit 1996.}