Page 52 - Ecuador's Banana Sector under Climate Change

ecuador’s banana sector under climate change: an economic and biophysical assessment to promote a sustainable and climate-compatible strategy
it. In Ecuador, the share of bananas sold under contracts has been increasing, although it remains below 100 percent. As of December 2013, of the 5.9 million boxes of bananas sold each week, approximately 5.7 million were sold under contract (LACENA).
The new Banana Law also establishes that the banana price includes a bargaining process whereby the exporters discuss lower fixed prices to be
paid to producers in order to align FOB prices with those of competitors, while the producers will discuss the amounts to cover their cost of production, plus
a reasonable profit. Producer groups, at a disadvantage in open-market price setting, can lobby the Government to tighten regulations and to force exporters to pay the official price. They also lobby against the costs that are transferred to the farmers, usually borne by the exporters. The producers propose minimum prices, taking into account their calculated production costs, a reasonable profit and a unified base salary for workers.8 Among the challenges facing the Government of Ecuador relating to the implementation of a minimum price and the enforcement of contracts is the need to tighten regulations regarding seasonal exporters and ghost companies, so that they do not buy fruit only in the high season (January to March) and then disappear. This will affect those who have agreed to buy in the low season.
It is a challenge to incentivize the use of contracts in a country where the exporter is accustomed to operating in the spot market. Some exporters are reluctant to sign contracts with producers during the low-price season, while some producers are reluctant to sign contracts during the high-price season when they may receive higher spot prices. As a result, this often becomes a side-selling issue, when producers refuse to deliver under contracted prices
at times when market prices are much higher. The Government of Ecuador monitors noncompliant exporters who sell outside of contracts and/or who thrust unjustified costs on to producers under the guise of technical assistance services.
4.1.1 Measures to encourage compliance with minimum prices and contracts
In April 2013, Ecuador created an automated system to control contracts and exports. This aims to enhance the country’s capacity to monitor and regulate contacts between exporters and producers and to impose penalties for noncompliance.
An option that has been considered by the Ecuadorian Government has been the creation of a state-run exporter company to buy the bananas that are sold outside of contract in the hope of resolving the noncompliance issue (LACENA). Not all producers are supportive of the idea, however, with some expressing concern regarding delayed payments owing to bureaucratic inefficiencies. While the initiative has not been implemented, it has not been ruled out.
An additional measure that has been implemented to facilitate compliance
At the end of 2013, producer groups proposed a minimum price of USD 7.50, while exporters settled for USD 5.15. Ultimately, the Ministry of Agriculture and the Ministry of Foreign Trade established the price of a box of bananas at USD 6.00 (LACENA).
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