Tuesday, March 25, 2008 Ledesma: Is Philippine banana going bananas? By Jun Ledesma Sunbursts
NOT quite. The fact is there is a huge demand for bananas the world over on account of the vast devastation of banana plantations in Ecuador forcing multi-nationals and independent traders, among them Abbar and Zainy (ANZ), that supply North America, Europe, and the Middle East to engage in spot-buying in the Davao farms in the Philippines.
This claim about "corporate social responsibility" bruited about by the so-called new players in the banana industry is nothing but empty rhetoric.
The whole banana business in the Middle East is controlled by small players, and ANZ is one of them.
Owing to the decline of production from Ecuador, ANZ was forced to look elsewhere for bananas to meet the demands in their seven major retail outlets (cold stores).
Their competitors have resorted to spot buying in banana-producing countries in Latin America. The competition pushed spot prices to an all-time high. The statement from ANZ officials in Davao last week that they are not into price war with other traders operating in Davao only casts doubt on their sudden emergence here.
They knew too well that 99.9% of the banana growers in the Philippines have existing contracts. The only way to obtain supply therefore is to offer spot price nearly twice the prevailing contract price ranging from $2.30 - $2.40 on the average to as high as $3.95 - $4.50 per 13-kilogram box.
ANZ Chairman Sheik Adnan A Zainy had the temerity to declare during the opening of ANZ buying station Aztropex, Inc. that the "price war is a myth."
Ironically even the chairman of the Regional Development Council, Vicente Lao, is in accord with Sheik Adnan. Lao owns Maharlika Agri-Ventures Inc., which is one of the buying fronts of ANZ.
Lao obviously is ignorant about what is obtaining in the industry. The company, which is engaged in poultry, is three months old in banana trading. Lao who also chairs the Mindanao Business Council alleged that he has about 200 contract growers, a claim that industry players find incredible. It is not impossible however that Lao may have contracted a few small independent growers. Like him, ANZ is preying on contracts that are about to expire this year.
The Philippine Banana Growers and Exporters Association is concerned the black market, which is created by the price war, might have a deleterious effect on the long run. Davao Provincial Governor Rodolfo del Rosario, who once ran the biggest banana plantation in the province, said the price war is alarming.
Davao alone has about 50,000 hectares of Cavendish bananas. The governor said he has nothing against new investors but he said that ideally they should develop new plantation areas so that this will translate to new production output.
Governor Del Rosario is right. For the new players to just conveniently wait in the bend for grower and marketing contracts to expire and scuttle the renewals by outbidding the present trading partners partakes of piracy and unethical business practice.
The short supply of bananas from Ecuador and Costa Rica is what triggered the price war here. We are not shielded from the impact of the catastrophic calamity that hit Ecuador, the world's biggest banana producer.
By conservative estimate, as much as 80,000 hectares of fruit-bearing bananas plantations were affected by floods due to unusually strong rainy season last month.
Hardest hit were plantations in Guayas region where vast plantations were covered by water for more than a week. Bananas could survive flood for a maximum of 48 hours, after which the fruits cannot pass export quality. If floodwater remains for more than 72 hours, banana fruits are totally spoiled and are therefore dumped.
The devastation in Ecuador easily caused a shortage of not less than 200 million boxes in the export market. Ecuador exporters had already declared a state of emergency as over 50,000 workers in badly hit industry have lost their jobs.
Consequently prices had increased as the supply lines had tightened. RDC Chairman Lao and the ANZ people should therefore stop impressing us that they are here on a messianic mission to rescue small growers from the onerous marketing agreement with PBGEA traders.
The truth is the bananas are getting scarcer and rarer in the cool chains of fruit traders, ANZ included, in the Middle East. The price war is not myth Mr. Lao and Sheik Adnan. Your corporate social responsibility is.
If there is anything I have to credit ANZ for, is to make us aware that Davao, Philippines is undoubtedly a significant world producer of bananas. There are attempts to mitigate the shortage of supply by growing bananas in Africa and India but the production yield per hectare is too low.
Add to that the volatile political conditions in Africa, which scare away investors. Even as the governments guarantee to finance farm development, there are no takers among the multi-national companies. Given the intractable political conditions, past and present, I do not think that there will be significant changes in the next decade or two.
PBGEA members and their contract growers must reassess their stake and take a strong grip at the situation obtaining in the banana industry. They should come up with a more creative solution that could provide happy compromises.
Let's face it. New voracious export markets have opened up in China and Russia. New areas have to be developed to guarantee supplies. The Middle East markets looks good at present but Ecuador will not just stand by contemplating the tragic loss of their banana crops. They will have to rehabilitate the farms that had been devastated by floods. Within the next two years their production will stabilize. By then ANZ as well as the rest of banana traders in the Middle East will look at Ecuador anew.
I doubt whether ANZ, despite its claim, will develop its own farms. My guess is that the $60-million they bruited about which they said they would invest in bananas will just be earmarked for buying and trading. At the spot price of bananas, which they buy from the black market, that amount is just about 12 million boxes of bananas. If we go by their press releases, which is about the volume they aim to bring to their store chains in the Middle East in the meantime that Ecuador is off their radar screen.
