Examination of witnesses (Questions 400
- 419)
TUESDAY 3 FEBRUARY 1998
MR JOHN
ELLIS, MR
BERNARD CORNIBERT,
MR JUNIOR
LODGE and MR
GORDON MYERS
400. What does fob mean?
(Mr Cornibert) The fob price is free on board—the
price of the bananas loaded on the boat. That would vary slightly
from year to year, but on average we return a price, fob to the
Islands, of about $10 per box.
401. That raises a question, because if
your production costs are $9.70 per box and you are only getting
$10 per box, you are only making 30 cents. This is paragraph 19.[3]
(Mr Ellis) Can I say this: that the
average return, as this chart shows, during 1996 was $10.15 US
per 40 pound box equivalent on an average, and this refers to
average production costs in the Windward Islands. There will be
a spread between this; so some farmers will be making very little
and some, more efficient, are probably getting a yield nearer
8 or 9 tonnes to the acre and will be doing somewhat better. But
it is a spread, and this is an average.
(Mr Cornibert) Could I make a point? We are looking
at costs for 1993 to 1996 and I am not sure which is the lower,
but what I can say is that our production costs have dropped considerably.
We are probably somewhere in the region of $8 US to $9 per box
at the moment. We have to make a distinction between the price
that is paid to producers and the FOB price. The industry has
huge fixed costs, up to the FOB level, and that would include
everything, administrative costs etc., up to that stage. Sometimes
the difference in the prices, is somewhat masked by the fact that
when production falls, as it did in 1996, the fixed costs, when
you express it as a unit cost, becomes a very large part of the
unit cost of production. We have had a series of problems in 1994,
1995 and 1996, with hurricanes, but we still had to carry those
huge fixed costs. This is why it is important that we do have
country quotas that allow us to ship the quantities that we think
would make our industry viable, because of these huge fixed costs.
Chairman
402. Whilst you are talking averages, there
are some estates which actually produce something like 20 to 24
tonnes per acre. Are there not?
(Mr Cornibert) There are some units where the
production costs would be much lower.
Mr Grant
403. I want to follow on from that, because
according to my calculation the farmers at the docks are getting
something like 16p a pound for bananas, and the bananas are being
sold here in supermarkets at anything up to 50p a pound. So there
is a huge gap of about 34p a pound that is going somewhere. Can
you tell us where that money is going?
(Mr Cornibert) If you look at the chart,[4]
we have attempted to give a breakdown—this is based on MAFF
data—of who gets what out of that 42p, which was the average
price. That gives you an idea. If I could come back to the question
you were asking, indeed we are comparing, as I said earlier, somewhere
between $8 and $9 per box with $4 to $5 per box for Latin American
bananas. Again, it varies from country to country, because in
some countries, like Costa Rica, average production costs are
slightly higher than in Ecuador or Guatemala, but it is in that
kind of region. We are still talking, in terms of costs, of a
gap of at least $4 per box. Nobody is saying that what we are
returning, ie. $10 a box, to the Caribbean is adequate. Unfortunately,
this is what the market delivers, $10 per box, taking into consideration
everything. Part of the reason why our growers need $10 per box
is because their production costs are between $8 and $9 a box.
The whole drive in the Windward Islands—and, indeed, in
the rest of the Caribbean—is to try and get that cost down,
as we come under increasing pressure in the market. This is the
whole point. How do we continue to get $10 per box under the modified
regime until we get those costs down?
Mr Rowe
404. I want to ask a very simple question
of Mr Ellis. If there were no intervention by the international
community, would Fyffes, in fact, stop importing Caribbean bananas?
(Mr Ellis) I do not think, sir, that Fyffes would
be able to compete, if there were no intervention, unless it did
stop, because it comes back to costs. Let me say this, under free
circulation at the present time (and qualities were referred to)
we have not got a chain store or supermarket in this country saying
"free circulation is here, can we only have dollar bananas?"
This is going to be an economic issue, not a choice of bananas.
In this country we sell far more Caribbean bananas—the percentage
of dollar bananas is very small. In Europe as a whole we are marketing
dollar bananas because that is the preference; there is a preference
in this country for the smaller West Indian banana, and the supermarkets
demonstrate that. Coming back to economics, if we had to say "There
is a free market and we would need 50p a pound for these or 30p
a pound for those" I think the issue is going to be an economic
one, and we would not be able to stay alive. As a company we would
suffer badly because we have put our money where our mouth is.
We have got investments in the West Indies, in Jamaica and in
Belize—indeed we have invested in half a shipping port in
Belize. We would have an awfully big job pulling out, but it would
be an economic question and you would not be able to stay in,
sir.
Mr Robathan
405. I would like to look at it from a slightly
different angle, the position of the WTO. We all know that the
WTO is not very keen on quotas and exemptions, and so on. Perhaps
Mr Ellis would be best placed to answer this. Is there lobbying
from the other side—people like Ecuador and Costa Rica—against
any specific quotas?
(Mr Ellis) Yes, sir, there is a very strong and
effective lobby from the international companies. Those companies
would like to see a simple tariff, with no licences and no quotas
and everybody for themselves. I mean there is no question that
the multinational companies who are heavily invested in Latin
America would like to see a free market like there is in the United
States and the lobby is very effective. I think we are less effective
than them because we have not got the resources, so we do it amongst
ourselves. I think we have been very effective as a lobby, but
we are less effective than the Latin American lobby and the Latin
American voice.
406. I am not sure who would be best placed
to answer this, but do you, therefore, think that the WTO should
have specific rules which allow special treatment for small islands
or vulnerable states similar to the preferential treatment for
developing and least developed countries and would that be your
best option?
(Mr Ellis) I did touch on that in the opening
statement, sir. Yes, we believe that the WTO has paid scant regard
to small developing countries. We were not even allowed the lawyers
in the room to plead the case in Geneva. The WTO claimed they
were outsiders. Well, small countries like the countries being
represented here do not have a whole host of people in their own
organisations and they have got to hire outside people, so we
felt that there was very scant regard to the needs of small developing
countries by the WTO.
(Mr Cornibert) The WTO rules themselves do not
make provision for small developing countries. For example, for
the European Union to be able to deliver its obligations under
the Lomé Convention, it had to obtain a GATT waiver. Now,
for it to do that, the contracting parties had to vote and agree
to that waiver. If they did not, then there just would not be
a Lomé Convention as far as the WTO was concerned. It is
not written into the rules that this is how it has got to be done
and perhaps this is what the WTO should be addressing, the recognition
of the need to protect those small, vulnerable economies. The
specific provisions should be written into the WTO rules, so that
countries seeking to provide that kind of protection to developing
countries should not be required to go and seek a waiver. I think
this is the problem with the WTO as far as small developing countries
are concerned.
Chairman
407. Can I just finish off the question
of diversification with another quite often expressed view? There
is an argument that Lomé preferences have acted as a disincentive
to diversifying the Caribbean and Pacific economies, thereby weakening
their long-term economic prospects. What is your view of that?
(Mr Cornibert) I think this is a simplistic argument.
This is too simplistic a proposition for anybody to make.
408. Do you think it is probably learned
in the economic schools of our universities?
(Mr Cornibert) Yes, and to accept that would be
to say that those countries themselves do not recognise the difficulties
that they face and the need not to rely on, in the case of the
Windward Islands, so heavily on just one sector. I do not believe
this is the case. In today's environment, in a world trading environment
that is constantly changing and moving in the direction of free
trade, I do not believe that one can accept that any country would
become so complacent. Although it would seem that there is a valid
argument that says if you protect a child for too long, that child
will never become independent and want to do things for himself,
which is the kind of argument that is being used here. I am saying
that is not necessarily true to the extent that that child is
seeing the pressure that is being brought to bear on whoever is
providing the protection,—in this case through the WTO action.
As I said, with the direction in which world trade is moving,
I can tell you that if we, in the Windward Islands, could find
something that could replace bananas today, that would do for
us what bananas are doing, we would go at it like a shot. It is
really ludicrous and simplistic for somebody to suggest that we
want to be there because there is that protection. This is a far
more difficult and complex issue.
(Mr Lodge) If the proposition were true that ACP
countries are languishing behind because of preferential market
access given to particular commodities, then in the case of Jamaica
you would not have experienced the phenomenal growth in two export
industries in the broadest sense, namely tourism and that we have
witnessed over the last 15 years, one service and one commodity,
which are outside of the ambit of the ACP trade preferences. So
I think that certainly in the case of Jamaica, we have seen that
that argument does not stand up. Secondly, the figures do suggest
that only 7 per cent of ACP trade actually benefits from trade
preferences and you see in the cases of, let us say, Botswana
or Kenya or a number of countries, Mauritius, for example, they
have registered phenomenal growth in exports which do not benefit
from trade or from commodity agreements, as such, so I think that
the experience does suggest that that argument is rather redundant.
Mr Grant
409. I wondered if you could help me on
this: as I understand it, in 1994 the EU got a waiver on the GATT
for the Banana Protocol. Subsequently, in discussions when the
GATT was upgraded and on the agreement on services, the GATS,
the Panel agreed that the waiver did not meet the rules of GATS
which came in after the original waiver was granted. Am I right
so far?
(Mr Myers) Yes.
410. What you are complaining about is that
this agreement on services has been applied retrospectively after
you had had the agreement and the waiver on the GATT? Is that
right?
(Mr Myers) I do not think that is quite correct.
I think the problem is that the Panel and, in a sense more importantly,
the Appellate Body after them, have interpreted the waiver in
a particularly narrow and indeed unexpected fashion. They also
took it upon themselves to interpret what the Lomé Convention
meant in a very narrow fashion and whereas the Panel itself took
to some extent a balanced view in giving the benefit of the doubt
to Lomé on one crucial issue, this was immediately reversed
by the Appellate Body. The way that it covered the services agreement
as well was another complication, but the whole thing came out
of an interpretation of the waiver by the Panel. Could I add incidentally
that of course the waiver itself had to have a 75 per cent majority
in order to get through as well as over 50 per cent for each renewal,
which is perhaps another aspect which is worth consideration for
the longer term.
Dr Tonge
411. I wanted to ask you really a very simple
question. What is the current state of the banana industry in
the Caribbean at the moment and what is the state of mind and
morale of the farmers out there? Are any of them packing up or
turning to cannabis or what is actually happening at the moment?
(Mr Cornibert) Again I speak for the Windward
Islands, yes, the state of uncertainty and confusion regarding
the regime has created problems in the banana industry in the
Windward Islands, particularly after the three or four years of
problems we have had with hurricanes and low seasonal prices.
With all the uncertainties and the challenge in the WTO, the banana
growers have reached a point where quite a few of them are no
longer investing in the banana industry because they do not know
what is going to happen. They do not know whether the regime is
going to be scrapped or what else is going to happen, and so they
are no longer investing in the banana industry at this stage.
Although we are trying to boost growers' confidence, many of them
are actually leaving and that is something that is causing us
a good deal of concern in the Windward Islands.
Chairman
412. Your tonnage has fallen, has it not?
(Mr Cornibert) Yes.
413. Can you tell us what it has fallen
from to?
(Mr Cornibert) In 1996 we shipped about 190,000
tonnes and that was a year when we had the residual effect of
the hurricanes in 1995. Last year, following the drop in 1996,
we did about 137,000 tonnes, that was a big drop. We attributed
the drop to weather problems—again without irrigation, we
are totally dependent on rainfall and we had dry weather problems
in the early part of the year. That obviously has had a tremendous
impact on production, but also because we feel that some farmers
are moving out. This year we hope for a return to a more normal
level of production because of a combination of things; increasing
productivity that we are achieving, not because of a shift back
to production by those farmers who have abandoned their fields,
but because of the concentration of efforts on some of the best
farmers under the certified farmer programme. We are going to
see an increase in productivity in this area and this year we
are probably looking at 180,000 tonnes. Yes, to answer your question,
it has had and is continuing to have a negative effect on morale
in the industry.
Dr Tonge
414. If it did happen and the banana industry
disappeared, are people going to leave the islands? It seems to
me that this is a serious problem for the European Community because
they are then going to require an immense amount of aid from Europe
to support those countries. If there is really and truly nothing
else, presumably there are no mineral rights, but is there oil
in the Caribbean, and we know there are volcanoes, but it is really
very, very worrying and I just find it very, very worrying?
(Mr Cornibert) It is. I can tell you that they
are worried because there is an EU office or Delegation in Barbados
and they have been in touch with us and one of their concerns
has been the drop in production. They are extremely worried about
it. Ironically, one area where some concern is being shown as
well is in the United States. They view with some concern the
fact that the industry seems to be declining, with all the implications
that may have for them. We have pointed out to them, "Well,
part of the reason why this is happening is because you chose
to challenge the regime and create uncertainty", but that
has not caused them to change their position.
Dr Tonge: Are they
going to accept people who want to leave to go to the United States
and get a job there?
(Mr Cornibert) I do not think so.
Mrs Kingham
415. I think the mention that was made there
of cannabis was actually quite a serious point in terms of I do
not think it was being implied that you would turn to it for personal
use, but because it was a very lucrative crop.
(Mr Cornibert) I do not know what they are turning
to. There are not many other avenues, more lucrative avenues,
that they could go into.
416. But in terms of our position as a Select
Committee and in the EU's position and presumably the United States',
that must be a serious concern for them, that when they are expecting
farmers in the Caribbean to diversify, one of the most lucrative
crops they could diversify into if they were desperate is growing
and producing drugs which have a high international value. Is
there any indication that this is happening or that people could
be pushed into that direction and is it something that could be
used to pressurise both the EU and the United States and the World
Trade Organisation in terms of maintaining the Banana Protocol?
(Mr Cornibert) Well, we certainly would not want
our banana growers to move into drugs and, therefore, we do not
want to get to a point where we are using this as a threat because
we do not want to send the signals to our banana growers that
if things are difficult, they should move into drugs. I cannot
tell you now that this is the direction in which they are going.
What I can tell you is that we cannot say that they would not
be attracted to drugs and, as you quite rightly pointed out, it
is a lucrative business, there is a ready market, the demand is
good and it is not like bananas and, therefore, the attraction
is there. That is all I would say at this point.
Ms King
417. I wanted to start by thanking you for
your submission to the Committee which I found particularly well
set out and it is a particularly damning indictment of the way
the WTO has treated the countries that you represent. The first
two things that you mentioned there I thought were very instructive,
namely that the ACP and the EU States between us do constitute
a majority of the WTO members and I think that is a very important
political point that is reiterated. What I wondered though, turning
to the specific problems of the WTO ruling, you mentioned briefly
about it being too narrow and I presume you are referring to the
fact that the system of licence allocation and the duty free quotas
are not covered under this waiver. What do you see as being the
strongest arguments for persuading the WTO that they should be
included?
(Mr Ellis) Very simply, the strongest argument
is that without a viable income, this business will spiral out
within a year and there is no question about that. The access
and viability is in the present regime and there is a risk against
it with (a) the specific country quotas and (b) the question of
whether the B licences are going to go and how that problem is
going to be addressed. Now, we do not know that position yet,
but very definitely it clearly would spiral down. If this business
spirals down, it is going to impact all the costs because you
cannot use half a ship for this or half of anything, so that is
the risk. The risk is whether we can even stay in this business.
Chairman
418. Mr Lodge, did you want to say anything
there?
(Mr Lodge) I wanted to come back to this question
of the social and economic consequences of the demise of the banana
industry. When one considers the state of the Jamaican banana
industry, admittedly bananas represented as a share of total exports
are not as high and not as significant as is the case in the Windward
Islands. We exported last year a total of $1.2 billion worth of
goods and bananas contributed roughly 0.5 per cent of that. However,
it would be a mistake not to look at that statistic because it
masks more than it reveals because when you look at the areas
of banana production, they happen to be concentrated in three
parishes which also happen to be, one has to say, the economically
repressed areas of Jamaica and we are talking also about three
parishes in particular where there is absolutely no alternative.
It is very good to talk about economic diversification, but it
is untenable to imagine that a banana worker and someone who works
on a banana plantation can the next day work in a hotel or manage
a computer. The additional point to that, however, is that why
we place so much importance on the banana regime and in trying
to create an atmosphere of clarity and giving the industry a sense
of stability, it is precisely because the level of investment
required to improve the competitiveness of the industry demands
that we clear the policy framework, making sure that we have access
for our bananas and making sure that the regime delivers on price.
These are the two commitments under Lomé and the Jamaican
banana industry certainly in the last 15 years has moved from
a national average of five tonnes per acre to where farmers are
now producing 15 tonnes per acre, so it is not the case that we
are sitting on our laurels waiting for an indefinite period of
protection and not responding to the market demands.
(Mr Myers) Could I just add a point on the question
raised, I think, by Mrs Kingham about drugs and that is that actually
about a year or a little over a year ago when this problem first
was launched by the United States, when the case was launched
in WTO, one of the serving generals actually at a public conference
said that it was totally misguided for the United States to be
launching this attack for the very reason of the problems that
this would create in terms of drugs trans-shipment and the risk
that it would create if you drove people out of banana production.
In addition to that, there has been a whole delegation of Congress
men and women and other eminent people in the United States who
have visited the Caribbean somewhat over a year ago who came back
and submitted a very good report which was circulated to Congress
which made that point among many others.
Chairman
419. So it is not just drugs growing, but
it is drugs trans-shipment?
(Mr Myers) Yes.
3 See Evidence, p. 149. Back
4
See Evidence, p. 167. Back
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