Select Committee on International Development Minutes of Evidence

Examination of witnesses (Questions 400 - 419)



  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.


  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.


  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.


  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.


  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.


  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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