In this story
- Price Wars overview
- Why are conventional bananas so cheap?
- Supermarket codes of conduct
- Take action: Support Fairtrade; Challenge the supermarkets; Right corporate wrongs
- More information
Price Wars overview
7 billion bananas are eaten in the UK each year - 10 kg per person
On 16 March Asda-Walmart started a new banana price war, slashing its banana prices by a massive 25%, from 85p/kg to just 64p/kg. A day later Tesco, Sainsburys and Morrisons also cut their prices to the same level. This represents around a 43% price drop from 2002 prices. This kind of price war potentially undermines all attempts to build a more socially and environmentally sustainable banana industry for both small scale farmers and workers on larger plantations.
Banana Link, (an organisation which aims to ‘alleviate poverty and prevent further environmental degradation in banana exporting communities and to work towards a sustainable banana economy’), warns that this latest move is part of a worrying trend:
“In 2002, on the back of its new exclusive low-price contract with Del Monte, Asda/WalMart launched a price war which had direct consequences on wages and working conditions in the countries which produce our bananas. Almost no banana plantation worker in the industry can be said to earn a ‘living wage’ any more, something which Asda and its competitors aspire to ensuring in all their supply chains.”
Read more about the problems faced by banana producers below. Click here to see how you can take action now.
The battleground: Bananas are big business: 7 billion bananas are eaten each year in the UK — that’s 10kg per person each year.
The supermarket price-war: Bananas are a really important product for supermarkets; they account for over a quarter of all fruit sales, are the highest value grocery item they sell, and a significant contributor to profits. They are also an important battleground in the competition to win customers — so price cuts in one supermarket will lead the others to follow suit.
The victims: Ultimately these price cuts are not borne by the supermarket. The costs are pushed onto the most vulnerable people at the end of the supply chain. Didier Leiton, former Del Monte worker in Costa Rica, sacked for trying to improve conditions for his fellow workers said the latest move “could mean banana workers will be forced to stop sending their children to school. This price cut at your end of the chain will fall on the shoulders of the plantation workers, as it always does … This news spells lower wages and less rights.”
Why are Fairtrade bananas more expensive?
Higher packaging costs: Fairtrade bananas are sold in bags to prevent them from becoming mixed up with other bananas. Handling costs are about three times greater for bagged bananas than for loose bananas.
Higher production costs: Producers of Fairtrade bananas receive a guaranteed minimum price based on the cost of production, plus a social premium of US$1.75 per 40 lb box (around 6p per kilo). This goes towards social and business development projects.
The cost of production varies between countries. Fairtrade bananas from the Windward Isles come from small scale farms spread out across the hilly countryside, making them more expensive to produce (but resulting in sweeter bananas!). Non-Fairtrade bananas are typically produced on large plantations located on level plains, which means production costs are lower. Almost half the banana farmers in the Windward Isles have gone out of business since 1993, as higher production costs combined with a fall in banana prices left them unable to cover their costs. Fairtrade aims to assist farmers like these by ensuring they receive a fair price for their produce. The Fairtrade Foundation controls the prices paid to growers — so the FAIRTRADE Mark provides a guarantee that any price cut on the shelf has not resulted in a wage cut for a farmer or worker in a developing country.
At the end of 2002 the average UK price of bananas was £1.12 per kilogram — about the same price that Fairtrade bananas are sold for now. In comparison to the current price for conventional bananas, consumers may ask why Fairtrade bananas are so expensive. But the question that really needs to be answered, by supermarkets and the banana companies, is why are conventional bananas so cheap?
Why are conventional bananas so cheap?
Banana production, particularly that of ‘dollar’ bananas from Latin America which are grown on huge plantations, is associated with huge environmental and social costs:
Poor living standards: Plantation workers are paid inadequate wages which do not allow them to support themselves and their families. In Nicaragua plantation workers receive as little as $1 a day. Although minimum wages are in place, they are often too low to meet basic needs, and may not be effectively enforced.
Poor working standards: The heavy use of pesticides in order to increase productivity has appalling consequences for the workers who must use them. 20% of the male banana workers in Costa Rica were left sterile after handling toxic chemicals. Workers can be expected to work long hours with poor equipment and training; sexual harassment is common.
Suppression of Trade Unions: Plantation workers are often denied the right to organise into Trade Unions. In Columbia trade union leaders have been targeted and killed as a deterrent to others who may wish to organise. In Ecuador, in May 2002, the owner of the biggest banana company in the country sent hundreds of armed men to stop a peaceful strike by 800 workers that had recently formed a trade union, injuring 19 people.
Environmental degradation: Plantations cause soil erosion, deforestation and a loss of biodiversity. When bananas are not rotated with other crops, soil fertility declines dramatically. Plantations respond by expanding into new areas. Pesticide use pollutes water supplies, poisoning fish and threatening ecosystems.
Supermarkets in the UK are enormously powerful with the four largest — Tesco, Asda-Walmart, Sainsburys and Morrisons — controlling 75% of the market. When four firms control more than 50% of the market a strong oligopsony is said to exist — that is, a market which is dominated by a few buyers.
This has huge implications for producers. The bigger the market-share a firm has the more demands they are able to make of their suppliers. The UK Competition Commission Report of 2000 identified a clear correlation between the size of a supermarket and its ability to make demands of its suppliers.
At one end of the supply chain are a large number of producers and workers, whose livelihoods depend on selling the goods they produce. At the other end there are just a few companies dominating the retail market. These companies have enormous bargaining power, as if one supplier cannot meet their demands there are plenty more that will.
This creates constant downward pressure on suppliers — to meet the demands of the supermarkets for lower and lower prices they must keep their costs down — with a devastating impact on social and environmental standards. Research from Banana Link in 2002 showed that a retail price of £0.81/kg made it impossible for growers in Costa Rica to pay plantation workers the legal minimum wage.
In addition, the widening price gap between Fairtrade and conventional bananas increases the risk of positioning Fairtrade as a `niche“ market where consumers must actively choose to pay for products guaranteed to be non-exploitative.
Do supermarkets have codes of conduct?
“Our customers have always expected us to deliver a great range of quality goods and services at our famous `everyday low prices“… but not at any cost. That“s why we believe we have a responsibility not only to ‘do the right thing’ for our customers and colleagues, but also for the wider community. Of course, through the everyday operation of our shops and distribution network, we can“t help but have an impact on our society and environment. However, we are continually striving to improve the way we do things to meet the social, environmental and commercial challenges we face on a daily basis.” ‘All about Asda’ — Asda website
In response to increasing concerns about the impact of corporate practices, there has been an upsurge in ‘Corporate Social Responsibility’ initiatives. For example, many supermarkets apply the Ethical Trading Initiative’s base code (a set of minimum ethical trade standards developed by an alliance companies, trade unions, and NGOs). However, the cost and responsibility for meeting these standards is normally passed down the supply chain to suppliers. At the same time the demands that retailers make of their suppliers undermine the very standards they ask them to meet.
- Supermarkets pay less and less to their suppliers, meaning producers may be forced to accept a price lower than the cost of production, because they cannot afford to lose the contract they have with the supermarket. At the same time supermarkets demand the implementation of improved labour standards.
- Supermarkets demand identical and unblemished fruit — leading to increased (and expensive) pesticide use, at the same time as demanding suppliers improve environmental standards.
As the winners in the banana supply chain, supermarkets must take responsibility for the social and environmental impacts of banana production.
Take action:
- Support Fairtrade
- Challenge the supermarkets
- Right Corporate Wrongs
Support Fairtrade
By setting a minimum price for bananas sold with the FAIRTRADE Mark, Fairtrade aims to boost the situation of smallholder farmers who are either being forced out of the market or having to sell at or below the cost of production, and to protect workers’ rights on larger farms against the impact of this race to the bottom in banana prices.
On the Windward Islands bananas are grown by small-scale farmers on small plots of hilly land. The costs of production are much higher than those grown on large-scale plantations. The landscape is often not suitable for many other other crops.
Bananas sold in the EU are vital to the Windward Isles, making up nearly half of export earnings. The islands used to be British colonies, with sugar beet as the main export. However, when sugar beet was increasingly grown in Europe, the British government encouraged the islands to shift to banana production instead. In the early 1990s, more than 6 out of every 10 bananas sold in the UK were from the Caribbean, but while banana consumption has increased, the proportion of Caribbean bananas sold is now only three out of every ten. Almost half of the 23,000 banana farmers in the Windward Isles have gone out of business since 1993, unable to maintain profit margins in the face of falling prices and increased production costs.
Fairtrade bananas have been sold in the UK since 2000, and one in three of Windward Islands bananas now carry the FAIRTRADE Mark. This means farmers get a higher price for their bananas and a premium which is invested in commercial, social or environmental projects (totalling over US$1m to date).
The impact of WTO rules
The European Union has traditionally granted preferential access to its market for Caribbean bananas, in recognition of the historical relationship of the regions and the higher production costs of Caribbean bananas. This has been vital in protecting livelihoods and the islands’ economies. However, EU tariff reform and the abolition of quotas, in response to World Trade Organisation rulings (which claim the preferential treatment unfairly discriminates against “dollar” bananas) poses a serious threat to Caribbean farmers’ share of the European market.
This ruling will increase the downward pressure in the supply chain in the next few months, exacerbating the already dire situation for banana farming communities
Get your university or school to stock Fairtrade bananas
In 2003 the University of East Anglia became the first university EVER to stock Fairtrade Bananas! This is no small feat as the minimum order of bananas was 5000, but with the help of Banana Link they devised a cunning plan. They formed a coalition of local shops, schools and market stalls to buy their bananas together.
Challenge the supermarkets
The supermarkets’ latest price-cut has been funded (so far) by reducing their profit margins. But just as the 2002 price war had direct consequences on conditions in banana producing countries, it seems likely that banana producers will sooner or later pay the price of this latest assault.
Email the supermarkets to demand an assurance that the cost of this latest price cut will not be passed on to the suppliers.
{gizmo:Mail Actions/Fairtrade Banana Wars}
Most supermarkets collect customers’ comments in-store. Why not leave a comment asking who is paying the price for cheap bananas?
The casualties are civilian
Inform shoppers of the true cost of cheap bananas.
Why not give out information about the true cost of cheap banana prices outside your local supermarket? Attract shoppers’ attention with creative props.
- Take giant bananas as props or members of your group could dress up as bananas,
- You could stage a mock ‘banana price war’, making it clear that the casualties are civilians and the environment.
Right Corporate wrongs
Stop big business profiting at the expense of people and the environment.
As part of our Trade Justice campaign, People & Planet has been calling on the UK government to make laws that stop big business profiting at the expense of people and the environment. In the next few months there is an opportunity for the government to do exactly that!
Currently, UK companies“ main duty is to their shareholders, to maximise profits. Yet these companies can have a huge impact on the lives of people in communities around the world, and on the environment. Company Law sets out the legal requirements that companies have to comply with when doing business. We believe these should include a duty to ensure that their profits are not made at the expense of poor people and the environment.
The Company Law Reform Bill currently passing through Parliament could make UK companies accountable for the impact they have, both in the UK and overseas.
People & Planet, as part of the Trade Justice Movement, and alongside the CORE coalition, is demanding amendments to the Company Law Reform Bill so that:
- Companies are legally required to report on their social and environmental impacts. This will make it much easier to ensure that all companies are behaving in a responsible way.
- Directors are legally obliged to minimise any damage their company does to local communities and the environment. Directors will have to consider their environmental and social impact as well as their profits.
- People overseas who are harmed by the activities of a UK company are able to take action against them in a UK court. People who suffer as a result of a UK company“s activities, will be able to take the issue to court in the UK, if they are denied access to justice at home.
Read more on how to right corporate wrongs
More information
- Banana Wars, Joanna Blythman, The Observer, 13 March 2005. Read about the importance of Bananas to the Windward Isles, and how livelihoods are threatened by world trade rules and competition from massive plantations with lower standards.
Banana Link campaigns for a fair and sustainable banana trade, working in close partnership with Latin American banana workers trade unions, small Caribbean farmers and civil society organizations in Europe and the U.S. Their website gives information on the many social and environmental issues that affect the international banana trade. Useful documents include The real wage situation of male and female workers in eleven banana plantations in Costa Rica, in comparison to a ‘sustainable living wage’ (November 2004), and a report of a Banana Link co-ordinated GMB London/TGWU/MANDATE trade union delegation to Costa Rica
The Fairtrade Foundation’s report on the banana trade - Unpeeling the Banana trade details the problems in the banana trade, incluidng the impact of international trade rules; their position paper - Fairtrade bananas, Looking behind the price tag provides information on banana pricing
ActionAid’s Power Hungry report (2005) documents the growing power of global food companies and how they have gained control of the global food chain
Oxfam’s 2004 report ‘Trading Away our Rights: Women working in global supply chains’ examines how corporate rights are becoming ever stronger, while poor people“s rights and protections at work are being weakened, and women are paying the social costs.
The UK Food Group’s 2005 report ‘Achieving fairness in trading between supermarkets and their agrifood supply chains’ examines the “prospects for fairtrade to become the norm rather than the exception between supermarkets, their suppliers, and farmers at home and round the world.”
Corporate Watch on supermarkets, with an overview of ‘What’s wrong with supermarkets’, and briefings on Asda, Tesco and Sainsburys.
Read the War on Want/ GMB report on Asda Wal-Mart“s low prices strategy — which have a high cost for workers in Britain and suppliers around the world.