Financial Times
August 30, 2000

The banana republics strung along the Central American isthmus have slowly been losing their reputation for dictatorship, corruption and squalor as democracy takes hold. But they now face losing their reputation for the fruit that gave them their nickname as heightened competition and continued trade barriers in Europe erode their exports.

The Central Americans joined other Latin American producers earlier this month in Panama in a show of unity, rejecting the latest EU proposal for changing its import regime, which favours former colonies in Africa, the Caribbean and the Pacific - the ACP countries.

But there was plenty of discord around the table in Panama too as Ecuador continued a pile-'em-high, sell-'em-cheap philosophy that threatens to swamp the market. Costa Rica, second to Ecuador in global exports, is particularly troubled as its higher wages and tighter labour regulations mean it cannot compete on cost.

Jorge Sauma, head of the country's National Banana Corporation, the exporters' forum, said: "The Ecuadorean strategy of placing as much product as possible on the market is political suicide." He alleges that Ecuador is selling below cost price, at around Dollars 1.50 for a 40lb box. Costa Rican bananas cost Dollars 4.40 a box to produce and sell for around a dollar more.

"A Costa Rican worker earns Dollars 15 a day and an Ecuadorean Dollars 4," said Mr Sauma.

He wants exporters to keep bananas back from the market to allow the Price to rise. That is politically impossible so the Central Americans - Honduras, Guatemala, Costa Rica, Panama and Nicaragua - see the opening of the European market as the only way to safeguard the industry, which provides tens of thousands of jobs and sustains thousands of communities.

Honduras and Guatemala are struggling to regain market share after production in 1999 was wiped out by the effects of 1998's Hurricane Mitch. Big US banana companies have laid off thousands of workers and decided not to rehabilitate some land. "We have to obtain fair access to Europe. Then we believe we could return to the export levels before Mitch," said Jose Hernan Eras, Honduran vice-minister of trade.

Chiquita and Dole, the giant US food groups that prompted Washington to act, have both cut operations in Central America in the last 12 months. Chiquita, which sacked 650 workers in Honduras in June, said it could not compete with Ecuadorean companies.

"The industry is going through a crisis greater than it has ever experienced before," said Bob Kistinger, president of the international division of Chiquita. "The costs in Ecuador are so much lower. There are no unions, no labour standards and pay is as low as Dollars 2 a day."

The European proposal was to grant import licences on a first come, first served basis. This would still favour the former colonies, those with historical access to the EU market.

The Latin Americans say they would refuse any proposal based on quotas and the US appears willing to back them. But while they can unite to oppose, they have not yet all supported a counter-proposal.

Roberto Henriquez, Panama's outgoing vice-minister of foreign trade, said the meeting of the Central Americans, Mexico, Colombia, Venezuela and Ecuador was a step in the right direction.

Mr Henriquez, whose country has seen Dollars 550m in lost exports since 1993 when the EU single banana market was introduced, said: "It was very important to have Ecuador here because it shows that no country can go it alone. It sent a very strong signal to Europe."

Europe will also have noted that none of the other countries commented, nor would any commit to follow Ecuador in asking for sanctions. Agreement would appear to be a long way off.