LAW AND ORDER
Tuesday, June 18, 2013
After several meetings with all the protagonists of the banana export chain, producers, exporters and importers in which the Minister of Agriculture explained the need to regulate the industry in Ecuador the government decided to apply LAW AND ORDER to the players of the industry that did not take the warnings seriously.
Four exporting companies were suspended its operations for not complying with the regulations and have been requested to show evidence that they have fulfilled the law before lifting the suspension which actually means closing the operation.
The authority is sending a message that has to be heard loud and clear PLAY BY THE RULES OR YOU ARE NOT ALLOWED TO PLAY.
The Ministry of Agriculture of Ecuador issues a list of approved exporters every week that is sent to the port and customs authorities, if you review that list you will find many interesting things such as that there are around two hundred registered exporters, that the amount of fruit registered under contract is about 50% higher than the production , that many brands are exported by more than 10 even 20 exporters , in other words, it is quite clear the system needs a lot of clarification to meet the law and order objective that the authority is demanding.
The Ecuadorian Banana industry has been in chaos for quite some time and has been losing competitiveness due to an excessive protection to low productivity via high official prices that at the end of the day are not paid by the innumerable spot buyers that sale to exporters that sale to traders if the supply is higher that the demand then the prices collapse.
The business model under which the industry functions in Ecuador has no comparison to what functions in Central America or Colombia or in any other part of the world. In these countries the operators are the regulators and the governments almost play no role in it and the business is stable and regular that allow a long term planning with contracts that are signed for up to 5 years with yearly adjustments as per market or cost changes.
Ecuador being the first banana exporter of the world has gradually degenerated in to “LA CAGE AUX FOLLES” unfortunately by the same American multinationals that keep the industry in order in other countries. They use Ecuador as the banana warehouse to buy in the high season and when their own production has problems in Central America, to do this they use several “exporters” and therefore, elude the regularity commitments for the whole year that a healthy industry demands and, even more, they act in agreement with some of the Mediterranean traders to dispose their excess bananas in traditional Ecuadorean markets by doing dumping and destroying the price structures.
You do not have to study any conspiracy theory; it is only necessary to review the listings of the Ministry of Agriculture and the export statistics by brand by week of the last three years to have a clear x ray of the situation.
Under this premises the effort of the government is valid but it has to be done with the correct market approach that such flexible business has: that of a perishable fruit, which is a price sensitive commodity.
The effort must be directed not only to regulate but to analyze the cost and productivity of the sector so that with the regulation Ecuador can maintain its position as the first banana exporter of the world and not ”fall into the seventh place if it is necessary“ as some sources said that the minister had said in order to regulate the sector.
Again the industry needs to be regulated with market “SENSE AND SENSIBILITY” to avoid “LA CAGE AUX FOLLES” that may kill it with BANANAIDS.