Tuesday, November 13, 2007

Banana sector gets slippery

Judgment day arriving as industry awaits Kroes’ moves

Investigations take time and when it comes to investigating in environs full of banana peels, the going gets slippery, slowing down proceedings further. There was, however no slip last week on the part of Jonathan Todd, commission spokesman for competition commissioner Neelie Kroes as he told journalists, “Anti-trust inquiry is ongoing.”

Todd was replying to a question about the latest status of a “cartel probe” launched two years ago into a suspected cartel of banana wholesalers. In 2005, Kroes team had raided the offices of Europe’s largest fruit distributors after Chiquita, the world’s biggest producer of bananas blew the whistle on an alleged cartel in the European banana markets.

At the time, Fyffes of Ireland, Dole and Del Monte of the US had admitted that they had been among the targets of the raids while the European commission had confirmed the “unannounced inspections” at the premises of several producers and distributors of bananas and pineapples in Germany, Belgium, the United Kingdom and Ireland.

“The Commission has reason to believe that the companies concerned may have violated Article 81 of the EC Treaty, which prohibits price fixing and market sharing practices,” the commission statement had said clarifying that raids did not mean that the targeted companies are guilty adding that a full-scale inquiry would be carried out.

The investigation was launched at the instance of Chiquita, based in Cincinnati in the US when it had it had informed the EU competition authorities after the management became aware that several of its employees had been sharing price information with rival companies for “many years.”

Commenting on the inquiry, reliable sources in the European commission and European banana industry sector told New Europe that the regulators are targeting the five biggest banana companies – Chiquita, Del Monte and Dole of the United States, plus Noboa of Ecuador and Fyffes of Ireland for an illegal cartel activity.

The sources also confirmed recent media reports that at the end of two years the European commission has more concrete information and formal charges may be initiated before the end of the current year.

Although Commissioner Kroes has broken many records during her tenure for imposing fines on cartels, the market observers feel that the fines, if imposed may stay within the precedent cases of about 10 percent of annual sales. Moreover, it may take months before the case comes to an end as the accused firms would have several months time period to defend themselves.

One market pundit alleged that the timing is coinciding with the ongoing transatlantic banana war which got reignited last year when Ecuador was joined by the US, Columbia and Panama to open another tug-of-war a decade later.

December 15, 2006 saw the first day of the proceedings at Geneva of revival of the “1990s banana wars” with the then-winner Ecuador coming back to haunt the European Union. Ecuador, the world’s largest banana exporter, complained to the WTO against the EU’s single tariff of 176 Euro that came into force on January 1, 2006, terming it “high.”

Last year, while negotiating for a single tariff system to modify its complex web of duties and quotas for imports, the European Commission had suggested EU duties of 230 Euro and then scaling them down to 187 Euro, but WTO panels had rejected the proposals arguing that those were discriminatory against Latin American (Latam) nations. Out of that deadlock emerged the figure of 176 Euro, but the conflict simmered on.

Even after the introduction of the new EU single tariff system, there was widespread dissatisfaction, and Norwegian Foreign Minister Jonas Gahr Stoere got into the driver’s seat to find a political solution based on a thorough monitoring of the EU banana imports and various price systems in force.

But, after waiting nearly for a year, Ecuador decided to go ahead with the WTO route and on November 23, 2006 was joined by Colombia as a third party. Panama and the US followed and more countries are set to join in the fray according to sector insiders.

The EU’s current banana import policy significantly differentiates access treatment as a tariff-quota volume of 775,000 tonnes is exclusively reserved for bananas of ACP origin. ACP bananas within the quota enter duty-free (i.e., at a 176 Euro/tonne margin of preference), with unlimited ACP over-quota access authorised at a tariff of 176 Euro/tonne. On the other hand, an “autonomous” tariff of 176 Euro/tonne (a rate more than double the previously-applicable rate of 75 Euro/tonne) applies to all other bananas.

Bananas are the most important agricultural product in Ecuador, and its exports account for 25 percent of all Ecuador’s agricultural exports. Some 97 percent of all banana output is aimed for the European market. On the other hand, in Europe it is a “sensitive” commodity and there is a protection regime for the sector.

While bananas grown within the bloc account for only 16 percent of the total EU supply, production is important to the Spain’s Canary Islands, the French overseas departments of Martinique and Guadeloupe and Portugal’s Madeira and Azores islands.

Europeans eat some 4.6 million tonnes of bananas every year, making the bloc the world’s biggest banana market. Over two-thirds of the fruits consumed come from Latin America and a further 17 percent from Africa and Caribbean countries.

Written for New Europe, the European Weekly on June 16, 2007 - Issue : 734

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