So far, the internal determinants have been linked to the external determinants by means of cluster-value chain analysis. The combination of the countries’ environments of competitiveness with the firms’ competitive advantage potential give a general overview of their possible reactions to changing trade policies of importing countries.
The purpose of this section is to link the analysis of the determinants of competitiveness with the trade policies of the COM bananas. In section II.3.2, demand conditions were defined as an external determinant of competitiveness for the banana industry and trade policies were highlighted as the demand condition to be used to test the hypothesis of this study. Therefore this section summarizes the prospective reactions of the different agents within the cluster-value chain analysis based on their determinants of competitiveness.
Producer agents should be aware that the opening of markets should be more thoroughly analyzed in the last stages of the value chain to be more certain of demand-side development. Despite the pressure for price reduction, producers must always be aware of quality, labor, and environmental standards, which are compulsory during importing but do not offer any rewards in terms of income. Producers and workers are at the beginning of the value chain, which receives only 11.5 percent of the original retail
III. DETERMINANTS OF COMPETITIVENESS
price (as seen in Graph III.11). The highest proportions go to TNCs and retailers. The effects of the openness of trade policies by the EU could positively affect the demand side by reducing prices to consumers and increasing operators’ profit margins (given their market power), but what benefit will seep down to workers and producers is an open question. Specialization in niche markets (organic and fair trade bananas) have been an initial reaction to the foreign market pressures.
Graph III.11 Distribution of the Price on the Banana Value Chain*
Producers are constrained by the requirements of intermediaries or agents ahead of them in the value chain. The current market share of the countries is, to a great extent, the result of the intermediary firms’ marketing and integration strategies in reaction to the COM bananas. Countries (particularly from the dollar zone) with high influence with TNCs or large local firms have been able to maintain their market positions throughout the EU regime. For example, the major TNCs attempted to diversify their sources in accordance with the availability of import licenses133. The tendency toward liberalization opens up a new set of possibilities for intermediaries. One initial reaction has been the increasing of its investments in low-cost plantations by signing agreements with producers from Western Africa, Brazil, and, to a smaller extent, Ecuador. These decisions are certainly based only on comparative advantage, but a long-term analysis should be aware of the other determinants of competitiveness. Consumers, particularly
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133 See Section I.4.2.3 for a theoretical analysis of the administration of licenses and Section IV.1.2 to see its application in the banana regime.
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in Europe, ask for environmentally friendly production, respect for labor rights, traceability of the product, and high quality standards. The transformation of production to achieve these standards is costly and time consuming. The question about which firm is more competitive and, as a result, the potential winner of market share can only be answered in the long term. The analysis of this chapter suggests that only countries such as Colombia-Urabá, Costa Rica, and the Dominican Republic have a sufficiently favorable competitive environment for firms. The adjustments in the short term tend to favor low-cost producers such as Ecuador and Western African countries, but the current savings might be reverted when investments to achieve international competitive standards become more demanding for consumers, thereby increasing firms’ costs of production.
In the final steps of the value chain, the COM bananas has made demand more stable in the EU, but concentration of retailers is increasing their market power and making it possible for the retailers to drive the market (EuroFruit Magazine Oct. 98, p. 44). The big change has been the aggressive price campaign in discount supermarkets. This is advantageous for consumers but reduces the profit margins of the value chain backwards. The number of retailers, as well as the number of intermediaries from imports to retailers, has been reduced: retailers have even begun to negotiate directly with producers. In consequence, in order to add value to their normal activities wholesalers are reducing their market share, and demand conditions are forcing them to become more specialized in logistics and marketing.
As it was said in the first chapter, a definition of competitiveness should be more applicable to firms. However, lack of statistical data for firms limits research to making conclusions based only on descriptive analysis of their strategies and their countries’
competitive environments. This problem is also presented in the analysis of trade policies. The following chapter concentrates on the effects on producer countries of changes in the trade policies of the EU. The information on firms is not enough to draw definitive conclusions, but the effects on countries give a clearer picture of what happens with the strategies of the firms if the overall determinants of the cluster-value chain analysis are considered.
IV MODELING TRADE POLICIES EFFECTS ON THE INTERNATIONAL BANANA MARKET
IV. MODELING TRADE POLICIES
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Introduction
Most of the determinants of competitiveness relevant to the banana trade have been analyzed in the previous chapter. However, one specific objective of this research has been reserved until now. Trade policy is a significant determinant for identifying the commercial perspectives of the agents in the “banana wars”. The objective of this chapter is to construct a static partial equilibrium model that can explain, in terms of market share and trade performance, the behavior of producing-exporting countries as a consequence of changes of trade policies from the EU Common Organization of the Market in Bananas (COM bananas).
In order to achieve this objective, the chapter is divided into four parts. In the first part the background and recent developments of the EU banana regime are presented.
Furthermore, as an introduction to the empirical analysis, an economic assessment of the regime to date is made. In the second part, a step is taken toward evaluation of banana trade policies. For this reason, the background of some of the statistical problems is analyzed, and general aspects of the partial equilibrium perspective are introduced in order to model banana trade policies. In the third part, the model is formulated according to the policy changes of the COM bananas. Finally, in the fourth part, changes under different scenarios of trade policies are simulated in order to arrive at some conclusions regarding policy implications especially for producing-exporting countries.
IV.1 The Banana Wars: The EU Common Organization of the Market in