It is not surprising that the position of Ecuador is not advantageous, taking into account the overall determinants. Nevertheless, in the economic assessment and the projections of the banana market (chapter four) the position of Ecuador is still outstanding in terms of market share. This is due to the privileged factor conditions and lower costs of production that enable this country to achieve comparative advantage in the short and medium terms130. The question that remains is that if it may be possible for the firms in lower cost based countries (Ecuador and Western Africa) to sustain this short-term comparative advantage in the long term131. With the information collected here, is not possible to measure competitiveness in the long term, which would require evaluating the list of determinants from Table III.21 in a dynamic perspective. Unfortunately, that is not possible because of some gaps in the data. This list is intended only as a starting point for such study. This paper’s only “dynamic” approach is presented in the fourth chapter, where trade policies are evaluated in a medium-term perspective of four years.
III.6.2 Mapping the Banana Value Chain of the EU
Trade flows are presented in this chapter, based on the firms involved in the value chain. In order to show how the cluster-value chain becomes operational in banana trade, three general examples are outlined. Firstly, as explained in Section II.3.1, TNCs as a rule do not need additional organizational structures in order to export. Secondly, domestic companies develop clusters in order to achieve a basis for exporting. They depend heavily on TNCs, exporting as an asymmetrical cluster, but some can directly export to international markets. And thirdly, small- and medium-size firms in cooperatives (formed by deliberate joint action) combine efforts to produce a standardized product (via externalities such as innovation and technological spillovers) and to negotiate with larger firms (using the forces of competition) in order to export.
130 See section III.3.1.
131The supply elasticities of major studies of the banana market are taken as a constant and do not privilege overall competitiveness. Instead, they are based on export unit values projections (as proxy of costs) and in very few cases on production costs which reliability and availability is often questioned. See Borrell & Haslow (2004) and FAO (2004b)
III. DETERMINANTS OF COMPETITIVENESS
Graph III.10 Maps of the Value Chain of Banana Trade Chiquita’s Value Chain
Dole’s Value Chain
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Del Monte’s Value Chain
Fyffes’ Value Chain
Source: Author’s elaboration
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III. DETERMINANTS OF COMPETITIVENESS
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Although TNCs are not the only operators on the value chain, through them more than 60 percent of the trade volume moves. They form the axis linking firms of producer-exporting countries with firms of consumer-importing countries in the Map of the Banana Value Chain to the European Union.
Graph III.10 does not attempt to show the exclusive providers/traders of the TNCs (whether exporting firms from supplying countries and marketing-distributor firms from the EU) but to show the TNCs’ most relevant market links. Some independent (exporting/importing) agents form a different value chain. Ecuadorian exporters, for example, attempt to use this channel to reach Eastern European markets, even though their infrastructure is not as vertically integrated as in Western Europe.
Because of the lack of statistics, it is difficult to analyze the market power of the agents involved in the banana value chain, but the presence of TNCs in most of its stages is clear. However, growing has been gradually abandoned to local firms/producers, and given that TNCs’ portfolios are restricted to fresh, canned, or/and frozen fruits and vegetables, the retail sector is banned to them. The attempt to incorporate the retail stage into their activities is limited to forming exclusive contracts with supermarkets132. Producer firms from the dollar zone have been trying to preserve their strong links with TNCs to guarantee their sales, regardless of trade policies. Such exclusive contracts guarantee quality standards and scale of production. In some cases, producers tied to TNCs must buy from competitors to meet these standards and fulfill their contracts.
Independent producers have more flexibility when selling to TNCs or independent marketing firms; but these producers are normally small-scale and would be better off finding cooperative structures with marketing firms and achieving the required scale.
The map of the value chain also shows the diversification of country origins pursued by Dole, Del Monte, and to a less extent, Fyffes. Chiquita has been highly concentrated in dollar countries, but it also has interests in Western African countries. Fyffes’
concentration in ACP countries has been gradually decreasing, with some recent investments in dollar countries.
132 Del Monte has an exclusive contractwith the world’s largestsupermarket, the US based Wal-Mart. For a complete list of hyper- and supermarkets in Europe, see http://www.euapart.com/hyperlist.html (visited in February 2005).
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In the last stages of the map (marketing, ripening, and/or wholesaling) the dependency on independent firms is less than in production. Forward process integration has been the common strategy of all TNCs. Particularly, the favorable terms of trade from the EU COM bananas for Fyffes made it stronger in acquisitions throughout Europe. The remaining three TNCs attempt to catch up in acquisitions and concentrate on their core business.
In contrast to the desire for flexibility of independent producers, independent marketing, ripening and/or wholesaling companies attempt to guarantee strong links with regular providers (TNCs or independents), because the maintenance of standards is the main customer requirement (consumers being retail markets, supermarkets, hypermarkets, etc.).
III.6.3 Demand Conditions: Do Policy Reforms in the EU Affect the Environment