Production costs faced by fruit companies operating in Costa Rica have risen in recent years, but it has been impossible to pass the increase on to consumers due to prevailing weakness in the international marketplace.

Assuming that profit margins get even slimmer as this year goes by, Costa Rica's National Association of Independent Banana Producers predicts a financial crisis among the nation's leading fruit companies by the end of 2000. Banana producers in particular have already started cutting back on their Costa Rican operations, and it remains to be seen whether alternative fruit crops will pick up the slack.

Jorge Madrigal, head of Costa Rica's National Banana Chamber, blamed low international prices on the fact that high production by Ecuador is flooding international markets. During 1999 the international price of bananas slipped, and the decline continued through the first half of 2000, bottoming out at US$12.97 per case.

Standard Fruit Company and other leading companies were disillusioned last year when banana exports rose by 400,000 cases, yet export income decreased. According to statistics released by the National Banana Chamber, a total of 116.2 million cases of bananas were exported during 1999, but the corresponding income was US$14.8m lower than one year earlier. With production down and international prices still weak, producers expect export earnings to decline again this year.

Recently, management at Standard Fruit Company announced that the company would reduce the size of its Costa Rican plantations by 500 hectares this year. As a result, production will drop by an estimated 400,000 cases (18 kilograms each). When this year's cutback is added to internal and external reductions last year, the number of hectares harvested by Standard Fruit during 2000 will be 1,100 hectares less than at the outset of 1999. The company's Costa Rican banana production is expected to be in the range of 100 million cases this year. This represents an approximately 15% drop in production relative to the volume in 1999 and will cause 120 temporary labourers to lose their jobs. Standard Fruit's legal advisor, Juan Carlos Rojas, said that the cutbacks were inevitable in light of high production costs.

In Costa Rica, the cost of banana production is US$5.2 per case, whereas the level is approximately US$2 in Ecuador. The discrepancy mainly stems from high labour cost and relatively high taxation imposed by the Costa Rican government. During the past 12 months, persistent labour disputes involving the banana workers' union and leading fruit companies proved to be both disruptive and costly.

The global demand for bananas has risen in recent years, especially in Russia and Eastern Europe, however production has outstripped demand. In Ecuador, the world's leading banana producing nation, banana production more than doubled during the 1990's. According to FAO statistics, the volume of bananas produced there increased from 3.05 million metric tonnes per annum in 1990 to almost 7.5 million late in the decade. As the value of Ecuador's national currency collapsed in the late '90s, it became nearly impossible for nations with relatively strong currencies, like Costa Rica, to remain cost competitive.

International fruit companies operating in Costa Rica, most of which are based in the US, are using their political clout at home to increase sales to the EU. In addition, a recent summit of Latin American banana-producing nations marked an important step toward putting pressure on Europe as a regional block, rather than as individual nations. Even through Europe continues to favour banana imports from Africa, Latin American sales to the EU should increase over the next two years. Banana-producing nations are also negotiating sales to the gigantic and almost untapped Chinese market. Until the global demand for bananas catches up with the level of supply, fruit companies in Costa Rica are likely to turn to the production of alternative fruit crops which draw a higher price in international markets.

Overall fruit production in Costa Rica has been relatively stable in recent years. The chart below shows fruit production (except melons) per annum in millions of metric tonnes.

Statistical Source: FAO

By Steve Lewis, correspondent