A global glut on shrinking demand has depressed banana prices. Growers have been forced to move up the value-added chain. Steve Lewis thinks low labour costs coupled with new efficiency will enable growers in Central and South America to displace competitors in developed countries.

Through the past century, Costa Rica, Ecuador, Honduras and Panama came to fit the stereotype of banana republics. Heavily dependent on the export of bananas as a source of foreign income, their national economies were strongly influenced by major multinationals like Del Monte and Dole. Not only do these companies have their own plantations, they are leading customers for thousands of small independent growers. Nevertheless, the global glut of bananas coupled with depressed international prices have forced the "republics" to move up the value-added chain.

Gerber recently underscored this trend with the inauguration of an 11,000m2 plant in Cartago, Costa Rica. The company processes 76 million kilograms of bananas every year and expects this to increase due to strong demand for banana-based products. The plant will supply baby food to all of Central America, part of South America and the Caribbean. In addition to baby food, the plant offers an industrial line of banana purée which is exported in liquid or frozen form to companies that further process it into ice cream, yoghurt and children's snacks.

The Gerber plant operates three shifts around the clock, occupying a total of 730 people. These new jobs couldn't have come at a better time, because an estimated 7,000 jobs will be lost in the traditional banana industry this year. Late in 2000 Standard Fruit Company, which handles approximately 50% of the country's raw banana exports, announced that it would purchase 25% fewer bananas from the nation's independent growers this year. The Gerber plant and other banana processors will consume at least part of the surplus held by independents.

Ecuador expands value added exports

Ecuador, the world's leading banana exporting nation, has considerably increased its lead over second-placed Costa Rica and the other Central American producers over the past two years. The quality of its fruit is similar to the competition, but Ecuador enjoys one major advantage: lower production costs. Wages in the banana industry are low and production efficiency is relatively high. Nevertheless, shrinking demand and depressed international prices have cut profits for independent producers to the bone.

Ecuador exports 30 million kilograms of processed banana products per year

The abundance of inexpensive raw material drove a group of investors to establish a banana processing company called Industrias Borja (Inborja). Company management, with the support of Ecuador's Export Promotion Corporation actively promoted banana purée in overseas markets. The plant now produces 12 million kilograms of purée per year, the great majority of which is exported to food processing companies in developed nations.

Having seen Borja's success, groups of independent growers combined forces to establish processing facilities of their own. In addition to purée they offer banana chips, flakes and flour. At present, Ecuador exports 30 million kilograms of processed banana products per year.

Companies like Inborja represented the first step up the value-added chain for the former "banana republics. Costa Rica and Ecuador have already taken further steps up the chain. Ecuadorian companies like Fruticorp, Tropifrutos, Confoco and Bana light buy purée from Inborja and its competitors and process it into products for final consumption like juice and nectar.

Cost advantage over developed countries

Ultimately, processing plants in Central and South America will displace competing fruit processors in developed countries. Fruit processing companies operating in Ecuador and Central America have a distinct cost advantage over competitors in North America and Europe, yet they only recently gained the international know-how to compete in the global marketplace.

The demise of the banana republics is not necessarily good news for leading multinational banana companies. As independent producers get organised and move up the value added chain, they will no longer feel compelled to take whatever offer the major buyers make. There will always be room for fruit marketers like Del Monte and Dole, but processors like Gerber are the wave of the future. Not only will the number of banana processing companies increase in producing nations over the next few years, but their products will mover progressively higher up the value added chain.

By Steve Lewis, just-food.com correspondent