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Ecuador: President of Acorbanec Gives His Opinion on The Banana Industry

28.12.2018

From the export sector there is talk of several situations that lead the banana towards a stagnation in a country where there are no signs of significant diversification of the export offer, since all the plans so far have failed.

The starting point for the low growth rates of bananas is the law. It is the only controlled product.

Because they are an export product, bananas should not be regulated by a special law or have an official set price, which in many cases has been fixed in a political and non-technical manner. Because it is an export product, prices depend on international markets, just like the other products exported by Ecuador.

The fixing of the price conceals two things: productive inefficiency and comfort of the producers. One of the problems is the low productivity of many producers, who have high production costs or do not optimize their fixed costs, therefore they demand the easiest way: to raise the price. And this is what has happened in recent years. The law should be repealed because to set a price you do not need a law, but a simple ministerial agreement, as for example you have with rice and corn.

Ecuador has lost share in markets such as the United States, which is the second largest buyer of fruit after Russia.

This law has, in short generated, higher costs and made the Andean country less competitive with the other banana producing countries that have no law and sell at lower prices than Ecuador to gain markets. For example, if Ecuador went up ten cents by 2019, the competition only went up five. And so they capture more market share in the United States and Europe.

Guatemala has taken advantage of the lack of public policies and today some believe that this year it is already the second world exporter, surpassing Costa Rica and Colombia.

Being displaced in the United States and Europe, our country opened new markets with Russia leading the list, Turkey, the Middle East, Argentina, among others, very different from each other, which are weak economies compared to the United States and Europe. These markets buy part of the fruit under contracts and another in spot (without contract) and others only at a certain time of the year. The current law is not adapted to these realities: 30% of Ecuadorian bananas are exported on the spot market.

Richard Salazar categorically rejects the new law they are currently studying in the Assembly. In his opinion we should stay with the current one, but the ideal is to abolish it and free the sector.

If we do not repeal this Banana Law or we do not adjust it to reality, we will continue to lose markets because we are expensive, since we have bad wage policies, the most expensive labour in the country and the most expensive input supplies in Latin America.

The single income tax paid by the export sector, in my opinion, is very high. First, that the tax base is on the FOB price (cost, insurance and freight) and you pay a percentage up to 2% as a ceiling. The exporter may be losing, but he pays a high tax. This is a tax on sale and not on income. The basis must be on the FOB price differential and the minimum support price paid to the producer.

It is also necessary to open the trade barriers that exist in for example, Brazil.

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