Bananas (Hansard, 9 March 1995)

§ Mr. Jack

[pursuant to his reply, 26 January 1995, c. 361.]: I am now able to provide the following assessment of the recent report published under World bank auspices under the title "EU Bananarama III". This is the work of an economist now based in Australia who formerly worked for the World bank. It does not necessarily reflect the bank's views.

The findings in the report are based on economic modelling, not on an analysis of market data since the EU regime was introduced. The assumptions underlying the model clearly have a marked influence on the results found. In our view, they do not fully reflect economic and political realities, in particular the obligations which the EU has undertaken under the Lomé convention on maintaining access for African, Caribbean and Pacific bananas to the EU market.

The consumer cost of the regime is obviously partly offset by the taxpayer benefit in the form of revenues from the customs tariff. The remainder of the benefits of the EU regime go to traders holding licences to import dollar bananas and, now the framework agreement with 326W Colombia, Costa Rica, Nicaragua and Venezuela is in force, to producers in those countries.

Although the assumptions on which the calculations are based are not entirely clear, I am satisfied that the estimated consumer costs of the regime are overstated while the benefits to the ACP are understated, especially in the short term. As to consumer costs, the calculation appears to be based on a comparison with consumer costs in markets closer to the main sources of supply where retailing costs are lower. In addition, the estimate of ACP producer benefits assumes that, in the absence of the trading advantages offered by the EU regime, ACP countries would either continue to export the same volume of bananas as before, albeit at lower prices, or would benefit from their resources being switched out of banana production into more productive uses. In the case of the Windward Islands, whose economies are particularly dependent on bananas, viable alternative export crops offering comparable export opportunities and employment potential have not so far been identified, despite the effort which has gone into agricultural diversification in recent years. Were access for bananas to the EU market to be cut back, there would he immediate social and economic dislocation in the Caribbean and increased social costs.

Since the EU banana regime came into force in July 1993, retail prices in the United Kingdom have fallen. Indeed, in 1994, they were at their lowest level for nearly a decade. French consumers also now pay less for their bananas. In Germany, the only other major member state market on which we have full price information, consumers pay significantly more. This results in part from the application of the common customs tariff. Prior to July 1993, Germany benefited from a special derogation from EU rules enabling it to import bananas free of all duties. This could clearly not be continued once the single market regime was in place.

The economic prescription put forward in "Bananarama III" of free trade in bananas imported into the EU with aid for disadvantaged ACP producers would result in savings for EU consumers, particularly in the short term, but extra costs to the EU taxpayer.

While recognising the need for ACP producers to continue to improve their competitiveness through restructuring and some diversification, the Government remain confident that the EU bananas regime successfully reconciles the requirements of the single market and the need for adequate supplies of good-quality bananas to our consumers with our long-standing commitments to the ACP producers to promote access to the EU market.