Consultation Document Banana 2009 En

FAIRTRADE LABELLING ORGANIZATIONS INTERNATIONAL

Consultation document for Fairtrade Stakeholders Banana Price Review July 2009 1.

Introduction

1.1

Purpose of the consultation and recommendations

The purpose of this consultation document is to obtain stakeholders’ point of view to Fairtrade Minimum price (FT MP) and Fairtrade Premium (FT P) proposals for bananas. It is important to precise that these proposals are not definitive and will probably be amended taking into account your comments and recommendations. The main objective is that the final minimum price and premium is balancing the interest of all stakeholders. This paper is consequently the best way to communicate your thoughts about the price review. 1.2

Objectives of the price review

As you were informed in a previous communication sent in February 2009, this price review has the following objectives:

a) Revision of existing FT MP and FT P for Colombia, Costa Rica, Dominican Republic, Ecuador, Jamaica, Peru, Panama, Windward Islands, Ghana and Philippines. b) Setting prices for new origins in Latin America, Africa, Asia and Oceania 1.3

Content of Consultation Document

In this paper, you will find:

⇒ An explanation of the development of price proposals (Part 2) which includes: 

Important FT definitions



Steps of the process of setting FT prices



Information on the research process, data collected & analyzed and on how the price options were developed.

⇒ Consultation questions (Part 3) where you are expected to provide your opinion and rationale. PLEASE: Before you respond the questions in part 3, carefully read part 2. 2.

Explanation of the development of the price proposals

2.1

Important definitions

•

FLO standards refer to a MINIMUM price (FT MP). This is not the obligatory price to be paid to certified producers, but it is a minimum level under which producers cannot be paid. Price paid to certified producers

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must always be negotiated between traders and producers higher or equal to the FT MP. When the relevant market price is higher than the FT MP, the market price must be paid. Also, when a governmental minimum price exists, this price must be paid.

•

FOB prices include costs of setting up the crop (irrigation system, planting, seedbed preparation, etc.), field work, harvesting, packing, organization and exporting.

•

Ex Works prices include all FOB costs except exporting costs and the cost of the carton (bottom and lid). Note that Ex Works means that delivery takes place when the seller places the goods at the disposal of the buyer at the premises of the seller or another named place (works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.

2.2

Process for reviewing FT prices

The Banana price review follows the Standards Unit Operation Procedures (SOP for Price Setting). - Mid Feb - June:

Collection and analysis of cost of production from producers.

- July:

Consultation round on price proposals, involving main stakeholders (producers, traders, labelling initiatives, etc.).

2.3

- August:

Final price proposals presented to FLO Standards Committee for approval.

- September:

FLO Board ratification of Standards Committee decision.

- October:

Publication of new/revised prices

Research and data collected

For the collection of cost of production from producers the Cost of Sustainable Production (COSP) sheet used in the previous price revision of 2005 was revised in order to provide more accurate and detailed costs items incurred by producers. The revision in the cost sheet took into account the suggestion of key banana stakeholders (LIs, CLAC, exporters and external consultants). The COSP sheet format used can be seen in Annex 2. To support the cost of production collection, workshops were organized in Ecuador, the Dominican Republic, Colombia and Peru by the Producer Services and Relations Unit of FLO (partly) in coordination with the Latin American and Caribbean Network of Small Fair Trade Producers (CLAC). During these workshops the COSP sheet was explained and the cost structure for banana production was discussed. In some countries producers elaborated a joint proposal for their country. Additionally, producers have sent their individual costs to FLO. All in all, 74 certified and applicant producers from Latin America, Africa and Asia were contacted (34 SPO and 40 HL). From the 74 contacted producers, Standards Unit received 57 sets of data dealing with cost of sustainable production information from 36 certified and applicant producers. Thus, the answering rate of 49% is an acceptable level and provides a robust basis for this review. Besides, the FT certified producers who sent cost of sustainable production information represent approximately 95% of actual FT banana sales. Therefore the data collected from existing producers is highly representative. From the new origins, the rate of response was much lower. Costs of

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production were provided by Honduras, India, the Pacific Islands, Uganda and the Democratic Republic of Congo. Additional information from research institutes and governmental agencies were used to verify the data reported by producers and to complete the analysis. 2.4

How the Price Options were developed

After the analysis of the received cost of production, FLO has developed price proposals for existing and new origins, on a country specific as well as on a regional level. We developed 3 options for Fairtrade Minimum prices and premium for existing and new origins. Table 1 presents price options for existing origins:

•

Option 1 is based only on data provided by producers from existing origins.

•

Option 2 is based on data from producers, on market data based on key figures and on expertise from the European and United States Banana markets. Please note: this adjustment does not lead automatically to a lower price proposal.

•

Option 3 is based on general economic indicators only. The Exchange rate evolution and the Consumer Price index are used to adjust the FT MP set in 2005 to its real value in 2009.

Table 2 presents price options for new origins: •

Option 1 has not been developed due to the fact that for some new origins the producers’ rate of response was very low.

•

Option 2 is based on Option 2 from Table 1. The average value of the countries from the respective region is taken. Please note: this adjustment does not lead automatically to a lower price proposal.

•

Option 3 is based on Option 3 from Table 1. The average value of the countries from the respective region is taken.

Notes: 1) The data sources for developing Option 3 in Table 1 and 2 are a) the Consumer Price Index (CPI) provided by International Monetary Fund (www.imf.org) World Economic Outlook Report (April 2009), and b) Interbank exchange rate provided by Oanda Corporation webpage www.oanda.com (from 01/01/2005 until 20/06/2009, year average). Option 3 was calculated by FLO’s Pricing Sub-Unit. 2) The “Regular Price Review using the Exchange Rate and Consumer Price Index methodology”, approved by the Standards Committee on September 2008, was used to develop Option 3. More information on details of the calculation can be found on the Executive Summary document or can be requested at [email protected].

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3.

Consultation on proposed prices for existing and new origins

The following section asks for your comments and recommendations to the proposed minimum prices and premiums. All information received by stakeholders during this consultation process will be kept confidential. 3.1

Identification of participants on consultation process Please indicate the name of the person filling in the document

Please indicate the name of the certified or applicant FLO producer/trader and your country

Please describe the consultation you carried out with members of your organisation, with partners or with external sources of information in order to fill in this document

If you need some more information before commenting these prices do not hesitate to take contact: [email protected]. Please send the completed document by e-mail before July 31st. 3.2

Proposed prices for existing and new origins

Proposed prices for existing and new origins are presented in Table 1 and 2, respectively. The different options (1, 2 and 3) are presented in the Column “Price Option” and are set by Countries/Regions and for Organic & Conventional bananas. Notes for understanding price proposals in Table 1 and 2:

•

All prices are expressed in USD/box of 18.14 kg. If the weight of the box is other than 18.14kg, the Fairtrade minimum price and Fairtrade premium are adjusted pro-rata in line with the weight.

•

Ex Works proposed prices do not include cost of the carton (bottom and lid).

•

In the case of Jamaica, prices are proposed at Ex Works and FAS level (Free alongside ship).

•

When current FT MP for organic or conventional bananas does not exist, an average organic differential of 2.00 USD/box was used to develop FT MP at Ex Works and FOB levels. Since Dominican Republic and Ecuadorian producers claimed their organic differential to be much higher than in other countries, higher organic differentials were used.

•

•

The average increase of FT MP at both Ex Works and FOB levels between 2005 and 2009 is: o

26.7% for Option 1

o

18.1% for Option 2

o

20% for Option 3.

On average, FT MP at FOB level is 10.74% higher than at Ex Works level.

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•

All FT MP at FOB level were rounded to 0.05 USD.

•

As additional information Table 3 shows the “cost of carton” (bottom and lid) and organic differentials for the existing countries:

Table 3: Cost of carton and organic differential used on price options Colombia

•

Cost of carton: 0.95 USD

•

Organic differential of 2.00 USD/box. Cost of carton 1.11: USD Organic differential of 2.20 USD/box. Cost of carton: 1.60 USD

• • •

Ecuador Peru

• • • • • •

Panama Costa Rica Dominican Republic

•

Adjusted organic differential of 2.00 USD/box. Cost of carton: 1.24 USD Organic differential of 2.00 USD/box. Cost of carton: 1.33 USD Organic differential of 2.00 USD/box. Cost of carton: 1.55 USD Adjusted organic differential of 2.50 USD/box. Cost of carton: 1.61 USD Organic differential of 2.00 USD/box. Cost of box: 1.40 USD

Ghana

• • •

Adjusted organic differential of 2.00 USD/box.

Jamaica

• • •

Cost of carton: 1.22 USD Organic differential of 2.00 USD/box.

Windward Islands

• Philippines

•

Cost of carton: 1.22 USD Organic differential of 2.00 USD/box.

Table 1: Price proposals for existing countries Country

Quality

Conventional

Current FTMP Ex W/FOB 5.50 / 6.50

Colombia Organic

7.25 / 8.50

Conventional

5.50 / 6.75

Organic

7.25 / 8.50

Ecuador

Conventional

5.25 / 6.75

Peru Organic

7.00 / 8.50

Conventional

6.00 / 7.00

Organic

-/-

Panama

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FT MP Ex W proposal 7.20 6.45 6.60

FT MP FOB proposal 9.00 8.25 7.80

1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3

9.19 8.45 8.70 7.04 6.09 6.60 10.24 8.34 8.70 5.15 4.75 6.30 7.15 6.75 8.40 6.11 5.56 7.20 8.11 9.45 9.60

10.80 10.25 10.20 8.95 8.00 8.10 12.15 10.25 10.20 7.90 7.50 8.10 9.90 9.50 10.20 8.55 8.00 8.40 10.55 10.60 10.80

Price Option 1 2

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FT Premium proposal 1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

Conventional

5.75 / 6.75

Organic

-/-

Conventional

7.00 / 8.50

Organic

8.50 / 10.00

Conventional

7.60 / 9.00

Organic

-/-

Conventional

- / 8.00

Organic

- /10.00

Conventional

- / 9.06

Organic

-/-

Conventional

6.00 / 7.50

organic

-/-

Costa Rica

Dominican Republic

Windward Islands

Ghana

Jamaica

Philippines

1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3

6.55 5.90 6.90 8.55 9.15 9.30 7.20 6.75 8.40 9.90 9.20 10.20 9.09 8.98 9.12 11.09 11.34 11.52 6.75 6.40 5.94 8.85 8.50 8.34 10.25 9.55 9.70 12.25 11.91 12.10 7.60 7.09 7.20 9.60 9.45 9.60

9.15 8.50 8.10 11.15 10.30 10.50 10.10 9.75 10.20 12.95 12.25 12.00 11.90 10.60 10.80 13.90 13.00 13.20 9.35 9.00 9.60 11.35 11.00 12.00 11.50 (FAS) 10.70 (FAS) 10.90 (FAS) 13.50 (FAS) 13.05 (FAS) 13.30 (FAS) 9.50 8.90 9.00 11.50 11.20 11.40

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

Table 2: Price proposals for new origins at regional level Region

Quality Conventional

Central America Organic

Conventional Caribbean Organic

Conventional South America Organic

Conventional Northern Africa Organic

Price Option 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3

FT MP Ex W proposal

FT MP FOB proposal

FT Premium proposal

5.73 7.05

8.25 8.25

1.00

9.30 9.45

10.50 10.65

1.00

8.43 9.07

10.35 10.60

1.00

10.82 11.27

12.80 12.80

1.00

5.76 6.50

7.90 8.00

1.00

7.85 8.60

10.00 10.20

1.00

6.96 6.66

8.75 8.95

1.00

9.01 8.85

10.75 11.15

1.00

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Conventional Western Africa Organic

Conventional Eastern and Middle Africa Organic

Conventional Southern Africa Organic

Conventional Southern Asia Organic

Conventional South Asia

Eastern Organic

Conventional Oceania Organic

1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3

6.40 5.94

9.00 9.60

1.00

8.50 8.34

11.00 12.00

1.00

7.52 7.39

8.45 8.30

1.00

9.52 9.36

10.45 10.30

1.00

6.96 6.66

8.75 8.95

1.00

9.01 8.85

10.75 11.15

1.00

6.05 5.95

7.35 7.20

1.00

8.05 7.91

9.35 9.20

1.00

7.09 7.20

8.90 9.00

1.00

9.45 9.60

11.20 11.40

1.00

7.09 7.20

8.90 9.00

1.00

9.45 9.60

11.20 11.40

1.00

3.3

Questions related to the proposed prices

3.3.1

Fairtrade Minimum Prices (FT MP)

a) Analyzing Table 1 and 2, which price proposal do you prefer?

 Set regional prices (as presented in Table 2) and country specific prices (as presented in Table 1). For countries where regional and country specific prices exist, the country specific price is valid.

 Set only regional prices as presented in Table 2 (not setting country specific prices) i.e. abolishing the existing country specific prices. Based on your decision, please answer the following questions: b) From the price proposal you have chosen above, which price would be the best for you?  Option 1  Option 2  Option 3  None c) If you have chosen NONE, please indicate which would be the applicable country origins and the most suitable Fairtrade Minimum price for your supply chain? Please justify your answer: d) Please include any additional comment about price proposals:

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3.3.2

Fairtrade Premium (FTP)

a) How do you judge the premium you have been receiving/paying?  High  Sufficient  Low Please, justify your answer: b) Do you agree keeping the current Fairtrade premium at 1.00 USD/box of 18.14kg?  Yes  No c) If not, please explain the reason for increasing or decreasing it: 3.3.3

Market impact

a) How would the proposed price options impact your business? To answer this question you may want to/need to talk to your suppliers/buyers and take their reaction into account. Impact of Option 1 with FTP, please explain in detail: Impact of Option 2 with FTP, please explain in detail: Impact of Option 3 with FTP, please explain in detail: b) Would volumes sold/bought decrease/increase because of the FTMP and FTP? 3.3.4

Scope of the proposal

a) Do you agree with the proposal of setting FT MP for conventional and organic for all origins? Please, justify your answer. b) Do you agree with the proposal of setting FT MP for Ex Works and FOB levels for all origins? Please, justify your answer. 3.3.5

Additional questions

a) What is you reference market price? (The price you use to follow the non-Fairtrade market evolution.) Please indicate the source (website, etc.) you most frequently use: b) Next revision of banana FT MP. Do you agree with a FT MP update for banana in December 2011? (The prices would be reviewed on the basis of the evolution of inflation and exchange rate. and then be submitted to a broad consultation with all banana stakeholders.)  Yes  No

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Please explain your decision:

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