Banana Split: How EU Policies Divide Global Producers

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David Vanzetti, Santiago Fernandez de Córdoba and Veronica Chau
Summary: 

This publication looks at the likely impact of the change of arrangements for the import of bananas into the EU. At present banana prices within the European Union are almost double world levels. These prices are maintained by restrictive import quotas and tariffs that generate rents that accrue to producers and distributors. The European Union is obliged to remove its quantitative restrictions and replace them with tariffs that are likely to give preference to existing quota holders from ACP countries. Indications are that a relatively small proportion of the rents are currently accruing to ACP producers and the loss in rent would be more than offset by the expansion of EU imports.

Banana prices within the European Union are almost double world levels. These prices are maintained by restrictive import quotas and tariffs that generate rents that accrue to distributors and producers. The European Union is obliged to remove its quantitative restrictions and replace them with a tariff. It is likely to choose a preferential tariff that favours exports from ACP countries, but any one tariff would benefit the lower-cost ACP producers at the expense of others. The EU’s problem is one of addressing multiple objectives with a single instrument. Quantitative analysis using a bilateral trade model suggests that if the European Union were to remove its import quotas but leave intact the €75/tonne preferential tariff on non-ACP exports, traditional ACP countries would see their global exports just maintained, while Côte d'Ivoire, Cameroon and, to a lesser extent, non-ACP countries would enjoy significant increases. However, welfare in traditional ACP countries would fall by €37 million as a result of losses in quota rents. A tariff of €230/tonne on imports, as recently proposed by the European Commission, would reduce the welfare losses in traditional ACP countries by more than half but would prevent growth in exports in non-ACP countries. The results confirm that current EU policies are poorly targeted and inefficient, and that there are better means of assisting producers in the high-cost countries.