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Chapter 1

Introduction

Background of the Study

Agriculture has always played a pivotal role in shaping the economy of

countries (Lee, 2018). From supplying the necessities of human beings, providing

employment opportunities and strengthening peoples purchasing power, the

agricultural industry already proves itself why it belongs to the primary sector.

According to Muharram Macatta (2016), agriculture has already made a significant

contribution to the economic prosperity of advanced countries and its role in the

economic development of less developed countries is of vital importance.

It has been increasingly evident in the last few years that the conception of

both economist and policy-makers regarding the role of agriculture in economic

development has undergone an important evolution (Khanna, 2014). Globally,

agriculture contributed a major part of developed countries success and vast growth

of the economy. According to Peppeh (n.d), for many nations agriculture has been

the basis of development, it is the same today, every nation wishing to develop must

develop a chain of interdependent and sustainable industries, the agricultural

industry is the backbone of them all.

One of the agricultural products that has been known by many is the

banana.In all tropical areas, bananas are cultivated and play a main role in many

developing countries 'economies. Bananas are the fourth most significant food crop

in the world after rice, wheat and corn in terms of gross value of manufacturing.They

are an export commodity and a staple food (FAO, 2002). According to Federick

Clairemonte trade in bananas is about 0.2 percent of international trade. Its

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importance to certain countries is significant, gauge by certain basic economic

indicators: export, income and employment.

Ecuador the world’s largest producer and exporter of banana According to

Pro-Ecuador, it is the world's largest yellow fruit exporter, accounting for about

28.3% of worldwide shipments in 2016 (and an estimated 40% in 2017, according to

FAO). According to Pro-Ecuador, bananas account for 10 percent of Ecuador's

exports in terms of value. In 2016, 215 million tons of bananas, baby bananas and

green bananas were exported, worth US$ 110 million.

Ecuador’s farmers are keen to expand, but government regulations restrict

farm sizes. The industry has started a campaign to change this, so its farmers can

grow and improve efficiency through economies of scale.It has 5,000 growers, from

small farmers to medium-sized growers and is organized through 300 co-operatives

and 200 exporters, according to government trade body Pro-Ecuador. In contrast,

production is concentrated across fewer, but bigger growers in competing countries,

such as Costa Rica, Colombia and Guatemala, where the world’s largest

producers.(ADAMA Ltd. 2017)

Ecuador's banana sector accounted for nearly 61 percent of Ecuador's

agricultural GDP (US$ 1.9 billion) in 2009 and has continuously been Ecuador's main

export after-petroleum product, representing 32 percent of global banana trade,

according to local industry sources. Banana export company in Ecuador is a success

story of the country's attempts to diversify its export base after the cacao company

declined in the first half of the 20th century. The industry has continually improved its

size since the banana export boom began in 1944-1948. Its positive impacts were

frequently criticized, as in many other banana-producing countries. However,

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researchers have noted exporting bananas as an significant factor behind the

strength of the coastal region's agricultural sector, and have been credited with

allowing beneficial unintended consequences such as declining malaria incidence in

the coast and nurturing entrepreneurs who originally surprised their riches from the

banana company (Vega,2011).

In the Philippines, one of our greatest agricultural goods is the banana sector.

Most banana manufacturers are discovered on our country's southernmost island in

Mindanao. It began around the 60's in Davao Del Norte and flourished in eleven

provinces with about 50,000 hectares of farmland. It is estimated that 35 billion

pesos are invested in this agricultural sector that includes infrastructure, planting and

distribution costs (Cruz, 2018). Although this large-scale banana sector remains a

significant financial player for the Davao region, every year threats continue to arise

from the numerous rivals facing our banana sector on the worldwide market.

Stephen Antig, executive director of the Philippine Banana Growers Association

(PBGEA), said that enhanced export sales revenues are still reported, but

manufacturing expenses are still high, offsetting the enhanced profits. Antig said

expenses must be accounted for on rising oil prices, and the latest rise in the

region's minimum wage to P56 may impact manufacturing expenses. Banana

production in the Philippines had been affected by a series of adverse conditions

between 2015 and 2017, in response to which significant investments were made in

area expansion, new technologies and improved inputs. Luckily in 2018 The

Philippines has recovered its position as Ecuador's second-largest banana provider,

accounting for 16% of worldwide shipments.

In the local aspect, Dole Asia Holdings Pte. Ltd. head, David A. DeLorenzo, in

his presentation during the recent Banana Congress held in Davao City, revealed the
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impact of the export decline in the last four years at about $300 million revenue loss

for Mindanao, where Philippine banana exports are grown (Padillo and Carillo,

2017). However, aside from that, banana companies have helped increase

employment. The banana industry plays a vital role in Philippine economy which

generates dollar revenue as well as providing jobs in the countryside particularly in

Mindanao. The banana industry provides some 515,000 jobs across the place (Edge

Davao, 2019).

Rationale of the study

The banana industry has taken the initiative to secure its share in traditional

overseas markets and explore new ones for the country’s top fruit export.(PNA,

2018).According to the Ministry of Agriculture, Livestock and Fisheries, the banana

industry generates about 2 to 2 million direct and indirect jobs in country. The United

Nations Food and Agriculture Organization (FAO) estimated that Philippine Banana

exports in 2016 expanded by 77.34 percent to an all-time high of 2.95 million metric

tons, from a recorded volume of 1.663 MMT in 2017.

Despite of this result, the Philippines, facing many challenges while other

banana-producing countries are doing everything to take away our markets from us

by reducing prices through means like negotiating for reduced duties and subsidizing

freight rates. it is important to know that the banana industry today is no longer

about companies competing against one another, but the much graver concern of

the Philippines having to survive and slug it out with foreign competitors across the

globe.
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Objectives of the Study

The general objective of this paper is to understand the contributory role of

banana export to the international trade. Specifically, this paper pursues to:

1. Know the Philippine’s banana exports and its equivalent world market rate.

2. Identify the trade barriers encountered such as:

2.1: High tariff

2.2 Global Competition

3. Identify the world demand for banana from Philippines.

Scope and Limitation

The study is all about the role of exporting banana in international trade

development, focusing on the industries’ development sustainably and efficiently.

The study focuses only in the exportation of banana; the trade barriers experienced

specifically high tariff and global competition and the world demand for exported

banana from Philippines. This helps the fellow Filipinos understand the importance of

export or international trade of bananas in economic growth.

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Chapter 2

Review of Related Literature

Philippines is one of the top five exporters of bananas, with some 1.4 m

tonnes exported in 2016, down from a high of 3.3m in 2013. Due to that, it

contributed as a whole to the world market and even in the domestic economy.

Philippine’s Banana Exports and its Contribution to the World Market

Philippines’ number one export is banana during January 2019 according to

the Philippines Statistics Authority. Furthermore, banana exports in the first quarter

tripled to 1.05 million metric tons and the country’s total shipments of the tropical fruit

in the January-to-March period rose by 200.72 percent from the 349,213.540 metric

tons (Arcalas, 2019). Philippine exports banana to its key markets, including Japan,

South Korea, Iran and the United Arab Emirates, also expanded significantly in terms

of volume and value according to PSA. Additionally, the latest metrics show that the

Philippines is the world’s second-leading exporter of bananas behind Ecuador and

among continents, fellow Asian countries bought $1.497 billion worth of exported

Filipino bananas or 99.5% of overall international sales for this commodity (Santiago,

2019).

During 2018, Philippines was one of the top-exporting countries of banana,

being second all over the world. The exports earned $1.5 billion with 11.1 per cent of

the world total (Workman, 2019). Moreover, a study shows that Philippines’ banana

exports for all purchasing countries surged to US$1.505 billion in 2018. That dollar

amount reflects a year-over-year 33.4% uptick over the $1.128 billion in Filipino

sales of international bananas in 2017. Over a five-year timeline, the value of

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exported Filipino bananas expanded by 32.3% from $1.137 billion in 2014 (Santiago,

2019).

Banana Export Problems Encountered

It is unavoidable to experience problems when exporting goods to another

country. One problem is high import taxes that a country demands from the exporting

country. According to Chatzky (2019), tariffs have long been used to prop up home-

grown industries by getting locals to buy goods produced domestically. They set up

high tariff prices in order for the local buyers to buy local products. Moreover, tariffs

raise the price of imports. This impacts consumers in the country applying the tariff in

the form of costlier imports. When trading partners retaliate with their own tariffs, it

raises the cost of doing business for exporting industries (Sanders, 2019). Due to

this, it may affect their sales since it will add up to their expenses on production.

Furthermore, having high tariff may discourage exporters to trade internationally. As

stated in a study, tariff barriers in many developing countries discourage their

exports to a greater extent than rich-country tariffs. Certainly, tariffs applied by

industrial countries reduce exports from developing countries, but developing

countries’ own tariff (and nontariff) barriers introduce quantitatively larger export

disincentives (Tokarick, 2006). Instead that a company will export a large volume of

goods, they will just minimize their outflow of products in order to reduce their costs

on exports.

Moreover, it is also inevitable to have competitors in the world market. A lot of

businesses have their own strategy in order to defeat their opponents. Example is

they will try to win market share by cutting costs, improving efficiency, lowering price

and innovating by either creating new products and services or improving upon old
 8

ones (Grimsley, S.). A competitive market can also force you to lower your prices to

stay competitive, decreasing your return on each item you produce and sell

(Gartenstein, 2019) . Despite of the small return, they do this for the sake of their

customers.

World Demand on Exported Bananas

There are a lot of people who demand for bananas since this fruit is not available

worldwide and is only available to tropical countries. This allows banana growers to

export to different countries. There is a high export demand for saba cardava

bananas as stated by Pilipino Banana Growers and Exporters Association (PBGEA)

executive director Stephen Antig (Arado, 2018). Furthermore, since banana is

nutritious, yet tasty, a lot of people are hungry for this food. Today, they are the most

popular fruit in the world: in fact, over 100 billion bananas are eaten around the world

every year, and around 51% of these are eaten at breakfast time (Banana Link, n.d.).

Moreover, in Uganda, it is estimated that each person eats around 1 1/3 lb. per day.

This is roughly 16 times the amount eaten by people living in the United States

(Bayne, 2019). Indeed, banana exports are one of the most bought food in the

market.
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Chapter 3

Results and Discussions

The data collected by the researchers were sorted, systematized, interpreted

and analysed. The succeeding tables revealed the different performance of exporting

bananas in international trade.

1. Philippine’s Banana Exports and Its World Market Rate Equivalent

The Philippines is one of the top five exporters of bananas, with some 1.4 m

tonnes exported in 2016, down from a high of 3.3m in 2013. In 2012, the exports

from the Philippines (essentially Cavendish cultivars) made up 98% of the Asian

banana trade. Two thirds of the exported volumes were shipped to Japan, China and

South Korea. Currently, banana exports reached 28.6 per cent in 2019 and are third

among the most-exported goods as shown by the table below.

Table1: Philippines’ Top Exports for 2019

Other Mineral Electronic

Gold, 8.3 Products, 7 Products, 6.2
Metal
Components, 14

Chemicals, 20.1

Bananas, 28.6

Copper
Concentrates,
192.1
Ignition Wirings ,
31.7
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Table 2: Increase in Sales Exports of Banana

1.6

1.4

1.2
Billion US dollars

0.8 2018
2017
0.6

0.4

0.2

0
$ Billion

The table above shows that in 2017, the international sales of banana exports

reached 1.128 US dollars and increased by 75% in 2018 at 1.505 US dollars.

Table 3. Philippines’ Banana Exports World Total

Share of Total
Banana Exports %World
Rank Exporter Agricultural
(US$) Total Export Value

1. Ecuador $3.2 billion 23.7% 40%

2. Philippines $1.5 billion 11.1% 20%

3. Guatemala $1.47 billion 10.8% 13%

4. Costa Rica $1 billion 7.6% 20%

5. Belgium $956.3 million 7%

6. Colombia $866.2 million 6.4% 11%

7. Netherlands $674.5 million 5%

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Share of Total
Banana Exports %World
Rank Exporter Agricultural
(US$) Total Export Value

8. United States $444.4 million 3.3%

9. Dominican $365.5 million 2.7%

Republic

10. Honduras $318.1 million 2.3%

The listed 10 countries shipped 88.8% of global banana exports in 2018 by

value. Among the above countries, the fastest-growing banana exporters since 2014

were: Panama (up 220.5%), Cameroon (up 216.7%), Netherlands (up 124.7%) and

Guatemala (up 103.8%). Three countries posted declines in their exported banana

sales: Germany (down -39.8%), Belgium (down -27.5%) and United States (down -

5.5%).

2. High Tariff and Global Competition on Banana

Philippines is currently experiencing high tariff rates over South Korea. Due to

this, it may affect banana exports since this will discourage exporters to place a large

volume to be exported. Banana exporters advised the government to pursue

bilateral talks with South Korea over the unresolved issue of high import tariff

imposed on Philippine Cavendish. Bananas from the country exported to South

Korea are currently imposed with 30 percent tariff (Casamayor, 2019). Moreover,

another country that banana exporters are trying to negotiate to lower or eliminate

tariffs is Japan. Japan is still a major market for bananas from the Philippines.

Philippines cannot afford to lose Japan and Korea markets since around 70 percent

of Dole’s production, while 60 percent of Unifrutti’s volume goes to the two markets.

Dole and Unifrutti are the country’s largest producer and marketer of high-quality
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fresh fruits, fresh vegetables, and fresh cut flowers (Casamayor, 2019). To solve the

problem, the trade department requested for a bilateral meeting through a

Preferential Trade Agreement or under the Asean-Korea Free Trade Agreement. As

stated by Pilipino Banana Growers and Exporters Association executive director

Stephen Antig, a bilateral agreement between Manila and Seoul is the only way for

the country’s banana exports to have a fighting chance against competition in South

Korea (Campos, 2018). This action towards the problem will indeed be a solution to

avoid our exporters to pay high amount of tariff in order to minimize their costs in the

business.

Additionally, Philippines’ banana industry is experiencing a global competition

in which other banana-producing countries are doing ways in order to take

Philippines away. As stated by Pilipino Banana Growers and Exporters Association

(PBGEA) board chairman Alberto Bacani, other countries are doing everything in

order they can to take away the banana markets by reducing prices through means

like negotiating for reduced duties and subsidizing freight rates (Talavera, 2018).

3. World Demand of Banana from Philippines

Table 3.Philippines’ Banana Exports Demand per Country

Importers Dollar value worth of bananas exported

Bahrain $1.9 million

China $539.5 million

Hong Kong $15.4 million

Iran $48.6 million

Iraq $11.7 million

Japan $562 million

Kuwait $10.4 million

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Malaysia $5.6 million

New Zealand $6.8 million

Oman $1.3 million

Qatar $5.8 million

Saudi Arabia $26.3 million

Singapore $7.3 million

South Korea $203.7 million

UAE $56.3 million

By value, the listed 15 countries purchased 99.8% of bananas exported from

the Philippines in 2018. Among the top importers of Filipino bananas, the fastest-

growing bananas consumers since 2014 were: Iraq (up 4,659%), China (up 104.6%),

Bahrain (up 74.9%) and South Korea (up 72%). Over that 5-year period, those

countries that slowed their buys of bananas from the Philippines at the severest rate

were: New Zealand (down -91.4%), Singapore (down -73%), Kuwait (down -62.4%),

Malaysia (down -52.2%) and Hong Kong (down -36.7%).

Among continents, fellow Asian countries bought $1.497 billion worth of

exported Filipino bananas or 99.5% of overall international sales for this commodity.
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Table 4: Exported Banana Consumption

Banana Consumption 2018

110
Consumption in Million Tons

105

100
Banana Consumption
95

90

85
2015 2016 2017 2018

The table shows exported banana consumption in the whole world. As years

increased, consumption of bananas also became high.

Asia-Pacific leads the banana market with a 61% share of global consumption

(“Banana”, 2019). Consumption for bananas, worldwide, is estimated to register a

CAGR of 1.21% for the forecast period of 2019-2024.

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Chapter 4

Conclusion and Recommendation

Conclusion

In consonance to the findings of the study, the researchers have drawn that

Philippines play a significant role in banana export trading and is one of the top-

exporting countries in the world when it comes to such product. Moreover, the export

rates on banana increases per year and even its international sales are high.

Philippines’ banana exports gained 1.5 billion US dollars which is equivalent to 11.1

percent of the world total.

In contrast, behind the high sales of international banana trade, high tariff is

experienced by the banana exporters in South Korea and as well as in Japan. But,

the government is already taking an action in order to resolve such problem this is

through having bilateral talks to both countries. Moreover, the banana industry is

also experiencing a global competition in which the government is took action

through helping local banana industries.

With regards to the world banana demand, there are 15 countries who

demand banana from Philippines worth 1.497 billion US dollars which is equivalent

to 99.5 percent of the international sales. Moreover, banana demand and

consumption is continuously increasing from 2015 until today.

Recommendation

Based on the conclusion, the researchers have made the following

recommendations for consideration:

1. As an agricultural country, Philippines must take advantage of its edge of

having a vast land to plant and banana products. The government must then
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give recognition and provide the banana sector funds or anything that will help

the industry improve more.

2. Philippines perform an exemplary role in contributing to the world food

demand specifically in banana in which the country portrays an impressive

role to the exports of such products. Since our country possess an excellent

performance on this kind of international trade, it would be best if the

government will more strengthen this area of the industry to become the

leading banana exporter.

3. The government should take immediate action to problems such as high

tariffs in order for the banana industry continue its growth and excellence.

Furthermore, it is for the business to be able to export more bananas and be

able to eliminate export costs. Also, the government must do an action in

order for the Philippines to still remain in its position despite of the global

competitors.

4. An improvement in banana production and plantation is a good idea in order

to increase banana exports which can possibly double the yearly usual

exports of the Philippines when it comes to this commodity.

5. Future researchers can also study about the international leading banana

companies and the business problems that they are usually experiencing.
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