[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 15.12.2006

COM(2006) 806 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Biennial report on the Special Framework of Assistance for traditional ACP suppliers of bananas

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Biennial report on the Special Framework of Assistance for traditional ACP suppliers of bananas

INTRODUCTION

Banana imports in the European Community have traditionally been regulated by a quota-system with strong preferential treatment for bananas from Africa, the Caribbean and the Pacific (ACP). There were several disputes on this matter in the 1990s and early 2000s. Various changes were then made to the quota system (in 1998 and in 2001), which was finally replaced by a tariff-only system starting from 1 January 2006.

In order to help the twelve traditional ACP banana suppliers in coping with the modifications to the trade arrangements, a Special Framework of Assistance (SFA) was put in place in 1999, financed by a dedicated budget line. The following five African and seven Caribbean countries were traditional suppliers and hence beneficiaries of the SFA:

Belize, Cameroon, Cape Verde, Dominica, Grenada, Ivory Coast, Jamaica, Madagascar, Saint Lucia, Saint Vincent and the Grenadines, Somalia, and Suriname

This framework provides technical and financial support for specific projects presented by the countries concerned, based on a long-term strategy previously agreed with and approved by the Commission. The individual country allocations are calculated on a yearly basis, taking into account two criteria, namely the competitiveness gaps observed in comparison with third country suppliers and the importance of banana production to the economy of the ACP country concerned. The annual budget has gradually decreased from €44.5 million in 1999 to €30.7 million for 2006. Between 1999 and 2003 the allocation key was conceived in such a way as to provide more support to those countries suffering from a larger competitiveness gap and with a higher share of the banana sector in total GDP. As of 2004, a maximum reduction of 15% has to be applied to national allocations in performing the calculations, the rate being lower for those countries that have achieved competitiveness gains.

LEGAL BASIS

On 22 April 1999 Council adopted Regulation (EC) No 856/1999[1] establishing a Special Framework of Assistance for traditional ACP suppliers of bananas. On 22 July 1999 the Commission adopted Regulation No 1609/1999[2] laying down the detailed rules for its implementation.

The overall objective of the scheme is to improve the competitiveness of traditional ACP banana production, or, if this is no longer feasible, to support diversification. In summary, the aim is to achieve this goal by funding projects designed

- To increase productivity,

- To improve quality,

- To adapt production and marketing to the Community’s quality standards,

- To establish producers’ organisations focusing on improvements in marketing as well as on the development of environment-friendly production methods, including fair-trade bananas,

- To develop marketing strategies designed to meet the requirement of the EC common organisation of the market in bananas,

- To assist banana producers in developing environment-friendly production methods, including fair-trade bananas,

- To support diversification wherever the competitiveness of the banana sector is not sustainable.

In 2005 and 2006 the budget line amounted to €34.5 and €30.7 million, respectively. The relevant Commission Decisions fixing the (individual) amounts available in 2005 and in 2006 were adopted on 29 April 2005[3] and on 31 March 2006[4]. The country allocation formula is based on two criteria: the competitiveness gap between each ACP country and Third Country banana suppliers and the importance of the sector to each beneficiary's economy. As regards the former, the evaluation referred to in section 7 concluded that the choice of CIF prices as a tool to measure competitiveness has drawbacks, in that it does not necessarily fully reflect the competitiveness gap between the ACPs and the Most Favoured Nation (MFN) suppliers.

Article 9 of the Council Regulation specifies that “by 31 December 2000, and every two years thereafter, the Commission shall present a report, accompanied if appropriate by proposals, on the operation of this Regulation to the European Parliament and the Council” . The present report covers the years 2005 and 2006. The previous report, which covered the years 2003 and 2004, was issued on 21 December 2004[5].

MARKET INFORMATION

In 2005 4 371 324 tonnes of bananas were consumed in the EC, among which 3 722 949 tonnes were imported and 648 375 tonnes were produced internally, making it the second largest import market in the world, after the USA (3 824 409 tonnes). Almost all bananas imported in the USA in 2005 were of Southern America origin (ACP bananas representing only 4 437 tonnes or 0.12% of total imports).

In contrast, the EC is supplied by three different groups: South America, the ACP and EC producers. In 2005 the South American share of imports into the EC was 79.5% of the total, while the remaining 20.5% represented the ACP share. The main South American suppliers to the EC in 2005 were Ecuador, Colombia and Costa Rica, with 1 059 245 tonnes, 878 229 tonnes and 623 468 tonnes, respectively. During the same period, the major ACP suppliers to the Community were: Cameroon, Ivory-Coast and Dominican Republic, which exported 253 349 tonnes, 183 397 and 144 683 tonnes, respectively.

As of 1 January 2006, the EC has modified its import regime. In the first six months of 2006, prices for all bananas (from South America, the ACP and the EC) were lower than in 2005, though at a level comparable to 2004.

E C TRADE REGIME

As from 1 January 2006, the EC is applying a new import regime for bananas consisting of an MFN tariff of €176/tonne and a duty-free tariff rate quota of 775 000 tonnes for bananas of ACP origin. This new regime responds to the EC's commitments to move from its previous quota system to a tariff-only regime as of 2006. It also takes into account two 2005 arbitration awards on the tariff level proposed by the EC, which were issued following a special WTO arbitration procedure established in the Annex to the Waiver on the Cotonou Agreement.

The EC undertook to closely monitor the impact of the new regime on imports of different origins in order to ensure that it maintained equivalent market access conditions as in the previous regime.

As far as ACP suppliers are concerned, the final trade regime for bananas will be covered by the Economic Partnership Agreements (EPAs) currently being negotiated between the EC and the ACPs and scheduled to enter into force on 1 January 2008.

Financial Decisions

Budget line 2005

The Financing Proposals submitted by all twelve beneficiaries were approved by the EDF-Committee in November 2005. On this basis, the Commission adopted the corresponding Financing Decisions in December 2005 and all Financing Agreements were signed in the first half of 2006. The total amount of all Financing agreements was €34.5 million, which represented a reduction of 7.5% from the budget outturn for 2004.

Within the agreed programmes, 48% of the funds are dedicated to improving the competitiveness of the exporting Banana Sector in six countries. Some 52% of the funds are dedicated to diversification within eight ACPs. Annex 1 provides a detailed overview of the distribution of funds between the two main objectives of the scheme.

Budget line 2006

The Financing Proposals put forward by all twelve countries were approved by the EDF-Committee in October 2006. On this basis, the Commission adopted the corresponding Financing Decisions in December 2006. All Financing Agreements are expected to be signed in the first half of 2007. The overall amount of these twelve Financing Agreements was €30.7 million, representing a reduction of 11% from the budget for 2005.

Within the agreed programmes, 39% of the funds are dedicated to improving the competitiveness of the exporting banana sector in five ACP States. Some 61% of the funds are dedicated to diversification in nine beneficiary ACP States. Annex 1 provides a detailed overview of the allocation of funds between the two main objectives of Council Regulation (EC) No 856/1999. Chart 1 gives an overview of the allocation of funds to these objectives over time whereas Chart 2 shows this per country.

IMPLEMENTATION

GENERAL ADMINISTRATIVE PERFORMANCE OF THE PROGRAMMES

The introduction of new financial rules has had a profound effect on the execution modalities for all programmes financed from the budget line. During 2005 and 2006 most of the adaptations needed to these modalities were completed. They included extending by 24 months the validity of most programmes decided before 2003.

The results of the first verification exercise in 2004 under Article 164 of the Financial Regulation led to ten countries opting for a partially decentralised mode of programme management, while in the remaining two countries the programmes were to be implemented through centralised management. These modalities were adopted for the programmes decided for the budget years 2003, 2004, 2005 and for the programme proposed for 2006, with the exception of Belize, which is switching to a partially decentralised management mode. For the programmes implemented under centralised management (Belize, Grenada, Suriname, Cameroon and Somalia) the Commission prepares all the contracts and effects all the payments. For the programmes implemented under partially decentralised management (Jamaica, Dominica, Saint Lucia, Saint Vincent and the Grenadines, Cape Verde, Ivory Coast and Madagascar) part of the programme is implemented by the Contracting Authority designated in the Financing Agreement via Programme Estimates. The Commission endorses the Programme Estimates and controls ex-ante the contracting procedures for contracts >50 000 euros and ex-post for contracts <50 000 euros. Through the Programme Estimates, payments are decentralised for operating costs and small scale contracts up to the following ceilings:

Works | Supplies | Services | Grants |

< €300 000 | < €150 000 | < €200 000 | ≤ €100 000 |

For contracts not covered by Programme Estimates, the Commission controls ex-ante the contracting procedures for contracts >50 000 euros and ex-post for contracts <50 000 euros and executes the payments.

During 2005 responsibility for the programmes of all beneficiary ACP States was devolved to the respective Delegations. In August 2005, this exercise was completed, and it has greatly contributed to improving the execution of the programmes in terms of both quantity (contracts signed) and quality. The Delegations involved are Jamaica (Jamaica and Belize), Barbados (Dominica, Saint Lucia, Saint Vincent and the Grenadines and Grenada), Ivory Coast, Cameroon, Kenya (Somalia) and Madagascar as well as the offices in Suriname and Cape Verde.

Improving Competitiveness

Projects targeting the competitiveness of banana exporters have continued in those five countries that supported this objective during 2002-2004. For 2005 and 2006, these programmes include:

- Renewal of plantations in Belize, Cameroon, Jamaica and Suriname. In Jamaica plantations were severely hit by hurricanes in both 2004 and 2005. In Belize, Jamaica and Suriname new varieties of bananas that are more resistant to diseases such as Black Sigatoka, are being introduced.

- Investments to acquire or maintain EUREGAP and/or ISO 14001 quality certification in Belize, Cameroon, Ivory Coast, Jamaica and Suriname. These quality standards are imposed by the larger European retailers.

- Handling, packaging and storage of bananas in Cameroon, Ivory Coast and Suriname.

- Social Infrastructures on plantations and social micro-projects for plantation workers in Cameroon and Ivory Coast.

- Technical Assistance for Belize, Cameroon and Jamaica, mainly focused on rural development and institutional strengthening.

Under SFA 2005 Saint Lucia asked to use 30% of its allocation for training and technical assistance to support the remaining banana export sector. Although programmes supporting the competitiveness of banana exports took up almost 50% of the available allocation in 2005; the figure fell in 2006 to 39%, which is similar to the percentages for the period from 2000 (see Annex 1). All of the five countries supporting this objective have been able to maintain or increase the quantities of bananas exported to the EC during the period 2003 to 2006.

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Diversification

The diversification objective was opted for by seven countries in 2005 and 2006 (Cape Verde, Dominica, Grenada, Madagascar, Somalia, Saint Lucia, and Saint Vincent and the Grenadines). These countries have either stopped exporting or seen their banana exports substantially reduced between 1990 and 2000. None of them have been able to recover markets during the period 2003 to 2006. The activities planned cover a wide range of economic sectors and types of investments, but all aim to provide (ex-)banana farmers and workers access to alternative sources of income. The programmes also have a longer duration, typically four to five years, as they take longer to achieve their full impact. The programmes for 2005 and 2006 include:

- Vocational training, including adult literacy, to improve the employability of former banana farmers/workers in the service sectors in the Eastern Caribbean countries.

- Agricultural diversification towards horticulture targeting the local market in Madagascar and the tourism industry and local markets in the Eastern Caribbean. In Jamaica ex-banana exporters are being helped to diversify to banana and plantain production for the local market (Jamaica consumes some 100 000 tonnes per year in both fresh and processed bananas and plantains). Support for agricultural diversification includes strengthening agricultural extension services provided by Ministries of Agriculture.

- Strengthening the tourism and/or the private sector in general in the Eastern Caribbean.

- Rural development in areas traditionally producing bananas in Belize, Cape Verde, Jamaica and Somalia (including investments in small-scale irrigation).

- Technical assistance and institutional support in all seven countries.

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Commitments and Disbursements

Overall the implementation of the programmes remains delayed. Only 48 % of all funds allocated have been committed to works, supplies, and service or grant contracts and only 35% have been disbursed. For the programmes decided between 1999 and 2005, therefore, some €150 million remain to be contracted (RAC) and some €186 million remain to be disbursed (RAL).

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Table 2 presents the progress per year of allocation.

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The allocations for 2006 are included in Table 2, but as the Financing Agreements are still to be signed, they are not included in the sub-totals. In particular, the programmes decided after the introduction of the Financial Regulation in 2003 are delayed.

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The financial status per country, as presented in Table 3, shows a wide variation with almost all funds committed to contracts for Somalia and just ¼ committed for Madagascar and Cape Verde. The programmes decided for the Eastern Caribbean countries, all supporting diversification, show the greatest delays. However, with the adaptations to the programmes almost completed and responsibility for implementation handed over to the Delegations, the execution of the programmes has recovered. As Chart 3 shows, for 2006 the amounts committed in contracts and disbursed up to the end of October have substantially improved over the previous years. The Commission expects to be able to recover some of the lost ground in the coming two years.

In the evaluation of the SFA mentioned in section 7, the comparison of the financial execution of diversification and competitiveness activities in terms of speed shows that the latter have done better. The analysis of programme execution to date shows that the long-term efforts required from the banana sector do not sit easily with the requirement under the Council Decision to have the support programmes decided annually. In addition, the need to adjust the programme modalities after the introduction of the new Financial Regulation has temporarily curtailed the activities and therefore the impact of the programmes. However, most operational problems encountered did find a solution in 2005. This contributed to the strong acceleration of the programmes in 2006.

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EVALUATION OF THE IMPACT OF THE SFA

General

An external evaluation of the scheme was carried out between the end of 2005 and the beginning of 2006[6]. It was possible to scrutinise interventions in nine ACP countries (Belize, Cameroon, Ivory Coast, Dominica, Grenada, Jamaica, Saint Lucia, Saint Vincent and the Grenadines and Suriname), as these countries saw in general in the period 2003-2005 a strong acceleration in project activities, whereas the three remaining beneficiaries (Cape Verde, Madagascar, and Somalia) had not yet started any investment under the SFA at the beginning of the study.

Relevance of the country strategies under the SFA

The medium- to long-term strategies (as expressed in the Banana Strategy Papers), which were agreed with the beneficiary ACPs and which form the basis of the programmes agreed annually with their governments, have proven their relevance. Those States opting to support the competitiveness of their banana sectors have been able to maintain or increase the quantity of bananas exported to the EC, including in the first few months of 2006. Those that have chosen to support diversification have seen their banana exports (the Windwards were exporting some 191 000 tonnes altogether in 1996 and only 79 000 tonnes in 2004) and market share further eroded in the EC in the period 1996-2004. A special case is Jamaica, which supports both objectives.

These strategies were also found to be coherent with the development strategies of the respective ACPs and the support strategies agreed with the Commission in the Country Strategy Papers.

On the whole, the 2003-06 strategies (basis for the financing agreements, under which investments are launched), reflect in a more coherent way the national and international changes and the future prospects for the Community banana market. This consideration is all the more valid for those countries that are resolutely aiming to improve the competitiveness of their national banana sectors: Cameroon, Ivory Coast, Belize and Suriname.

Impacts of the SFA on the banana sector

In those countries where, for the period preceding SFA investments, the banana sector had grown or was stable, the SFA has had an impact in strengthening productivity and efficiency and reducing cost. This is the case for both Cameroon and Ivory Coast. Here, the sector is increasingly concentrated and relies on the presence of medium to large production companies and/or trade companies (multinationals or not). The SFA has had an appreciable impact on production and the organisation of the sector, which was already favourable. For Cameroon, data show that the average yield rate grew by 13.9% when comparing the period 1994-98 with 2002-04; exports increased by 20% between 1998 and 2003; the number of workers employed per 1000 tonnes decreased from 50.78 in 1998 to 40.77 in 2003; and for one specific company the costs of the packed product shrank by 12.8% between 2000 and 2005. In Ivory Coast, substantial progress had already been made in the period 1991-99, with exports going from 118 400 tonnes produced on a surface area of 12 000 hectares in 1991 to 217 500 tonnes produced on a surface area of 5 493 hectares in 1999. Further improvements were seen in the period 1999-2004, with exports reaching 229 000 tonnes, produced on a surface area of 5 120 hectares in 2004. Accordingly, the yield rate was 9.9 tonnes per hectare in 1991, 39.6 tonnes per hectare in 1999, and 41.7 tonnes per hectare in 2004.

The adaptation of SFA strategies to the context and structural characteristics of the sector has had good results both in Belize and in Suriname, where the SFA has played a fundamental role in the revival of the sector. In Belize, following hurricane Iris, which devastated all plantations in 2001, production went from 472 boxes per acre in 2001 up to 760 boxes per acre in 2004. In Suriname, following the crisis and closure of the plant in 2002-03, the production yield fell from 15.7 tonnes per hectare in 2001 to 14.5 tonnes per hectare in 2004, but recovered strongly to 34.8 tonnes per hectare in 2005.

Moreover, the improvement in competitiveness (measured by total export trends and positioning on the Community market), obtained partly thanks to SFA investment to increase productivity (measured in terms of rising outputs and work productivity, along with declining production costs), has had positive consequences for employment in the banana sector, in particular for Cameroon, Suriname and Belize.

In Jamaica, the SFA has been used to support the competitiveness of those companies remaining in the banana export sector, through a well-designed technical assistance strategy focusing on the commercial quality of the product. Its first effects can be seen in the evolution of the competitiveness indicators. The SFA has also promoted activities (financed under both the competitiveness and diversification objectives) aimed at supporting producers in their shift to the local market and to the plantain banana, with quite successful results.

In the Windward Islands, after an initial focus on programmes partially aimed at enhancing the competitiveness of the banana sector, there has been a progressive shift to projects clearly oriented towards diversification. Although the weaknesses of the Windward banana sector and the increasing level of competition on the EC market were probably underestimated when the initial strategy was drafted, this change has been the result of a gradual awareness in the Windwards of the need to change the thrust of economic development in the islands. However, despite its general decline since the 1990s, the Windward banana sector remains present on specific EC markets. A key element of this relative success of the Windward Islands strategy for their banana sector has been its orientation towards the fair trade market. Although the SFA has supported the banana sector in general, so far no project has been put forward to directly support that aspect of their strategy.

It is worth noting the relationship between the SFA and commercial quality. In Jamaica, Belize and Cameroon, during the period evaluated, SFA funds were devoted to a commercial strategy aimed at obtaining EUREPGAP (European retailers standard based on environmental and social criteria) and ISO14001 (environmental management) Certification. Certified quality is an increasingly important requirement of the retail trade, especially on the Community market. These investments, financed by the SFA with a view to obtaining certification, have had a positive impact in improving both the environmental aspects and socio-economic working conditions in the plantations, in addition to strengthening the sector's position in the marketing chain.

Impacts on the diversification of economies and social conditions

Although it is still early for an overall evaluation, the impact study reported mixed results from the diversification activities financed in the period 1999 to 2004. On the whole, however, it can be stated that the diversification activities under the SFA seem to have had a social impact, as the social projects and infrastructures they financed aimed to improve the living conditions of the population affected by the decline of the banana sector.

Conclusions and r ECOMMENDATIONS

IN ITS ANALYSIS OF THE STATE OF PLAY with the implementation of the SFA, the Commission recognises the difficulties encountered in the implementation of this instrument. However, most of the operational problems encountered in relation to the Financial Regulation were resolved in 2005, which has contributed to the strong acceleration of the programmes in 2006. The Commission will continue to make all efforts to further accelerate execution while ensuring the quality of the interventions.

Given the complexity of the scheme and the constraints faced by most beneficiaries, the recommendation is to reinforce assistance both for the technical bodies in charge of implementation at local level and for the final recipients. Such technical support has to focus on administrative and procedural problems and obviously requires highly qualified expertise.

As regards the allocation of the budget between beneficiary countries, the evaluation highlights the drawbacks of using CIF prices to measure the competitiveness gap. However, as the SFA will in any event come to an end in 2008, it is not in the interest of good administration to consider any change in this area at this point in time.

Finally, in terms of impacts of the SFA on the socio-economic situation of the banana sector and the countries concerned, the evaluation showed that it is still too early to measure the impacts of SFA on the diversification of the economies concerned. The impact was generally satisfactory for programmes targeting the banana sector where the conditions for its competitiveness were reasonably favourable. However, the SFA could also draw lessons from other relatively successful experiences, such as the Windward conversion to the fair trade market, as an opportunity for smaller-scale enterprises to survive in global market competition.

Country | Boosting Productivity (I) |

Country | 1999 |2000 |2001 |2002 |2003 |2004 |2005 |2006 |Total | | | | Amount |Type |Amount |Type |Amount |Type |Amount |Type |Amount |Type |Amount |Type |Amount |Type |Amount |Type | | | |Belize | | | | |0,45 |(9/10) |0,80 |(7) | | | | | | |0,89 |(9,12,13) |2,14 |23,88 | |Cameroon | | | | | | | | | | | | | | |0,00 | |0,00 |38,41 | |Cape Verde |0,50 |(7) | | | | |0,50 |(7) |0,50 |(7/14) |0,50 |(7/14) |0,5 |(7/12) |0,5 |(7,12) |3,00 |3,00 | |Dominica |1,01 |(7/10) |1,27 |(7/10) |6,70 |(7/10/11) |6,40 |(10/14) |5,90 |(17/18) |5,30 |(15/19) |4,51 |(16) |3,83 |(13/14/17) |34,92 |45,64 | |Grenade |0,06 |(14) |0,00 |(-) |0,50 |(10) |0,50 |(10) |0,50 |(12/13/14) |0,50 |(15) |0,5 |(15/16) |0,5 |(13/14) |3,06 |4,50 | |Ivory Coast |0,38 |(7/14) |0,30 |(7/14) |0,25 |(7/14) | | | | | | | | |0,00 | |0,93 |25,85 | |Jamaica | | | | |1,53 |(14) |1,80 |(7) |1,65 |(7/14) |2,42 |(7/14) |1,65 |(12/14) |1,75 |(7,12,14) |10,80 |37,14 | |Madagascar |0,00 | |0,00 | |0,00 | |0,50 |(7) |0,50 |(7) |0,50 |(7) |0,5 |(7/12) |0,5 |(7) |2,50 |2,50 | |St Lucia |3,81 |(7/11) |3,92 |(7/11) |9,20 |(7/9/10/11/13/14) |8,80 |(7/9/10/11/13/14) |8,00 |(20) |7,26 |(7/11/12/14) |3,06 |(7/11/15/20) |5,41 |(7/11/13/14/21) |49,46 |60,56 | |St Vincent & Grenadines |4,84 |(8/14) |5,65 |(8/14) |6,40 |(8) |6,10 |(11/14) |5,60 |(11/14) |5,33 |(15) |4,53 |(16) |3,85 |(14/17) |42,30 |44,36 | |Somalia | | | | |0,60 |(14) |2,80 |(1/7) |2,60 |(1/7/14) |2,07 |(1/7) |1,76 |(7/13) |1,5 |1/7 |11,33 |11,33 | |Suriname | | | | | | | | | | | | | | | | |0,00 |19,14 | |TOTAL |10,60 | |11,14 | |25,63 | |28,20 | |25,25 | |23,88 | |17,01 | |18,73 | |160,44 |316,31 | |% de diversification |24% | |26% | |60% | |64% | |63% | |64% | |52% | |61% | |51% | | | |45,00 | |43,48 | |43,00 | |44,00 | |40,00 | |37,30 | |32,83 | |30,70 | |316,31 | | |

Notes on Boosting Productivity and Diversification tables:

1 IRRIGATION AND DRAINAGE

2 RENEWAL OF PLANTATIONS

3 PHYTO-SANITARY TREATMENT

4 FERTILISER

5 PACKING

6 COLD STORAGE

7 AGRICULTURE / RURAL DEVELOPMENT

8 ROADS

9 SOCIAL INFRASTRUCTURE

10 MICRO-CREDIT

11 SOCIAL PROJECTS

12 TRAINING

13 INSTITUTIONAL SUPPORT

14 TECHNICAL ASSISTANCE

15 PRIVATE SECTOR

16 ICT

17 TOURISM

18 WATER

19 INFRASTRUCTURE

20 ENVIRONMENT

21 ENERGY

22 CABLEWAY

[1] OJ L 108, 27.4.1999, p. 2.

[2] OJ L 190, 23.7.1999, p. 14.

[3] Commission Decision C/2005/1303

[4] Commission Decision C/2006/1137

[5] COM(2004)823 final

[6] CRIS No of contract 2005/102-529.