# 5 **Coherent policy responses for banana exporters**

Both efficient Latin American and high cost Caribbean banana exporters have good reason to be disappointed with the new EU banana policy. It introduces considerable uncertainties into the production and marketing of bananas and introduces further confusion about the aims to provide aid to ACP producers. **It** reduces the. competitiveness of banana marketing in the European Union which in the long term is iHkely to reduce the options for all banana exporting countries. Overall.it reduces access to the EU market and makes bananas a less competitive, higher priced fruit to EtT consumers. But above aLll the apparent objectives of the policy have little to do with the welfare of banana expordng countries. The main objective appears to be to protect and expand the monopoly marketing profits of EU banana marketeers.

Although over the long-term it seems inevitable that the inefficiencies of EU banana policy will be unsustainable, it nonetheless is likely to cause much dismption and waste in **the** interim. .This is a good time for both groups of countries to consider their positions and the policy responses they might follow.

What szems important is to reduce the uncertainties created by the policy. What would help to reduce this uncertainty and help in the development of the ACP economies at least, is a known timetable of change with transparent objectives and rules, tramnsition arrangements and economic support for adjustment, social support and diversification

# **Policy considerations for ACP countries**

The economic difficultes of small island states need special recognition. The Windward islands, for instance, have become dependent on banana exports for most of their export earnings. Loss of that income without some form of compensation or support would impose great hardship. The social impacts of the ioss of income could be costly to ACP countries. Studies of small island states show that trade and aid often represent large proportions of their gross national product (OECD 1989; World Bank 1989).

Many small island states are likely to remain dependent on aid for a some time to come. But how aid is delivered will determine the extent of future reliance. Therefore the efficiency with which that aid is transferred is very important.

# _Why a_ **_better form_** _of_ **_aidfor ACP counries is needed_**

The banana market with its arfificially high prices provides a seemingly convenient mechanism for the EU to transfer economic assistance to small economies. But to qualify for the aid these small economies must produce bananas. They must therefore use up valuable resources - fertilizer, pesticides, shipping space, land, labor and capital - to obtain the aid. The net value of aid is therefore substntially below the gross value because the costs of production of preferred suppliers are higher than the efficient Latin American suppliers.

The 'aid' component of the prices paid to preferred suppliers for their bananas encourages inefficient banana cultivation, maketing and discourages diversification of production. Without pressure to be internationally competitive in production and marketing, 22