The Humble Banana Becomes A Key Component In The Proposed Ecuador-EAEU Free Trade Agreement

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By Chris Devonshire-Ellis 

97% Of All Bananas Consumed In Russia Are From Ecuador – But LatAm Offers Far More

On October 11, the generalized system of preferences (GSP) granted by Russia as part of the Eurasian Economic Union (EAEU) for a group of Ecuadorian products will expire and, from then, tariffs paid by Ecuadorian banana producers to enter the EAEU market will increase from the 3.75% it is currently taxed to 4%. That may not sound much but when one considers the wafer-thin margins in the banana growing industry, the economy of Ecuador, and the sheer volume of bananas traded, that additional 0.25% becomes a lot to bite off.

Russia is the second main destination for Ecuadorian bananas, accounting for an average of 22% of exports. According to the Banana Cluster, this percentage has remained stable in recent years, even though it presented slight reductions in 2019 and 2020 due to various logistics and production factors, but also to the decrease in banana imports by Russia.

However, in 2020 banana exports to Russia were worth some US$673 million, US$31 million more than in 2019. Ecuador is Russia’s leading banana supplier and contributes an average of 97% of the bananas consumed in the country, according to the union. Ecuadorian producers believe that negotiations with Russia should be accelerated in order to reach a trade agreement with the country and the EAEU.

The Russian Ambassador to Ecuador, Vladimir Sprinchan, Ecuador’s ambassador to Russia, Juan Holguin, and Ecuador’s ambassador to the European Union, Hernan Ponce, were optimistic about strengthening the bilateral dialogue between both nations to promote trade agreements that allow boosting their economies. The three diplomats visited a banana farm owned by the Reybanpac company, in the province of Los Rios, where they were able to observe the treatment of bananas for export.

Vladimir Sprinchan promised to join forces to achieve a trade agreement. However, he stressed that it does not depend only on Russia, but on the EAEU, which is integrated by Russia in addition to Armenia, Kazakhstan, Kyrgyzstan, and Belarus.

According to Ecuador’s ambassador to Russia, Juan Holguin, there are two essential conditions to make a trade agreement viable: creating the political conditions for dialogue and a technical aspect. “If there is political will, these technical agreements are much easier to achieve because there is already interest,” he said.

He also said that Ecuadorian President Guillermo Lasso had entrusted him with the priority of peeling back the diplomatic layers to enhance the conditions for achieving a commercial agreement. Jose Antonio Hidalgo, executive director of the Association of Banana Exporters of Ecuador (AEBE) said that the Ecuadorian Banana Cluster is arranging travel to Russia to discuss a trade agreement.

There are benefits for Russia too, that curve beyond the import and export of bananas. Ecuador is a member of the Andean Community (CAN) which includes Bolivia, Colombia, Ecuador and Peru, a market of 100 million and a GDP of about US$900 billion. CAN also has trade agreements with the Mercosur bloc which includes the powerful LatAm nations of Argentina, Brazil, Paraguay and Uruguay. An FTA with Ecuador would give Russia and the EAEU an initial foothold into the LatAm markets, which are projected to grow by 5.9% in 2021 and to continue, although growth problems remain, according to a report by McKinsey.

Russia’s eyes however, like China, will be on LatAm’s resources, which contain significant mining and other energy potential. From bananas to a commodity presence in Latin America makes sense for Russia. The banana, however, remains the starting point in straightening that potential out.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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