Supermarkets are now the only players in the banana chain to consistently make profits from bananas, having dramatically increased their economic power in the banana chain in the last decade. Bananas are the single most profitable item passing through the check-outs in British supermarkets, accounting for 1% of all sales. In the USA, it is estimated that bananas represent 2% of the total turnover of North American grocery retailers; in Britain, it is probably more than this.

Big retailers will do more or less whatever it takes to persuade the public to shop in their own stores rather than those of a rival chain. Image and public relations are keys to success for the big retail chains and in a bid to appeal to the widest spread of consumers, supermarkets have developed chameleon-like powers.

They can appear as warriors on behalf of poor consumers, getting the best possible deals for products, even if this means that the workers who produce them are paid rock-bottom wages and their local environment is destroyed. At the same time, as if shocked by their own success in driving standards down, they can simultaneously appear as advocates of Fair Trade, offering solutions for the more aware consumers to the problems they themselves have helped to create. Through a variety of brands from “value” ranges through to “Nature’s Choice” or “Healthy Living”, they try to cater for every type of consumer. In doing so, they often like to present themselves as morally neutral. They are not really responsible for what they do; they are just responding to "what the consumer wants".

Nevertheless, there are reasons for thinking that the structure of a grocery market like the UK’s in which around 75% of all groceries are sold by just four big retailers - Tesco at 31%, Asda/WalMart and J Sainsbury at 16% each, and Morrisons at 12% - is inherently flawed and destructive for primary producers and their employees.

For some years, but particularly since Walmart took over Asda in 2000, supermarkets have been involved in bitter price wars. Bananas along with milk, bread and a few other products have been particularly exposed to the effects of these price wars, as they are so called KVIs (Known Value Items) or Key Value Lines, items which consumers regularly buy and whose prices they are believed to notice. When consumers compare the “value” offered by different supermarkets, they use KVIs, so the retailers believe, to compare the overall price of shopping at one retail chain as opposed to another, even though their prices seldom reflect the cost of buying other items like prepared foods.

In 2002, on the back of an exclusive low-price contract with Del Monte, Asda/WalMart announced a dramatic fall in its retail price for bananas from £1.08 to 94 pence per kilo. Within hours, Tesco cut its prices to match the Asda price. Then a second big cut came from Morrisons, the fourth biggest chain. By 2004, the loose banana price to consumers had come down to 74p per kilo, a full 30% cut from where it had been for 6 years before the Asda move.

However, because Tesco (and the other British chains) maintain higher margins than Asda/WalMart, these cuts in retail price were passed on to their banana suppliers, with the inevitable knock-on consequences for producers and workers in Latin America and the Caribbean.

At this time, one importer selling to a big UK chain reported that it was scouring the globe for supplies and selling at a massive loss to a retailer, which was still insisting on lower prices even during a period of global under-supply. This supplier faced a stark choice – whether to go bankrupt now or whether to continue trading at a loss in the hopes that something would happen to save the day later.

Banana prices in the four big chains have remained closely coordinated, with any movement of price by one supermarket immediately mirrored by the others. When the price went back up to 85p/kg in 2005, this was because of supply shortages and therefoee higher prices. On this occasion, suppliers were able to pass on the rise in the price they had to pay for green bananas to their big retail customers.

Then in March 2006, retail prices in the UK were again slashed to unprecedentedly low levels, again led by Asda/WalMart. This time the cut was 25%, taking prices down to 64p (0.92 euros) per kg. The other three again followed suit within 24 hours, although some were now beginning to feel uncomfortable about these price wars which did nothing to bring more customers through their doors.

These events demonstrate the dangers of “concentration of the retail market” and the growth of “buyer power”. Contracts with supermarkets are now so important for banana importers (and other suppliers) that they have to accept unsustainably low prices and other onerous conditions which threaten the viability of their own businesses. When suppliers are squeezed by the supermarkets, they inevitably try to cut their own costs even further. As most of the big companies are already highly efficient, the only realistic way they can cut their costs further is by reducing wages and benefits to plantation workers and avoiding costly environmental protection measures. Under pressure from the retailers, they relocate to the areas where standards are lowest or fire workers and rehire them at lower levels of remuneration.

Banana Link is involved in a number of campaigns aimed at preventing further retail concentration and countering the "abusive" (to employ the UK Competition Commission’s own word) use of buyer power (see Campaigns).

While the structural changes to the UK retail market (and increasingly to other EU markets) fuel the “race to the bottom”, the supermarket chameleons also appear as champions of high standards. Most of the big chains sell Fair Trade (FT) and organic products, which offer guarantees of social and environmental standards. Most are also involved in the UK’s Ethical Trading Initiative, an alliance of companies, trade unions and NGOs working on the monitoring and verification of a code of conduct applied to labour standards in the supply chain.

Tesco’s selling of Dominican FT bananas provides a life-line for this hard pressed Windward Island. Sainsbury sources FT bananas from another Windward Island, St. Lucia, whilst Asda buys from small farmers in St Vincent. Without these outlets for Fair Trade products, the Windward Islands’ banana industry would have a very poor prospect of survival.

The retailers also increasingly ensure that quality and environmental standards are compliant with a private standard which they developed themselves: EurepGAP. It is a quality assurance scheme devised by a consortium of European retailers, at the initiative of the British retail giants. Producers are increasingly obliged to meet these standards if they want to sell to the European supermarkets. A similar initiative is now developing in North America, again controlled by the supermarkets not public legislation. The key issue for the producers is that they are expected to meet more and more standards in order to sell, but the buyers offer nothing to cover the cost of their investment in improving standards. the price is the price, take it or leave it!

Until now, supermarkets have proved much less willing to enforce labour and social standards than fairly superificial quality and environment standards. While these private initiatives (see Alternatives) are better than nothing, many believe that all international trade should respect the International Labour Organisation conventions on trade union freedom and collective bargaining, child labour, health and safety, etc. Reliance on voluntary initiatives and consumer choice should not be seen as a substitute for properly regulated industries.

The banana industry furnishes many examples of companies which are certified according to various voluntary standards, but which routinely ignore the standards for which they have been granted certification. Even at the ETI’s 2005 annual conference a number of delegates, including speakers, expressed the view that voluntary standards were not working.

Whilst any attempts by supermarkets to raise standards are to be welcomed, it should not be forgotten that they themselves are squeezing their suppliers to the point where standards are almost inevitably lowered.

Further Reading

Bananas: Unethical Flagship of Supermarkets focuses on the banana trade and supermarket expansion in Hungary. Author Alistair Smith, April 2006.

Shopped: The shocking power of British Supermarkets, by Joanna Blythman. An introduction to the rapid growth in the power of British supermarkets and the impact of this corporate concentration on our high street, diets, farms, environments and shopworkers. Published by Harper Collins.

The Traidcraft Briefing Paper, Are International Supply Chains Increasing Poverty? provides a very useful guide to how the international supply chains work and how the increasing buyer power of supermarkets effects pricing and working conditions in producer countries.

Buying Matters Consultation: Sourcing Fairly from Developing Countries Traidcraft 2006

Action Aid and Oxfam have both recently conducted research into conditions for workers on fruit farms in South Africa supplying British supermarkets, in particular Tesco. Click here to download ‘Rotten Fruit’, produced by Action Aid

and ‘Trading away our Rights’, published by Oxfam.

Corporate Watch: What's Wrong with Supermarkets? 

Retailer Buyer Power in European Markets: Lessons from Grocery Supply by Paul W Dobson

Asda/WalMart: The Alternative Report, GMB and War on Want, London, November 2005

Websites

Tescopoly

AsdaWatch