MEMO/06/335

Brussels, 20 September 2006

BANANA CMO REFORM

The European Commission today adopted the proposal for a reform of the Common Market Organisation for bananas. The aid scheme for bananas will be replaced with a budget transfer to the POSEI scheme for the outermost regions and the inclusion of non-POSEI areas under banana cultivation into the single payments scheme.

Background

In February 2005, following the extension of the Common Market Organisation in bananas (CMO) to ten new Member States and prior to a substantial change of the import regime to honour the agreements concluded in 2001 with Ecuador and the United States, the Commission published a report on the operation of the CMO. This launched a wide-ranging debate on the future of the CMO, in a context shaped by the prospect of a conclusion of the Doha Round negotiations, the implementation of a new generation of partnership agreements with the ACP countries, the end of the exemption for bananas from the Everything But Arms agreement, and the renewal of the Union’s policy towards its outermost regions and the POSEI programmes specifically dedicated to supporting their agriculture ([1]).

Drawing the first conclusions from this debate - which in the meantime profited from an independent evaluation on the operation of the CMO ([2]) - the Commission in October 2005 decided to propose a reform of the internal aspects of the banana CMO in 2006 and, in particular, of those aspects governing the granting of aid to European producers. In accordance with the commitment made to better regulation, the preparation of the reform was preceded by an analysis of the economic, social and environmental aspects of the problems involved in its operation, including a public consultation on a set of options for reform.

Reasons and Objectives of the reform

The current aid scheme for banana producers is based on principles which for other common market organisations have been substantially reformed. Producers are artificially isolated from the market trends since the aid automatically compensates for price changes. Although the aid is limited to a maximum quantity of 867,500 tonnes for all the producer regions, there is no budget ceiling. The calculation of the aid, based on Community average prices, does not adequately take into account the particularities of each of the producing regions.

It is necessary to amend this regime on the basis of the main political priorities set up by the Sustainable Development and the Lisbon Strategies, as transposed in the objectives of the reformed Common Agricultural Policy. The reform's objectives are to make several key changes.

• First it is to abolish the aid scheme for bananas in the CMO and replace it with:
• a budget transfer to the POSEI scheme for the establishment of support for banana production in the outermost regions under that framework and
• the inclusion of non-POSEI areas under banana cultivation into the single payments scheme, along with a budget transfer (continental Portugal, Greece and from 2009 Cyprus effectively).
• Second it abolishes Community rules on producer organisations and groupings.
• Third it cleans up the banana CMO text ready for its inclusion into the single CMO project.

Producer's Organizations:

The existing regime had as objectives to form producers' organisations in order that as many producers as possible be members of such organisations and limited the payment of the compensatory aid to producers members of recognized producers' organizations. The regime has succeeded in its first objective since the vast majority of Community producers are now members of producers' organisations. The second objective is obsolete since the compensatory aid scheme is to be abolished.

It is therefore proposed not to maintain any longer rules at Community level on producer organisations, thus leaving Member States free to adopt such rules, if necessary, targeted at the specific situations in their territories. Accordingly, it is proposed to abolish the scheme providing for assistance to encourage the establishment and administrative operation of producers' organisations. However in the interests of legal certainty and the protection of legitimate expectations, the continued payment of such assistance to recently recognised producers' organisations already benefiting from this assistance will be ensured.

The EU Banana supply

Following the latest enlargement (2004), the European Union has become the world’s leading market for dessert bananas, with approximately 4.6 million tonnes of bananas consumed every year. 67% of those are imported from Latin America (Ecuador, Costa Rica, Colombia and Panama being the four principal suppliers), 17% originates in ACP countries (Cameroon, Ivory Coast and several countries in the Caribbean).

Community bananas account for only 16% of total EU supply. They are produced in four outermost regions situated in tropical or sub-tropical areas, except for few quantities (less than 2% of total) produced in Cyprus, Greece and continental Portugal (see graphs below).

[ Figures and graphics available in PDF and WORD PROCESSED ]

Bananas are a pillar of the economic, social and environmental balance of the main producing regions: in the Canaries 30 % of the agricultural work-force are employed in this sector. In Martinique this figure is even double (60%), there 47% of the agricultural GDP are produced in the banana sector. In Madeira, bananas are grown in terraces in very small holdings (0.15 hectares in average) and are a characteristic feature of the island's landscape. Banana production, as well as other agricultural activities in those islands, are handicapped by the remoteness, insularity, small size and difficult topography.

How competitive are EU Bananas?

Although the difficult geographic conditions and the labour costs reflecting EU labour standards, therefore very substantially higher than most third producing countries, EU productivity per hectare is one of the highest in the world: so the Canaries produce 44tonnes/ha compared to Honduras with20 tonnes/ha.

Another quite important speciality of the EU Bananas is the limited use of pesticides: The number of authorised pesticides is only 30% of those used worldwide for banana production. In addition to that, a very substantial effort has been made over the last years: The amount of pesticides used in the EU has been reduced by 40% in the last 2 years.

Why support EU Bananas:

Bananas are important for the social and economic viability of four outermost regions: the Canary Islands, Martinique, Guadeloupe and Madeira. e.g. banana transport underpins regular shipping routes between the producer regions to Europe.

Article 299 para. 2 of the Treaty requires specific measures for the outermost regions

Main elements of the current system:

The current aid system for bananas is a compensatory aid system bases on the following key-elements:

• Basic Aid = deficiency payment: reference income – price
• in 2004 aid = EUR 281/tonne = ±10 000 €/ha in average
• Supplementary aid for least profitable regions to be negotiated each year: in 2004 suppl. aid = ± EUR 80/tonne = ± 2 000 €/ha in average
• Max 867,500 tonnes fixed per region - No budget ceiling
• Cross-compliance and budget discipline apply
• No modulation (outermost regions exception)

Main suppliers (000 t): EU Production + Imports from third countries into the EU

[1]Regulation (EC) No 247/2006 of 30 January 2006, OJ L 42, 14.2.2006, p.1.
^[2]Evaluation of the common organisation of the market in bananas, carried out by COGEA in 2005, http://ec.europa.eu/agriculture/eval/reports/bananas/index_fr.htm