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Prime Minister on the Future of the Banana Industry - August 25, 1998

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Tonight, I want to share some ideas with you about the future of the banana industry. I am anxious to explain to you, the measures which the Government of Saint Lucia proposes to implement to secure the viability of the industry.

Unquestionably, the banana industry is the lifeblood of St. Lucia. There is no future without bananas. The challenge to transform this industry has been one of the main priorities of the Government of Saint Lucia over the past year.

During the General Election campaign last year, the Saint Lucia Labour Party made a number of commitments to St. Lucians about changes to the industry. These commitments are going to be honoured in full. In particular, the management and ownership of the industry will be transferred to our farmers on October 1st, when the Saint Lucia Banana Corporation becomes operational.


The Windward Islands banana industry, and St. Lucia in particular, has made enormous strides in the last year or two, particularly in terms of improvements in quality. In the past year, we have seen the introduction of both the Certified Grower Programme and quality related pricing in St. Lucia. This means that every farmer, whether big or small, providing he or she carries out the good husbandry practices which the Certified Grower Programme requires, now has the opportunity to earn not only good money from a sound pricing structure which is market related and transparent, and which rewards farmers for producing good quality fruit, but in addition, he can earn a full 10 cent per pound more for participating in the Certified Grower Programme provided, as I indicated earlier, he produces Certified Premium fruit. Around 1300 farmers now participate in the Certified Grower Programme in Saint Lucia. Over 50% of all bananas exported by St. Lucia are now of premium quality from Certified farmers.

These measures have undoubtedly had a major impact, but, of course, so have the efforts of farmers in responding to the continuing calls for improved quality. As a result, the average green quality score for St. Lucia increased from 76 in 1996 to 84 in 1997, and so far in 1998 has increased further to 88. According to the E.C.C.B Report for the first quarter of this year, "Despite a contraction in exports, banana revenue increased by 28.1 per cent to $25.9 million as the average green price rose by 4.2 per cent." This is a major achievement of which our farmers can be proud. It is a tribute to what can be achieved when we all work together for the advancement of the industry. The drive for ever better quality must go on.

Since these quality improvements have been achieved, demand from the UK supermarkets, who pay good prices, has increased significantly. For example, we gained a breakthrough in supplying Tesco, Britain's largest supermarket, as we announced a few weeks ago, as a direct result of these quality improvements. We now have assured markets in the United Kingdom.

Despite these fundamental improvements in quality, the banana industry in Saint Lucia and other Windward Islands has continued to face problems. Improving quality alone is not going to solve the industry's problems. To secure the long term future of the industry, we must be strong and decisive and initiate long overdue reforms.


Why are there problems throughout the Windward Islands? Farmers have been leaving the industry because they feel that returns from growing bananas are inadequate and that the industry has no future. Between 1992 and 1997, 44 per cent of the farmers of Dominica left the industry. In St Vincent, 17 per cent left and in St Lucia, some 49 per cent of our farmers abandoned the industry. As a result, production of bananas in the Windward Islands has fallen from a peak of 275,000 tonnes in 1992 to 138,000 tonnes in 1997. Compared to 1996, production in 1997 fell in Dominica by some 12 per cent, in Saint Vincent by 29.5 per cent and in Saint Lucia by 31.9 per cent. A further drop in production is expected in 1998 mainly because of the delibitating drought which we suffered earlier this year. Consequently, we have experienced serious difficulties in meeting the volume requirements of the UK supermarkets - even for the new supply to Tesco I mentioned just now. This situation was unacceptable. Things were not moving fast enough. I felt that it was imperative that those responsible for the industry should undertake immediately, activities to improve the level of production and to reorganize the industry.


I therefore met with the Prime Ministers of the other Windward Islands in St. Lucia in April this year to determine what action needed to be taken. Together, we agreed to set up a Task Force to examine urgently what could be done to revitalize the banana industry. The Task Force had to identify what resources were needed and what changes and reforms had to be introduced in order to reverse the decline in production and turn this industry into a prosperous and growing one. The TASK Force set up by the Heads of Government has produced a Plan which is formulated to address both the short and long-term needs of the industry, and which has identified the resources needed to achieve this.

A few days ago, I announced in Parliament that the Recovery Plan for the Windward Island Banana Industry has been agreed and signed. This is the largest programme of support ever seen in the Windwards. The total amount involved is EC$150 million. Over half of this amount is for St. Lucia. The European Union, the British Department for International Development and other Donors have committed to contribute around EC$100 million of this in aid and loans over the next three (3) years.


The Windward Island Banana Industry will be completely transformed by the Plan. This package is not just a "hand-to-mouth" income support package to tide us over until the news media in Europe have lost interest in the Windward banana industry and consciences have been salved. Some EC$23 million is immediately available to St Lucian farmers for inputs, a credit programme to help farmers join the Certification programme, to initiate cost cutting programmes in the institutions that manage the industry and to maintain price levels over the traditional period for the Plan. Over the next 6 months a further EC$4 million will be made available to provide St Lucian farmers with more working capital and to start a major drainage and irrigation programme. Let me now give details of these re-capitalization programmes. Two loan packages will be available to provide the funds necessary to generate the required increase in production.

The first is a certification loan to enable more farmers to convert to the Certified Farmers Programme. This loan will be made available on the basis of EC$450 per acre and is to be used to finance capital equipment and for meeting certain costs of labour. It is assumed that the farmer will pay only the labour cost of the mini wet pack sheds which are now being constructed throughout the island.

The second loan is a Re-capitalization loan made up of two lending streams. The first lending stream will be available for inputs and labour. Repayment will commence immediately, except of those growers who are establishing or re-establishing their plantations, in which case there will be an 18 month moratorium. The second loan is for drainage and irrigation. Repayment will be over 36 months after a 30 month moratorium.

The rate of interest payable by the farmer shall be no more than 5 per cent, a rate which is 7 per cent less than current rates in the commercial banks. This provision will be reviewed after the first year of operation. The loans will be disbursed through the banana companies or other legal entities such as cooperatives, provided that they can demonstrate a proper requirement for funds to finance the production of quality bananas, together with repayment capacity and can provide the necessary security to ensure the return of funds.

At the same time Governments will relieve the debt burden of the industry by assuming, substantial debts - in the case of St. Lucia EC$43 million as promised in the election programme of the St Lucia Labour Party. Finally, over the following two and a half years nearly EC$24 million will be spent in St Lucia for completing the drainage and irrigation programme. These substantial investments in drainage and irrigation will enable yields per acre to be substantially increased. In turn, production will be dramatically increased. These improvements will allow the industry to compete effectively with its Latin American neighbours.

The Plan will also provide cash for inputs, lower shipping costs and an education and training programme. This Plan, together with a commitment by the SLBGA and its successor, the new SLBC, to maintain prices to farmers together with price differentials for certified premium fruit for the next 18 months, should enable confidence to return to the industry - and confidence is the key - so that replanting can take place and farmers can make investments in the future. Once again bananas will be a profitable crop for these Islands, and in particular for the many small producers.


How will this Recovery Plan be implemented? A Recovery Plan Manager will be appointed, and be in place by 1st September, 1998, to manage the implementation of the Recovery Plan and the disbursement of Donor funds. The implementation of the Plan will be the responsibility of an Implementation Team in each island and/or other institutional arrangements already agreed between the European Commission and the individual Governments. In the case of Saint Lucia, the Implementation Team will comprise the management of the successor or parellel organization to the SLBGA, supported by the technical staff of WIBDECO and the Technical Assistance Team funded by the European Union.


The marketing arm for Windward bananas, Geest Bananas Limited, which is 50% owned by the Windward Governments and Banana Growers Associations, is also playing a leading role in this Plan. Geest will be contributing over EC$12 million in loans and financial support, of which over EC$8 million is for St. Lucia. This amount will provide inputs and working capital for the new SLBC, technical and managerial assistance, and will reduce dead freight and freight costs so that the farmers can get a better return.


The Government of St Lucia will also play its part in this Recovery Plan. For some time I have been concerned about the institutional structure of the industry in St Lucia. The St Lucia Banana Growers Association has run up enormous debts in recent years, partly through unfocussed management and lack of direction from previous Boards, partly by supporting prices in the vain hope that better days would come. For too long farmers have been burdened with excessive costs in the SLBGA; inefficient and expensive Inland Boxing Depos which damage the fruit, and a high cost overhead structure. Furthermore, an environment in which the SLBGA can feel that the Government is always there to pay for its mistakes is not one to encourage the commercial disciplines which are needed. And an environment in which farmers cannot control their own destiny because of bureaucratic interference is similarly not one which encourages the spirit of enterprise which is needed. As a result, the SLBGA will be dissolved and the new St Lucia Banana Corporation will be set up and operational by October of this year; other new private enterprise organizations will also be allowed to compete for the purchase of bananas from October 1st this year. Furthermore, so that new organizations are not burdened with the mistakes of the old, I have agreed, as promised in my election campaign, that all the debts of the SLBGA will be taken over by the Government at that date.

Stabex funds will be used to build a small number of large, modern Inland Reception Centres, and farmers should see the results of cost savings from the closures of the old Inland Boxing Depots and the elimination of unnecessary costs in the SLBGA.

These changes will lead to the displacement of some workers at the SLBGA. It is expected that the successor to the SLBGA, the SLBC, will employ some of the displaced employees. I am satisfied that all matters pertaining to the severance and terminal benefits of existing employees will be resolved.

The Government of St Lucia has also arranged for the Chamber of Commerce to offer advice to workers who wish to enter into business activity or to pursue other career options.


Changes to the SLBGA will still leave the industry with an overhead structure which has too many layers of management and administration. These layers are too expensive. This will be addressed separately in the next few months by consultants who are examining the Inland/WIBDECO relationship. The industry must be run more tightly if farmers are to get the rewards that are their due. A rationalization of this institutional structure will also enable growers to move closer to the marketplace, which is a key objective, improving communication with the marketplace, and allowing growers to become more involved in pricing arrangements which can become more transparent. When we have finished, all these savings will go right through the chain so that the maximum possible price can be returned to growers, fully rewarding their efforts. For too long farmers have earned too small a share of the cake. I believe that when they see attractive returns for quality fruit they will respond with increased production.

Another improvement in efficiency I wish to see is the concentration of banana exports in one port, Vieux Fort, reducing costs for the industry and leaving the port of Castries free to develop further as a prime location for cruise ships.

Throughout the development of this Recovery Plan, I have insisted that we will do what is right for St. Lucia. While we will of course work in co-operation with our friends in the other Windward Islands, I have made sure that St. Lucia's priorities and St. Lucia's needs are not compromised in any way in this Plan.


The market environment in which farmers operate is also of crucial importance to the success of the industry. Historically, our market has always been the UK. This protection which the UK market traditionally afforded us was dramatically altered with the advent of the Single European Market in 1993. Prices fell, and competition increased significantly, despite a new EU-wide banana import regime which was generally favourable to us and which provided the benefits promised under the Lomé agreement. This competition took the form of an influx of good quality, cheap dollar bananas from Latin American countries whose industries are dominated by US multinationals. At the same time, these countries, together with the US multinationals, began a political attack on the European Union import regime, alleging non-conformity with GATT rules.

This situation presented the industry with two challenges therefore: firstly to fight off the American attack on our rights under Lomé, and secondly to produce significantly better quality bananas to compete against dollar bananas. I have already spoken of the excellent response of farmers to the call for higher quality. What of the European Community banana import regime?


The European Union has now agreed the broad outline of changes needed to achieve compatibility with WTO rules and although these are satisfactory as far as they go, the final details of licensing arrangements have not yet been revealed. However, the initial indications on licensing are encouraging. Despite the damage that has already been done to all African, Caribbean and Pacific countries by the attack on them by the Americans in the World Trade Organization, resulting in farmer confidence continually being eroded by their threats, the Americans have still not given up hope of dislodging all Lomé benefits from us. They have threatened a return to the WTO. We do not expect them to be successful. It is incomprehensible why the United States of America, the wealthiest nation in the world, feels it necessary to try to take away our livelihood. Together with fellow Windward Heads of Government, I intend to continue to fight vigorously on behalf of farmers to ensure that Lomé obligations can be and are respected, and that there will continue to be a profitable market in Europe for good quality Windward bananas. Sometime in September, I shall lead a Caricom Delegation to Washington in a bid to persuade the United States to stop hurting our

farmers. This issue is not about the marketplace; it is about the conscience of the United States, and the meaning of the "so called" special relationship which it has enjoyed with these islands over the years.


I have taken a particular personal interest in the UK marketplace. During recent visits to the UK, I have seen for myself the new state-of-the-art ripening facilities of Geest Bananas, our 50% owned marketing company. I have personally visited Southampton to see our fruit being unloaded and quality assessed. I believe it is very important for us to stay close to the UK marketplace and respond to the needs of the UK supermarkets. The programme recently introduced for Tesco in St. Lucia is an excellent example of the way we can adapt to meet their needs and ensure a growing share of this vital market sector. Our part ownership of Geest Bananas is crucial to the feedback of such information on the marketplace. But this is not the only benefit: dividends from Geest Bananas' profitable marketing of our bananas will soon start to flow into the pockets of the farmers. This has not been possible so far because of the need to pay interest and pay back loans to Banks for financing this substantial investment. But this debt is rapidly being reduced, and so I can promise you that farmers will soon start to see the benefits of these dividends - providing we can maintain a good supply of high quality fruit to the UK.


I believe therefore that all the elements needed for the renaissance of our banana industry are now being put in place. Consider the following: a healthy EU marketing environment, funds from the new Recovery Plan to invest in and sustain the industry, a sound pricing structure, demand for our fruit from the UK supermarkets, quality improvement, the Certified Grower Programme, and institutional reform leading to lower deductions for the farmer.

All that remains is for the banana farmers of St. Lucia to show their faith in the future, and invest their efforts in this vital industry, increasing yields and production of high quality fruit. This Government will give them all the support they need. Our farmers can have every confidence that if they respond to this call, it will be well worthwhile and they will be well rewarded. The future is assured.

I thank you.


25th August, 1998

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