THE DEEPENING BANANA CRISIS IN ECUADOR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002500010001-2
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• Document Page Count: 15
• Document Creation Date: November 16, 2016
• Document Release Date: November 29, 1999
• Sequence Number: 1
• Publication Date: December 1, 1965
• Content Type: BRIEF

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NO FOREIGN DISSEM
CIA/RR CB 65-76
December 1965
STATES Of
INTELLIGENCE BRIEF
BANANA CRISIS
DIRECTORATE OF INTELLIGENCE
Office of Research arid Reports
NO FOREIGN DISSEM
SECRET
GROUP I
E (laded from automatic
downgrading and
declassification
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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THE DEEPENING BANANA CRISIS IN ECUADOR*
Summary
During the first eight months of 1965, Ecuador's receipts
from banana exports, which account for nearly 60 percent of
the country's export earnings, totaled only US $48 million, a
drop of $9 million, or 16 percent, from earnings in the cor-
responding period of 1964 This decrease was offset by a
boost in other exports. However, a sharp rise in import ex-
penditures resulted in a loss of 40 percent of the country's
international reserves during October 1964 through June 1965.
The drop in earnings from exports of bananas is in part
a result of the resurgence of banana production at formerly
disease-infested plantations in Central America and storm-
damaged plantations in Taiwan -- areas that possess compet-
itive advantages over Ecuador for supplying markets in the
United States, Western Europe, and Japan. These develop-
ments illustrate the recurring plight of Latin American
nations that depend heavily on a narrow range of commodity
exports to earn foreign exchange.
To stop the decline in banana export earnings, the govern-
ment of Ecuador has attempted to stabilize banana export
prices, to reduce export costs, and to develop new export
markets through barter trade with Communist countries. In
the face of estimates that foresee world consumption of bananas
lagging behind rising world production, however, the prospects
for mitigating the declining export earnings are not bright. As
a result of the drop in export receipts during 1965, Ecuador
already is reviewing its projection of foreign exchange earn-
ings from banana exports, since they constitute a major source
of financing for the country's National Development Plan
(1964-73).
* The estimates and conclusions in this brief represent the best
judgment of this Office as of 8 December 1965.
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1. Marked Decline in Banana Exports
The sharp drop in Ecuador's export earnings from bananas is a re-
sult of the highly competitive nature of the international banana market,
For several years this market has been characterized by the continuous
deterioration of banana prices as a result of increased supplies from
exporting nations. Through 1964, Ecuador did not feel the impact of
declining prices on foreign exchange earnings, because of offsetting
increases in volume (see the table). Much of the success achieved in
increasing the volume of exports through 1964 was the result of tem-
porary disruptions in the established flow of bananas from other supplier
countries to existing markets. Japan, for example, turned to Ecuador
for bananas following frost damage to plantations on Taiwan in 1962-.63.
Japanese imports of bananas rose from a negligible level in 1960-61 to
about 16 percent of Ecuador's total banana exports in 1963,
Ecuador:
Indexes of Banana Pxports
196o-65
1958 - 100
1960
1961
1962
1963
1964
1965 2/
Total value
122
11.1
121
117
n6
99 b/
Price
914
91
89
72
70
70
Volume
130
122
137
162
165
141
a. January-August?I-9-65, using comparable period in 195B as the base
of 100
b. Estimated.
The recovery of production on Taiwan, however, now threatens Ecuador's
banana exports to Japan. It is estimated that exports of bananas to Japan
may reach only 835,000 bunches in 1965, compared with a peak of 7.4
million bunches in 1963,
Similarly, the recovery of production in Central America (following
the extensive replacement of diseased trees) and in Colombia (following
severe storm damage) is reducing Ecuador's share of the banana market
in the United States. The increasing availability of supplies from the
Caribbean area weakens Ecuador's competitive position inasmuch as
Caribbean sources arc three to four days closer to ITS and Western
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European markets and have correspondingly lower transportation costs.
For this reason, the United Fruit Co. , which accounted for about 15
percent of Ecuador's banana exports in 1964, virtually withdrew from
the country's banana market at the beginning of 1965, citing its heavy
investments in Central America and Colombia and the advantage of their
proximity to the United States. Trade sources also observe that bananas
are still considered a luxury product in Western Europe, and despite
the acknowledged superiority of Ecuador's product, price is more im-
portant than quality.
2. Effect of Falling Exports
The decline in foreign exchange earnings from banana exports has
been mitigated somewhat by the favorable performance of the country's
other main exports, coffee and cocoa. Preliminary data reveal that in
the nine-month period January-September 1965 the total value of
Ecuador's exports was $98.6 million, approximately the same level of
export earnings in the corresponding period of 1964.
Despite the offsetting influences of other exports, Ecuador has ex-
perienced an alarming decline in its international monetary reserves.
After reaching a peak of $49.8 million in October 1964, the nation's
international reserves dropped steadily through June 1965, when they
totaled $31.4 million, a decline of nearly 40 percent. This adverse
movement of Ecuador's international monetary reserves is traceable
to a sharp rise in import expenditures concurrent with the stagnation
in export receipts.
Accompanying the adverse movement of international monetary re-
serves, fragmentary reports on the domestic economy indicate that
during the first half of the year unemployment was on the rise among
banana plantation laborers, parking-shed workers, and stevedores, as
several large growers and exporters ceased operations. Guayaquil,
the country's main commercial center and leading banana exporting
port, reported that truck sales had fallen, repossessions were on the
rise, and sales in transportation-related industries -- tires, gasoline --
also were being affected.
3. Government Reaction
The government of Ecuador has attempted to counter the sharp drop
in banana ex-port earnings in several ways. In the main, the govern-
ment's actions have been designed to stabilize banana export prices, to
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reduce export costs, and to develop new export markets. To this end,
the military junta, in a series of decrees issued since January, has
established minimum export prices for bananas, ordered all banana
growers to join cooperatives, and directed exporters to buy directly
from growers. The government has also negotiated freight rate re-
ductions with Flota Gran Colornbiana, a shipping firm jointly owned
by semiofficial entities of the Ecuadoran and Colombian governments,
following a voluntary reduction by the Grace Line.
A.s an outgrowth of a program to promote -exports in general, and
exports of bananas in particular, the government authorized negotia-
tions for barter trade with Yugoslavia, Communist China, the USSR,
and the Eastern European Communist countries shortly after the first
of .the year. Thus far, the only results of the trade mission named to
negotiate these barter agreements have been a proposed transaction with
Czechoslovakia for two shipments of 150 metric tons of bananas and a -
reported $4 million trade agreement with East Germany involving, among
other products, an unspecified quantity of bananas. The government's
efforts to promote banana exports to Western Europe have thus far led
to only small increases in French and Italian import quotas. An addi-
tional quota of 10,000 Metric tons was granted by Italy as part of an
agreement that calls for Ecuador to purchase Italian-built refrigerator
ships. The ship order is the result of an -agreement signed by the
Ecuadoran Government and. an Israeli firm, Somerfin Maritime Ser.-
vices, Ltd. , which-provides for the formation of -a jointly owned and
operated shipping line to transport Ecuadoran bananas to Italy and
European countries, and to return with Israeli cargoes. Under terms
of the agreement, four ships are to be constructed, but in the interim,
the joint company is making deliveries in chartered ships.
Also under consideration by the government is modification of the
21-percent export tax on bananas. In an effort to reduce costs further
in response to the shift toward boxed banana exports, the government
authorized banana exporters to manufacture their own boxes despite the
protests of existing box manufacturers.
4. Outlook
The immediate prospects for banana exports are not good. Although
exporters reported some rise in shipments to Japan, the United States,
and Western Europe in September and Obtober, this is believed to be a
temporary phenomenon largely due to recent storm damage of planta-
tions in Colombia and Taiwan. Trade sources believed that the recent
upturn in export volume would continue until the normal seasonal decline
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in November but that the volume involved probably would not compensate
for the decline in export earnings during the first eight months of the
year.
For the long run.tentative projections indicate that commercial pro-
duction of bananas will grow faster than consumption. Under these con-
ditions, Ecuador is facing a period of readjustment involving reductions
in banana acreage and concentration of production on the most efficient
lands in order to reduce costs. Government officials optimistically
believe that the industry has about four years to improve its competitive
position -- the estimated time before increasing production in Central
America and Colombia makes further inroads into Ecuador's markets.
The potential of new markets in Communist countries holds some
promise, but the quantities imported by these countries probably will
not be sufficient to offset the effect of any new inroads into existing
markets.
In the light of the developments in 1965, Ecuador's National Planning
Board is already reexamining its estimates of foreign exchange earnings
from banana exports, since the projected earnings constitute a major
source of financing for the country's National Development Plan (1964-73).
Whereas the board had forecast that earnings from exports of bananas
would increase at an annual average rate of about 3.7 percent during this
10-year period, an independent study estimates that, at best, earnings
will increase at about 2.4 percent annually until 1968 and thereafter by
about 1.7 percent through 1974. The study concludes that the cumulative
shortfall of banana export earnings for the period 1964-73 could be in
the range of $160 million to $330 million.
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CONTROL RECORD FOR SUPPLEMENTAL DISTRIBUTION 25X1A
SERIES NUMBER
CIA/RR CB 65-76
CLASSIFICATION OF REPORT
Secret/No Foreign Dissem
DISTRIBUTION TO RC
50
DATE OF DOCUMENT
December 1965
NUMBER OF COPIES
290'
NUMBER IN RC
COPY
NO. (S)
RECIPIENT
DATE
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A
ttecld in St/P/C
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St/AIDS Distribution of Current Support Brief No. 65-76, The Deepening
Banana Crisis in Ecuador --- December 1965 (SECRET/NO FOREIGN
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7 .Tanuary 1966
MEMORANDUM FOR: Chief, Dissemination Control Branch, DD/CR
FROM
Chief, Publications Staff, ORR
SUBJECT : Transmittal of Material
It is requested that the attached copies of CIA RR CB 65-.76, The
Deepening Banana Crisis in Ecuador, December 1965, SECRET/NO
FOREIGN 1DISSEM, be forwarded as follows:
State, INR Communications Center,
ROQM 6527) State Dept. Bldg.
Suggested distribution for
Etbassies in Belgrade, London,
Paris, Rome, Taipei, Tel Aviv,
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Attachments:
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Date! /zit
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Project No. 47.5294
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CIA/RR CB 65-76
Title: The Deepening Banana Crisis in Ecuador -- December 1965 (SECRET/NO
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