Monday, 16 February 2015

Mashed bananas

There's no real debate about the fact that bananas and milk both taste good and are generally a healthy option in our diet. But these modern-day food staples also have in common a much less savoury side. And the murky economics of 21st century banana retailing might be doing us all disfavour in the long run.

British supermarkets - and in particular the in-vogue Aldi and Lidl discounters - use both bananas and milk as huge loss leaders. And in the process are driving all but the biggest producers of both out of business.

“To industry observers, bananas demonstrate how low European hard discount pioneers will go to secure their customers' loyalty,” says Alistair Smith, international coordinator of Banana Link.

“The banana business model they have adopted is uncompromising and the impacts of the strategy on people and the environment are very serious.”

Unions representing plantation and packhouse workers believe the hard discounters are using the fruit as a hook to get new customers through their doors at the expense of those who labour hard to produce it.

It seems that Aldi, followed by Lidl, play the competition rules in their home market closer to the letter than to the spirit of the law.
Banana prices fixed by Aldi on a quarterly basis (since 2011) are for fruit delivered to the ripener, but the transport costs from there on are not included in the company's retail price-setting calculations.

If they were to include transport costs to depots and on to their stores, then Aldi (and other supermarket chains that follow the same business model) would almost certainly fall foul of the German competition authorities for below-cost selling when they retail bananas at 79 or 85 euro cents per kilo.

In the UK supermarkets like Asda - and retailers who only offer Fairtrade-labelled bananas, like J Sainsbury - have been selling loose bananas at or below cost for several years, making up some or all of the 'sacrificed' margins on bagged fruit. Unlike in France or Germany, below-cost selling in the British market is not illegal.

“This allows the major retailers in the UK who, with the exception of The Co-operative Group, all sell loose bananas at or below cost to argue legitimately they are not breaking any law and it is their own sovereign decision to fund this near-permanent rock-bottom price,” claims Smith.

“And so, led by Aldi and Asda, the race to the bottom in the European banana market is fuelled by the belief that cheap bananas are what everybody needs or wants.”

Even more serious for those trying to construct a sustainable future for the industry is that all attempts to reverse this race in Europe's two biggest markets are frustrated.

Tesco, Sainsbury and Waitrose have all attempted to raise the loose banana retail price since the permanent price war set in four or more years ago in the UK.

“But every time the cynical Asda price-setters have sat it out - safe in the knowledge, from their point of view, that every kilo sold at £0.68  (0,87 euro at 5 January 2015 rates) hurts their competitors' margins more than it hurts their own,” says Smith.

And it seems that as long as customers prefer a ready-bagged 'Pack of 10' that costs £1.00 a kilo in Asda, there are still profits to be recouped.

Other banana retailing worlds do exist. In France, apart from the occasional short-lived price promotion at 0,89 or 0,99 cents/kilo, it seems major retailers have little or no appetite for systematically sacrificing their margins as hard discounters do in Germany and the UK.

Carrefour, Auchan, Leclerc or Intermarché are far from infringing national legislation that prohibits below-cost selling.

Banana retail margins in France are more substantial, with an average retail price across all outlets exceeding 1,50 euro/kilo. Typically, a kilo of loose bananas from the same supplier sold in the UK at £0.68 can be found at €1,49 in a French hypermarket. Loose bananas in smaller city centre outlets are usually €1,79 or €1,99.

Of course, none of this value generated at the retail end in France is systematically available for investment in producing countries; and the Fairtrade market share is very small compared to the UK, even though it is growing again for the first time in many years; Fairtrade loose bananas are non-existent.

In North American markets banana retail margins are more typically where they were in the UK before price wars became a permanent feature.

“Along with consumption retail prices have risen in the USA - bananas have always liked to confound conventional economic theory,” adds Smith.

As US retail pricing shows, a global giant like Asda/Walmart does not have a single global policy when it comes to pricing. “We are dealing with what the retailers call 'price-flexing', but at a planetary scale when it comes to Walmart,” explains Smith.

Bananas are, of course, not the only Known Value Item (KVI) that suffer from inter-retailer price wars in the UK. Milk, oranges, bread and pork pies are victims too, with producers and those they employ at home and abroad the ones who have to pay the not-so-hidden costs.

More worrying for the competitors of Aldi and Lidl is it seems bananas may be helping bring people through the doors of the hard discounters as consumer change their shopping habits.

Complexity lies behind such a simple statement and Aldi's banana retail prices per kilo for conventional bananas in the UK are even harder to work out than in other retailers.

First, the retailer does not deal in loose bananas (where prices per kilo are posted for customers to see). They sell packs of three in a plastic tray at £0.39, a seven 'Funsize' pack at £1.09, or Organic Fairtrade at £1.39 per kilo.

Second, however, a truth that is of great concern to their UK competitors is that Aldi and Lidl both sell more than double the volume of bananas than their overall food market share would indicate.

Intriguingly for banana-watchers, it seems this high banana volume is not based on price, especially as the Aldi per kilo retail price works out at well above the £0.68 the other major retailers espouse.

Aldi and Lidl are attracting increasingly 'up-market' customers away from the big four or five traditional retailers, in many cases through massive advertising campaigns. And thesenew consumers are not the traditional hard discount customers with whom the German discounters forged their entrance into the UK.

“The lack of visibility of a price per kilo reinforces the theory that, actually, the great majority of banana consumers do not look at the price; they just know they are cheap,” says Smith.

Tesco trades almost one banana in every 13 sold in the European Union, more than any other retailer. But its biggest single food-line is barely contributing to profits, as bananas do for almost all other retailers worldwide.

Now that almost all the bananas they sell are sourced directly from growers across six countries, with written multi-annual contracts to boot, the company is feeling the market heat.

In both the UK and Ireland Tesco is losing customers to hard discounters who buy their bananas cheaper and sell them at a higher price. Economics on its head - but ethics too.

So Europe's biggest banana seller has decided to differentiate itself through a responsible sourcing strategy, which is still in its infancy but which shows enormous promise.

In 2014, two inter-related commitments set the stage for a transformation of the European banana market that should be welcome news for all.

Last March, a public document called ‘Trading Responsibly’ committed Tesco to covering the costs of sustainable production in all their banana supply chains; for the time being they are using the Fairtrade ‘minimum price’, set by Fairtrade International, as the benchmark for a sustainable price to its suppliers.

Where this price was not attained in 2014, the difference in price to suppliers has been set aside whilst a mechanism to transfer the money to workers and their families is being designed.        

Linked to that, in November, the company stated in a blog on its website that it will ensure that by 2017 living wages will be paid on all the banana plantations that grow and pack exclusively for Tesco (of which there are growing number spread across the four major Latin American exporting countries).

“A race to the top in the ethical content and the prices paid for bananas is now only being held back by the short-sighted strategies of a couple of other powerful multinational retailers,” says Smith.

A good rallying-point for all concerned is the third global conference of the World Banana Forum in the Dominican Republic at the end of June this year.

According to Kevin McCullough, head of campaigns at the Fairtrade Foundation, loose bananas bought in the UK today are so cheap that around three in four banana workers in countries that supply UK supermarkets live below the poverty line.

"Over the last 10 years, the retail price of loose bananas has halved while the cost of producing them has doubled - and it is banana farmers and workers in the developing world that pay the price, with many trapped in an unrelenting cycle of poverty,” he said.

"Retailers including Sainsbury’s, Waitrose and The Co-operative sell 100 percent Fairtrade bananas, which means they can provide an independent assurance that banana farmers and workers are not suffering as a result of low prices for shoppers.

"Recent research for the Fairtrade Foundation’s ‘Make Bananas Fair’ campaign found that more than eight in ten UK consumers are willing to pay more for their bananas, if the farmers and workers who produced them benefit.

"Instead of being shocked by the price of bagged bananas over loose ones we should be ensuring that banana farmers and workers aren’t being asked to pay the price for our cheap fruit."

Article by Clive Simpson. Note: Aldi, Lidl and Asda declined the opportunity to provide a response prior to publication of this article.

Friday, 6 February 2015

Global is new local

It turns out that the residents of Beijing and Delhi are not the only ones feeling the effects of their cities’ air pollution - an unwanted by-product of coal-fired economic development.

Researchers looking at how Asian pollution is changing weather and climate around the globe and have found pollution from China affects cloud development in the North Pacific and strengthens extra-tropical cyclones.

These large storms punctuate US winters and springs about once a week, often producing heavy snow and intense cold.

Tainted air is known to cross the Pacific Ocean, adding to homegrown air-quality problems on the US West Coast. But now scientists say the story doesn’t stop there - because pollution doesn't just pollute.

Researchers at NASA's Jet Propulsion Laboratory (JPL) and the California Institute of Technology, both in Pasadena, California, are looking at how Asian pollution is changing weather and climate around the globe.

Scientists call airborne particles of any sort - human-produced or natural - aerosols. And the simplest effect of increasing aerosols is to increase clouds.

To form clouds, airborne water vapour needs particles on which to condense. With more aerosols, there can be more or thicker clouds.

During the last 30 years, clouds over the Pacific Ocean have grown deeper, and storms in the Northwest Pacific have become about 10 percent stronger. This is the same time frame as the economic boom in Asia.

JPL researcher Jonathan Jiang and his postdoctoral fellow, Yuan Wang, designed a series of experiments to see if there was a connection between the two phenomena.

They used a numerical model that included weather factors such as temperature, precipitation and barometric pressure over the Pacific Ocean as well as aerosol transport - the movement of aerosols around the Earth.

They did two sets of simulations. The first used aerosol concentrations thought to have existed before the industrial revolution. The other used current aerosol emissions. The difference between the two sets showed the effects of increased pollution on weather and climate.

"We found that pollution from China affects cloud development in the North Pacific and strengthens extra-tropical cyclones," said Wang.

He explained that increased pollution makes more water condense onto aerosols in these storms. During condensation, energy is released in the form of heat. That heat adds to the roiling upward and downward airflows within a cloud so that it grows deeper and bigger.

"Large, convective weather systems play a very important role in Earth's atmospheric circulation," Jiang said, bringing tropical moisture up to the temperate latitudes. The storms form about once a week between 25 and 50 degrees north latitude and cross the Pacific from the southwest to the northeast, picking up Asia's pollutant outflow along the way.

Wang thinks the cold winter that the US east coast endured in 2013 probably had something to do with these stronger extratropical cyclones - and the intense storms could also have affected the upper-atmosphere wind pattern, called the polar jet stream.

Jiang and Wang are now working on a new experiment to analyse how increased Asian emissions are affecting weather even farther afield than North America. Although their analysis is in a preliminary stage, it suggests that the aerosols are having a measurable effect on climatic conditions around the globe.

Closer to home - a gas-fired power station in Spalding, Lincs, UK.                    Photo: Clive Simpson

Jiang says that Asian emissions have made him and some other climate researchers conceptualise Earth differently.

"Before, we thought about the north-south contrast: the northern hemisphere has more land, the Southern Hemisphere has more ocean. This difference is important to global atmospheric circulation and now, in addition, there's a west-east contrast.

“Europe and North America are reducing emissions - Asia is increasing them. That change also affects the global circulation and perturbs the climate."

Report by Clive Simpson freelance journalist