BRICS Plus Russia changes banana supplier from Ecuador to India

By Rhod Mackenzie

Russia has punished five Ecuadorian banana suppliers and has started purchasing bananas from India for the first time. Ecuador has been the main importer of bananas to Russia until now. It is unclear why Ecuador held on to its monopoly status for so long and why Russia only now began to look for alternative suppliers.
The first batch of bananas from India, with a volume of about 3 thousand tons, was sent in January 2024 and is currently en route. The second delivery of Indian bananas to Russia is scheduled for the end of February. Additionally, the volume of Indian banana exports to the Russian market will increase, as reported by Rosselkhoznadzor.

Furthermore, during negotiations, the Indian side expressed interest in expanding the variety of fruits supplied to Russia. In addition to bananas, India could supply mangoes, pineapples, papayas, and guavas. In the near future, India will send a list of fruits planned for export to the Russian Federation to Rosselkhoznadzor, who will then provide phytosanitary requirements for these products.

The news of India's banana purchase coincided with Russia's recent difficulties with its traditional main supplier of bananas, Ecuador, which has been the monopoly supplier to Russia for many years.
In 2023, Russia imported over 1.306 million tons of bananas, with more than 1.302 million tons coming from Ecuador. The remaining thousands were imported from other countries, including Guatemala, the Philippines, Vietnam, Colombia, and Costa Rica. Dmitry Leonov, deputy chairman of the board of the Rusprodsoyuz association, stated that this situation with Ecuador's monopoly position was mutually beneficial.

The reason for the emphasis on Ecuador's monopoly is due to the favourable conditions that the Ecuadorian authorities were able to offer Russian businesses. Additionally, Ecuador was able to export to European countries at a premium.

This business was established not only for the domestic market, but also for the CIS and European markets. It quickly became consolidated. Furthermore, due to the large purchase volumes, banana supplies from Ecuador have become highly profitable. According to Vyacheslav Cheglov, a professor in the basic department of trade policy at the Russian Economic University, the acquisition of several plantations in Ecuador by Russian companies has had a significant impact.
However, this year a crack appeared in Russia's relations with Ecuador after Ecuadorian President Daniel Noboa decided to transfer old Russian equipment to the United States. Foreign Ministry spokeswoman Maria Zakharova called this decision reckless. According to her, Ecuador is aware that, according to contracts, it is impossible to transfer the supplied property to a third party without the consent of the Russian party. Russia did not give its consent. The President of Ecuador stated that he considers old Russian equipment to be 'scrap metal' rather than military equipment. Therefore, it is unclear why Americans should pay real money for it.

Recently, it was reported that Rosselkhoznadzor has banned supplies from five banana producing companies in Ecuador since February 5 due to the identification of a dangerous pest for Russia and the EAEU countries: the polyphagous humpback fly. This pest can easily breed in shipping containers and infect many food products, including flour, potatoes, cheese, vegetables, and fruits. Additionally, it is a carrier of cholera. If Ecuadorian companies do not take effective measures to eliminate this problem, the agency threatens to introduce new restrictions.

The first problems with humpback flies in Ecuadorian bananas arose in 2018, and companies took all necessary measures to combat them.
There is no need to expect a shortage of bananas in Russia. Firstly, there is no talk of a complete cessation of banana exports from Ecuador. These five banned companies supplied about 25% of the total banana supply from Ecuador to Russia. Secondly, delivery of bananas takes a long time.

Transportation from Ecuador takes about 25 days, and bananas ripen in chambers for another five to seven days. It takes about one and a half months for the goods to reach the shelves. According to Dmitry Zavyalov, head of the Department of Entrepreneurship and Logistics at the Russian Economic University, we will not experience any immediate effects. Even if Russia extends the embargo on bananas from Ecuador, supply chains can be rebuilt with time.

India, the world's largest banana producer with continuously growing production, could potentially fill the gap. In 2023, the country produced 33 million tons of bananas. China is the second-largest banana producer in the world, harvesting 12 million tons, followed by Indonesia with 8.7 million tons. Guatemala, the Philippines, Vietnam, Colombia, and Costa Rica already supply bananas to Russia, albeit in small volumes. These countries would be pleased to increase their banana exports to Russia.
Russia is currently diversifying its banana suppliers, with Indian and other suppliers being considered as alternatives to the Ecuadorian monopoly. However, export volumes from India remain low and access to the Russian market for Indian fruits, including bananas, has been under discussion for several years.

The reason behind Russia's search for an alternative to Ecuadorian bananas is unclear.

Due to changes in the economic situation, businesses in Ecuador were satisfied with purchasing opportunities and streamlined logistics, resulting in imported volumes that generally covered demand at low retail prices for many years. As a result, there was no need to develop new sources.

However, today, the calculations of Ecuador and Russia have become more complicated, and some market players have changed. Vyacheslav Cheglov notes that transport logistics in Europe have become more complicated due to sanctions.

However, over the past two years, Russia has expanded its trade flows in the Asian direction. India, along with China, has become the largest buyer of Russian oil, although it did not buy it until 2022. In this context, expanding trade with a new partner is a logical decision.

Additionally, Russia managed to export pork to India last year. In exchange, we are prepared to purchase Indian fruits. The Russian government is cultivating relations with India, recognising the need to diversify suppliers, particularly with such a strong and amicable state, which offers opportunities for direct cash payments. However, there is still work to be done to achieve comparable levels of supply to Ecuador, particularly in terms of the cooperation achieved there. Cheglov concludes that regular supplies will probably improve next year.

Despite being essentially the only supplier, Ecuador kept banana prices low. However, bananas have become more expensive on Russian shelves. According to Rusprodsoyuz, as of February 6, the average price for bananas in Russia was 156.2 rubles/kg, up from 154.6 rubles/kg a week earlier and 107.2 rubles/kg a year ago. However, Leonov explains that the price of bananas is always dependent on the balance of supply and demand, exchange rate dynamics, and logistics costs. He states that the main reason for the rise in fruit prices at the end of 2023 was the weakening of the ruble against foreign currencies. The cost of bananas, along with other fruits that Russia imports from other countries, is tied to the exchange rate of world currencies. According to Leonov, the increase in currency led to higher purchase prices from suppliers and increased logistics costs, which make up a significant portion of the overall cost. As a result, it may not be realistic to anticipate price reductions by diversifying suppliers.