Building tomorrow’s markets: banana case study Unlocking the potential of the Indian banana trade Building tomorrow’s markets About this case study

Maersk Line is a key partner to Indian As this summary will show, the study export industries and an important found that: stakeholder in the emerging banana • Increasing banana exports has the potential export trade. to bring significant economic, social and This case study summarises the findings from environmental advantages to India research carried out in 2011 by members of • To expand the export trade, major Maersk Line’s Sustainability team, alongside investment is needed, along with close external consultants. The group visited India collaboration between domestic and to learn first-hand about the Indian banana international stakeholders in the industry export model, its growth potential and the • Critical upgrades in India’s cold chain contribution it can make to India’s social and infrastructure will be key to unlocking economic development. future growth potential. <1% 20 – 30% 25m tons The proportion of Indian bananas The proportion of Indian fruits The amount of bananas that that are currently exported. and vegetables estimated to go to could theoretically be freed up This represents just 0.3% of all waste in India due to the absence for consumption if the emerging internationally traded bananas. of an effective cold chain. This export productivity gains were amount is equivalent to the total achieved across the entire Indian annual consumption of fruit and banana sector. vegetables in Great Britain. 28% 3,000 190,000 India’s share of world banana The number of containers The potential number of production, making it the world’s currently exported from India to containers if India was to realize largest banana producer. markets in the Middle East. its growth potential.

India: A world of opportunities

North and Central Europe Black Sea Potential future Region market? Potential future market?

Middle East Current market East Asia Potential future “Everybody is looking market? for the next big

Jebel Ali sourcing location.” Mumbai Retailer interview UK Building tomorrow’s markets 1 The Indian

shutterstock image

Bananas are the world’s favourite fruit and the fourth “India in the next most important food crop after rice, wheat and maize. 5–10 years, will India is the world’s largest producer of bananas, with become the world’s 28% of world production. largest grape and Yet less than 0.1% of current Indian banana food from a hungry nation like India – banana exporter so production is exported, which represents where an estimated 231 million there is big potential less than 0.3% of the international banana people (24% of the population) are in the business.” trade. India’s social and economic undernourished – the impact on domestic Tata Chemicals development potential is closely linked consumers and any possible political Freshinfo News to its ability to bring in new investments, implications are important considerations. technologies and know-how to its huge For an export model to thrive under these agricultural sector. India’s affinity to Middle conditions, it must offer clear benefits, Eastern markets, where there is growing not just to new customers abroad, but demand for bananas, offers significant also to the local economy and the growing potential for boosting its exports. India also local communities. offers an alternative to the region’s current The Indian banana trade is therefore a good supply from more remote sources. example of the potential opportunities, Unlike the rest of the world’s major banana and the challenges, involved in boosting growing areas, which are dominated by export production in emerging economies. large-scale commercial farms, the Indian We hope that the lessons learnt in this banana industry is based on large numbers study could aid discussions regarding how of small, independent farmers, typically the export of bananas and other similar cultivating less than 3 acres. commodities can be increased in India Our study has looked closely at the and the role of an effective cold chain emerging Indian banana export model and in enabling that growth. the wider social and economic implications of the future growth of the trade. Importantly, when considering exporting Building tomorrow’s markets 2 Connecting smallholder farmers to global value chains through contract farming

The dominant farming model for export-quality bananas in India is contract farming. Due to the structure of landholding in a minimum guaranteed price. The contract India there are limits to how much land farming model can hold important benefits a company or individual can own. The for the farmer. In addition to significant contract farming model allows productivity improvements, which provide firms to gain access to bananas produced the farmer with more value for each Under the export model, banana bunches are color-coded and covered with across a larger area than legal constraints invested rupee, farmers can also benefit bags to control ripening and protect on ownership would otherwise permit. from increased access to credit, reduced against diseases. The model centers on a strong local input costs, access to capital, equipment exporter who provides support throughout and technical support. Most importantly, the growing phase and assumes full the provision of a guaranteed minimum responsibility for quality control, price, negotiated on an annual or long-term distribution and marketing in line with the basis, reduces the farmer’s risk. This makes needs of the global markets. In turn, large export-orientated farmers less prone to the numbers of smallholder farmers agree kind of big price fluctuations found in the to sell their produce to the exporter at domestic market. Pack-houses ensure the consistency in supply, quality and volumes required by global buyers.

3. 4. 5. 2. Merchant exporter Bananas are Bananas are washed, sorted 6. harvests bananas trucked to and quality-assured Contract farmer packing station Bananas packed into attends banana boxes and then a plants container for export

1. 7. Contract farmer The journey of Container trucked plants banana to terminal tissue the Indian banana

12. 8. Bananas sold at 11. 10. 9. wholesale markets Customs clearance and retailers in the Bananas in Containers shipped Containers at terminal Middle East ripening rooms to markets in the loaded onto ship Middle East Building tomorrow’s markets 3 Key productivity gains from the export model

In the study, three key benefits from accelerating the growth of the export model became apparent. Up to 25 m • Improved yields. The average domestic •  Less waste. Currently, 20–30% of tons more bananas could make it to consumers if the export productivity for Indian bananas is 15 tons India’s banana production is estimated productivity gains were per acre. This compares to 25 tons per to go to waste, lost in India’s domestic applied to the domestic sector. acre under the export model, meaning infrastructure. By establishing an that farmers serving the export market unbroken cold chain from pack-house to currently get a better return from the origin, the export model has managed to money they have invested. According reduce post-harvest waste levels during 1– 2% to Indian exporters interviewed, there transportation to 1–2%, representing a is the share of bananas lost during is potential to increase yields even significant productivity gain. transit in the export model. further through adapting modern The study has suggested that if yield and growing techniques, such as those waste levels in the domestic banana used in the . industry and cold chain infrastructure could Banana waste during • Improved quality. Under the export be raised to the level of the emerging export domestic transit model, smallholder farmers have model, up to 25 million tons of bananas been able to increase their share of could be made available for domestic and export-quality bananas, which generally global consumption. generate a higher market price. With improved harvesting techniques, an additional 10% of the farmers’ crops could be converted into export-quality bananas according to some exporters. 47% Farm gate to local mandi 21% Wastage within district 16% Wastage within State 16% Wastage outside the State Source: enRoute, Transport Corporation of India Ltd. The advantages of temperature controlled distribution Transporting fresh produce like bananas as Maersk Line’s StarCare™, mean that over long distances is an essential bananas can now potentially travel up element of global food distribution. to 50 days with minimal losses and their Most food waste in the supply chain freshness retained. Technologies such as comes directly or indirectly from poor these are creating new opportunities for temperature control. To minimize these banana growers all over the world to reach losses and extend the shelf life of fresh more distant markets without eroding produce, an uninterrupted series of the quality of their products. For India, storage and distribution activities, a cold StarCare™ could thereby also offer an chain, is a critical component. Recent opportunity to advance into markets innovations in container technology, such beyond the Middle East in the future. Building tomorrow’s markets 4 A scenario for growth in the Indian banana exports

Based on interviews with exporters and local authorities, the study quantified the growth potential of the Indian banana export trade and the economic impact that growth could bring. In 2010, the value of Indian banana The growth trajectory is based on exports was estimated to be US$79 million, progressive improvements in productivity with around US$28 million of this value and reductions in waste on the smallholder accrued to India and the rest going to farms dedicated to export-quality foreign actors in the export value chain. banana production. The study found that the potential for It also presumes a gradual increase in the further growth is strong. acreage dedicated to export banana The graph below outlines a possible growth production in India. This could be achieved scenario for the export sector, with key through banana farmers in identified export milestones along the way. It shows the production ‘clusters’ switching to the additional economic value that would be export model, or through the conversion of gained by India as the number of container farmland in those areas to export banana loads of bananas exported is increased. cultivation from alternative crops. The use of virgin land could offer further increases.

Value US$ created to Given the volume increases and level of India from productivity improvements needed, export growth increasing exports to 190,000 containers US$m per year is an ambitious milestone to aim 2,000 for. However, the level of ambition in the 5 industry is high and the study estimated 1,500 that, with a 4% annual increase in yields 4 1,000 and a 27% annual increase in acreage dedicated to export-quality bananas, this 3 500 could be achievable as soon as 2025. 1 2 0 Reaching this level would make bananas a 3,000 15,000 50,000 100,000 190,000 key export industry for India. The economic containers containers containers containers containers impact of this would be significant. The Source: Maersk Line export industry would generate US$4,646 1 Baseline: 3,000 containers per year represents the 4 100,000 containers per year: This level represents million each year, of which US$1,612 million 2010 baseline. Today, only 0.15% of the total Indian the long-term ambition of the Indian export sector. banana acreage is dedicated to exports and the At this point, India would provide around 10% of would accrue to India and the rest to foreign Indian export is equivalent to just 0.3% of the the world’s banana exports, about the same as the stakeholders. This would add more fuel to global trade. Philippines, whilst still only making use of 3% of its total banana acreage for exports. the continuing growth and development 2 15,000 containers per year: This is the  of the Indian national economy. short- medium-term export ambition of Indian 5 190,000 containers per year: This is the stakeholders and would bring Indian exports up estimated volume of exports that would be to around 2% of the current global trade; about the achieved if the production capacity of the banana There would also be significant localized same as Honduras or Côte d’Ivoire. This level of clusters currently identified was fully realized. social and economic impacts in the exports would make use of 0.5% of total banana Using up 5% of Indian banana acreage, this level of acreage in India. exports would represent 17% of the current global banana-growing clusters. These are total, about the same as or Costa Rica. discussed in the next section. 3 50,000 containers per year: This is the medium- term export ambition of the Indian trade and is equivalent to around 5% of the current global trade, a level achieved by and Panama. It would require 1.5% of the total Indian banana acreage. Building tomorrow’s markets 5 The social and economic impact perspective

The socio-economic impacts of expanding the Indian banana export model could be significant. The current export of 10% approximately 3,000 containers is estimated to employ 2,250 of the banana’s economic value goes to the farmers and less than people, directly or indirectly, including 1,000 farmers. 2% of this goes to farm workers

Should India manage to realize its full and crop failures compared with smaller potential and increase its volumes to farms. However, increasing average farm 190,000 containers, this could increase size would require significant land reform. 96,000 represents the total number to 96,000 jobs in total. They, in turn, would The vulnerability of smallholders and of jobs of growing the exports support 405,000 dependants. 34,600 workers, detailed in the box to the right, to 190,000 containers. This smallholder farmers would be among raises an important question about the would in turn create over those to benefit. economic value distribution of the global 400,000 dependants Increased productivity as a result of banana trade. In this respect, the Indian improved produce quality and know-how export model looks very similar to the global The vulnerability from exports would generate around 60% model, with approximately 10% of the of Indian banana more income for farmers and 106% for economic value going back to farmers and farmers workers. This would allow for improved less than 2% of this to the farm workers. access to basic utilities, education and In contrast, foreign economic stakeholders • Banana farms are typically healthcare for them and their families. capture 65% of the economic value of an only 2–2.5 acres However, the study also found that there internationally-traded banana. • The majority of India’s are limits to how much a smallholder In recent years, Fairtrade has emerged as an smallholder farmers live farmer with only around 2.5 acres can earn example of how market instruments can below the international and thus the extent to which he and his seek to distribute a larger share of the and domestic poverty line family would be able to escape poverty. economic value back to producers. While • There is no government Once the benefits of increased yields Fairtrade continues to represent only a insurance for banana flatten out, further rises in income levels are marginal share of the global banana farmers in case of crop still possible if individual farmers are able market, it does offer potential to test and failure. However, Indian to increase their acreage. As well as market alternative modes of production, farmers are increasing production capacity, the study including those based on , tax exempted found that five and even 10-acre farms are for select global markets. • Many have debt problems. much less vulnerable to natural hazards Farmers pay 36–40% interest on black/grey market loans, relative to Value distribution India 2010 a bank rate of c.12%

• Rural depopulation is causing an overall 23.1% Packing and shipping and forwarding shortage of rural workers, 41.2% Importing income further increasing 24.0% Retailing income 10.3% Farm income pressure on farmers 1.4% Farm workers, packing workers and truckers income • The value of land is rising, leading some farmers to

Source: Maersk Line sell off their farms. Building tomorrow’s markets 6 The environmental impact perspective

To ensure a sustainable growth trajectory for Indian banana Reducing water exports, the potential economic and social benefits must be use in the banana balanced against the environmental impacts of growing the trade. sector While the study did not include an explicit environmental effect, allowing India to In the global banana trade, environmental impact assessment, in the produce the same amount of bananas with reducing environmental longer term, environmental issues must fewer resources. impacts can play an be considered alongside the economic Furthermore, the expansion of the export essential role in increasing and social factors. Any degradation of model could offer an opportunity to apply productivity and reducing farmland and the natural environment will, modern, more environmentally sustainable costs – water is just one area over time, have a critical impact on the farming practices on a large scale. This of impact. economic sustainability of the banana includes using farmer education and sector and welfare of the local population Water has three main uses support to drive improved management of who rely on clean water, healthy soil and in banana packing houses. fertilizers and , more efficient use pollutant-free air. Firstly, it is used as a natural of irrigation and the avoidance of surface cleaning agent to remove Based on the findings in this study, there water pollution. As well as reducing any debris and insects. are indications that the expansion of potential negative environmental effects Secondly, pools hold and export-quality bananas in India can be from the export model’s more intensive transport bananas prior achieved without compromising the health farming, better environmental to selection. Finally, it is of the natural environment. As a matter of management could also help protect used to remove latex. fact, the improved quality and reduction of the health of farm workers and waste necessary for a profitable export neighbouring communities. In the past, over 150 liters model will in itself have a positive was needed per box. Water recycling technologies have been progressively introduced since the 1990s, with modern pack-houses such as Dole’s New Millennium Packing Plant in Costa Rica now using only 18 liters per box. By moving most packing activities into the banana field, Dole not only saves water, it cuts energy use and protects aquifers. Energy-efficiency through containerized banana transport Environmental impacts occur across the key role in reducing the environmental entire Indian banana value chain, not just footprint of internationally traded at the production stages. For globally bananas. As an example, shipping traded bananas, a significant part of the bananas in a refrigerated container environmental footprint comes from from Maersk Line, going from Mumbai shipping and inland transportation at to Dubai, will save exporters and

origin and destination. Through importers approximately 12% CO2 investments in container technologies compared to the industry average. and innovations, Maersk Line is playing a Building tomorrow’s markets 7 Required investments and enablers for export growth

Realizing the potential social and economic benefits of India’s banana exports will require a significant upgrade in banana production and cold chain distribution. Today, critical investments in the Indian Pack-houses banana export industry are absorbed by a The study estimated that around six fully handful of local exporters supported by a dedicated pack-houses are required to range of incentives and initiatives from the handle the 3,000 container loads of Indian Government and export authorities. bananas currently exported. However, in Meeting the full potential of the trade order to reach export volumes of 100,000 would require the scale of these investments containers, around 200 pack-houses with to be increased many times over. packing capacity for two containers per day Poor transportation infrastructure wastes huge amounts of bananas would be required. Cold chain The development of effective cold chain Farmer education storage and transportation services is The current export model is dependent critical to growing India’s banana exports. on smallholder farmers dispersed over a By allowing the bananas to be kept fresh large agricultural area. This requires that for longer, increased availability of cold significant investments be made in chain storage would enable far more education and relevant support services effective coordination of the supply of to give farmers the necessary skills and India’s bananas with market demand, knowledge to increase productivity, boosting the reliability of the supply and improve the quality of their bananas and reducing wastage. reduce waste.

Cold chain transportation services, such To reach the necessary level of investment as refrigerated trucks and containers, to make improvements in these three dramatically reduce waste in transit. areas, and to gain additional insights These services need to be supported by and expertise, India could benefit from an adequate power supply in rural areas. cooperating with one of the large multinational banana companies. However, To lower the cost of these services and at these companies have until now refrained the same time help to optimize transport from major direct investments in India, times, dedicated export corridors can be instead prioritising regions better suited established, with an unbroken cold chain to larger-scale commercial farming. from pack-house to port.

The state of India’s rural infrastructure Over the last 60 years, poor planning and 300 kilometers from a banana pack-house investment has resulted in numerous to the closest port can take up to three inefficiencies in Indian infrastructure. In days due to traffic congestion and the combination with unparalleled economic poor state of roadway repair. This can growth, India’s inland infrastructure is significantly challenge the economic and increasingly under pressure. One key environmental sustainability of export constraint on future growth and a growth. Capacity at major Indian seaports significant cost driver is the state of is also a potential constraint to banana India’s rural roads and the distance from export growth. farm to ports. For instance, travelling the Building tomorrow’s markets 8

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Maersk Line’s instigation of this research stems from Headquarters our desire to understand better the industries in A.P. Møller – Mærsk A/S which we play a direct and indirect role as enablers Esplanaden 50 of global trade. We also wanted to learn about some 1098 Copenhagen K of the opportunities and challenges in ensuring a Denmark sustainable and inclusive growth trajectory in the Tel +45 3363 3363 global agricultural value chains of tomorrow. As a Fax +45 3363 4108 world-class provider of refrigerated transportation services, we recognize that we have relevant www.maerskline.com knowledge and skills to offer to stakeholders across the Indian banana value chain. We offer this study as one of many potential perspectives on the Indian banana trade. We share our observations in hope that the study can make a contribution to discussions among stakeholders up and downstream in the Indian banana industry who, like ourselves, can have an impact on future developments in the trade. We will look forward to working closely with exporters, buyers and authorities in further maximizing the future impact potential of the Indian banana export. For further information about the research presented in the folder and to share relevant insights and views in support of a sustainable growth trajectory for the Indian banana trade, please contact Maersk Line Sustainability via Mette Olsen ([email protected]).

This report has been developed together with Martha Emneus, AEHR, and Lars Scheving, FirstLine.