MEMORANDUM TO THE DCI COMMITTEE CONCERNING THE Annual Action Programme for 2012-2013 in favour of the Republic of covered by the programming documents Accompanying Measures (BAM) for the Development Cooperation Instrument

1. Identification

Budget heading Banana Accompanying Measures for 2012- 2013 Budget line: 21.06.07 Total cost EU Contribution: EUR 9,300,000 Legal basis Regulation (EC) No 1905/2006 of the European Parliament and of the Council of 18 December 2006 Decision C (2012) 1847 of the European Commission of 26 March 2012

2. COUNTRY/ REGIONAL/THEMATIC BACKGROUND This Action Programme covers an project in Suriname. The objective of the EU support through the Banana Accompanying Measures is to support African, Caribbean and Pacific (ACP) banana exporting countries to adjust to the changed EU banana trade regime (whereby the MFN tariff will reduce over a period of seven to nine years from EUR 176 to EUR 114 (multilateral) and to EUR 75 (bilateral) by 2020). The purpose of the project is to improve the market position and market sale price of the banana company's product by reducing the cost price, increasing the productivity and product quality and to strengthening the social and environmental conditions. This will lead to a sustainable banana company/ sector which is competitive in the world market. The 2011 United Nations Development Programme (UNDP) Human Development Report (HDR) ranked Suriname as a Medium Human Development country with an HDI ranking of 104 (out of 187 countries). The population (486,618 in 2011) is composed of eight ethnic groups living peacefully together. Suriname’s social indicators are generally comparable with those of its Caribbean neighbours. Suriname has been a functioning democracy with a multi party system since independence in 1975, except for two periods of military rule 1980-87 and 1990-91. The latest elections were held in May 2010. The Constitution lays down extensive freedoms and rights for Surinamese citizens, and the Government of Suriname generally respects these rights. The country can be considered a stable state, though drug trafficking and money laundering require continued attention. Suriname’s economy is worth roughly USD 3.2 billion in 2010, with public sector activities, mining and services being the major sectors. Government workers represent 60% of employment in the formal sector, and the public sector accounts for 40% of the (GDP). In the mining sector, alumina, and oil account for more than 80% of total exports and 15% of GDP. Agriculture is important to the Surinamese economy as a form of supply (food security) and employment in rural areas. The agriculture in Suriname, mostly in the costal area, is dominated by the production of , , and fishery products. Rice makes up around 10% of Suriname's total exports and bananas around 2.5%. Beyond the mining sector, a thin layer of manufacturers produce a small assortment of generally low quality products. As a consequence, Suriname imports mainly consumer goods and almost all intermediate and capital goods. The sector, accounting for 45% of GDP, is dominated by trade and transport activities. The contribution of agriculture in Suriname amounted on average 7% of GDP during the last 5 years and its contribution to foreign reserves is estimated at 15%, employing nearly

0 30 000 people. The informal sector is also significant and may increase current estimates of GDP by up to 16% according to the Bureau of Statistics.

3. Summary of the Action Programme 1) Background The Suriname banana industry is one of the main pillars of the macro- economic and social stability of the country. It represents currently the fourth source of foreign currency (6% foreign currency earnings, USD 35 million Free On Board (FOB) revenues). The banana industry represents more than 20% of the total revenues of the Port of Paramaribo and contributes significantly to the overall revenues of the state (USD 2 million per year). The banana industry has contributed to a significant improvement of the business environment especially for the development of the agricultural sector. The banana industry represents 2% of the GDP. The Government owned company "Stichting Behoud Bananen Sector" (SBBS) is the only operator in the country involved in banana production and export. Some small farmers produce different varieties of bananas on a small scale for local consumption. SBBS's rejected is also sold on the local market. SBBS is the 2nd largest employer in Suriname (only after the Government itself) with 2 400 people employed, which, considering an average household of 5 family members, adds up to a total of roughly 12 000 people sustained by the banana sector. Because of the regional spread of activities of the banana industry, its contribution to employment in rural areas is crucial. Other sectors of the economy benefit indirectly from the banana industry (USD 9.7 million per year) with workplaces directly linked to banana activities (plastic and pallets industry, inputs suppliers, transport companies) and specially refrigerated transport capacity for fresh fruit from Suriname to Europe. The dedicated shipping service set up for the banana industry has a spin off effect for the economy of Suriname which is benefiting of weekly shipping connections to the world primarily to Europe, North America and the Caribbean region with short transit times and at competitive costs.

Suriname is dependant on the EU market for its banana exports (90%) and the EU banana trade regime has therefore had a strong impact on the sector. The reduction of the MFN (Most Favoured Nations) tariff will deteriorate the competiveness gap between Suriname and the Latin-American countries (e.g. with by USD 1.1 per box between 2010 and 2013 and with USD 2.24 per box between 2010 and 2020) and will not favour the average market sale price of the bananas. To face the challenge of accelerated market preference erosion in their principal market, Suriname is under pressure to reduce its cost price through increased productivity and improved production quality. This should improve its market position and sale price, allowing it to compete with the Latin American banana exporting countries. Suriname should be seen as a SFA (Special Framework of Assistance) success story. Productivity/yield has more than tripled since the beginning of the SFAs. The quality of exported bananas complies with international quality standards and the PCMS (Percentage of Clusters Meeting Specification) score measured in Europe is in the range of 82-90% (June 2010). From the 2400 people employed by the SBBS, 40% consists of women who also represent a significant proportion of the staff and management positions. The huge investment program of USD1 30 million (2003-2011) has been implemented for 92%. The remaining projects are at their final stage and will end in 2012. These investments have been financed by the EU SFA program (70%) and by SBBS (30%). SBBS now benefits from modern infrastructure and equipment such as drainage and irrigation systems, cableway installations, in-vitro plants, packing station equipment, workers' facilities and several other civil works, setting a basis for the company to compete in the banana world market.

1 1 Euro =1.2 USD

1 During the last few years, the banana industry of Suriname succeeded2 to set up and develop state-of the art infrastructure, a banana production organisation, technology and friendly environment policies adapted to the agro-ecological and social conditions of Suriname. The banana sector is in the process of reaching competitiveness at sustainable levels although improvements are still to be achieved in cultivation and fruit protection. In addition, past evaluations3 of the SFA programme were positive about the prospects for the Suriname banana sector, stating amongst others that Suriname can most likely succeed in expanding production and reducing costs price to take advantage of the new EU banana regime. However, this is being challenged by the changed EU banana trade regime as mentioned above. The exception to the successful restructuring of the banana sector in Suriname are the two unsuccessful attempts of privatisation (March 2005 and July 20084) Nevertheless, the Government is still intent to pursue the privatisation process and another tender is expected to be launched in 20125. The main objective of the Government is to secure the sustainability of the banana sector to achieve long term economic and social benefits in terms of economic growth, employment and fiscal revenues. To achieve this objective the Government is committed to privatise SBBS.

2) Cooperation related policy of beneficiary country The Government’s development strategy and policies are documented in the Multi-Annual (MOP) 2012-2016, its central objectives being growth and poverty reduction. Reform processes to achieve these goals are in place for the public sector, health, education, transport, justice and police, environment and agriculture.

EU support to the banana sector through the SFA programme was around EUR 22. Under the EDF (6th, 7th, 8th, 9th and 10th) the transport sector has been the focal sector. The institutional strengthening and rehabilitation of the Port of Paramaribo were funded under the 9th EDF for EUR 30 million. A Government contribution of EUR 4.3 million has also indirectly supported the banana sector (more efficient transport/handling facilities). Today, more than 20% of the Port's revenues are related to the banana sector. EU funding for institutional strengthening of the Suriname transport sector (EUR 3.1 million) and the Rehabilitation of the Corantijn canal (EUR 2.8 million), which is the main supply of irrigation water indirectly support the banana sector, have also complemented this action. Under the 10th EDF, the road Meerzorg to Albina (East part of the country) is being rehabilitated with co-financing from the EU, l' Agence Française Dévelopement (AFD) and the Inter-American Development Bank (IDB). Completion of this road will facilitate potential exports of Banana's from Suriname to neighbouring (French ). The Economic Partnership Agreements (EPA) allows tariff free exports of Banana's to Europe. Tariff reductions of imports towards Suriname could also lead to lower cost prices.

2 Data such as number of exports, social standards, GlobalGap certification, banana export values, more productivity and production quality etc. shows critical improvement in the banana sector over the past years. Exports in 2004 where 21.000 metric tonnes, versus 70.600 in 2010. 3 Global report "Impact Evaluation of the Special Framework of Assistance for traditional ACP suppliers of Bananas and Final Report "Final Evaluation of SFA 2004" 4 One investor was selected and drafted the sale contract, but internal changes in the shareholding of the investor made it back off. And due to the financial crisis in 2008, companies were hesitant to submit an offer. 5 As a result of its precarious financial situation of SBBS and failure of the privatisation in 2005, SBBS concluded in October 2006 a 2-year management contract with their European marketing company (Agrisol) and set up a significant step toward a private management through a public-private partnership. Agrisol was responsible for the general direction and daily management of SBBS, providing its financial support (up to 9,5 M USD) while the main policies of the company are decided jointly with the board of SBBS. Taking into consideration that Agrisol has withdrawn its interest from the privatisation in October 2009 and also due to poor performance regarding marketing operations, the management contract with Agrisol was terminated on the 8th February 2010. Under a new commercial contract with better pricing basis, Agrisol is currently marketing a part of the production (Jarikaba Estate), while a new contract with another marketer, the Compagnie Fruitière, was concluded in February 2010 for the production of the Nickerie estate. In addition, a new contract was concluded with the company SOFRECO for the years 2010, 2011 and 2012: the two Managers in charge of the company now have technical assistance contract and have been with SBBS for 10 years now 2 3) Coherence with the programming documents The Government’s development strategy and policies are documented in the Multi-Annual Development Plan (MOP) 2006-2011 and (MOP) 2012-2016, its central objectives being growth and poverty reduction. Reform processes to achieve these goals are in place for the public sector, health, education, transport, justice and police, environment and agriculture.

Transport has been the main sector of EC support under the 6th, 7th, 8th, 9th and currently under the 10th EDF. Support for the non-focal sectors in the recent past has gone to private sector development and support to civil society.

Agriculture is important for the Suriname economy (food security and food safety, contribution to the foreign earnings and to the GDP). The Country Strategy Paper states that private sector development is a key condition for pro-poor growth, as well as macro economic stabilization. It also identifies “reinforcement and capacity building of economic actors” as the non-focal sector. The restructuring and privatisation of the banana sector falls under this non-focal sector. The BAM is a continuation of the SFA program which at the end aims to have the company privatized and the banana sector sustainable.

The EU has flagged Agriculture as one of the probable focal sectors for the next EDF programming cycle in Suriname.

4) Identified actions The overall objective of the EU support through the Banana Accompanying Measures6 is to support ACP banana exporting countries to adjust to the changed EU banana trade regime. The BAM will help to fulfil the goals of EU cooperation with ACP countries: reducing poverty, fostering sustainable growth and ensuring the countries' smooth integration into the world economy.

The BAM is for the period of 2012- 2013, but the adjustments of the ACP banana exporting countries to developments in the world market of bananas will need to go beyond this period. Implementation of the foreseen activities/projects will consequently go beyond this period.

The purpose of the project is to improve the market position and sale price of the banana company's product by reducing the cost price, increasing the productivity and product quality and strengthening the social and environmental conditions. This will lead to a sustainable banana company/ sector which is competitive in the world market.

5) Expected results The expected results for the project are: 1. Contribute to the reduction of the cost price per box over the period 2012-2016 2. Contribute to the improvement of the marketing position of SBBS and the market sale price over the period 2012-2016 (which will compensate partially the reduction of the average EU market sale price resulting from the reduction of the MFN tariff) 3. Contribute to strengthening the environment friendly and social policies of the banana company with the introduction of additional labels other than GlobalGap such as ISO 14001, ISO 22,000, SAS 8000, OAHAS 18,000, Cedex and Tesco future choice related to food safety, environmental protection and social conditions and fruit quality and improving the working conditions of employees

6 BAM support to the ACP countries total 190 M Euro of which an amount of 9.3 M Euro is allocated for Suriname

3 These expected results will be achieved by upgrading the infrastructural and social and environmental components in the NAS through investments in social, environmental and infrastructure projects.

The investment plan contains activities which have a positive impact on the social and environmental conditions of the employees and the banana areas such as better working conditions for the employees, fruit handling etc. The banana company is aware of the environmental values in the plantation areas and is taking measures to mitigate its negative impact on the environment.

The investment plan contains activities which will have a positive impact on the social and environmental conditions of the employees and production environment. This includes the following:

- Employees will be less exposed to chemicals used because of better environmental friendly fruit processing in the packing stations. Adequate training on new techniques will be provided. - Chemicals used will be recycled and or better managed so as to reduce the possible impact on the environment. -The provision of improved sanitation facilities will have a social and environmental impact. This impacts the employees as well as the bananas. - The provision of Canteen Infrastructure, as well as improved field camps will improve overall motivation and working conditions, as well as the general quality of life. Canteen infrastructure will probably have a positive impact on health conditions. -Improved infrastructure will allow for easier transport –including by foot- of products and people, which will reduce heavy working conditions. This will also improve supervision in the fields and improve food handling. - Improved infrastructure will reduce fuel consumption related to transport as well as cooling infrastructure and thereby decrease the environmental footprint. - Improved social and environmental conditions, which have a direct effect on mental and physical health conditions, combined with the company's sustainable and growing operations, will directly have an impact on poverty reduction amongst the target population. This population is based in rural areas where the banana plantations are located.

It should be noted that Suriname is a member of the International Labour Convention (ILC) since 1976 (30 Conventions have been ratified of which 29 are currently in force).

6) Past EU assistance and lessons learnt According to the Global report "Impact Evaluation of the Special Framework of Assistance for traditional ACP suppliers of Bananas," Suriname's SFA is an impressive 'SFA success story'. Despite difficulties in the past with access to the EU market (exports are limited only by EU market conditions), SBBS has realized7 good results in the years following the collapse of the sector in 2002 (closing of state-owned company Surland NV due to bad management/ bad performance). Production went from 21,000 tonnes exported to the EU in 2004 to 58,000 tonnes in 2009, 70,600 tonnes in 2010 and 69,600 tons in 2011. It is expected that this will be increased to around 80,000 tonnes in 2012.

A number of targets have been met such as increasing the productivity, better social and environmental conditions, improving the marketing position, etc. and those which have not been met (reduction of the cost price) have been influenced by other factors (such as worsening market conditions, increased cost of inputs etc), beyond the control of the company. The banana sector has a positive impact on the economy and other areas. It supports the economy and benefits the worker's safety due to the GlobalGap certification (June 2009 and 2010). The company

7Data such as number of exports, social standards, GlobalGap certification, banana export values, more productivity and production quality etc. shows important improvements in the banana sector over the past years. Exports in 2004 where 21.000 metric tonnes, versus 70.600 in 2010. Data available from SBBS key indicators.

4 directly and indirectly supports over 12,000 persons in two rural areas where there are few other alternatives for employment. There is support for the port operations, with banana exports accounting for more than 20% of the port’s income. The Ground transport sector also benefits, costs for transporting produce from Nickerie to Paramaribo is estimated at some USD 1 million per year; and the establishment of a plastics manufacturing industry was stimulated. Notwithstanding the benefits to the economy, these input costs placed a burden on the total cost of production. The restructuring of the banana industry in Suriname, with assistance from the SFA, showed most of the favourable ingredients of project sustainability such as political support, successful capacity building and prospects for financial viability. The assessment of the past performance8 also shows that the banana industry of Suriname succeeded to set up and develop infrastructures, banana production organization, technology and friendly environment policies adapted to the agro-ecological and social conditions of Suriname. Past experience with the state-owned company Surland NV, and a changing landscape in the world banana industry have lead to a general acceptance that that privatisation is the best means to ensure sustainability.

7) Complementary actions/donor coordination In the context of donor coordination, the EU has been the only donor supporting the banana sector. It is to be noted that the EU has traditionally been the largest donor in Suriname. The have in previous years also worked on agriculture and rural development in the interior.

The EU has flagged agriculture as one of the probable focal sectors for the next EDF programming cycle in Suriname.

The IDB has foreseen a loan of about EUR 22.5 million for an agricultural competitiveness program over the next years.

EU support to the banana sector through the SFA programme was around EUR 22 million. Under the EDF (6th, 7th, 8th, 9th and 10th) the transport sector has been the focal sector. The institutional strengthening and rehabilitation of the Port of Paramaribo were funded under the 9th EDF for EUR 30 million. A Government contribution of EUR 4.3 million has also indirectly supported the banana sector (more efficient transport/handling facilities). Today, 25% of the Port's revenues are related to the banana sector. EU funding for institutional strengthening of the Suriname transport sector (EUR 3.1 million) and the Rehabilitation of the Corantijn canal (EUR 2.8 million) -which is the main supply of irrigation water indirectly support the banana sector - have also complemented this action. Under the 10th EDF, the road Meerzorg to Albina (East part of the country) is being rehabilitated with co-financing from the EU, AFD and the IDB. Completion of this road will facilitate potential exports of Banana's from Suriname to neighbouring France (French Guyana). The EPA agreement allows tariff free exports of Banana's to Europe. Tariff reductions of imports towards Suriname could also lead to lower cost prices.

4. Communication and visibility Communication and visibility activities will follow the requirements of the General Conditions. The beneficiary will apply a plaque with the text "Provided with the support of the EU" on every installation structure financed through this Financing Agreement before the Final acceptance of each structure.

8Global report "Impact Evaluation of the Special Framework of Assistance for traditional ACP suppliers of Bananas and Final Report " and Final Evaluation of SFA 2004"

5 The beneficiary shall provide a visibility plan for an estimated amount of Euro 55,000 in line with the visibility manual (http://ec.europa.eu/europeaid/work/visibility/index_en.htm) within 2 months after the FA signature by the Government of Suriname.

5. Cost and financing

ITEMS DESCRIPTION Total costs (EUR)

Infrastructure, Upgrading of infrastructure and social environment 9,145,000 social and components in the NAS (including preparing design, environmental tender documents and supervision) actions

Total investments 9,145,000

Visibility 55,000

Monitoring, Mid-term and Final Evaluation and Audit 100,000

Total amount of the action programme 9,300,000.00

The Committee is invited to give its opinion on the attached Annual Action Programme for 2012-2013 in favour of the Republic of Suriname

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