The dollar and the banana

Published on 21 May 2018

The depreciation of the dollar has favored banana exports to the United States. The news benefits the two million workers involved.

Having a dollarized economy is a double-edged sword for Ecuador. Although it cancels its monetary policy and can not issue currency or control the benchmark interest rate, it can benefit from an inverse dynamic with respect to its competitors, when the dollar depreciates.

This time, the depreciation of the dollar in real terms has benefited exports of Ecuadorian bananas. While the multilateral exchange rate index adjusted for prices (representing the number of units of foreign currency to be given per unit of US currency) fell from 103.18 in December 2016 to 96.63 in December 2017 (which means that there is than using less units of foreign currency to purchase products quoted in dollars), Ecuadorian banana exports rose from US $ 2,296 million to 6,740 million, according to Veritrade figures. This represents the result of greater production, but also a greater exchange rate competitiveness.

If you compare the evolution of banana exports from Ecuador with Colombia, the difference is amplified as a result of the evolution of the exchange rate. The appreciation of the Colombian peso, from an average of 3,077 pesos per dollar in 2016 to 2,961 pesos in 2017, contributed to the first of these two countries gaining more competitiveness.

On the other hand, although the variation has not occurred in large magnitude, the slight appreciation of the euro against the dollar has contributed to the US market has had greater growth for exports of Ecuadorian bananas. As can be seen in the following table, the value of shipments to the United States grew by a much greater proportion.

In fact, beyond the exchange advantages, there are other elements that can benefit the exports of Ecuadorian bananas. There are measures that the Ecuadorian government could take to encourage exports, such as improving the competition of port operators, adjust the legal framework, develop joint business strategies, and increase productivity to bring higher volumes or be more competitive in prices.

In this line, during the year 2017, achievements were achieved for Ecuador's banana exports. The Ministry of Foreign Trade has achieved the opening of the Brazilian market, the generation of commercial opportunities for 47 banana products, and the opening of the Panamanian market. 2018 is expected to be another period of growth, both due to the arrival to new destinations, as well as the increase in production and market advantages.
For more information about business statistics, you can access the Veritrade portal.
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