Food Security and Agriculture in Central America Market structure and efficiency in agricultural value chains: Deep dives in El Salvador and the Dominican Republic © 2025 International Bank for Reconstruction and Development/The World Bank and the Food and Agriculture Organization of the United Nations. This work is a product of the staff of The World Bank and the Food and Agriculture Organiza- tion of the United Nations (FAO) with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of FAO or The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank and FAO do not guarantee the accuracy, completeness, or currency of the data included in this work and do not assume responsibility for any errors, omissions, or discrepan- cies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Market structure and efficiency in agricultural value chains: Deep dives in El Salvador and the Dominican Republic Thomas Chalmers, Carlos Alvarenga, Emiliano Magrini, Ekaterina Krivonos, Viviana M.E. Perego, Elena Mora, Melissa Brown Content List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2 The white maize sector in El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.1 Patterns and trends in production, consumption, and trade . . . . . . . . . . . 21 2.2 The structure of the white maize value chain . . . . . . . . . . . . . . . . . . . . 23 2.4 Analysis of costs, prices, and margins along the value chain . . . . . . . . . . . 29 2.4 The institutional environment: actors and policies . . . . . . . . . . . . . . . . 32 2.5 Synthesis: market structures, potential inefficiencies, and policy options for the white maize value chain . . . . . . . . . . . . . . . . . . 34 3 The commercial banana sector in the Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . 39 3.1 Patterns and trends in production, trade, and consumption . . . . . . . . . . . 39 3.2 Structure of the value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 3.4 Analysis of costs, prices, and margins along the value chain . . . . . . . . . . . 47 3.3 The institutional environment: actors and policies . . . . . . . . . . . . . . . . 50 3.5 Synthesis: market structures, potential inefficiencies, and policy options for the commercial banana value chain . . . . . . . . . . . . . . 52 4 Conclusion and policy implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Annex 1: References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Annex 2: Methodological Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Annex 3: Meetings and Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 List of Acronyms Asociación Cooperativa de Producción, Comercialización ACOPEROERICK y Servicios “Compañero Eric” de RL ADOBANANO Dominican Association of Banana Producers ADOPEXPO Dominican Association of Exporters Asociación Cooperativa de Producción, Comercialización ASAESCLA y Servicios “El Éxito de Santa Clara” BAM Measures of Support for the Banana Sector, Dominican Republic BANELINO Ecological Banana Association of the Northwest Line, Dominican Republic BFA Agricultural Development Bank, El Salvador CENTA National Center of Agricultural and Forestry Technology, El Salvador CIEX Import and Export Center of El Salvador CIF Cost, Insurance, and Freight CIRAD French Agricultural Research Centre for International Development CLAC Latin American and Caribbean Coordinator for Fair Trade Producers and Workers CNC National Council for Competitiveness, Dominican Republic CONAMYPE National Commission for Micro and Small Enterprises, El Salvador DGA Directorate General of Customs, Dominican Republic EU European Union FIDEAGRO Agricultural Development Trust, El Salvador FOB Free on Board IDIAF Dominican Institute for Agricultural and Forest Research IFPRI International Food Policy Research Intsitute INESPRE Institute for Price Stabilization, Dominican Republic JAD Dominican Agribusiness Board MAG-DEA Ministry of Agriculture of El Salvador, Directorate General for Agricultural Economy MAG-OPES Ministry of Agriculture of El Salvador, Office of Planning, Monitoring, and Evaluation MARN Ministry of Environment and Natural Resources, Dominican Republic PIATEC Agro-Technological Inputs Program, El Salvador SDG Sustainably Development Goal SMAR Program for High Yield Maize Production, El Salvador UK United Kingdom Acknowledgments This report represents a collaboration between the FAO Investment Centre (CFI) and the Ag- riculture and Global Food Practice of the World Bank. It was prepared by Thomas Chalmers (Consultant), Carlos Alvarenga (Consultant) and Emiliano Magrini (Economist), with guidance and support from Ekaterina Krivonos (Service Chief), Viviana Maria Eugenia Perego (Senior Economist, Task Team Leader), Elena Mora (Agriculture Economist), and Melissa Brown (Senior Agriculture Specialist). David Tréguer (Sector Leader, World Bank), Thomas Haven (Senior Private Sector Specialist, World Bank), and Luis Dias (Economist, FAO) kindly agreed to act as peer reviewers for this report. The authors are grateful for the comments and feedback received from Diego Arias, Edward Bresnyan, Barbara Farinelli, Francisco Bueso, Hans Jansen at the World Bank; and Carlos Puig at FAO. Finally, the authors would like to acknowledge the invaluable support received from stake- holders within the maize and banana sectors of El Salvador and the Dominican Republic, who graciously offered the insights and observations that were necessary to produce this report. A full list of these stakeholders can be found in Annex 3 of this report. Staff of the FAO and World Bank offices in each country were instrumental in proposing and coordinating interviews, as well as in supporting in-country dissemination of this work. In El Salvador, the authors would like to thank Diego Recalde (Country Representative) from FAO; as well as Carine Clert (Coun- try Manager), Jania Ibarra (Senior Operations Officer), and Miguel Castro (Operations Officer) from the World Bank. In the Dominican Republic, the authors wish to thank Rodrigo Castañeda (Country Representative) from FAO; and Alexandria Valerio (Resident Representative) from the World Bank. Deep dives in El Salvador and the Dominican Republic Executive Summary Hunger and malnutrition remain critical developmental challenges in Central America. Since 2020, rates of moderate and severe food insecurity have risen across the region, while key indi- cators in early childhood nutrition persist at high levels across both lower- and upper-middle income states. Rising food prices play a key role in limiting access of the populations of these countries to healthy and affordable diets. In 2022 and 2023, food price inflation reached or ex- ceeded 10% in Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nica- ragua. Across almost all of these countries, white maize remain more than 40% higher than their levels in 2021, while prices for red and black beans rose by 40% to 90% over the same period. Price increases have disproportionately affected poorer and rural households. High food price inflation rates are associated with a com- price distortions in domestically produced commodities plex set of factors, the most immediate of which include that are highly relevant for local diets and have a strong rising fuel and fertilizer costs as well as climatic shocks traded component. In El Salvador, white maize is the larg- to domestic production. Rising food prices continue to re- est caloric contributor to daily diets, and almost one fifth of strict access to food for many people across the world and national consumption is satisfied through imports. As such, in Central America. Curiously, however, recent evidence asymmetric price transmission from border to local mar- suggests that a disconnect exists between the movement of kets, where spikes in international prices are transmitted international food prices and the movement of food prices to consumers faster than price declines, represents a risk to in domestic wholesale markets across Central America. A food security through negative effects on poorest consumers 2024 study conducted by the World Bank found that price who spend a higher share of their incomes on staple foods. return responses at the domestic level carried less than In the Dominican Republic, bananas play an important role 10% of an initial shock in international prices for a series of in local diets, but are produced by a commercial sector that important staple foods across Central American countries. also serves a high-value export market for certified and The low transmission of international prices for key food organic products. At the same time, many smallholder ba- products in Central America raises important questions on nana producers in the Dominican Republic are food inse- how efficiently these markets operate for both producers cure themselves, and imperfect functioning of the markets and consumers. Persistent rates of food price inflation may that impedes communication of price signals and prevents imply distortions in how prices are formed across produc- farmers from capturing a larger share of the export pric- ers, intermediaries, processors, and wholesalers in food es undermines their access to food. In each case, very little supply chains, and motivate a deeper structural analysis of pass-through has occurred from changes in international how these actors interact with one another and the larger prices to changes in prices on domestic wholesale markets, policy environment that governs them. and this report seeks to shed light on the underlining drivers which could inform a policy response. This report represents a context-specific approach to an- alyzing market structures and dynamics that may contrib- For both commodities, this report analyzes the struc- ute to price distortions in two country-commodity pairs in tures of the value chains through which they are produced Central America: white maize in El Salvador, and bananas and sold, the public policies that govern them, and the dis- in the Dominican Republic. Both of these sectors present tributions of costs and prices across participating actors to unique case studies in understanding the entry points for answer three guiding questions: 9 Market structure and efficiency in agricultural value chains 1. How are prices formed on domestic markets and prevents the communication of key demand signals and how do these mechanisms compare to the traded precludes farmers from employing domestically the same track? strategies that allow them to profitably produce under lon- ger-term futures contracts in the export market. 2. What do the structures and evolving characteristics of the value chains for these products suggest about Third, the policy environments that govern these two market efficiency in the two countries? value chains present opportunities to improve their effi- ciency and to reduce potential distortions in the movement 3. How do trends in market concentration and public of prices from producers to wholesale markets. In El Salva- policy implementation contribute to possible price dor, public support to the white maize sector has recent- distortions? ly prioritized the complete liberalization of imports and First, close analysis of both of these sectors reveals a set a system of producer support that, while better targeting of important mechanisms driving price formation on do- individual producers’ needs, may induce a pivot away from mestic markets. In El Salvador, a complete bifurcation has maize production. These policies call for a more effective occurred in the supply chains for domestically produced and strategic planning process that involves both domestic imported white maize. Domestically, white maize is grown producers and agro-processors, as well as a stronger fo- by approximately 340,000 small farmers who consume cus on improving the transparency of the import-oriented a share of their production and sell the surplus through a agro-processing sector. In the Dominican Republic, recent complex web of informal intermediaries and wholesalers of policies have focused on investments in plantation renew- various sizes. Conversely, white maize is imported through al to improve productivity, and strengthened coordination a highly concentrated subsector of agro-processors who do between producers’ organizations, exporters, and the Minis- not domestically source their products and who sell through try of Agriculture. As in El Salvador, however, these policies a more formalized set of larger wholesalers and supermar- lack a coherent strategic planning process, and call for the kets. While both domestic and imported maize interact on improved communication and management of market infor- the consumer market, the mechanisms that guide the costs mation from both domestic and export markets. and intermediate prices in these two supply chains remain These findings provide context for a concrete set of wholly separate. In the Dominican Republic, separate pric- policy recommendations across three key axes: targeted ing mechanisms exist for export-oriented bananas and those support to producers, targeted support to consumers, and that reach the domestic market. Export prices for commer- general support to the infrastructure and information sys- cial bananas are determined through futures contracts that tems that govern the agricultural sectors in each country. are benchmarked to internationally certified standards. Direct support programs for producers should focus on The domestic market, in contrast, relies on a fragmented implementing more effective sectoral planning exercises, structure of intermediaries through which the primary de- as well as improving the delivery mechanisms for invest- terminants of prices are the information on available supply ments and resources towards producers. Producers in and market demand that is transmitted from producers and both countries would benefit from consultative investment wholesalers respectively. planning exercises, financial resources targeted towards Second, the structures of these markets suggest several realistic goals in production and sale, and complementary potential sources of inefficiencies. In El Salvador, the infor- investments in improved technology and technical inputs. mal nature of production and intermediation prevent both Targeted support programs for consumers should fo- the efficient communication of demand signals to produc- cus on developing efficient mechanisms for anticipating ers, and the efficient integration of domestic products into and responding to changes in wholesale and retail prices large-scale agro-processing chains. High concentration and for these products. Anticipatory measures should be imple- low transparency in the agro-processing sector may allow mented from the point of production onwards, through a participating firms to capture a relatively higher share of focus on making input markets more efficient and through the value of imported maize, and may expose consumers offering cost-effective insurance systems to farmers that can to greater risks should international prices for white maize reduce the impacts of and improve the speed of recovery grain rise. In the Dominican Republic, export-oriented ba- from domestic shocks to production. Direct policies towards nana production reflects a disconnect between the inter- supporting consumers should focus on efficiently targeting nationally determined prices at which producers sell, and financial resources towards vulnerable populations, rather their incentives to efficiently structure their activities in a than relying on physical food reserves or blanket price sub- way that could minimize the effects of international price sidy programs. decreases. Domestically, informality in intermediation 10 Deep dives in El Salvador and the Dominican Republic Finally, the above policies would be made more effective post-harvest losses as well as the transaction costs that con- through general services support towards agricultural and tribute to wholesale and retail prices. More effective infor- commercial activities that comprise these two value chains. mation management systems, such as pricing information More effective physical infrastructure for transportation, services, would also significantly reduce the information storage, and processing would better connect rural farm- asymmetries that can lead to distortions in the prices of- ers to urban and peri-urban wholesale markets, reducing fered to producers and consumers. Table ES1: Summary of policy recommendations by type of support and timeline Identified Challenge Proposed Recommendation Expected Result Type of Support Timeline Facilitate the creation of productive alliances between smallholder organizations and agribusinesses to Inefficiencies in the enhance credit access, reduce risks, Strengthened market access, supply chain and and improve market integration. reduced risks for smallholders, limited access to Producer support Mid-term These collaborations should focus improved productivity, and credit or markets for on addressing technical, commercial, increased incomes. smallholders financial, and social challenges to unlock income opportunities for smallholder farmers. Enhanced resilience of farmers Expand cost-effective risk-based Food price shocks and the food system to external insurance systems that cover production and food availability shocks, ensuring more stable Producer support Mid-term risks and price volatility, especially in shortages food supplies and reducing risks the face of climate change. to food security. Strengthen strategic planning through A more targeted approach to participatory processes involving Lack of effective sectoral investments that can farmers, government, and private sector planning for sectoral respond to current and future Producer support Long-term stakeholders to align investments development market conditions, leading to and incentives with market needs and sustainable productivity growth. conditions. Protection of low-income Limited consumer Implement targeted financial support consumers from food price protection against mechanisms to protect vulnerable inflation, with more effective use Consumer support Short-term rising food prices (food populations during food price shocks, of public resources to reach those affordability) while avoiding market disruptions. most in need. Improved market information Enhanced decision-making for systems and communication: Develop farmers, better market access, Market fragmentation mechanisms to collect, analyze, and reduced inefficiencies, and General services and lack of information Short-term disseminate pricing and demand improved price transparency support flow information across the value chain, with throughout the agricultural value a particular focus on informal actors. chain. Provide extension services, technical Increased farm productivity, Lack of knowledge and assistance programs, and access to adoption of sustainable practices, General services adoption of efficient modern agricultural technologies to and better integration into formal Medium-term support farming practices improve productivity, product quality, markets, leading to improved and resilience among farmers. profitability. Increase investments in general services support to strengthen transportation, market infrastructure, and post- production facilities, alongside soft Improved access to markets, Limited market infrastructure such as producer reduced inefficiencies in General services connectivity and Medium-term associations, extension services, and supply chains, and enhanced support inefficient logistics marketing and inspection services competitiveness of rural farmers. to connect rural farmers to urban wholesale markets and processing/ storage facilities. 11 Deep dives in El Salvador and the Dominican Republic 1 Introduction Background The Sustainable Development Framework defines the ways in which people interact with food: availability, access, reduction of hunger and malnutrition as key priorities. utilization, and stability. Food and nutrition insecurity aris- Sustainable Development Goal (SDG) 2 establishes a set of es when a population faces a shortfall in the quantity and targets towards ending hunger and malnutrition, fostering quality of food that is consistently available and accessible. sustainable production systems, and stimulating invest- Moderate food and nutrition insecurity refers to a recurrent ments in rural development and the efficiency of global food and uncertain availability of and access to this food supply; markets. By referencing multi-sectoral and multi-thematic severe food and nutrition insecurity refers to a clear lack of investments, these targets recognize the important rela- availability and access for a significant period of time, often tionships that exist between human nutrition and broad- driven by armed conflict, natural disasters, or price shocks er trends in human development (Pérez-Escamilla, 2017; (CFS, 2021; FAO, 2023). UNSD, 2024)at all times have physical and economic access The Central America region remains a critical to sufficient, safe and nutritious food that meets their di- hotspot for food and nutrition insecurity.1 In 2022, etary needs and food preferences for an active and healthy 34.5% of the region’s population lived in a state of moderate life” (http://www.fao.org/wfs/index_en.htm. These devel- or severe food insecurity, representing an increase of 0.4% opmental priorities in hunger, nutrition, and human devel- (or 1.3 million more people) from 2021. As shown in Figure opment are made more tangible through the concept of food 1, this trend predates the COVID-19 pandemic across many and nutrition security, defined as “a state in which all people, countries; since 2014, notable increases in both measures at all times, have physical, social, and economic access to have occurred in El Salvador, Guatemala, and Honduras. It sufficient, safe, and nutritious food that meets their food also runs counter to the moderate decrease in food securi- preferences and dietary needs” (CFS, 2021). Food security ty that occurred across Latin America and the Caribbean in is measured through four key characteristics that define the aggregate since 2021. 1 For the purposes of this report, Central America is defined as the community of Spanish-speaking countries within SICA, including Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. 13 Market structure and efficiency in agricultural value chains Figure 1: Moderate and severe food insecurity across Central America; countries for which information is available Moderate and Severe Food Security in Central America, 2014-2022 70 60 % Total Population 50 40 30 20 10 0 Central America 2014-2016 Central America 2016-2018 Central America 2018-2020 Central America 2020-2022 Costa Rica 2014-2016 Costa Rica 2016-2018 Costa Rica 2018-2020 Costa Rica 2020-2022 Dominican Republic 2014-2016 Dominican Republic 2016-2018 Dominican Republic 2018-2020 Dominican Republic 2020-2022 El Salvador 2014-2016 El Salvador 2016-2018 El Salvador 2018-2020 El Salvador 2020-2022 Guatemala 2014-2016 Guatemala 2016-2018 Guatemala 2018-2020 Guatemala 2020-2022 Honduras 2014-2016 Honduras 2016-2018 Honduras 2018-2020 Honduras 2020-2022 Mo derate or severe food insecurity (% population) Severe food insecurity (% population) Source: own elaboration, based on (FAO, 2024b) Rising levels of food insecurity in Central America decreased during this period. However, higher levels and associate with persistent trends in undernourishment lower rates of decline characterize the recent experiences and poor nutritional outcomes for children. Table 2 of less food-secure states such as Guatemala, El Salvador, shows that the prevalence of undernourishment decreased and Honduras. Slow rates of decline, and even reversals, also in aggregate across Central America before stagnating in persist in the higher-income countries that have achieved 2021 and that since that time, notable increases have oc- low absolute levels of prevalence, including Costa Rica, the curred in El Salvador, Honduras, and Panama. The share Dominican Republic, and Panama (FAO, 2024b). of children under 5 who exhibit stunting has gradually 14 Deep dives in El Salvador and the Dominican Republic Table 2: The prevalence of undernourishment for the general population, and stunting for children under 5, in Central America 2016 2017 2018 2019 2020 2021 2022 Undernourishment (% total pop.) 6.6 6.3 6.1 5.8 5.4 5 5 Central America Children under 5 who are stunted (%) 17.5 17.5 17.5 17.4 17.2 17.1 16.9 Undernourishment (% total pop.) 4.2 3.7 3.2 3.1 3.1 3.1 3 Costa Rica Children under 5 who are stunted (%) 7.7 8 8.3 8.6 8.9 9.2 9.5 Undernourishment (% total pop.) 7.4 6.7 6 5.7 6.3 6.3 6.3 Dominican Republic Children under 5 who are stunted (%) 7.2 7 6.8 6.5 6.2 5.9 5.6 Undernourishment (% total pop.) 9.6 8.9 8 7.1 7.2 7 7.7 El Salvador Children under 5 who are stunted (%) 12.4 11.8 11.4 11 10.7 10.3 10 Undernourishment (% total pop.) 15.7 14.8 14.4 14.1 14.1 13.5 13.3 Guatemala Children under 5 who are stunted (%) 45.8 45.5 45.3 44.9 44.2 43.7 43.5 Undernourishment (% total pop.) 15.5 14.9 14.3 14.1 14.5 16.2 18.7 Honduras Children under 5 who are stunted (%) 20.1 19.8 19.4 18.9 18.4 17.9 17.5 Undernourishment (% total pop.) 19.3 18.3 17.6 17.4 17.5 17.9 17.8 Nicaragua Children under 5 who are stunted (%) 16.1 15.9 15.7 15.5 15.3 15.1 14.9 Undernourishment (% total pop.) 7.3 7 6.1 5.2 4.7 4.9 5.3 Panama Children under 5 who are stunted (%) 17.3 16.6 15.9 15.2 14.6 14.1 13.8 Source: own elaboration, based on (FAO, 2024b) Rising food prices drive food and nutrition insecuri- the population of Central America was unable to afford a ty in the region. Since 2020, consumer prices for food have healthy diet, with particularly high instances in the Domini- exhibited higher rates of inflation than general consumer can Republic (26%), Honduras (45%), and Nicaragua (34%) prices across every country in Central America, as shown in (FAO, 2024b). Rising food prices disproportionately affect Table 3. In 2022, food Price inflation rates surpassed 10% in the welfare and food security of poorer and rural house- Costa Rica, the Dominican Republic, El Salvador, Honduras, holds, who face the compounding impacts of increasing ag- and Nicaragua. High inflation rates persisted across most ricultural input prices, climatic shocks to production, rising countries through 2023, driven by sustained price increases fuel and logistical costs, and reduced ease of accessing social for meat, edible oils, and cereals. For example, white maize safety nets. Geographically, these difficulties are further con- prices on average remain 40% higher than their levels in centrated in the region’s Dry Corridor, where fluctuations 2021, while prices for red and black beans have risen by in rainfall have a dual effect on national food supplies and 40% to 90% over the same period (FEWS Net, 2023b). In agricultural incomes through availability of opportunities real and purchasing power parity terms, the costs of healthy for wage labor during harvest seasons (FEWS Net, 2022; and affordable diets have also risen consistently across FEWS NET, 2024). Central America. In 2021, estimates show that 22.2% of 15 Market structure and efficiency in agricultural value chains Table 3: Inflation indices for general consumer prices and food prices, annual averages 2018 2019 2020 2021 2022 2023 Inflation: General (%) 2.2 2.1 0.7 1.7 8.3 0.5 Costa Rica Inflation: Food (%) 1.6 0.8 0.5 2.2 15.0 3.4 Inflation: General (%) 3.6 1.8 3.8 8.2 8.8 4.8 Dominican Republic Inflation: Food (%) 3.6 3.8 6.4 9.9 10.6 7.8 Inflation: General (%) 1.1 0.1 -0.4 3.5 7.2 4.0 El Salvador Inflation: Food (%) 0.5 1.2 1.6 2.3 11.6 10.1 Inflation: General (%) 3.8 3.7 3.2 4.3 6.9 6.3 Guatemala Inflation: Food (%) 7.2 7.8 6.4 4.8 8.7 10.9 Inflation: General (%) 4.3 4.4 3.5 4.5 9.1 6.7 Honduras Inflation: Food (%) 3.5 2.2 4.7 2.9 12.5 10.9 Inflation: General (%) 4.9 5.4 3.7 4.9 10.5 9.3 Nicaragua Inflation: Food (%) 4.2 4.6 5.1 6.4 14.7 3.4 Inflation: General (%) 0.8 -0.4 -1.6 1.6 2.9 1.5 Panama Inflation: Food (%) -0.6 0.5 -0.8 1.6 3.7 7.8 Source: own elaboration, based on (Ha, Kose and Ohnsorge, 2023)food, energy, and core consumer price inflation; producer price inflation; and gross domestic product deflator changes High inflation rates for food prices in Central Amer- volumes for beans have fallen by 10% at the regional level. ica associate with a complex set of factors. The most Simultaneously, fertilizer prices have risen by almost 50% immediate include variable domestic supply and rising on average throughout the region since 2022, driven by a input costs. Cereals and pulses comprise approximately constriction in global supplies following Russia’s invasion of 60% of the annual per capita energy supply across countries Ukraine. Simultaneous increases in fuel prices also affected in this region, and the majority of consumption is satisfied the logistics networks that enable input markets for farmers through domestic production (INCAP, 2021). Since 2021, in the region; both trends associate with a decrease in the Central American countries have experienced high annual use of production inputs, with further effects on yields and variation in the domestic supply these staples as a result harvest volumes (FEWS Net, 2023a, 2023b). of rainfall variation across the region’s vulnerable Dry Cor- While rising input and fuel costs have affected pro- ridor. In 2022 and 2023, droughts disrupted planting and duction and price levels at the domestic level, recent harvest cycles through the first half of each year, and have evidence suggests that low rates of pass-through have associated with stagnations and gradual declines in pro- occurred from international to domestic food prices for duction volumes. Over the past five years, average annual key staples across the region. Using data on internation- harvest volumes in maize have decreased by 3% for the re- al commodity prices and domestic wholesale prices across gion as a whole, while demand has risen by 5%; decreases in countries in Central America, a study conducted by the harvested volume are particularly prominent in Guatemala World Bank estimated the domestic price return response (6%) and Nicaragua (4%). Over the same period, production in wholesale prices after one month to a simulated shock of 16 Deep dives in El Salvador and the Dominican Republic one standard deviation in international prices. Using data established quantity and price controls that affect import, from approximately 2000 onwards, this study found that production, and export activities for larger firms in staple price return responses at the domestic level carried less food supply chains (Vavra and Goodwin, 2005; Bakucs, Fał- than 10% of the initial shock for a series of important sta- kowski and Fertő, 2014; García-Jiménez and Gandlgruber, ples across Central American countries, including banana, 2014; Lloyd, 2017). black beans, and rice in the Dominican Republic, black beans However, no consensus exists across these empirical and maize in Guatemala, maize in Nicaragua, and maize in studies that can establish a generalized, cross-country El Salvador (World Bank, 2024). relationship between market structures and the asym- The low price transmission for key food products metric transmission of prices. Recent literature reviews across these countries raises important questions emphasize that the lack of standardized pricing data and on the efficiency of domestic food markets in Central the abundance of empirical methods have made it difficult America. Spatial (horizontal) price transmission and ver- to quantify the relationships that might exist between key tical price transmission are key characteristics of efficient characteristics of a staple food sector, asymmetries in price markets, defined by recent literature through the Law of transmission, and welfare effects for producers or consum- One Price: that through profit- and arbitrage-seeking be- ers. In countries where market structures, policy environ- haviors, actors will induce a price equilibrium in which ments, and pricing mechanisms are difficult to measure price differences reflect only the costs of “spatial arbitrage”, and incorporate into empirical models, policymakers and or the transport and transaction costs that move a good development practitioners may benefit from a context-spe- from one market or stage of production to another (Von cific analysis for how prices are vertically and horizontally Cramon-Taubadel and Goodwin, 2021). Recent empirical transmitted (Lloyd, 2017; Von Cramon-Taubadel and Good- studies in spatial price transmission have estimated a wide win, 2021). range of transmission levels across countries and food com- This report adopts this context-specific approach to modities, with a tentative consensus that higher levels of analyze market structures and dynamics that may con- transmission associate with effective trade infrastructure, tribute to price distortions in two commodity-country policies that promote free trade and domestic competition, pairs in Central America with high relevance for do- functioning spot markets, and integrated markets for the mestic food security. The first pair is that of white maize consumption of domestic and imported products (Rapso- in El Salvador, a key crop for staple consumption with an manikis, Hallam and Conforti, 2003; Bekkers et al., 2017; imported component. In 2021, white maize was the largest Ceballos et al., 2017). caloric contributor to daily per capita diets (and provided Low levels of horizontal transmission in the prices of the second highest annual per capita supply of food in El key staple foods across Central America open the possi- Salvador); in 2022, 16% of the country’s domestic con- bility that distortions in domestic food markets are ad- sumption of white maize was satisfied through imports versely affecting food security outcomes. In the absence (FAO, 2024b). In 2023, the Salvadorean rate of food price of clear pass-through from international price movements to inflation for consumers was double that for general con- domestic ones, high and persistent rates of inflation in food sumption, driven by steep increases in the prices of basic prices may imply asymmetries in the movement of prices grains (Ha, Kose and Ohnsorge, 2023)food, energy, and core for different actors along a supply chain, from producers to consumer price inflation; producer price inflation; and gross consumers. Studies of vertical price transmission have tra- domestic product deflator changes. In the context of a 2.3% ditionally identified market concentration, changing trans- decline in white maize production levels between 2022 and port and search costs, and market control policies as drivers 2023, producer prices for that product increased at a rate of the asymmetry of price movements across stages of the that has exceeded producer prices in the agricultural sector supply chain. Concentrated markets of agro-processors, as a whole, as shown in Figure 2. However, despite increases wholesalers, or exporters may prevent the transmission of in international maize prices from 2020 to 2023, little to no market and pricing signals to producers, while delaying the transmission of international prices to domestic wholesale downward response of consumer prices to lower produc- markets has been measured for this product in the country tion and import costs. Simultaneously, a well-documented (World Bank, 2024). set of public policies in Central America have historically 17 Market structure and efficiency in agricultural value chains Figure 2: Producer price indices in aggregate and for key staple crops in El Salvador, 2010-2023 Producer Price Indices: El Salvador 160 140 120 100 80 60 40 20 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Agriculture Bananas Beans, dry Maize (corn) Plantains and cooking bananas Source: own elaboration, based on (FAO, 2024c) The second case study of this report, banana in the Do- approximately 2% of global exported supply, it is expected minican Republic, offers the opportunity to explore an ex- to act as a price-taker in the determination of international port-centric sector that also maintains a strong market for prices (Feschet, Pauline et al., 2020; FAO, 2024b). Simultane- domestic consumption.2 Bananas represent an important ously, as shown in Figure 3, in recent years producer prices source of calories in the Dominican domestic market, with for bananas have increased at a far greater rate than those for the third highest per capita food supply in 2022.3 Approxi- other key staples in the domestic market. Again, however, lit- mately 21% of total registered production is destined for ex- tle to no price transmission was measured from international port markets, but as the Dominican Republic provides only market to domestic wholesale markets (World Bank, 2024). Figure 3: Producer price indices in aggregate and for key staple crops in the Dominican Republic, 2010-2023 Producer Price Indices: Dominican Republic 500 450 400 350 300 250 200 150 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Agriculture Bananas Beans, dry Maize (corn) Plantains and cooking bananas Source: own elaboration, based on (FAO, 2024c) 2 In this case, bananas refer specifically to cultivars in the Musaceae that, as “dessert” fruit, can be cooked in green form or eaten raw in ripe form. It specifically omits plantains. More information can be found in Section 3. 3 This figure does not imply that this full amount is consumed, but that it has been produced and is theoretically available on the domestic market. 18 Deep dives in El Salvador and the Dominican Republic This report analyzes the market structures and pub- price distortions and the lack of measured price lic policies that contextualize the low transmission of transmission? international prices to domestic wholesale markets for The report is structured as follows. Section 2 examines white maize in El Salvador and bananas in the Domini- the white maize sector in El Salvador, and section 3 exam- can Republic. In doing so, it seeks to answer three guiding ines the banana sector in the Dominican Republic. Each of questions that can help to identify inefficiencies in how each these commodity-country chapters analyzes the structure of sector interacts with producers and consumers: the value chains, the organization and concentration of ac- 1. Why do these sectors demonstrate low degrees of tors within them, the regulatory framework in which these price transmission from international to domestic actors operate, and the costs, prices, and margins that they wholesale market prices? have recently faced in conducting their operations. Section 4 provides a concluding analysis that answers the three 2. What do the structures and evolving characteristics guiding questions of the report. Finally, Section 5 provides of the value chains for these products imply for mar- concrete policy recommendations that could increase the ket efficiency and the transmission of international efficiency of these sectors and improve their contributions prices in the two countries? towards national food and nutrition security. 3. How do trends in market concentration and pub- lic policy implementation contribute to possible 19 Deep dives in El Salvador and the Dominican Republic 2 The white maize sector in El Salvador 2.1 Patterns and trends in production, consumption, and trade White maize forms a key component of agricultural pro- role. The Ministry of Agriculture (MAG) estimates that an- duction and diets in El Salvador. While both white and nual consumption of white maize reached between 21.1 to yellow maize are consumed in-country, yellow maize is al- 22 million quintals (about 1 million metric tons, or MT) in most exclusively an imported product used in animal feed 2023.4 National production supplied 81% of consumption, production. White maize represents the principal source with the remainder met through imports. Over the past five of carbohydrates for direct human consumption: in 2021, years, production levels have fluctuated between 15 mil- it was the largest caloric contributor to diets and the food lion and 18.4 million quintals (692,000 and 787,000 MT). product with the second highest annual per capita supply. Yields have fluctuated consistently around 2.94 MT (45.5 Maize flour accounted for 26% of all food supply in calorie quintals) per hectare, which is above average for the re- terms. It is commercialized mainly as nixtamalized flour for gion (IICA, 2014). Approximately 340,000 farmers produce preparation of foods such as tortillas, pupusas, tamales and maize across the country, and over 80% of them operate as a component of processed snacks(FAO, 2024b). To reach less than 1 hectare each. Recent statistics (shown the fig- consumers, white maize must pass through a chain of ac- ure below) suggest that a decline in total cultivated area is tivities in domestic production and intermediation – or im- taking place, corresponding to a gradual exit of producers port and processing – before it is distributed via wholesalers from the sector. Simultaneously, white maize imports have and retailers. This section introduces the sector in aggregate fluctuated in response to the gap between annual domestic before providing a more detailed analysis of how different production and demand, reaching approximately 4 million actors fit into each specific activity. quintals (186,000 MT) in 2023 (MAG, 2024b). As discussed later in this chapter, the elimination of tariffs for imported White maize enters the value chain primarily white maize in 2022 has likely contributed to increases in through a smallholder-oriented domestic production imports. system, with imports playing an increasingly important 4 Public institutions and private companies in El Salvador measure the production, use, consumption, and unit price of maize in terms of Spanish Quintals (100 lbs, or approximately 45.9 kilograms). This report will thus refer to quintals more commonly than to metric tons or kilograms. 21 Market structure and efficiency in agricultural value chains Figure 4: Cultivated area, production, and imports of white maize Cultivated Area, Production, and Imports of White Maize 200.000 20.000.000 180.000 160.000 15.000.000 140.000 120.000 Hectares 100.000 QQ 10.000.000 80.000 60.000 5.000.000 40.000 20.000 - - 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Maize: Production (QQ, left axis) Imports (QQ-left axis) Maize: Poduction Area (Ha, right axis) Source: authors’ elaboration, based on (MAG, 2023a) Intermediary and processing activities differ widely Domestic consumption occurs through a diverse set for domestically produced and imported white maize, of channels, ranging from own farm consumption to su- particularly in the formality of and coordination be- permarket retail. Demanding up to 30% of the total sup- tween participating actors. The majority of domestically ply of produced and imported maize, the prevalence of own produced maize is either destined for own consumption, consumption highlights the critical role that the crop plays or passes through an informal intermediary who brings in ensuring food security for rural people.5 The commercial it via truck to a larger wholesale market. The grain that is sale of domestic and imported maize, nixtamalized maize brought by these intermediaries is often of varying quali- flour, and processed products then occurs through a combi- ty and is then cleaned and packaged in grain form by ap- nation of retailers; information on their activities is limited proximately 200 larger wholesalers in urban or peri-urban by the varying degrees of formality at which they operate. areas. Imported white maize passes through a network of There may be up to 7,000 artisanal processors (tortilleras or companies that negotiate futures contracts with importing pupuserías), 4,000 small food stores, 41,000 corner stores, brokers. Four importing brokers supply a mix of distributor and approximately 200 supermarkets (Romero et al., 2022). and agro-processing firms. 95% of imported maize by vol- Data on sales by volume of product (whether grain, flour, ume passes through 8 of these firms (BCR, 2024). Nixtamal- or processed snacks) is difficult to extrapolate due to the ized maize flour that is processed for mass retail originates range of weight conversion rates for flour and processed entirely from imported white maize, and is destined for foods. However, interviews suggest that smaller stores buy processed consumer products. In both grain and processed a mixture of domestic and imported grain, as well as flour form, imported products are sold in parallel to domestically produced by the larger agro-processors, while the larger produced ones through that network of 200 larger whole- supermarkets buy primarily products of imported origin. salers who then sell it to across networks of smaller distrib- Wholesale and retail prices have fluctuated widely utors, retailers, or consumers (MAG-DEA, 2024). over the past several years, driven primarily by domes- 5 The importance of own-consumption means that shocks to either input prices or production levels will hit a population that may not otherwise have the resources to purchase an equivalent substitute in the market. Urban populations in El Salvador have more purchasing power, and better geographical access to social protection support programs such as food vouchers. 22 Deep dives in El Salvador and the Dominican Republic tic production shocks and changes in input prices. MAG of Russia’s invasion of Ukraine and its subsequent effects on does not systematically collect data on farmgate prices at global fertilizer markets; price spikes in April 2023 also fol- the regional or national level, and the informality of the in- lowed from a depletion of lower-than-average domestic sup- termediary sector complicates efforts to do so. However, the plies in between harvest seasons. According to interviews movement of wholesale and retail prices in San Salvador – with technical specialists, climate instability is perceived to the largest market for white maize and associated products drive the increasing variability in annual production that – reveals a drastic increase in prices after 2020. Wholesale contributed to a mid-year spike in 2023 prices. Production prices increased from approximately $15 per quintal in Jan- volumes in 2023 fell by 6.9% compared to their 2022 levels, uary 2021 to a high of almost $31 per quintal in April 2023, following El Niño-related droughts and heavy rainfall later before falling to approximately $21 per quintal in April in the year (MAG, 2023a; MAG-DEA, 2024). 2024. The largest jump in prices corresponds to the onset Figure 5: maize prices in international markets, in the domestic wholesale market (San Salvador), and in the retail market (San Salvador) Export, Wholesale, and Retail Prices of White Maize (USD/Spanish Quintal) 40 35 30 25 20 USD 15 10 5 0 2018 Jan 2018 Mar 2018 May 2018 Jul 2018 Sep 2018 Nov 2019 Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2020 Jan 2020 Mar 2020 May 2020 Jul 2020 Sep 2020 Nov 2021 Jan 2021 Mar 2021 May 2021 Jul 2021 Sep 2021 Nov 2022 Jan 2022 Mar 2022 May 2022 Jul 2022 Sep 2022 Nov 2023 Jan 2023 Mar 2023 May 2023 Jul 2023 Sep 2023 Nov 2024 Jan 2024 Mar International: Maize, White, USD/QQ International: Maize, Yellow, USD/QQ SV Retail: Maize, White, USD/QQ SV Wholesale: Maize, White, USD/QQ Source: authors’ elaboration, based on (FAO, 2024c) Note: the international prices refer to US No. 2, Yellow (Gulf) and US No. 2, White (Kentucky). USA has stopped reporting data on white maize that can be integrated into FAO’s food price monitoring system. 2.2 The structure of the white maize value chain This section introduces in greater detail the distribution of farm for own consumption, leaving up to 15.1 mil- activities and actors within the value chain for white maize lion quintals of domestic and imported maize to be grain and flour. Figure 6 summarizes the stages, actors, and distributed nationally. product flows that comprise the supply chain, beginning • Domestically produced maize passes through pro- with domestic production and imports. ducers’ associations and intermediaries to whole- • The chain begins with domestic production (cover- salers in urban and peri-urban areas, where it is ing approximately 17.1 million quintals, or 80% of sold in grain form to a wide range of small to medi- total consumption annually) and imports (covering um processors, food establishments, retailers, and approximately 4 million quintals, or 20% annual- less formal neighborhood distributors. ly). Approximately 6.1 million quintals remain on 23 Market structure and efficiency in agricultural value chains • Imported maize passes from brokers and stor- exclusively with imported maize grain, while whole- age firms to importing firms, of whom 3 are large salers and smaller, artisanal processors sell both do- agro-processors who sell both grain and flour. These mestically produced and imported products. firms sell both to wholesalers and to domestic Finally, white maize is sold via a combination of food agro-processors, who internally sell flour and pre- vendors, small retailers and supermarkets, and a smaller pared foods on a wholesale or retail basis. amount of grain and flour are exported to neighboring coun- • Domestic wholesalers and processors (ranging from tries. Interviews suggest that urban consumers primarily small to industrial) act as the primary points of sale buy nixtamalized flour, but that grain is still sold by local to retailers. Large, industrial agro-processors work stores, and particularly so in peri-urban and rural areas. Figure 6: An outline of the structure of the white maize value chain in Q1-2024 SV: the structure of the white maize value chain in Q1-2024 Production/Import Intermediation/Processing Domestic Wholesale Retail Consumption/Export Own Consumption 325-340,000 producer household 5.1m QQ grain consumed Associations School Feeding Program 230 (12,000 producers) 7k QQ grain consumed Producers Retail: Domestic Wholesalers Approx. 336,000 200 supermarkets Up to 11m QQ grain traded 200 firms nationally farmers 4,00 food retailers 17.1m QQ grain Up to 40 large On-Farm Intermediaries (San Salvador) 41,000 neighborhood produced shops Retail Consumption Up to 500 formal, informal No data on combined traded vol. of 7,000 small 1.63m non-producer processors households grain and flour Brokers No data on No disaggregated Storage Importer-distributors combined data on grain and 4 firms 18 firms traded vol. of flour consumed 4 firms Domestic Processors 4m QQ grain 800k QQ grain traded grain and flour imported 37 firms No data on total Export Importer-Processors 338k QQ flour traded vol. 2 exporters (Harisa, DPB) 3 firms imported 3.2m QQ grain traded 5k QQ grain No data on total flour vol. 1.3m QQ flour Source: authors’ elaboration, based on interviews and (Romero et al., 2022; MAG, 2024b) Domestic Production Domestic producers of white maize in El Salvador form an important part of the country’s rural and agricultural White maize is cultivated across three cycles per year, economies. According to MAG-DEA, there are currently ap- whose timing has important implications for the down- proximately 336,000 producers of white maize, represent- stream market. The first (primera) lasts from April to ing a decrease from the 365,380 that were last measured August, accounting for 79% of annual production volume. in the 2007 Agricultural Census. In 2023, these farmers The second (postrera) lasts from August to December and cultivated a combined 263,450 hectares and produced accounts for the remaining 20%. A third smaller harvest 17.1 million quintals (787,000 metric tons) of white maize. (apante lasts from November to March and accounts for Since 2010, harvested area has fluctuated between 250,000 approximately 1% of annual production (MAG-DEA, 2024). to 275,000 hectares, while production has fluctuated from This cycle generates the largest volume of domestic supply 16.7 million to 20.3 million quintals. Over the past five years, for the market in the fourth quarter of the year, while the yields have averaged at 44.8 quintals per acre, or 2.98 met- second to third quarters present the greatest risk for do- ric tons per hectare, which are above average for Central mestic scarcity prior to the arrival of the primera harvest. America (MAG, 2009, 2023a; IICA, 2014; MAG-DEA, 2024). 24 Deep dives in El Salvador and the Dominican Republic Small-scale subsistence farmers predominate in these dynamics have not largely changed: a recent house- white maize production: they often produce the crop in hold census in 2018 counted approximately 411,000 rural conjunction with other basic grains such as sorghum and farmers in total, with many of them producing a mixture of beans, and they are consumers of what they produce be- staple crops that included maize. As shown in Table 1 below, fore selling the surplus on the market. The last agricultural almost 90% of these producers operated on 2.1 hectares census suggested that 80% of these producers operated on or less, and MAG-DEA suggests that maize farmers largely less than 1 hectare each, with more than 65% of their pro- comprise the lower end of this distribution (Ministerio de ductive area being located on hillsides and other marginal Economía, 2019; MAG-DEA, 2024). terrain (MAG, 2009). More recent statistics suggest that Table 4: Rural Producers by land ownership and location across sub-regions in El Salvador, 2018 Acres <1 1 to 2 3 to 4 5 to 10 11 to 20 >20 Hectares < 0.7 0.8 to 2.1 2.2 to 3.5 3.6 to 7.7 7.8 to 14 >14.1 Total (%) Occidental 51 277 39 831 6 532 2 634 705 437 101 416 24.7% Central 93 060 65 482 9 417 7 559 1 694 2 013 179 225 43.6% Oriental 60 428 53 514 8 192 5 716 1 317 1 088 130 255 31.7% Total 204 765 158 827 24 141 15 909 3 716 3 538 410 896 (%) 49.8% 38.7% 5.9% 3.9% 0.9% 0.9% Source: own elaboration, based on (Ministerio de Economía, 2019) For smallholders, white maize production often in- maize-producing population reserved an aggregate of 6.1 volves low levels of chemical and machinery use that million quintals (279,990 tons) annually for this purpose, is sustained by an input distribution scheme (technical with 11.04 million quintals (506,736 tons) of surplus maize package) provided by MAG. The majority of farmers make being sold on the market. At the farm level, each producer use of family labor and informal arrangements for sharing stored for themselves an average of 15 to 18 quintals (0.68 communal labor and machinery, and procure fertilizers to 0.84 tons) of maize per year (representing approximately and pesticides from the market when prices permit. Almost 55% of their total production by weight), using metal si- 100% of the maize producing population – smallholder or los with a maximum capacity of approximately 18 quintals not – relies on technical inputs from MAG’s Programa de (0.9 tons). The large majority of surplus maize was then Insumos Agro-tecnológicos (Agro-Technological Inputs Pro- sold directly to intermediaries at farmgate, with a smaller gram – PIATEC). On an annual basis, PIATEC provides all minority passing through associations that process and sell farmers registered with the Ministry of Agriculture with to the larger commercial market. Sales occur informally via between 12 to 22 pounds (5.4 to 9.8 kg) of hybrid H-49 cash transactions without receipts, and intermediary buyers maize seeds, 45.5 kg of fertilizer, and one liter of insecticide seldom offer any form of formal financing or credit (MAG, for seed inoculation. Approximately 10% of producers also 2023a; MAG-DEA, 2024). receive extension services from the Centro Nacional de Tec- nología Agropecuaria y Forestal (CENTA), focusing on the adoption of improved maize varieties, improved production Domestic intermediation technologies, and the implementation of a technical guide Domestic intermediation from producers to wholesalers that outlines best practices in maize cultivation. Approx- occurs through two main channels: producers’ associations imately 5% receive financing from the Banco de Fomento (comprising the minority of commercial sales) and informal Agropecuario (MAG, 2023b; MAG-DEA, 2024). intermediaries (camioneros, comprising the large majori- Production is primarily oriented towards self-con- ty). There are approximately 230 producers’ associations sumption and informal sales. Recent interviews with across El Salvador, but they only represent approximately specialists in the Ministry of Agriculture (Directorate of Ag- 12,960 producers of basic grains (including maize), 4% of ricultural Economics – MAG-DEA) confirm that in 2023, the 25 Market structure and efficiency in agricultural value chains small producers at the national level. Approximately 60 Imports and processing of these associations have invested in infrastructure and equipment for the consolidation and storage of white maize, In 2024, imported white maize plays a prominent role with support from the Programa de Agricultura Familiar in the consumer market in El Salvador, driven by inter- that was implemented by MAG from 2009 to 2019. At the na- national prices that have fallen since 2023, competition tional level, there are four federations that represent these between importing firms, and changing consumer pref- associations in policy discussions and in conversations with erences. As shown in Table 5 below, imports dropped sig- government: the Mesa Agropecuaria, Cámara Salvadoreña nificantly at the onset of the COVID-19 pandemic in 2020, de Pequeños y Medianos Productores CAMPO, Frente Na- and have gradually recovered from 2022 to 2023. In both of cional Agrario FNA, and the Federación de Cooperativas those years, it should be noted that there are discrepancies Agropecuarias Salvadoreñas FECASAL (MAG-DEA, 2024). in the volumes of imports that are registered by the Ministry Associations enable better access to markets and of Agriculture and imports that are reported by the Central market information, but the small share of participat- Reserve Bank.7 ing producers limits their effectiveness in transforming the domestic supply chain. These associations buy from Table 5: Imported volumes of maize: comparison of their members either with cash and basic receipts or with BCR and MAG values credit that is repaid after one month. They then sort, clean, and package the grain to be sold to wholesalers. Greater Importing Volume Volume Year regularity in the quantity and quality of the grain that they companies (no.) (MAG, T) (BCR-CIEX, T) deliver allows them to manage formal commercial relation- 2019 39 187 349 188 257 ships with buyers. These relationships are often maintained across production cycles; transactions include formal re- 2020 22 180 030 185 653 ceipts and the use of purchases on credit. Interviews suggest that the relatively low participation rate in associations may 2021 9 76 581 69 308 relate to difficulties in profitably offering services – partic- 2022 26 117 232 133 370 ularly in post-harvest processing – to producers in the con- text of high fluctuations in input and output prices. 2023 21 144 158 183 499 Informal intermediaries are the primary channel by which domestically produced maize reaches whole- Source: own elaboration, based on (MAG, 2023a; BCR, 2024) salers, processors, retailers, and consumers. Interme- White maize is brought to El Salvador by brokers, diaries own one or more trucks that can hold 8, 12, or 24 who then sell via portside storage firms to importing tons of grain each. They meet producers directly on their companies. Brokers include 4 multinational firms that sell farms to purchase grain in cash and without receipts, with grain under futures contracts that are negotiated 70 to 90 prices that correspond to movements in their respective days in advance, almost exclusively from the United States. wholesale markets and that are differentiated by quality or These firms include Bunge, ADM, Cargill, and Safra; Bunge cleanliness.6 Intermediaries perform minimal cleaning ser- and ADM represent the majority of sales by volume. White vices, and then sell to wholesalers in plazas and on streets maize is typically transported by these brokers to the port in urban and peri-urban markets. Trucks typically arrive be- of Acajutla, where it is managed by four storage providing tween 03:30 and 05:00 in the morning, and negotiate spot firms: Alcasa, Almapac, Gradeca, and Servygran. These firms prices with wholesalers that vary based on the total quanti- have a total capacity of 121,578 tons, for which approxi- ty of available grain and the number of buyers in the market. mately 40% (48,600) is typically devoted to the storage of Interviews suggest that there may be up to 500 actors who white maize. Of the two largest brokers, Bunge typically serve as intermediaries for the sector, but the population is sells directly to larger agro-processors, while ADM sells to highly fluid, with many entries and exits on an annual basis. wholesalers through Almapac and Gradeca (Defensoría del They are not formally registered, and no centralized record Consumidor, 2024). of their transactions exists. 6 According to interviews, quality is differentiated by the two varieties of seeds that are sown: H-59 and Dekal B. Dekal B fetches an additional premium of $0.50 to $1.00 per quintal. Cleaner grain can also fetch a premium of up to $0.50 per quintal. 7 This discrepancy is currently being resolved by the institution that processes phytosanitary receipts (MAG) and the institution that consolidates and publishes aggregate information on volumes and values (BCR). 26 Deep dives in El Salvador and the Dominican Republic Importers include grain companies who purchase that are active across multiple agro-industrial subsectors, from brokers via the storage providers, and flour im- have the resources to acquire plants and equipment, and porters who buy primarily from neighboring countries can establish relationships with formal vendors. Smaller either in port or at land borders. In 2023, there were 21 entrants exist but cannot yet capture equivalent market importers of white maize grain, whose distribution of im- shares. The predominance of an informal market for sales ports by volume is summarized in anonymized form in Table and distribution also plays a role in determining market dy- 6 below. These firms include both companies that process namics in the formal sector. grain into flour and other products, companies that engage in both processing and repackaging, and companies that Table 7: measures of market concentration in grain purchase solely to repackage the grain and sell it to domes- imports, 2019-2023 tic wholesalers. The two largest importers, Harisa and Dis- tribuidora de Alimentos Básicos, operate primarily as flour 4-firm concentration processors who then sell the grain itself as a surplus over Year Importers HH Index ratio existing processing capacity or demand. 2019 39 81% 2 330 Table 6: White maize grain importers in 2023 by 2020 22 92% 2 854 volume and share of total 2021 9 95% 5 110 Importer Imports (tons) % of total 2022 26 88% 3 811 A 61 877 43% 2023 21 86% 3 104 B 49 995 35% Source: own elaboration, based on (MAG, 2024b) C 6 758 5% White maize flour importers represent a smaller vol- D 5 023 3% ume of commercial activity compared to grain imports. Over the last five years, a total of 8 to 12 firms have imported an Others 20 505 14% average of 17,000 tons of this product annually. In 2023, the Total 144 158 100% white maize flour import market consisted of 11 specialized firms who imported a much smaller total of 15,351 tons. The Source: own elaboration, based on (MAG, 2024b) majority of this flour was imported from Honduras, Guate- mala, and Mexico. As shown in Table 7, the 4-firm concentration ratio for maize importers has remained above 80% since 2019, and the current Herfindahl-Hirschman Index of 3,104 indicates Domestic processing, wholesale, and a high degree of concentration in the sector.8 A preliminary retail interpretation of the patterns observed over time for these indicators could be that the COVID-19 pandemic may have The domestic wholesale market includes two key groups of reduced the financial capacity of smaller firms to partici- formally registered firms: domestic processors who trans- pate in the import market in 2022 and especially 2021, after form imported grain into flour or other prepared foods, and which the market experienced a gradual recovery in 2022 domestic wholesalers who buy both domestic and import- and 2023. These trends align with the shared perception ed grain and flour, to be sold to smaller distributors, retail- from interviews that despite the predominance of two to ers, and consumers across the country. four firms, barriers to entering the import market are rela- Domestic processors of white maize in El Salvador tively low (Defensoría del Consumidor, 2024). Despite low include three larger agro-industrial firms who produce barriers to entry, the capital-intensive nature of grain im- flour, and 36 firms that process grain into prepared portation and processing (including into ultra-processed foods. The agro-industrial firms include the two largest products) favors larger, historically established companies 8 The Herfindahl-Hirschman Index represents the sum of the squared shares of traded volumes for each importer within the total volume of imported grain. Values below 1,000 indicate low concentration, values between 1,000 and 1,800 indicate moderate concentration, and values above 1,800 indicate a high degree of concentration (Ukav, 2017). 27 Market structure and efficiency in agricultural value chains grain importers – Harisa and Distribuidora de Alimentos of the product. Firms purchase domestic grain daily be- Básicos – as well as Cemersa, a firm that procures import- tween 04:00 and 06:00 from intermediaries that bring their ed grain and transforms it specifically into nixtamalized trucks to the market; this grain is purchased using spot pric- maize. Information on processed volumes is not available es that vary by quality and cleanliness. Depending on these through public sources, but interviews suggest that the two attributes, wholesalers then undertake their own cleaning larger companies process between 25,000 to 40,000 tons and packaging processes. For imported grain and processed per year each. The additional 36 smaller food processing flour, firms purchase from the larger importing companies – firms procure primarily imported white maize grain and typically Harisa and Distribuidora de Alimentos Básicos – and transform it into prepared food such as tortillas, pupusas, then sell it in the same condition in which it was received, tamales, pastelitos, chichas, bread, and others. with minimal post-processing. Smaller importers also act as wholesalers directly within the major wholesale markets. All these 39 firms show preferences for imported The consistency and quality of imported grain minimizes rather than domestically produced grain. The three additional work and risks that wholesalers undertake; in- large agro-processing firms solely procure imported grain terviews suggest these drive an emerging preference on the for their operations. Until the mid-2010s, under a “maize parts of wholesalers for imported rather than domestically agreement” (convenio de maíz) overseen by MAG, processing procured grain in the context of falling international prices. firms had to buy a certain quota of their maize grain domes- tically before being given import licenses. After the abolition Agro-processors and wholesalers act as the primary of the agreement, these firms prefer solely to work with im- conduits of grain and flour to the retail and consumer ported maize because they can plan more effectively with sector; they sell through a diverse web of smaller dis- large brokers to ensure a consistent quality and quantity of tributors, supermarkets, artisanal processors, and maize grain over the course of a given year. Large import- neighborhood stores. The most prominent channels for er-processors are driven by a preference for grain that can direct consumer sale include the following: be delivered consistently with precise parameters for size, • Food stores and neighborhood shops: as of 2022, humidity, and cleanliness. Interviews suggest that smaller there were approximately 4,000 food-oriented firms also rely on imported maize to fulfil consistency and stores and market stalls that sold white maize grain, quality standards, with strict parameters for storage hu- flour, and products. Additionally, there were a maxi- midity and the absence of fungi, aflatoxins, or other foreign mum of 41,000 neighborhood stores that sold white substances that are more difficult to meet through domesti- maize among other food and non-food items. These cally procured grain. The distribution of purchases by origin actors operate along a wide spectrum of formality is not available for these firms, but it is likely that most of (Romero et al., 2022). them now favor imported over domestically produced grain. Actors in this segment of the chain expect that trends in pro- • Supermarkets: in addition to smaller stores, there curement will continue to shift towards imports. are approximately 200 supermarkets across El Sal- vador that are managed by three companies: Calleja Domestic wholesalers act as the critical link in the SA de CV (113 locations), Operador del Sur CA de CV supply chain that consolidates maize and maize flour (86 locations), and Pricesmart SA de CV (2 locations). from both domestic and imported sources. These whole- These stores sell almost exclusively white maize salers are formally registered companies that center their flour and processed products of imported origin. logistical activities in the principal grain markets of San Salvador (Calle Gerardo Barrios), Sonsonate, San Miguel, • Artisanal processors: as of 2022, there were ap- and San Vincente. There is no consolidated registry of these proximately 7,000 smaller artisanal processors who companies, but interviews suggest that there are approx- procured white maize grain from wholesalers and imately 200 firms in total across the country that engage then prepared flour, tortillas, and pupusas to be sold in the wholesale of white maize, among other products. to consumers. Approximately 3,800 of these are pu- These firms have an average storage capacity of 55 tons puserías. Many of these firms are micro-enterprises (1,200 quintals), with the largest firms storing up to 227 managed by one or two people, and the high preva- tons (5,000 quintals). On Calle Gerardo Barrios – the larg- lence of informality complicates any census of their est wholesale market for white maize in the country – firms activities (Romero et al., 2022). Within this category trade on average 100 to 150 quintals per day. are also small processors that produce and sell flour to retailers and consumers. In addition to scale, they Wholesalers undertake a range of processing and are differentiated from the medium to large indus- cleaning activities that varies depending on the origin trial processors primarily by the fact that they do 28 Deep dives in El Salvador and the Dominican Republic not formally register many of their activities, for approximately 10 to 11 million quintals (220,462 to example, with phytosanitary bodies in the Ministry 242,509 tons, or up to 65% of the total). of Health. Information on these firms, including the • The school feeding program (Programa de Ali- origin of their purchases, the scope of their activi- mentación y Salud Escolar) is implemented by the ties, and their sales, represents a critical gap in the Ministry of Education and procures food products current understanding of the supply chain. – including white maize – from associations and wholesalers to be processed at a ministry-owned Consumption and export plant and then be distributed in schools. In 2020, this program received support from the World Food The final stage of the value chain includes three distinct Program to develop a procurement, storage, and dis- channels for the domestic consumption of white maize: tribution system that allows for the consumption of between 16,000 to 23,000 quintals (350 to 500 • As mentioned above, approximately 5.1 million tons) of white maize grain. quintals (279,990 tons, or approximately 30% of the annual supply) of white maize are destined by The remainder of the annual white maize supply in maize producers for own consumption without El Salvador is exported. Exports of grain have remained leaving the farm. almost negligible compared to domestic supply, fluctuating around an annual average of 54,000 quintals (1,180 tons) • Retail consumption meets the needs of the approx- since 2019. During this time, annual exports of white maize imate 1,649,000 households in El Salvador (up to flour have averaged at approximately 1.44 million quintals 92% of the total) who do not produce white maize (65,214 tons). Only two companies participate in the ex- and instead buy it on the market, primarily in the port market: Harisa and Distribuidora de Alimentos Básicos. form of flour or processed foods. Total volumes of White maize flour is sold almost exclusively to neighbor- purchased grain, flour, and prepared foods are not ing countries in Central America: the largest recipients by available, but the grain that is traded through whole- volume since 2019 have been Honduras (53%), Guatemala salers and used for these purposes may represent (24%) and Nicaragua (16%). 2.4 Analysis of costs, prices, and margins along the value chain This section provides a closer analysis of the produc- 3.2. On the domestic production track, the section provides er, intermediate, and wholesale prices along the white estimates for the chain from producers to intermediaries to maize value chain. In the context of the low levels of mea- wholesalers. On the import track, estimates are provided for sured price transition from international to domestic pric- the chain from brokers to importing companies to wholesal- es for white maize grain, this analysis serves two purposes. ers. The focus of this analysis is on sales in grain form, with a First, it defines the key activities and inputs in the value preliminary summary of margins in the production of maize chain that determine the costs faced by actors in both the flour from nixtamalized grain. import and domestic production tracks that were described These cost and price estimates represent activities that above. Second, it allows for a more granular understanding center on the wholesale markets of San Salvador, are given of the relationships between these actors that could affect on a per-quintal basis (the market standard), and represent the efficient transmission and formation of prices. The ef- the conditions that value chain actors faced during the first ficiency of key activities in the value chain, as well as the quarter of 2024. They are constructed from official sources structure of the relationships that exist between these ac- on production costs and price movements, as well as in- tors, can offer a preliminary understanding of the origins of terviews with value chain actors and key informants.9 As the lack of efficient price transmissions, the market struc- the sample of interviews is relatively small, these estimates tures that contribute to them, and potential entry points for should be considered preliminary to further and more sys- policy-based solutions. tematic research. This analysis examines the costs and implied margins of key actors along the chain that were introduced in section 9 See Annex 2 for a description of the sample of actors who were interviewed. 29 Market structure and efficiency in agricultural value chains The domestic production track termediaries to wholesalers (B), and finally from wholesalers to retailers (C); the second line includes the marginal costs for Table 8 below summarizes the movement of prices and the each key activity (production, transport, and storage/cleaning) implied activity costs from production, informal intermedia- as well as the marginal profits to each actor at the point of sale; tion, to wholesale in San Salvador for domestically produced the third line summarizes the contribution of each element to white maize grain. The first line presents the prices at which the final wholesale price. The data sources and methods that the product is sold from farmers to intermediaries (A), from in- inform these values can be found in Annex 2. Table 8: Accumulated prices, costs, and margins by value chain stage for domestically produced white maize grain A Production B Intermediation C Wholesale Storage / Production Sale Transport Sale Sale cleaning c = a+b f = c+d+e i = f+g+h Price $16.00 $18.50 $21.00 MC (a) π (b) MC (d) π (e) MC (g) π (h) Marginal cost (MC), profit (π) $12.86 $3.14 $1.00 $1.50 $1.00 $1.50 a/i b/i d/i e/i g/i h/i % final wholesale price 61% 15% 5% 7% 5% 7% Source: own elaboration, based on interviews and (MAG, 2023b, 2023a). Prices are expressed in USD per quintal. In Q1-2024, the average semi-mechanized maize $18 per quintal from informal intermediaries, and then producer in El Salvador faced production costs of $12.86 sold it at an average price of $21 per quintal. Wholesalers per hectare. These production costs, developed in collabo- undertake activities in cleaning, packaging, and storage that ration with the Directorate of Agricultural Economics in the cost approximately $1.00 to $2.00 per quintal, depending on Ministry of Agriculture, follow from annual analysis of pro- the initial cleanliness and quality of the grain. duction costs developed by the Directorate for this sector. This distribution of prices reported in Table 8 sug- In Q1-2024, informal intermediaries purchased gests that relatively higher margins exist for producers maize at approximately $16 per quintal from farmers, vis-à-vis actors in other segments of the value chain, but and sold it at between $17.00 to $18.00 per quintal to does not adequately convey the level of variation that wholesalers in San Salvador. No systematic information they face from climatic and input/output market risks. exists on the prices and negotiation tactics that informal While producers may capture up to 15% of the final whole- intermediaries employ when engaging with wholesalers. sale price as a profit margin, this margin obscures a high de- However, interviews suggest that these intermediaries faced gree of monthly and annual variability in costs and farmgate costs for storage and transport of approximately $0.50 to prices. For example, between 2022 and 2023, the per-hectare $1.00 per quintal at the start of 2024, and that they sought costs for chemical inputs in maize production rose by almost margins of approximately $1.00 to $1.50 per quintal. Profit 100%, before falling by 30-40%. This enormous variation margins thus stand at $0.50 to $1.00 per quintal for these greatly constrains farmers in their production decisions, actors; variations in costs and prices depend on the quality which hurts productivity and adds further uncertainty to of the grain that they trade, as well as the distances at which their margins. All this taken together means that they operate they must transport it. In some cases, intermediaries may at a loss in some cycles, and earn a margin in others: inter- store the grain in small warehouses for up to 3 months, but views show that many producers operated at a loss during this storage does not incur additional costs that would affect the 2022-2023 production cycle. The margins captured by its price to wholesalers. intermediaries and wholesalers, in contrast, remain relatively stable across cycles. These actors assume a lower level of risk In Q1-2024, wholesalers in San Salvador bought do- on an annual basis than do the producers that they buy from. mestically produced maize at prices of between $17 to 30 Deep dives in El Salvador and the Dominican Republic The import track and 3 large agro-processors that were active in 2023. These companies undertake a mixture of import, intermediation, Table 9 summarizes the prices, activity costs, and implied and distribution activities (represented in column B), before margins for importing companies and wholesalers of white selling to domestic wholesalers (represented in column C), maize grain during Q1-2024 in San Salvador. In this sce- including the wholesalers who operate on Calle Gerardo nario, the importing companies include the 37 distributors Barrios in San Salvador. Table 9: Per quintal accumulated prices, costs, and margins by value chain stage for imported white maize grain A Brokerage B Intermediation C Wholesale USD per quintal Import Transport / CIF Costs Sale Storage Sale Services storage e = a+b+c+d h = e+f+g 1 Accumulated price $18.00 $19.00-20.00 MC (a) MC (b) MC (c) π (d) MC (f) π (g) 2 Marginal cost and profit $14.82 $1.0110 $1.17 $1.00 - $1.00-2.00 a/h b/h c/h d/h f/h g/h 3 % final wholesale price 78% 5% 6% 5% - ~5% Source: own elaboration, based on interviews and (MAG, 2023a; BCR, 2024) Importing companies purchased grain from brokers receive it from the importers, gaining a margin of 5 to 10%. at an average CIF price of $14.82 per quintal in Febru- In 2024, wholesalers on Calle Gerardo Barrios were selling ary-2024 (the latest date of measurement). This grain imported products at a final price of $19-20 per quintal, was brought almost exclusively from the United States. The $1.00 to 2.00 lower per quintal than the price for domestic CIF price reflects the costs incurred during production, products displayed in Table 6. drying, transit to port of exit, maritime transit, and approx- Evidence tentatively suggests that the processed imately $1.25 per quintal in taxes at the port of entry of Aca- flour subsector holds the highest margins in the value jutla. During the importation and intermediation process, chain for white maize. There are three processing firms importers purchase at the CIF price and incur a services cost who produce nixtamalized flour from imported white maize of approximately $1.01 per quintal11 and incur further trans- in El Salvador: Harisa, Distribuidora de Alimentos Básicos, port and storage costs of $1.17 per quintal. Transport and and Cemersa. Interviews suggest that white maize grain is storage include any combination of activities that take the transformed to nixtamalized flour with a 92% weight con- grain from the port to intermediate warehouses to whole- version rate, generating 1 quintal of maize flour per 1.09 salers and domestic processors. quintals of grain. The cost for processing is approximately Importers sell to domestic wholesalers and pro- $4.00 to $5.00 per quintal of produced flour. As shown in cessors for $18.00 per quintal. Wholesalers then sell figure 4, a differential of more than $20 per quintal existed maize in grain form for approximately $19.00 to 20.00 between white maize grain and flour at wholesale markets per quintal, incurring negligible storage fees in the in San Salvador, and flour prices have exhibited much more process. When imported white maize arrives at the point stability over the past five years. More research is needed to of wholesale, it has already been cleaned and packaged in a identify the approximate margins enjoyed by agro proces- way that necessitates no further activity from wholesalers. sors for this product: there is the possibility that they are This enables them to sell the grain in the same form as they significantly higher than those faced for grain. 10 Average value reported by the Defensoría del Consumidor 11 Portside services include those provided by one of the four larger storage firms, which generally consist of $0.13 for unloading, $0.05 for internal transport, $0.12 for storage, $0.19 for cleaning, $0.05 for fumigation, $0.15 for packaging, $0.31 for packaging materials, and $0.01 as a municipal tax. 31 Market structure and efficiency in agricultural value chains Figure 7: A comparison of wholesale prices for white maize grain and flour Per-Quintal Wholesale Prices of White Maize Grain and Flour, 2018-2023 $60,00 $50,00 $40,00 $30,00 $20,00 $10,00 $- ene-18 mar-18 may-18 jul-18 sep-18 nov-18 ene-19 mar-19 may-19 jul-19 sep-19 nov-19 ene-20 mar-20 may-20 jul-20 sep-20 nov-20 ene-21 mar-21 may-21 jul-21 sep-21 nov-21 ene-22 mar-22 may-22 jul-22 sep-22 nov-22 ene-23 mar-23 may-23 jul-23 White maize flour ($/QQ) White maize grain ($/QQ) Source: own elaboration, based on (MAG, 2024b) The costs, prices, and margins faced presented in tracks may contribute to their complete bifurcation. Domes- this section are preliminary estimates that reflect the tic producers, intermediaries, and grain wholesalers remain state of the market during the first quarter of 2024; highly fragmented, which may impede both the productive they obscure a high degree of annual variation as well coordination and the flow of information that are needed as variation between actors of different sizes and ca- to consistently supply the commercial agro-processing and pacities. However, several important conclusions stand formal distribution networks for white maize. Conversely, out. First, across both the domestic production and import the concentrated commercial processor-distributors benefit tracks, intermediaries and wholesalers face the most consis- from a high degree of coordination and information-shar- tent marginal costs, and face relatively fewer risks in periods ing with the brokers who are able to fulfil the quantities where production or import costs fluctuate. Second, as enti- and consistencies that their activities require. As a result ties that undertake almost all of the value-added activities in of this dynamic, domestic producers do not participate in transporting, processing, or packaging maize, importer-pro- the larger, formalized processing and distribution systems cessors capture the overwhelming share of margins in the whose products are now priced more competitively in both process of selling imported products. Finally, differences in supermarkets and smaller wholesale sites as international concentration levels on the domestic production and import prices for maize fall. 2.4 The institutional environment: actors and policies Institutional actors • The collection of information on production, trade, and prices of basic grains is undertaken by the Di- The institutional environment that supports maize produc- rectorate General of Agricultural Economics (DEA). tion and trade revolves around the activities of the Ministry • Agricultural trade flows are monitored by the Plant of Agriculture (MAG), which coordinates four crucial sets Health Division, which receives and verifies phy- of activities: tosanitary information from importers, and which • Strategic planning and sectoral coordination are consolidates and publishes trade data with the Im- overseen by the Office of Policies and Sectoral Plan- port and Export Center of El Salvador (CIEX). Ad- ning (OPPS), which is responsible for planning an- ditionally, MAG manages a technical commission nual activities and for informing the publication of with the Ministerio de Economía and the Ministry of new development strategies, laws, and policies. Finance that determines the annual national surplus or deficit in the supply of white maize with respect to demand, and authorizes imports accordingly. 32 Deep dives in El Salvador and the Dominican Republic • Finally, across its operational divisions, MAG imple- encouraged production diversification. The Ley de Semi- ments programs of targeted support and investment llas (Decreto Legislativo No 530, Tomo 352) was introduced for farmers that are mandated through the Master in 2001 and regulates the characteristics and cleanliness of Plan for Agricultural Recovery (Plan Maestro de Res- seeds used for inputs. The Ley de Sanidad Animal y Vegetal cate Agropecuario). (decreto legislativo No. 524) similarly establishes sanitary standards to be followed during the production and sale of In addition to MAG, several other public institutions food products, including those derived from maize. serve as key coordinators and implementers of policies that affect the maize sector: The Plan Maestro de Rescate Agropecuario (Master Plan for Agricultural Recovery) was approved in 2021 and • The National Center for Agricultural Technolo- serves to guide investments in productivity and producer gy Transfer (CENTA) is a governmental institution support for food staples (including white maize) and for tasked with agricultural research and technology coffee. A key provision of this plan is the Programa de In- transfer. CENTA plays a key role in evaluating and sumos Agrotecnológicos (Program for Agro-Technology recommending new seed varieties and genetic ma- Inputs – PIATEC), mentioned earlier in this report, which terial to be delivered in producer support programs provides producers with agricultural inputs annually at such as PIATEC, as well as the provision of techni- the start of the first production season, for a value of ap- cal and advisory services such as the ones offered proximately $110 to all farmers inscribed in the Registry of through the Program for High-Yield Maize Produc- Agricultural Producers (RUPA), representing near universal tion (SMAR). Apart from these programs, it current- coverage of the producing population. White maize produc- ly operates under an extension provision model by ers specifically used to receive seeds, fertilizer (NPK 16-20- which 110 regular technicians assist approximately 0), and pesticides. However, in 2024, the government has 33,000 producers (300 per technician). replaced PIATEC with a voucher card given to all registered • The National Commission for Micro and Small farmers annually at the start of the first production cycle Enterprises (CONAMYPE), within the Ministry of with $75 to be spent on a combination of inputs of their Economy, engages with the population of small and choice. This shift implies a substantial decrease (by 32%) medium enterprises that dominate the wholesale in the value of support received by maize farmers. On the and retail sectors that trade and sell white maize. It other hand, the fungibility of the voucher system (in com- manages the collection of information as well as the parison to the receipt of physical inputs) is likely to allow delivery of financial and technical support to these for greater flexibility in production choices on the parts of actors, and thus serves as the main publisher of sta- farmers(MAG, 2024a, 2024d). tistics on their operations. Specific to the white maize sector, the Ministry of Agri- Limited financial services to white maize production culture has developed the Siembra de Maíz de Alto Ren- are provided through the Agricultural Development dimiento (High Yield Maize Production – SMAR) project, Bank (BFA). Through the Fideicomiso de Desarrollo Agro- launched in 2022. Through this program, the MAG has pecuario (FIDEAGRO) program, BFA operates a credit line trained 200 technical specialists to provide extension ser- for white maize producers that offers interest rates of 4% vices to maize farmers, and has procured approximately (lower than prevailing rates on the private market), as well 120 pieces of machinery that can be leased to farmers to as parametric micro-insurance programs that can be con- pilot intensified production and harvest techniques (CENTA, tracted on a per-harvest basis to compensate for extreme 2022; MAG, 2024h). weather-based and seismic events. This service carries cost Most recently, the Government of El Salvador (through of approximately USD 43 to 70 per hectare per harvest (9% MAG) has developed the Ley Integral de Comercialización to 13% of total per-hectare production costs in 2023), and Agropecuaria (The Comprehensive Agricultural Mar- is used by approximately 15,000 clients, or 5% of the maize keting Law, Decreto No. 834, octubre 2023) which, as of producing population. April-2024, was pending finalization and entry into force. This policy aims to overhaul support to the agricultural Policies and support mechanisms sector by focusing on the institutions and mechanisms that govern internal trade, with the goal of reducing transporta- Producer-oriented policies for white maize have histor- tion costs, transaction costs, and information asymmetries ically focused on facilitating access to improved inputs for producers and consumers. For white maize, specifically, and production methods; recent policies have implicitly the draft law contains provisions for the formalization of 33 Market structure and efficiency in agricultural value chains the intermediary sector, the development of wholesale mar- flat tariff of 20%. In 2006, this tariff-free quota was 35,700 kets, and the creation of public-private entities that offer metric tons, and it was increased thereafter by 700 metric post-harvest and processing centers, storage centers, and tons annually. Simultaneously, from 2004 to 2020, MAG marketing channels for basic grains. The draft law also es- coordinated the Convenio de Comercialización de Maíz tablishes basic provisions for the creation of a physical grain Blanco (The Trade Agreement for White Maize). This poli- reserve that could be used to dampen the effects of upwards cy mandated that the four largest agro-processing firms in shocks in international prices for consumers (Government the country procured a minimum of one fifth of their white of El Salvador, 2023). maize grain domestically. This procurement process was organized annually through a roundtable negotiation, fa- Consumer-oriented policies have focused on pro- cilitated by MAG, between these companies and producers’ viding support to vulnerable populations. The Ley de associations. At the end of this session, MAG would grant Desarrollo, Protección e Inclusión Social (The Law for import licenses to the firms for the remainder of the maize Development, Protection, and Social Inclusion), approved that they needed for that year. Since 2020, this policy has no in 2014, defines a rights-based approach to improving food longer been in effect; as mentioned earlier, the participat- security and social protection for the general population. It ing firms now exclusively import white maize grain (García- establishes a legal framework for providing direct support Jiménez and Gandlgruber, 2014; Ayala Durán, 2020). to vulnerable people, and also includes support mechanisms for family farms such as input packages. The Política Nacio- Since 2022, however, the importation of white maize nal de Seguridad Alimentaria y Nutricional (The Nation- grain has been completely liberalized as part of a larger al Food Security and Nutrition Policy), approved in 2018, attempt to stabilize consumer food prices. The Ley espe- establishes more specific provisions for achieving goals in cial transitoria de combate a la inflación de precios de food security and nutrition, including targeting strategies productos básicos (The Temporary Measure Against Price for vulnerable populations. Finally, the Programa de Ali- Inflation for Basic Foods, Decreto No. 309, March 2022) mentación y Salud Escolar (The School Feeding Program was passed in parallel to the rapid rise in fertilizer and food – PIASE), developed by the Ministry of Education (National prices observed in 2022. It temporarily reduced tariffs for Directorate for Prevention and Social Programs) to provide basic food products to 0% from any country of origin, re- school meals across the country, provides a basic set of moved import quotas for these products, and enabled the foods to approximately 5,100 schools three times per year, Consumer Defense to undertake additional price monitoring with each delivery sufficient to supplement student meals activities that would detect and respond to excessive price for four months. increases. Throughout 2023 and 2024, verifications of fair prices have been carried out on a more systematic basis in Historically, trade policies have attempted to offer major wholesale markets across the country (MAG, 2023c; moderate protection to domestic producers through Asamblea Legislativa, 2024). Simultaneously, the reduc- quota-based tariff rate of 20% and a local procurement tions in tariffs included in this measure have been extended quota for large agro-processing firms. In 2006, El Salva- through 2026 (FAO, 2024a).The continued liberalization of dor’s membership to Central American Free Trade Agree- maize imports, combined with rising domestic production ment (CAFTA) entered into force. CAFTA stipulated that El costs and changing consumer preferences, may significantly Salvador would not apply any tariffs or taxes to a specified affect trends in domestic production over the coming years. quota of imported white maize, after which it would apply a 2.5 Synthesis: market structures, potential inefficiencies, and policy options for the white maize value chain The white maize sector in El Salvador depends on a four large brokers, distributors, and agro processors before complex chain of activities that originate both in do- arriving to the wholesale and domestic processing sectors. mestic production and import. The domestic production Wholesalers typically sell both domestic and imported grain, satisfies approximately 80% of annual demand, facilitated which are purchased by artisanal processors, food vendors, by 336,000 smallholder farmers who consume a large share and neighborhood shops who convert it to flour, tortillas, of their production themselves before selling via associa- or pupusas. Larger processors solely work with imported tions and informal intermediaries to wholesale markets. The maize, and sell their products through formal retail markets. remaining 20% originates with imports that pass through 34 Deep dives in El Salvador and the Dominican Republic The domestic production track is characterized by producers. Most producers continue to sell to intermediaries low degrees of market concentration, high degrees of in- at farmgate in cash, without receipts or a shared understand- formation asymmetry, and a pricing system that allows ing of how demand and prices will change. The margins that intermediaries and wholesalers to operate with fewer producers enjoy from production are highly variable with re- risks than producers. There are a myriad of smaller actors spect to input costs and production conditions. Conversely, who operate at each stage along this supply chain, over which the margins that intermediaries and wholesalers face have no single one exerts significant influence. The informality of remained relatively stable over the past several years, and the intermediary sector, however, hinders the efficient trans- these actors face lower levels of risk in continuing their activ- fer of market information from retailers to wholesalers, to ities compared to the producers that they buy from. Table 10: A summary of implied market concentration along stages in the white maize value chain Phase No. entities Implied concentration Low Production 140,000 Reinforced by weak presence of associations Domestic Production Low Intermediation 500 Characterized by small-scale trucking system High Brokers 4 2-firm ratio at least 70% Storage 4 High Imports High Importer-Distributors 18 4-firm ratio 85%; HHI 3,104; declining trend High Importer-Processors 3 1 firm captures 70% of processing volume Low Wholesale Domestic Wholesale 200 Up to 40 larger firms may capture 40% of total market value for whole grain Source: own elaboration, based on interviews and official sources Importers and agro-processors manage a supply of their domestic equivalents. Consistent quality and the re- imported white maize that remains wholly separate duced need for sorting and post-processing have added to from domestically produced products until it reaches its recent competitive edge in the consumer market. Finally, wholesale and retail in grain and flour form. They ex- limited evidence suggests that the market for commercially hibit higher levels of market concentration, but face processed maize flour is highly concentrated, and that the relatively low barriers to entry and exit. Over the past three participating firms enjoy substantial margins that are year, importers and wholesalers have enjoyed substantial not yet effectively measured by the public sector. margins by trading imported maize, with implications for The public policy environment may be shifting away the composition of the market as a whole. The agro-process- from supporting maize production, and towards a dual ing sector for white maize consists of only three firms, one strategy of domestic diversification and price stabi- of which also presides over more than half of maize grain lization through import-based food reserves. Maize imports. However, there is a relatively large and fluid pop- producers in El Salvador overwhelmingly depend on an in- ulation of smaller importer-distributors that sell to whole- put package that they receive annually from the Ministry salers and domestic processors, facilitated by a reduction of Agriculture; in 2024, MAG replaced this package with a in tariffs for the product. The fall in maize prices in 2023 voucher that could be spent on inputs for any purpose, and has allowed these actors, as well as wholesalers, to enjoy interviews suggest that the fungibility of this support may significant margins in the importation of white maize grain. induce many farmers to diversify their production away As of the first quarter of 2024, wholesalers found it cheaper from maize. Simultaneously, the government has pursued a and more convenient to buy imported products rather than 35 Market structure and efficiency in agricultural value chains liberalization of imports and the creation of a strategic food receive for their production. Measuring and formal- reserve that will primarily source from imported grains. The izing the intermediary market would both improve upcoming Ley Integral seeks to develop transit, processing, decision-making information that is available to and marketing infrastructure that will allow producers to producers, and reduce the potential for price dis- interact more closely with consumer markets. These policies tortions for these producers and consumers. are likely to have tentatively positive implications for mar- • Second, while the importer-distributor sector re- ket efficiency: the revised PIATEC system may allow farm- mains fluid and currently offers competitive pric- ers to make more economically efficient production choices, es to wholesalers and retailers, it remains de facto while the market transformations supported by the Ley highly concentrated, and its activities are not fully or Integral may reduce the search and transaction costs that effectively monitored by the Defensoría del Consumi- arise during production and intermediation and lead to the dor. As access to imported grain can lower consumer more efficient formation of prices. However, the quality of prices and ensure more consistent quality and phy- their implementation remains to be seen, as do their effects tosanitary characteristics, ensuring that concentra- on the informality of the intermediaries who dominate the tion does not lead to distorted prices for consumers white maize sector. is paramount. In addition, as these actors possess The low observed international price transmission substantial storage facilities as well as a strong ca- to domestic markets may result from the historical pre- pacity to coordinate the movement of white maize dominance of local production and own consumption. grain and flour along the supply chain, developing a However, evidence suggests that imports are playing more transparent and effective method of assessing an increasingly important role in wholesale and retail grain stocks at each stage would provide the pub- markets. Domestic production remains the principal source lic sector with a greater range of information and of white maize for most consumers, and rural people often policy options for anticipating and responding to produce and consume their own supplies. However, there international and domestic price changes. is evidence that falling international prices and low barri- • Third, almost all large-scale transportation, storage, ers to entry for importer-distributor firms may be changing and processing infrastructure is oriented exclusively the composition of the consumer market. Interviews with towards imported white maize grain. Improving the wholesalers highlight a growing preference for imported productivity of domestic maize farmers alone may grain. In 2024, while interviewed wholesalers observed that be insufficient to efficiently integrate them into the prices for both imported and domestically produced white segment of the supply chain that coordinates indus- maize grain fell, international prices fell faster, giving import- trial processing and distribution. While the Ley Inte- ed products a perceived advantage in the domestic market. gral may establish a parallel set of market linkages The analysis in this chapter has highlighted the fol- between domestic producers and consumers, there lowing potential inefficiencies in the supply chain: is a need on the part of the public sector to compre- hensively assess the implications for maintaining a • First, fragmentation and informality in the inter- bifurcated processing and sale system for domestic mediary and wholesale markets may generate in- and imported maize. formation asymmetries that reduce the negotiating power of producers as well as the margins that they 36 Deep dives in El Salvador and the Dominican Republic 37 Deep dives in El Salvador and the Dominican Republic 3 The commercial banana sector in the Dominican Republic 3.1 Patterns and trends in production, trade, and consumption Banana production involves cultivars of the species ricultural production and 22% of the total value of agricul- Banana spp. within the Musaceae family. In the Domin- tural exports annually (FAO, 2024b). Banana production is ican Republic, most production is dedicated to the Cav- concentrated in the Northern, Northwest, and Southwestern endish variety, with Johnson and Gros Michel bananas regions of the country; the commercial sector is most active produced in smaller amounts. Banana plants reproduce in the former two regions, centered on the areas surround- vegetatively and bear fruit as well as additional plant shoots ing Santa Mao de Cruz (MAG, 2024g). As shown in Figure after approximately one year of growth. To develop effective 1, annual sown area for bananas has decreased and then fruit yields, they require extensive direct sunlight and water; stagnated from 2018 onwards. ideal growing conditions include average temperatures of 26° to 30° Celsius and rainfall (or an irrigation equivalent) Figure 8: Total sown area for bananas in the of approximately 1,200 mm per year. Commercial banana Dominican Republic, 2012-2022 plantations rely on staggered plant and fruit growth, usual- Sown Area: Banana (Hectares) ly by intervals that enable the harvest and consolidation of 8.000 new batches of fruit once per week. Harvested fruit is then 7.000 sold in green form, packaged for export, or sent to storage 6.000 to be ripened before sale. The ripening process takes 10 to 5.000 14 days without refrigeration, and more than 21 days with 4.000 Ha refrigeration (Gonçalves, 2014; Voora, Vivek et al., 2023). 3.000 Banana production in the Dominican Republic re- 2.000 flects a wide spectrum of practices, from informal culti- 1.000 vation to internationally certified commercial systems. - 2020 2022 2018 2014 2016 2019 2015 2013 2012 2021 2017 Banana plants are typically grown across three broad pat- terns of production: as a component of household-level pro- duction systems, as a crop in commercial polyculture that Source: own elaboration, based on (MAG, 2024g) shades cacao and coffee, and as a commercial monocrop Accurately measuring aggregate activity in the sector whose fruit is sold on domestic and export markets. The is complicated by informal and secondary production commercial banana sector in the Dominican Republic refers systems. FAO and the Ministry of Agriculture both estimate to producers who specialize in selling bananas as their pri- that annual national production volumes for banana have mary product; it includes the sale of bananas for export and steadily increased to reach 1.4 million metric tons (the 8th for domestic consumption via food retailers. The activities highest in Latin America and the Caribbean) in 2022, with of this commercial sector are more easily measurable than implied consumption levels of approximately 1.06 MT. The is secondary and informal production. total number of primary producers, secondary producers, Aggregate figures suggest that the banana sector and larger informal producers may total to approximately has served as a stable contributor to the agricultural 47,000 farmers. However, interviews suggest that these fig- economy of the Dominican Republic. Since 2018, banana ures may overestimate the quantity of bananas entering the production has comprised 2.5% of the gross real value of ag- market because they assume that all secondary production 39 Market structure and efficiency in agricultural value chains enters the economy for consumption; in reality, bananas cially oriented production that is destined either towards that are secondary crops on plantations may not all be in- exports or domestic wholesale. Their figures suggest that tended for either on-farm or market consumption. National total production in 2022 and 2023 were approximately statistics in 2022 implied an annual per capita consumption 480,000 and 390,000 tons respectively; this decline in pro- of 81.4 kilograms, far above the figures for Central Ameri- duction appears to have followed from worsening market ca (24.8 kg), Europe (12 kg), and North America (20.8 kg) conditions for producers in 2022. Each year, approximately during that year (FAO, 2024b; MAG, 2024f). 10 to 15% of this production volume is destined initially for the domestic market, while 90% is initially destined for This chapter focuses on the commercial banana export. Up to 20% of export-oriented production is how- subsector: evidence suggests that it produces between ever rejected and eventually sold on the domestic market, 390,000 to 550,000 MT annually, with approximately so that only 72% of the original total is ultimately sent for 72% of this production destined for export. The Asoci- export. Over the past five years, commercial producers have ación Dominicana de Productores de Banano (ADOBANA- exported an average of approximately 355,000 MT of banan- NO) serves as a federation of producers and producers’ as annually, with over 88% of this volume destined for the associations that consolidates and validates information on EU and the UK markets (ADOBANANO, 2024a; MAG, 2024c). formal commercial production. In contrast to the statistics published by MAG, ADOBANANO strictly measures commer- Figure 9: Production statistics compiled by the Ministerio de Agricultura (MAG) and the Asociación Dominicana de Productores de Banano (ADOBANANO) Production Statistics: Banana Comparison of Data from MAG and ADOBANANO 1600 1400 1200 1000 800 600 400 200 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Production 1000T (MAG) Exports 1000t (MAG) Implied Commercial Production 1000t (ADOBANANO) Implied Consumption 1000t (MAG) Note: this graph includes two sources of statistics. Production and consumption from MAG refer to the official published statistics from that Ministry that cover all production, whether destined for commercial consumption or not. Commercial production measured by ADOBANANO refers to the production on the part of their members that is oriented strictly towards export or local wholesale and retail markets. Source: own elaboration, based on (ADOBANANO, 2024a; MAG, 2024f) Bananas enter the value chain through producers ed in the provinces of Valverde and Santiago in the North who generally negotiate with exporters via producers’ and Northwestern regions of the country. Almost all of them associations or sell to domestic intermediaries on an in- belong to a producers’ association, and over 80% operate dividual basis. ADOBANANO estimates that as of end-2023, on 16 hectares of productive area or less. They produce ba- there are approximately 1,700 commercial producers locat- nanas using a wide range of practices that can be classified 40 Deep dives in El Salvador and the Dominican Republic across two sets of distinctions: first, Fair Trade and non-Fair more centralized and vertically integrated exporters (EU, Trade, and second, Conventional and Organic. These practic- 2010; EU Commission, 2022). Second, the Dominican com- es, and the certifications that verify them, differentiate the mercial banana sector oriented itself towards organic and prices that farmers receive when selling bananas through Fair Trade certified products that enabled a higher premium exporters. Meanwhile, domestically oriented production to be sought on the EU and UK markets in the context of generally conforms to conventional standards without any preferential access (Vagneron and Roquigny, 2011). A wide additional premium offered for Fair Trade or organic prac- range of organic and conventional prices exist, but a com- tices (Fair Trade International, 2023; ADOBANANO, 2024a; mon minimum reference point for these prices are those Fair Trade, 2024). published by Fair Trade International. Shown in Figure 3, they are reconsidered for producers in the Dominican Re- The banana export market has historically served as public on an annual basis through a consultative process, the primary driver of growth in the Dominican banana and are meant to reflect additional compensation for labor sector through the premia offered by certified products. costs that may not be considered in conventional production The commercial banana sector experienced rapid rates of (Fair Trade, 2024).13 Annual pricing exercises have not nec- growth from the 1990s onwards, contextualized by two con- essarily corresponded to annual price increases; most nota- ditions. First, policies of preferential access on the part of bly, prices for both conventional and organic bananas were the EU, following from the Lomé Agreement in 197512 and either lowered or remained stagnant from 2019 to 2021. revisions of the import regime from 1993 to 2001, allowed the smallholder-dominated industry to compete against Figure 10: The comparison of farmgate prices for conventional and organic bananas measured by MAG, and minimum farmgate prices for conventional and organic bananas produced under the Fair Trade regime, 2014-2024 Conventional Green Banana: Farmgate and Fair Trade Prices 14,00 12,00 10,00 8,00 6,00 4,00 2,00 - Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Conv domestic farmgate USD/Box Org Domestic Farmgate USD/Box Conv Fair Trade USD/Box (Farmgate) Conv Fair Trade USD/Box (Port) Org Fair Trade USD/Box (Farmgate) Org Fair Trade USD/Box (Port) Source: own elaboration, based on (Fair Trade International, 2023; MAG, 2024e) 12 The Lomé Convention is an agreement signed between the European Economic Community (as a precursors to the governing mechanisms of the EU) and a group of countries belonging to the Organisation of African, Caribbean, and Pacific States (ACP). For The Dominican Republic specifically, the Lome Agreement (and its renegotiations in the 1980s) allowed for preferential access (exclusion from a common external tariff) to the import markets of European countries for bananas. These terms were renegotiated in 1993. 13 A full discussion of the differences between the considerations for conventional and organic prices can be found in Annex 2 41 Market structure and efficiency in agricultural value chains However, recent trends suggest that the traditional A relative increase in the share of exports to neighboring export markets for the Dominican Republic may be de- countries in the Caribbean and Latin America suggests that clining. As of 2023, the Dominican Republic is perceived to established exporters in the country are searching for al- remain one of the largest exporters of organically certified ternative markets, though this reorientation has not coun- bananas, and almost 90% of total banana exports were ori- teracted the declining in total export volumes. Interviews ented towards the UK and the EU (Voora, Vivek et al., 2023; tentatively suggest that a narrowing of the price premium MAG, 2024c). Currently, 16 exporting companies partici- for organic bananas, as well as increasing competition from pate in the commercial banana sector, and 61% of exports other exporters in Latin America in the conventional banana by volume carry some form of organic certification (ADO- market, may be negatively affecting the sales of Dominican BANANO, 2024a; MAG, 2024c). However, in 2023, export exporters. volumes to the UK and to the Netherlands fell significantly. Figure 11: Banana exports by volume, major destination, and % that are registered as organic Exports of Bananas by Volume and % Organically Certified 450.000 90% 400.000 80% 350.000 70% 300.000 60% 250.000 50% 200.000 40% 150.000 30% 100.000 20% 50.000 10% - 0% 2018 2019 2020 2021 2022 2023 Netherlands United Kingdom Trinidad and Tobago Germany Spain United States Sweden Other EU Other Non-EU % Organic (right axis) Source: own elaboration, based on (MAG, 2024c) Declining export volumes reinforce a shared per- creased by 21% and 412% between 2022-2024 respectively, ception that the commercial banana sector may be ap- with disproportionately strong effects on small producers. proaching a crisis in productivity. Intensifying export Declining cost competitiveness on an increasingly compet- competition, rising costs, and stagnating export pric- itive export market has then prevented many farmers from es contribute to a cycle of underinvestment, declining investing in renewal plans that would improve yields, plac- yields, and reduced competitiveness. Both ADOBANANO ing them at a further competitive disadvantage (ADOBA- and MAG confirm that the predominance of environmen- NANO, 2024a; Fair Trade, 2024). More systematic research tally and Fair Trade certified practices has set a maximum is needed to identify the yields and market conditions that productive threshold of approximately 1.9 boxes per acre would ensure profitability for these producers, as well as week14 (81.17 kg per hectare per week) for the average the investments that would facilitate better productivity and producer. However, ADOBANANO suggests that due to slow market access. rates of plantation renewal, average yields among its mem- Interviews suggest that up to 28% of the annual bers have been steadily decreasing over the past decade to volume of commercial banana production is destined 1.2 boxes per acre per week (53.79 kg per hectare per week) for domestic consumption, through two channels. First, or less. Simultaneously, labor and fertilizer costs have in- 14 Bananas production is commonly measured in 18.14 kg boxes, while productive area is commonly measured in acres 42 Deep dives in El Salvador and the Dominican Republic approximately 10% commercial production by volume is tional rather than organic practices) are frequently produced specifically for domestic consumption. Producers consumed on the domestic market ; a lack of system- sell these bananas on an individual basis to informal inter- atic information on the intermediary and wholesale mediaries for wholesale in green form or to ripening ware- sectors complicates the picture of how domestic supply houses that will sell to retailers as ripened fruit. A smaller has responded to demand. Bananas are consumed most number of larger producers have integrated these ripening commonly in green and ripened form; green bananas are facilities into their own operations. Second, approximately, increasingly being consumed as a substitute for plantains. 18% of the volume of bananas destined for export are reject- To reach the domestic retail market, commercial bananas ed when packaged to be sent to exporters. These bananas pass through one of two channels: a system of informal are then sold directly to informal intermediaries on an in- intermediaries, on one hand, or semi-formalized ripening dividual basis for a marked down price (Feschet, Pauline et facilities, on the other. Through the former, green bananas al., 2020; ADOBANANO, 2024a). Both categories of transac- are trucked by those intermediaries to urban and peri-ur- tion are not systematically monitored, complicating efforts ban points of wholesale (such as Mercado Santo Domingo), to characterize the participants and the exact volumes that before being sold to retailers. Through the latter, ripened are sold. bananas arrive to supermarket chains or specialized food retailers who have preexisting arrangements with ripening Limited evidence suggests that conventionally pro- facilities (ADOBANANO, 2024a). duced bananas (i.e. bananas produced with conven- Figure 12: Domestic farmgate, wholesale, and retail prices for conventional green banana Conventional Green Banana: Producer and Wholesale Prices Wholesale and Retiail prices measured in Merca Santo Domingo 12 10 USD/18.14kg box 8 6 4 2 0 2018 January 2018 March 2018 May 2018 July 2018 September 2018 November 2019 January 2019 March 2019 May 2019 July 2019 September 2019 November 2020 January 2020 March 2020 May 2020 July 2020 September 2020 November 2021 January 2021 March 2021 May 2021 July 2021 September 2021 November 2022 January 2022 March 2022 May 2022 July 2022 September 2022 November 2023 January 2023 March 2023 May 2023 July 2023 September 2023 November 2024 January 2024 March Green banana (conventional): producer price USD/box Green banana: wholesale price USD/box Green banana: retail (Mercadom) price USD/box Source: own elaboration, based on (MAG, 2024e) The lack of transparency in the domestic chain con- ation. As shown in Figure 12, wholesale and retail prices are tributes to a high degree of variability and uncertainty characterized by a large degree of weekly and monthly vari- in wholesale and retail price movements. MAG collects ation; between January and April 2024, wholesale prices fell weekly information on farmgate, wholesale, and retail pric- by more than 50% in Mercado Santo Domingo. Interviews es by sampling these prices at the point of sale; interviews suggest that these variations result from two key factors: confirm that average farmgate prices exhibit a wide degree first, high variability in the quantity of green banana that of variance and may not fully capture their geographic vari- is brought to market through small-scale and loosely-coor- 43 Market structure and efficiency in agricultural value chains dinated intermediaries (who do not engage in the type of ability complicates the medium and long-term planning long term planning that banana plantations are suited for), capacities of producers who sell to domestic markets, and and second, the substitute relationship that exists between has historically discouraged both organic and conventional green bananas and plantains. A sharp increase in the supply producers from relying on domestic sales over the export of plantains on the market has tended to associate with a market (Feschet, Pauline et al., 2020; Diario Libre, 2023; decrease in green banana prices, and vice versa. This vari- ADOBANANO, 2024a). 3.2 Structure of the value chain This section describes the distribution of activities and ADOBANANO estimates that there are approximately 1,700 actors within the value chain for commercially produced producers who operate banana plantations specifically for bananas. Figure 13 summarizes the stages, actors, and commercial production and sale. Approximately 1,624 of volume of sales (when available) that comprise the supply these producers belong to one of 27 producer associations, chain. The value chain for commercial bananas contains while 76 produce and sell independently either through ex- two primary tracks: exports and domestic sales. Within port or domestic markets. The distribution of these farmers the domestic sale track, bananas are either sold directly to by size was captured during latest comprehensive census intermediaries and ripeners, or are first passed through a in 2020, as shown in Table 11 below. 81% of these pro- preliminary export check before being rejected and sent to ducers operated on less than 16 hectares, white 6% were domestic intermediaries as a secondary avenue for sale. vertically integrated producer-exporters with plantations of over 400 hectares. The sector is relatively concentrated: the larger producer-exporters occupy 46% of the total area Production dedicated to commercial banana production, while smaller producers occupy approximately 12%. Interviews suggest Commercial banana production involves two key sets of ac- that since 2020, a trend in consolidation of productive areas tors: farmers and producers’ associations. has taken place. The 1,700 producers who are currently ac- Commercial banana farmers in the Dominican Re- tive represent a decrease from the 1,900 of the last census, public have historically structured their operations and experts state that it is likely that their land has been around the export market, incentivized by the premia incorporated into larger farms (Feschet, Pauline et al., 2020; offered to organic and Fair Trade certified production. ADOBANANO, 2024a). Table 11: The distribution of producers and productive area by farm size, 2020 Plantation size (hectares) <26.3 26.3-52.6 52.6-64.7 64.7-161.9 >161.9 % of producing population 56.3% 18.2% 6.7% 13.4% 5.4% % of productive land 12.0% 12.4% 7.0% 22.1% 46.5% Source: (Feschet, Pauline et al., 2020; ADOBANANO, 2024a) Fair Trade and environmentally certified practices production practices. In 2019, it was estimated that ap- continue to predominate in export-oriented commer- proximately 30 different certifications had been applied cial banana production. ADOBANANO and MAG suggest to one or more Dominican banana producers, verified by that in 2023, 90% of exports by volume were Fair Trade 8 authorized certifiers (FAO, 2017; Feschet, Pauline et al., certified, and 61% carried some form of environmental 2020; ADOBANANO, 2024a). The most common certifica- certification (including organic). These two sets of cer- tions include GlobalGap (necessary for exporting to the EU tification standards are not mutually exclusive: Fair Trade market), Organic, and Rainforest Alliance. Farmers must pay certifications require a specific set of labor practices and an average of USD 1,500 annually to certify their production broad environmental standards, while environmentally (Fair Trade, 2024). focused certification systems examine and apply specific 44 Deep dives in El Salvador and the Dominican Republic Figure 13: An outline of the structure of the banana value chain 2023 DO: The structure of the commercial value chain for banana in 2023 Production Intermediation Domestic Wholesale Consumption/Export Producers Exporters Importing markets 1,900 associated producers, 63 entities, including 169 importing companies of which: 28 companies, 35 producers in 23 countries ∙ 1,850 organized into Futures contracts negotiated 189k MT (68%) to EU 30 associations with producers via associations 76k MT (26%) to UK ∙ 50 independent 277k MT exported ∙ Unknown number of informal/ ∙ 171k MT organic secondary producers ∙ 106k MT conventional 90% with less than 4 Ha Approx. 386k MT produced in 2023 by commercial producers Intermediaries (Camioneros) Wholesalers Domestic Retail Unknown amounts through secondary cultivation Sales include rejects from Up to 3,277 private companies 1,200 supermarkets (coffee, cacao) and exporters that trade bananas and 50,000+ small shops (colmados) household gardens plantains in some form 93 food markets run by INESPRE No available data Unknown number of mobile no. of intermediaries 70k MT of green and ripened venders bananas traded 70k MT of green bananas traded 109k MT of green and ripened bananas from commercial sector Unknown quantity from Ripeners (Madurareros) informal sector 45-50 ripeners (madurareros); some integrated with producerst INESPRE as a public wholesaler 39k MT of green bananas ripened and traded Source: own elaboration, based on interviews and (Feschet, Pauline et al., 2020) Production practices most commonly adhere to the Table 12: Estimated yields (in 18.14 kg boxes per acre parameters recommended by Fair Trade and environ- per week) by environmental certification and farm size mental certification standards, with lower levels of pro- ductivity compared to conventional production on the Boxes / acre / week global market. Most commercial producers operate using Plantation Hectares Size pumped irrigation systems, relatively low levels of fertilizer, Organic Conventional and a labor force that is paid up to 70% of the country’s national minimum wage and that primarily consists of un- Small <26.3 1.1 1.3 documented or informally contracted workers. Lower levels Medium 26.3-161.9 1.5 1.5 of fertilizer use enable compliance with certification stan- dards and a greater premium in export prices. However, la- Large >161.9 2 1.8 bor productivity continues to represent a critical constraint in improving productivity in both organic and conventional Source: (Feschet, Pauline et al., 2020) contexts. A recent analysis of the value chain estimates that Producers are responsible for cultivation, harvest, a measure of this productivity across Dominican banana and for preparing the fruit to be sold on either the ex- producers (harvested area per person per day) was less port or domestic markets. In the case of the former, fruit than half measured levels in equivalent production systems is typically brought to an on-site packing station in which it in Ecuador and Costa Rica, dampened by relatively low lev- is sorted, selected, washed, fumigated, and then packed into els of training and labor retention (Feschet, Pauline et al., 18.14 kg boxes to be delivered to exporters. In the case of 2020). As shown table 2 below, some variation in yields the latter, the fruit undergoes a less thorough sorting and fu- based on farm size and production practices also exist, with migation process for direct sale to intermediaries or ripen- smaller organic farmers exhibiting the lowest yields. ers. For informal intermediaries, fruit may be sold in bulk without being boxed; for ripeners, it is usually packaged into 18.14 kg boxes (ADOBANANO, 2024a). 45 Market structure and efficiency in agricultural value chains Producers associations, act as a critical link between Table 13: Firm concentration in the banana export small and medium farmers and the export market. As of sector, 2021-2023 2023, ADOBANANO estimates that there are 27 active pro- ducers’ associations that primarily serve small and medium Exporting 4-firm concentration producers. Membership is mostly concentrated into approx- Year HH index entities ratio imately 4 associations that each have more than 100 mem- bers, with the largest (BANELINO) having approximately 2021 70 55% 1 153 200. The gradual decline in small-scale registered banana 2022 61 49% 1 058 producers also manifests itself in declining membership to these associations (ADOBANANO, 2024a). 2023 63 66% 1 472 Producers’ associations operate as nonprofit entities that play three critical roles for producers and export- Source: own elaboration, based on (DGA, 2024) ers. First, these associations serve as negotiators with the Exporters function as the primary point of negoti- exporting companies to which producers sell. Exporters sign ation for product standards and pricing in importing agreements with producers on the quantities and prices for countries, and preside over the collection, final exam- bananas that would be delivered over the subsequent year; ination, and shipment of the product. From August to both aspects are usually decided on the parts of producers col- December of each year, exporting companies typically ne- lectively through an association. Second, associations serve as gotiate the prices and terms of purchase that are received key conduits for the flow of technical assistance, assistance for from importing companies in the destination market. These complying with certifications, and financial services that could prices usually follow from agreements between importing facilitate the application of improved practices or renewal companies and retailers, and are determined by the char- plans. Finally, many associations collectively facilitate social acteristics and certified standards of the products that they investments in the communities to which their producers be- purchase. For products under Fair Trade and environmental long, such as roads, schools, and health services. This is par- certifications, these prices must fall within a specific min- ticularly the case for BANELINO, which has been developing a imum range for both exporters and producers. Following portfolio of social investments and services for over 30 years. the determination of product characteristics and pricing, exporters establish production and delivery arrangements The export track either with small and medium producers through associa- tions, with larger producers on an individual basis, or in- The export sector for bananas consists of a combination ternally for their own integrated operations. Bananas are of exporting companies and individual producer-export- harvested and sent weekly to consolidation centers man- ers. In 2023, there were 63 entities in total who participat- aged by the export companies, where they are then passed ed in the export market: of these, 16 represent companies through a final set of checks, are containerized, are sent to who either procure from other farmers or undertake a port to be passed through customs, and then are shipped. combination of self-production and external procurement; Exporters purchase bananas directly from produc- remainder represent independent producer-exporters. ers, or produce them through vertically integrated op- Historically, the export market evolved through the 2000s erations. Production and purchasing arrangements are from only a handful of larger companies. In the 2010s, a pro- flexible and often change on a yearly basis; there are liferation of firms followed from the availability of premia relatively low barriers for individual producers to enter for certified products (ADOBANANO, 2024a). Recent data or exit the export market. Interviews show that the popu- from the Directorate General of Customs (DGA) allows for lation of exporting companies and producers is fluid. Firm a basic estimation of how the current set of exporters and entry and exit is common, and companies change their re- producers distribute their activities. In 2023, 4 firms man- lationships with both farmers and importers depending on aged 66% of the total volume of banana exports, with a Her- the specific price and quality conditions that they are able findahl-Hirschman index of 1,472, representing a moderate to negotiate. During the 2010s, many of the larger exporters degree of concentration that has gradually increased since enjoyed margins for certified products that enabled them to 2021. Measures of concentration were lower in 2021 than purchase from small producers via negotiations with associ- they were in 2023; it is possible that the emerging crisis in ations. Interviews with key exporters and ADOBANANO now producer profitability, and the related decline in total export suggest that increased production costs, and competition be- volumes, are inducing an exit from the sector that favors tween a larger number of smaller importers have restricted larger exporting firms. 46 Deep dives in El Salvador and the Dominican Republic the range of options companies employ to procure bananas. domestic and export oriented production. Meanwhile, inde- In particular, there is evidence larger and more-established pendent ripeners operate on a gradient of formality and may firms have reduced the quantities of bananas that they buy engage more frequently with producers through spot prices. from smaller producers, choosing instead to concentrate Informal intermediaries serve to buy both green ba- their procurement from their own integrated operations or nanas intended for domestic consumption, and rejected from larger sources. Nevertheless, the export market still bananas to be sold in green form in wholesale markets in consists of larger companies that manage hybrid operations major towns and cities. These actors are usually truck own- of self-production and procurement from smaller producers, ers who operate informally; they purchase from farmers at and medium to large producers who are technically equipped on-farm packing locations in cash and without receipts for to export directly rather than through an exporting company. their transactions. Up to 20% of bananas that are destined for export are rejected and sold in this way; interviews sug- The domestic consumption track gest that many of the domestically oriented producers also sell a share of their production to informal intermediaries Bananas pass through two channels to reach the do- in addition to sending it to ripeners. The informal nature of mestic market. First, a subset of producers sell directly to these operations has prevented any thorough census of the ripener firms (madurareros), in which the fruit are ripened number of intermediaries or how they structure their activ- before being sold directly to retailers. Second, export-orient- ities, and represents a critical gap in market information for ed producers sell bananas rejected from the export process both the public and private sectors. It is likely that this seg- to informal intermediaries who purchase them on farm, ment is highly fluid in terms of the number of participants, to be distributed in green form in urban and peri-urban as truckers modulate in and out of shipping green bananas wholesale markets. Approximately 10% of the total volume and other agricultural products, depending on demand from of commercially produced bananas is destined for the first wholesale markets (ADOBANANO, 2024a). channel of sale, while 18% is destined for the second. Finally, wholesalers and retailers operate in urban and Ripeners (madurareros) are firms that buy green ba- peri-urban markets across the country. Statistics compiled nanas directly from commercial producers, ripen them for by MAG imply that there are up to 3,200 private companies a period of 10 to 14 days, and then transport them to retail that trade in green bananas and plantains across wholesale markets to be sold in ripe form. The most recent census of the markets in the country; the majority of the largest whole- sector in 2020 suggests that there are 46 firms that are active salers are concentrated in Mercado Santo Domingo. These in this segment of the value chain; up to 10 of them (such as wholesalers buy green bananas from intermediaries and the large plantation operator Guidom) are directly integrated resell them to retailers, mobile vendors, and neighborhood into the operations of larger independent producers. Little shops with minimal post-processing or storage. The nation- information exists to characterize the concentration of this al retail market consists of 1,200 supermarkets, over 50,000 segment, but evidence suggests that it may be relatively con- small shops, an unknown number of mobile vendors, and centrated under Guidom, who could control up to 65% of the 93 markets managed by the Institute for Price Stabilization volume of sales for ripened bananas domestically (Feschet, (INESPRE). No systematic information exists on the volume Pauline et al., 2020). Interviews suggest that the larger inte- of sales that pass through these actors, hindering any effort grated ripeners establish six-month futures contracts with to gauge their level of concentration. larger retailers that enable them to better structure both 3.4 Analysis of costs, prices, and margins along the value chain This section provides a closer analysis of the distri- export-oriented producers to exporting companies, bench- bution of producer, exporter, and domestic wholesale marked by the minimum prices defined by Fair Trade that prices of green bananas along the value chain to better are applied to approximately 90% of exports by volume. On contextualize how producers and exporters interact the domestic consumption track, the analysis provides esti- with both markets. To do so, it provides a broad outline mates on the production of green bananas to be distributed of the costs and implied margins of the key actors along the to wholesale markets via intermediaries. These estimates value chain that were introduced in section 4.2. On the ex- should be considered preliminary, and not representative port track, the section provides estimates for the chain from of the conditions under which all value chain actors operate. 47 Market structure and efficiency in agricultural value chains The export track which is affected by the choice to use conventional or organ- ic practices. The below cost estimates assume the perspec- Table 4 summarizes the movement of prices and implied tive of a medium-sized producer with yields of 1,575 boxes activity costs associated with production and exports under per year under conventional conditions and approximately the Fair Trade production and pricing system. Production 1,100 boxes per year under organic conditions. costs vary depending on farm size and yields, the latter of Table 14: Per box costs, accumulated prices, and margins by value chain stage for conventional and organic bananas under the Fair Trade pricing system, 2023 Per box (18.14 kg) Production Export 1 FT Conventional Production Sale to Exporters Export Services FOB Sale 2 FT Organic c=a+b f = c+d+e Price 1 $7.75 1 $12.55 2 $10.10 2 $14.90 MC (a) π (b) MC (d) π (e) Marginal cost (MC), profit 1 $6.96 1 $0.89 1 $4.02 1 $0.78 (π) 2 $9.46 2 $0.64 2 $4.02 2 $0.78 a/f b/f d/f e/f % FOB price 1 55% 1 7% 1 32% 1 6% 2 63% 2 4% 2 27% 2 5% Source: own elaboration, based on interviews and (Fair Trade International, 2023) In 2023, the minimum farmgate prices set by Fair are set assuming that plantations achieve certain levels of Trade for conventional and organic bananas were $7.85 productivity, typically up to 1.6 to 1.8 boxes per acre per and $10.10 per box, respectively. These prices reflect es- week. Many plantations, and particularly organic ones, have timate production costs of $6.96 per box for convention- however experienced declines in yields towards 1.2 boxes ally produced bananas and $9.46 per box for organically per acre per week over the past four years, possibly con- produced ones. Many organic producers will seek price nected to low rates of plantation renewal. Second, drastic premia that are higher than this minimum price through increases in labor costs, but especially in fuel and fertiliz- certifications that have stringent production and quality er prices, have occurred over the past years: according to requirements, such as Bio Suisse. Non-Fair Trade prices are Fair Trade’s estimates, monthly wage rates have increased approximately $1.50 to $2.00 below the non-Fair Trade con- by 21% in since 2021, and per-bag fertilizer costs have in- ventional ones, equating to between $5.85 to $6.35 per box creased by 42% over the same period (Fair Trade, 2024). In- in 2023. Non- certified producers often incur lower labor terviews show that several larger, more established organic costs, allowing them to earn margins at these prices. For producers sold at the start of 2024 at losses of between $1 all types of producers, in any case, at the point of consol- to $2 per box (7% to 14% of Fair Trade prices at farmgate), idation exporters reject a certain percentage of packaged contextualizing a perceived exit from the sector on the parts products (up to 18% per shipment), which erodes produc- of many farmers. ers’ per-shipment margins. Fair Trade-centric exporters buy from producers Costs are highly variable with farm size and specif- at the minimum prices set by Fair Trade for that year. ic production practices; interviews suggest that many They then incur a series of logistical expenses that are producers sold at a loss in the first quarter of 2024. Two factored into final FOB prices. Exporters typically incur factors drive this trend. First, Fair Trade’s minimum prices a cost of $4.02 per box to bring bananas from collection to 48 Deep dives in El Salvador and the Dominican Republic final shipment in the port of Manzanillo.15 Costs do not vary for between $4.00 to $5.00.16 However, a large de- for conventional or organically certified products. gree of price fluctuation has characterized the spot prices at farmgate over the past two years: in early In 2023, the minimum FOB prices for conventional 2023, there is evidence that per-box prices for green and organic bananas were set at $12.55 and $14.90, re- bananas rose to $6.00 per box. Producers who spe- spectively. These prices imply minimum margins for conven- cialize in selling green bananas to the domestic mar- tional and organic production that represent 6% and 7% of ket often incur lower labor and fertilizer costs, and the final FOB prices respectively. It should be noted that for may earn margins of up to 6 to 8%. Bananas that are organic bananas, many exporting companies seek margins rejected at the point of consolidation for export are over FOB prices that are closer to 10% in their negotiations often sold informally for a loss. with importing companies. Non-Fair Trade conventional ba- nanas may be sold at prices that are $2 lower than the floor • Intermediaries incur logistical costs of between set by Fair Trade, but, prior to 2022, they still implied mar- $0.30 to $0.50 per box when transporting bananas gins of 10% to 15% due to lower incurred labor costs. As is from farmgate to points of wholesale, and in 2023 the case for producers, many exporting companies have faced sold to wholesale markets for between $6.50 to diminishing margins since 2020, causing a shift towards ver- $7.00 per box. These prices imply that intermedi- tically integrated production and shipment models. aries capture significant margins when wholesale prices rise. The domestic track • The wholesale market in Santo Domingo may incur an average storage and movement cost of $0.26 per box The high variability in wholesale prices (with quarterly in- after purchasing from intermediaries. In 2023, aver- creases or decreases of up to 50%) complicate any effort to age wholesale prices spiked to a high of $8.26 per box characterize annual prices and costs within the domestic in response to a shortage of cooking plantains. The market for green bananas. Basic information has been made low marginal costs for selling bananas implies that, available through farmgate and wholesale prices collected during the price spike of 2023, wholesalers also cap- by MAG, as well as interviews with domestically oriented tured relatively high margins of up to 12%. producers. Unfortunately, systematic data on the wholesale Due to the informality of the intermediary sector and and retail prices of ripe bananas is unavailable from official the transactions that it undertakes with both producers sources, complicating any effort to model the activities of and wholesalers, there is insufficient information to the ripeners (madurareros). define the full range of movements of costs and profit The below analysis assumes the perspective of a medium margins across the value chain for green bananas. The producer who sells green bananas to wholesale markets in variability behind these estimates for prices and marginal Santo Domingo via intermediaries: costs per box is driven by the informality of the intermedi- ary sector as well as the close substitute relationship that • Producers who sell green bananas to the domestic exists between green bananas and plantains. Without effec- market typically do so at prices of $3.50 to $5.00 tive flows of market information from retailers to producers, per box, with slim margins. Bananas that are re- price increases have historically been met with a subsequent jected from the export process are typically sold at increase in supply and with a shift in consumption towards between $3.50 to $4.00 per box. Bananas that are plantains; both of these trends then carry the potential to grown specifically for domestic sale (rather than lower the spot prices that appear on the wholesale market. bananas that are rejected from export) may be sold 15 These costs include that of the standardized box ($2.38), the packing system (“Banava”, $0.16), palletization ($0.45), inland freight ($0.30), and port charges ($0.44). 16 When rejects are sold out of the export process, the truckers who pick them up are price-givers, and the producer either sells them for a small value of the export price, or leaves them to spoil. Export-oriented producers do not sell rejects with the intent of earning a margin, but it does help to recoup some of the per-unit loss. In production systems where the growing and packing processes are tailored specifically for domestic sale, prices are a bit higher because the parameters of the product are more known and consistent. 49 Market structure and efficiency in agricultural value chains 3.3 The institutional environment: actors and policies Institutional actors for overseeing a credit line of USD 6.1 million that was first facilitated through the BAM project. In the public sector, support for banana production origi- • The Dominican Agribusiness Board (JAD) acts nates in a collection of line ministries and coordinating in- as a public institution that coordinates support to stitutions that provide extension services, technical advice, agricultural production through 61 sector-specific and resources to producers. The following line ministries committees, including one for banana. In addition to are particularly relevant: implementing the Measures of Support for Banana • The Ministry of Agriculture (MAG) is responsible Project, it continues to provide productive services, for implementing plans, laws, and projects that pro- business training, and market access support to pro- mote agricultural production and competitiveness, ducers and producers’ associations. including for banana. MAG engages in both four-year • The Dominican Export and Investment Center and ten-year planning cycles; the four year plans fo- (ProDominicana), founded in 2003, enables busi- cus on the internal operations and structure of the nesses in the Dominican Republic to access export Ministry. The current ten-year Plan Estratégico Sec- markets and to connect with importing partners. It torial Agropecuario (Strategic Plan for the Agricul- coordinates the development of cross-institutional tural Sector), valid from 2020 to 2030, references export promotion plans, maintains a digital platform banana production specifically in the improvement that communicates information on export require- of competitive commercial crops for export, but does ments by importing market, and organizes trade fairs not reference specific implementation mechanisms that connect agricultural producers with importers. or investment channels. Within MAG, the Vice-Minis- tries of Agricultural Production and Marketing and of • The Institute for Price Stabilization (INESPRE) Extension and Capacity Building provide sector-spe- is a public institution that is mandated to promote cific services to farmers in the banana sector, with a food security for both consumers and producers particular emphasis on technology adoption and on through the assessment of price movements and the use of best practices in organic production. Ad- the public procurement of products for basic con- ditionally, the Dominican Institute for Agricultural sumption. INESPRE regularly procures these prod- and Forest Research (IDIAF) plays a strong role as ucts at competitive farmgate prices (considered to the consolidator and promulgator of innovative prac- be slightly higher than prevailing regular market tices in the sector (MAG, 2020). prices), and sells them through its own distribution network of 92 local markets and 205 mobile mar- • The Ministry of Environment and Natural Re- kets, open to the public, at prices that are 35% to sources (MARN) governs the use of land and water 40% lower than the national retail average. resources that surround plantations in the Domin- ican Republic. In particular, the Vice-Ministries of • In 2023, INESPRE sold approximately 8,000 quintals Environmental Management, of Forest Resources, of bananas through its distribution system, having and of Soil and Water regularly evaluate best prac- procured them from farmers associated with ADOBA- tices for implementing resource conservation and NANO. In 2024, INESPRE further intervened to pur- recuperation strategies that align with organic pro- chase in bulk from these producers (INESPRE, 2024). duction methods. The development of public policies and regulations for The current policy environment for banana production the banana sector has also relied on a nucleus of private also benefits from the activities of coordinating institutions sector and civil society organizations. This group of as- that provide financing, technical assistance, productive re- sociations have occupied the most consistent coordinating sources, or market access services to actors in the sector: roles in the sector, around which support programs have been designed: • The Dominican Agricultural Bank (Banco Agríco- la) remains the primary lender to small banana pro- • ADOBANANO, active since 1988, is a federation ducers, historically having done so at concessional that represents approximately 1,700 commercial rates. In 2022, Banco Agrícola became responsible producers through 27 associations, 24 exporting 50 Deep dives in El Salvador and the Dominican Republic companies, and 2 plant nurseries. It governs itself of banana, establishing a Banana Cluster that maintained through a general assembly that chooses a board of communication between relevant public sector institutions directors every two years. ADOBANANO has served as well as producers’ associations (Malla, 2007). In 2009, as the primary point of contact for public support to the CNC coordinated the implementation of the Strength- the banana sector through the projects and mech- ening the Banana Value Chain through the Growth of anisms that have been in place since 2006. It also Inclusive Markets Project. With financing from the MDG serves as a disseminator of key information on price Achievement Fund, this project brought together a set of UN movements and changes in import policies (ADOBA- agencies, the Ministry of Agriculture, the Ministry of Econo- NANO, 2024b). my, and producers’ associations to implement a set of activ- ities that intensified production and improved access to the • The Dominican Association of Exporters (ADO- EU market for the export of organic bananas.18 Included in EXPO) is a civil society organization that provides a this initiative were financing packages for farmers, as well platform by which exporting companies can access as the creation of a national strategy for the banana sector in technical support, key market information and in- 2012, which called for a series of investments to modernize vestment opportunities. A number of larger banana its operations (MDGIF, 2013). exporters now participate in ADOEXPO. Between 2014 and 2018, the banana sector then re- • The Latin American and Caribbean Coordinator ceived comprehensive support through the Measures of for Fair Trade Producers and Workers (CLAC) Support for the Banana Sector Project (Medidas de is a network that coordinates information-sharing Acompañamiento del Banano/BAM), which partially and support activities for producers that export in responded to the investment needs identified in the 2012 accordance with the Fair Trade system. In the Do- national strategy with financing from the EU and national minican banana sector, CLAC collects information on sources. This project implemented a series of capacity-build- costs and production parameters that inform the ex- ing and technical assistance programs that would improve port prices that Fair Trade sets for the country and productivity and facilitate exports to the EU market. BAM product in November of each year. It also organizes also provided loans to 1,240 producers at concessional rates fora and exchanges that enable farmers to better through a credit facility managed by Banco Ademi (SIBA, comply with certifications and export requirements. 2018; Feschet, Pauline et al., 2020). The current pattern of support to commercial ba- Policies and support mechanisms nana production includes a set of strategic initiatives as well as financial transfers to farmers and associations, The public policies that govern and strengthen the banana including the following: sector have historically adopted a cluster-based approach17; these policies are formulated with specific reference to pub- • In strategic terms, the sector has benefited from lic-private initiatives that include both strategy documents an EU and CIRAD-led value chain analysis in 2019 and channels for investment. This pattern has its roots in that facilitated a sector-wide discussion on the the creation of the first comprehensive producer-exporter state of banana production in the country, as well federation, ADOBANANO, in 1988, as well as the National as strategic priorities for supporting producers and Commission for Banana Policy (Comisión Nacional de exporters. As a follow-up to this analysis and ris- Política Bananera) in 1992. ing economic pressures faced by banana farmers, the government announced the reactivation of the Cluster-based development began with the creation of National Commission for Banana Policy in 2023, as the National Council for Competitiveness (CNC) in 2006; well as an a sectoral renovation scheme within the in 2007, it published a systemic plan to improve the national Ministry of Agriculture in 2024 that will include ad- competitiveness of key agrifood industries, including that ditional cost and price monitoring services (Feschet, 17 An agricultural cluster is “a concentration of producers, agro-industries, traders, and other private and public actors engaged in the same industry and inter-connecting and building value networks, either formally or informally, when addressing common challenges and pursuing common opportunities “(Gálvez-Nogales, 2010). Cluster-based development refers to the coordination of investments across actors within an agricultural cluster that could generate important mutually reinforcing effects on their productivity. 18 The MDG Achievement Fund was established in 2006 as a joint venture between the Government of Spain and the United Nations to coordinate multi-actor investments in development initiatives that could also strengthen national policy frameworks and priorities. For more information, please see the MDG Achievement Fund’s Factsheet on the Dominican Republic 51 Market structure and efficiency in agricultural value chains Pauline et al., 2020; Gobierno de la República Do- Rescue and Short-Term Production Plan with- minicana, 2023b). in the Cruz de Manzanillo Project, aimed towards improving the productivity of export-oriented and • Bananas have been considered in the National Ex- certified banana production through the rehabilita- port Promotion Plan (Plan Nacional del Fomento a tion of approximately 8,800 acres (3,560 hectares). las Exportaciones), coordinated by Pro Domincana. Simultaneously, the Ministry continues to distrib- Active from 2020 to 2030, this plan prioritizes mo- ute inputs (including banana corms) and implement bilizing investments in productive export sectors, training programs towards soil and water man- developing physical and financial infrastructure for agement as well as the reduction of losses during exports, and developing stronger external relations production. with importing markets (Pro Dominicana, 2020). While new mechanisms of direct support are currently • In financial terms, the credit line established by BAM being rolled out in the sector, they do not necessarily reflect remains active and was transferred in 2022 from strategic coordination between actors that have historically Banco Ademi to the Dominican Agricultural Bank provided support to producers and exporters. The strategies (Banco Agrícola) with a value of approximately DOP of 2007 and 2012 have not yet been revised to respond to 356 million/USD 6.1 million. Additionally, the Minis- changing export market conditions or to engage more sys- try of Agriculture transferred DOP 140 million/USD tematically with domestic consumers. The industry remains 2.4 million in financial support to ADOBANANO in loosely coordinated through ADOBANANO and the major 2023 to support input procurement and renewal exporters. In the absence of public support, the capacities of schemes for production. (Diario, 2022; Gobierno de ADOBANANO and these exporters to improve yields, quality, la República Dominicana, 2023a). and market access for farmers are threatened by significant • As of 2024, MAG is currently rolling out a set of tan- exposure to market risk and subsequent losses in income. gible services and support to farmers through the 3.5 Synthesis: market structures, potential inefficiencies, and policy options for the commercial banana value chain The commercial banana value chain represents a subset distributed to retailers domestically. Producers historically of the larger banana sector in the Dominican Republic, have enjoyed substantial margins in export sales through and it is the only segment in which production, interme- premia offered for Fair Trade and environmentally certi- diation, and sale are currently consistently measurable. fied production. However, productivity is currently threat- This subsector includes up to 1,700 producers of various ened by negative cycle of declining yields, reduced export sizes, 16 exporting companies, and a larger number of infor- income, and underinvestment in plantations that hampers mal intermediaries who act as the bridge between farmgate productivity and competitiveness. Recent increases in in- and wholesale transactions. Approximately 72% of produc- put prices and competition from other exporting countries tion is sold to export markets, 18% is sold through informal has induced an exit from the sector on the parts of smaller intermediaries towards domestic markets after being reject- producers, who are not able to sustain themselves through ed for export, and 10% is sold specifically to be ripened and sales to the domestic market. 52 Deep dives in El Salvador and the Dominican Republic Table 15: A summary of implied market concentration along stages in the banana value chain Phase No. entities Implied concentration Medium Production 1,700 5% of producers controlled 46% of productive area in 2020; level of control has increased by 2024 Low Intermediation Unknown Frequent entry and exit of individual truck owners Domestic track Low Ripening 45-50 Characterized by varying degrees of integration into producer operations Low Wholesale Unknown Up to 200+ participants in Mercado Santo Domingo, for example Medium Export Exports 63 Exporters: 4-firm ratio 66%, HHI 1472 Track Importing partners: 4-firm ratio 41%, HHI 603 Source: own elaboration, based on interviews Moderate degrees of concentration exist among pro- bananas. These fluctuations are largely incompatible with ducers and exporters, and low barriers to entry in the the year-long planning horizons that often define intensified export market may be inducing competition between and export-oriented banana production. exporters in their negotiations with importing compa- The public policy environment has historically nies, possibly dampening prices. Recent estimates sug- supported banana production through cluster-based gest that 6% of larger producers manage 46% of the total investment programs that have prioritized improving land for banana production, and may be gradually consoli- yields and facilitating compliance with certification dating their activities. Similarly, four exporting firms man- programs. However, since 2018, there has been a lapse in aged over 60% of the volume of exports in 2023. However, coordination between the sector’s producer and exporter sector experts emphasize that, since the early 2000s, there federation (ADOBANANO) and the public sector institutions has been a proliferation of firms and individual producer-ex- that participated in earlier cluster-based programs. Since porters in the market, accompanied by an increase in the 2020, declining trends in profitability have revealed the number of certification schemes and channels of sale that need for a sector-wide strategy and planning exercise that they use. Within the sector, this is perceived to have led to could identify tangible goals for productivity and market ac- increased competition between exporters and a reduction cess as well as the investments needed to achieve them. Si- in prices offered to traditional retail markets in the UK and multaneously, large price fluctuations in the domestic sector the EU. While Fair Trade’s minimum prices have historically highlight a need for a comprehensive mapping and formal- sustained high margins for these producers, these margins ization of intermediary and wholesale markets that could have been negatively impacted by recent cost increases and enable more effective planning on the parts of producers. productivity declines. The absence of observed international price trans- Informality in the intermediary sector may affect mission to domestic markets may originate from three the efficient transmission of market information from key characteristics of the value chain. First, the export wholesale and retail to producers; producers have stat- market is primarily served by organic bananas whose ed that they cannot rely on feasible margins through the characteristics do not necessarily fetch equivalent premia domestic sector due to their inability to effectively an- through domestic sales. Second, banana prices that are ob- ticipate and plan for changes in prices. Wholesale prices served on international markets follow from annual futures in the domestic markets for green and ripened bananas are contracts that are set between importers in the destination primarily determined by the volume of supply with respect markets and exporters in the markets of origin. In the case to demand. Variability in demand is amplified by the sub- of the Dominican Republic, these futures contracts follow stitute relationship that green bananas hold with cooking from Fair Trade and environmental certifications whose plantains, and fluctuations in the plantain supply may as- price determinants differ from those that may affect prices sociate with drastic changes in wholesale prices for green 53 Market structure and efficiency in agricultural value chains on the conventional banana market. Third, domestic whole- between them, may insulate prices on the domestic market sale prices for green banana in the Dominican Republic de- from the effects of increased prices on the export market. pend on the complex interplay between the available supply More systematic value-chain information is needed of bananas (which fluctuates drastically on a monthly basis) to facilitate profitability for banana producers in the and the available supply of plantains (which serve as a close Dominican Republic. For many producers, export prices substitute with green bananas on the consumer market)19. for conventional and organically certified bananas no longer Fluctuations in the supply of green bananas may follow from adequately compensate for production costs; as this discon- the information asymmetries that exist for producers who nect may be a function of declining yields, productivity im- interact with a largely informal intermediary market, in provements could enable producers to respond to changing which long-term arrangements for procurement are not as conditions on the international market. At the same time, common, and signals of consumer demand are more difficult the informality of the intermediate market has thus far to communicate. The short-term outlook20 and fragmented prevented a comprehensive accounting of how activities nature of communication between intermediaries and pro- and prices have evolved for the sector, and may generate ducers prevents the yearlong purchasing arrangements that information asymmetries that hinder annual planning for stabilize the export sector. The unique pricing mechanisms plantation renewal. More effective information systems are that characterize export and domestically oriented produc- needed to support producers in planning their investment, tion, as well as the differences in product characteristics market access strategies, and resilience mechanisms. Box 1: A complementary banana value chain assessment in the Dominican Republic A complementary study evaluated the existing public policy and regulatory framework supporting value chain development in the Dominican Republic, providing recommendations aimed at enhancing smallholder farmer inclusion, expanding market opportunities, and scaling up adaptation and mitigation measures for strategic supply chains. As part of this initiative, a banana value chain assessment outlined key recommendations to enhance climate resilience, promote inclusiveness, and boost competitiveness in the banana sector in the Dominican Republic. The main recommendations of the study are as follows: 1. To improve climate resilience, transitioning to renewable energy sources, upgrading irrigation systems, restoring critical water basins, and implementing climate change mitigation strategies like reducing deforestation and forest degradation, plus additional forest-related activities (REDD+) to reduce emissions and adapt to new environmental standards. 2. For inclusiveness, providing specialized financing for small-scale producers, revitalizing the workforce through incentives for local employment and legalizing foreign workers, and strengthening institutions like ADOBANANO to better support producers. 3. To increase competitiveness, modernizing plantations, encouraging the adoption of sustainable agricultural practices and precision technologies, and offering specialized training for both workers and technicians. Additionally, improving logistics performance and export development to regain lost markets and enter new ones, enhancing agricultural insurance coverage, and establishing early warning systems for biological threats, alongside fostering public-private partnerships to improve port infrastructure and services. Source: World Bank and FAO. 2024. The Dominican Republic agriculture sector review – Promoting a climate-smart, inclusive, and competitive sector. Towards More Climate-Resilient, Inclusive, and Competitive Value Chains. 19 While they are substitutes in consumption, bananas and plantains are not in production. They have very different agro-ecological parameters and cost structures for production. For instance, in terms of water intake, plantain trees are much hardier and can survive with less rainfall. 20 Intermediaries buy with a short-term outlook on how prices move: if prices go up, they hope to buy more in order to maximize their gains. Anecdotally, this led to an oversupply of bananas on the consumer market in 2024, which caused farmgate prices to crash. 54 Deep dives in El Salvador and the Dominican Republic 55 Market structure and efficiency in agricultural value chains 56 Deep dives in El Salvador and the Dominican Republic 4 Conclusion and policy implications Central America is currently experiencing a sharp rise in the prevalence of moderate and severe food insecurity. In 2023, 9.1 million people across Central America and the Dominican Republic faced high levels of food insecurity. For many countries in this region, food insecure popula- tions have been increasing steadily since 2016; since the COVID-19 pandemic, these trends have accelerated. Food insecurity in this region results from a complex interplay between climatic and economic factors, and it is characterized in the short term by the inability to afford healthy diets. Most populations vulnerable to food insecurity typically live in rural areas and depend partially or wholly on agriculture as a source of income; across both urban and rural populations, however, food insecurity carries long-term ramifications for human health. Increasing domestic prices of key food staples have Finally, public policies in the region have provided targeted been major drivers of food insecurity in the region, but support to consumers and producers, but also have resorted seem to only be loosely connected to recent internation- to blanket subsidies and accumulations of food reserves that al price spikes. Although international and domestic price may distort the market value of important food commodi- increases have occurred simultaneously since 2022, recent ties and the distribution of welfare gains that was originally evidence found low degrees of international to domestic intended through the formulation of support mechanisms. price transmission for a number of key food commodities in This report has explored the domestic market the region, and that the recent food price increases observed structure of two key value chains in the region that ex- in Central America may originate primarily with domestic hibit low levels of price transmission: white maize in factors (World Bank, 2024). As low levels of price transmis- El Salvador, and commercially grown bananas in the sion can be a symptom of domestic market distortions, un- Dominican Republic. The white maize sector provides a derstanding drivers of inefficiencies in local value chains is significant share of daily calories to El Salvador’s popula- key to ensuring resilience in the long run. tion, and a growing share of national supply is imported. For food products with a strong traded component, In the Dominican Republic, the banana sector has evolved structural aspects of national value chains may be gen- into a key component of the country’s portfolio of agricul- erating inefficiencies for consumers and producers. tural exports, while retaining a significant domestic market Several key domestic factors may distort the movement of for consumption both in green and ripened form. In both of domestic prices. First, high levels of market concentration these cases, the elasticity of price transmissions from inter- may allow firms in that segment of the supply chain to in- national to domestic wholesale markets is less than 10%. fluence the movement of prices in a way that runs counter The report has provided and analysis of aggregate trends, to market conditions for production and consumption. Sec- market structures, and the distribution of costs and prices ond, information asymmetries for producers and consum- in each value chain, to respond to three guiding questions ers – most often related to the informality of operations in on price formation and market efficiency. Each of the guid- segments of the supply chain – may prevent the effective ing questions is reported below, together with the related flow of market and pricing information, and may distort de- evidence uncovered by this report. cision-making processes for production and consumption. 57 Market structure and efficiency in agricultural value chains 1. How are prices formed on domestic markets and how 2. What do the structures and evolving characteristics do these mechanisms compare to the traded track? of the value chains for these products suggest about market efficiency in the two countries? The value chains discussed in this report present distinct processes of price determination. Market structures help explain price movements on the domestic market, and may point to potential In El Salvador, there is a clear bifurcation of the produc- tion and consumption chains for domestic and imported inefficiencies for both producers and consumers. grain. Domestically, white maize is produced by approxi- In El Salvador, the informal nature of production and in- mately 340,000 small subsistence farmers who consume a termediation prevent both the efficient transmission of share of their production and sell the surplus to informal consumer preferences to producers, and the efficient inte- intermediaries; these intermediaries then sell to a series of gration of domestic products into large-scale agro-process- wholesalers in urban and peri-urban areas, at prices that ing, distribution, and retail systems. Producers’ associations are determined by daily fluctuations in supply and demand. have attempted to reduce transaction costs with down- Imported white maize enters the market via the coordina- stream buyers and to increase the quality and consisten- tion between large brokers and a highly concentrated group cy of grain deliveries to wholesale markets. However, the of agro-processing companies. These companies procure majority of smallholders lack access to lucrative markets or grain through futures contracts and sell it both in original credit lines that could facilitate effective investments in pro- and processed form to urban and peri-urban wholesalers ductivity. Simultaneously, high concentration in the import as well as formal supermarkets. These two supply chains and agro-processing sector, as well as relatively low trans- remain entirely separate until they arrive at common points parency in the scope of their activities and the determina- of wholesale, and often remain geographically separated tion of wholesale prices, may expose the consumer market across different points of retail. For example, imported to higher levels of risk in the future, should international white maize grain is most commonly found in supermarkets prices rise. and larger wholesale sites, but maintains a limited presence in smaller neighborhood stores and rural markets. In the Dominican Republic, informality in domestic intermediation also prevents any annual planning on the In the Dominican Republic, export-oriented bananas part of producers that could efficiently incorporate market and those that are produced for domestic consumption information into medium or long term production decisions. follow separate pricing determinants and pricing mecha- There may also be a disconnect between the internationally nisms. Most export prices for commercial bananas are de- determined prices for certified banana production, and the termined through annual futures contracts that adhere to incentives to efficiently structure the production process on specific quality and production standards, such as those the parts of farmers. Fair Trade and Organic banana export dictated by Fair Trade International. Prices that result from prices have increased gradually but consistently over the these contracts respond to factors that do not necessarily past decade: while at the start of that period, farmers en- impact prices on the conventional banana market, as they joyed substantial margins, these margins did not facilitate rely on annually fixed estimates for production costs or on increases in productivity or improvements in plantation the internalized value of specific environmental practic- renewal processes. Now that costs have increased, farmers es. They are also negotiated through a highly coordinated occupy a precarious position in the market with low yields, chain of exporters and importing companies that maintain high investment needs, and reduced competitiveness. The year-to-year relationships. Conversely, the domestic mar- lack of transparency in the movement of domestic demand ket for bananas relies on sales from farmers to informal in- and the formation of domestic prices limits the capacity of termediaries who bring them to wholesale markets, where the domestic market to compensate export-oriented pro- wholesale prices vary daily by local supply and demand. ducers as they search for financial resources that could fa- The market for domestic consumption does not differen- cilitate effective plantation renewal. tiate based on product or production characteristics, and instead shares a close relationship with price movements for domestically produced plantains. 58 Deep dives in El Salvador and the Dominican Republic 3. How do trends in market structures and public they properly identify a vision for how to effectively guide policy implementation contribute to possible price the agricultural sector as farmers cease to produce staple foods and turn to more lucrative crops or economic oppor- distortions? tunities outside agriculture. The current policy environments that govern the two In the Dominican Republic, the cluster-based approach value chains analyzed present important opportunities to the development of the banana sector has not led to a sys- to improve the efficiency of public support to tematic improvement in productivity, and there now exists a lapse in strategic coordination between the sector’s federa- agriculture. tion of associations and the Ministry of Agriculture. Simulta- In El Salvador, public support for the white maize sector neously, the intermediary market for domestic banana sales has focused on three areas: the liberalization of imports, the has not yet been comprehensively measured or regulated diversification of smallholder production, and the stabili- in a way that could efficiently transmit market information zation of domestic supply through a physical grain reserve to producers. Recent investments in plantation renewal, in and the development of a public agency for domestic inter- price information systems, and in a coordinating body that mediation and wholesale (via the Ley Integral). Recently, can liaise between the public and private sectors, represent moreover, important steps have been taken in improving the strong initial attempts to improve support for the sector. Fu- efficiency of existing input subsidy schemes. These policies, ture support policies require a deeper process of strategic however, do not identify strategic actions for supporting the planning to identify the productive and organizational con- transformation of the domestic sector, its capacity to com- ditions under which the banana sector could remain profit- pete with low-priced imports, and its agility in responding able, and the investments needed to achieve them. to domestic demand when import prices increase. Nor do 4.1 Policy implications The findings of this report suggest a series of general El Salvador’s PIATEC input subsidy scheme transitioned to recommendations for responding to the challenges a voucher system and could therefore allow for greater flex- identified in this study. The white maize and banana sec- ibility and market responsiveness in production choices22. It tors in El Salvador and the Dominican Republic are unique should be noted, however, that while voucher systems rep- in their structures, policy environments, implied inefficien- resent a good practice for input subsidy programs, subsidy cies, and specific investment needs. Recommendations are programs in general create a number of inefficiencies in the provided within the framework of the standard OECD clas- long term, and the overall policy framework for the sector sification of producer support, support to consumers, and should be built around a market-oriented long term vision general services support to the agricultural sector.21 for supporting a sustainable and profitable transformation. In the Dominican Republic, recent increased investments targeted at producers for banana plantation renewal, price Producer Support policies information systems, and institutional coordination are a promising development but, at the same time, the clus- In terms of policy recommendations that support maize and ter-based approach adopted for decades has not led to a sys- banana producers, there are clear opportunities for more tematic improvement in productivity. Moreover, the 2007 effective planning exercises and delivery mechanisms to and 2012 sectoral strategies have not yet been revised to target more efficient use of technical and financial resourc- respond to changing market conditions at domestic and in- es. In particular, governments should consider orienting ternational levels, and the banana industry remains loosely sectoral investments and policy planning exercises that en- coordinated by a single body (ADOBANANO) and few bigger able producers to respond to current and predicted market exporters that do not have the capacity to support farm pro- conditions. The example of the white maize sector in El Sal- ductivity and commercialization effectively. vador demonstrates a move in this direction: the reform of 21 Cf. OECD. (2016). OECD’s producer support estimate and related indicators of agricultural support. Concepts, calculations, interpretation and use (The PSE Manual). Trade and Agriculture Directorate. Paris: Organisation for Economic Cooperation and Development. 22 Ley integral de comercialización agropecuaria. https://www.fao.org/faolex/results/details/fr/c/LEX-FAOC223576/. 59 Market structure and efficiency in agricultural value chains A deeper strategic planning is needed to identify and Analysis of the recent high food inflation found it was put in place incentives and investments needed to sustain driven by sustained price increases for meat, edible oils, profitability of these two sectors. In addition, the majority and cereals, due to different factors, including highly vari- of farmers, and in particular smallholders, lack access to lu- able domestic supply and rising input costs. In El Salvador, crative markets or credit lines that could facilitate effective for example, in 2023, food price inflation was double that investments in productivity to ensure more stable domestic for general consumption, driven by steep increases in basic supplies. To tackle risks of supply shortages and food price grains prices. The analysis of the maize sector in the country shocks, on the production side it would be critical to im- highlighted important factors that could have contributed prove access to efficient input markets, support integration to these dynamics, including fragmentation and informality of farmers into the supply chain of the industrial processing in the domestic supply chain, which generates information and distribution, and expand risk-based insurance systems asymmetries and distortions that can ultimately affect con- that can respond to weather or market events. In particular, sumers. The high concentration in the import and agro-pro- the expansion of cost-effective insurance systems is vital to cessing sector, as well as relatively low transparency in the respond to increasing climatic and weather variability.23 scope of their activities, may also expose consumers to high- er risks of increasing food prices and ultimately jeopardize Additionally, to align priorities and actions within the their food security. sector, policy design and implementation would benefit from a more participatory and consultative processes Policies to counter high prices should be well-tailored that could facilitate the coordination of investments in and prioritize support that does not interfere with mar- improved productivity. The sectors analyzed in this study ket dynamics. El Salvador increasingly relies on white share important relationships with rapidly evolving inter- maize imports to meet consumer demand and as part of national markets, and the farmers who participate in them a larger attempt to stabilize consumer food prices. Since also face changing production environments that pose key 2022 white maize imports have been fully liberalized, but challenges for continued profitability. Each sector would the country is also exploring the possibility to create food benefit from stronger channels of dialogue and communi- reserves primarily sourced from imported grains. However, cation between farmers and the public sector to identify benefits of these measures may not reach the most vulner- achievable goals in improving productivity and the invest- able populations and create costs related to maintaining ments needed to facilitate them. In El Salvador, this could physical grain stocks. Targeted financial support mecha- leverage the PIATEC and its use of vouchers by pairing it nisms towards these segments could be a more efficient with ancillary investment activities such as mechanization option. and the rollout of improved seed varieties. In the Domini- can Republic, joint investment planning exercises involving farmers, ADOBANANO, and the Ministry of Agriculture could General services support policies better tailor inputs and investments in plantation renewal Finally, governments should consider increasing invest- that are currently being considered by the government. ments on general services support towards agriculture and commerce to address inefficiencies in the supply Consumer support policies chain. El Salvador’s expenditure on general services sup- port as a percentage of Agriculture Gross Production Value As regards consumer support, policies should focus on ef- is higher than the average in Central America, while in the ficiently responding to food price shocks and curbing food Dominican Republic this value is substantially lower: that inflation using targeted mechanisms that do not unduly said, in both countries the percentage is significantly lower disrupt the domestic markets and that prioritize reaching than in the United States or in Europe (Table 16). poor and remote populations. 23 For a recent discussion of the opportunities and technical considerations implementing disaster-based risk insurance products in the agricultural sector of El Salvador, see: World Bank. 2024. Feasibility Study - Disaster Risk Finance and Insurance (DRFI) Solutions for Family Farmers in El Salvador, Guatemala, and Honduras 60 Deep dives in El Salvador and the Dominican Republic Table 16: General Support Services Estimates tries, evidence suggests that the lack of effective commu- Dominican Republic and El Salvador, 2017. nication and information on domestic demand and prices prevents producers from engaging with specific domestic markets in the long term. Pricing information must be ef-   GSSE/Ag. GPV fectively collected and communicated at each stage of the Dominican Republic 0.90% chain, with particular focus on stages that involve informal actors. El Salvador 1.53% The analysis also highlighted how lack of market in- Central America avg. 1.23% formation, in part determined by the large informality that characterizes both sectors, limits planning and policy US 3.04% making processes that could help farmers preparing for or EU 2.26% adapting to changes in production conditions, costs, and prices. Scenario modeling, sensitivity analyses, and risk- Note: GSSE: General Support Services Estimate; Ag. GPV: based investment options should be more seriously incor- Agriculture Gross Production Value. Source: Own elaboration, porated into sectoral development plans, alongside the based on FAOStat and Agrimonitor data. development of more effective farmer insurance programs. However, to run these analyses and design such interven- General services support – or public goods - in the agri- tions, more and better data need to be systematically col- culture sector include several dimensions: knowledge and lected and updated. innovation, technical services, market promotion and infra- structure. The analysis pointed to the presence of several Overall, more effective transportation and market in- bottlenecks and inefficiencies along the two sectors where frastructure, including on post-production facilities, and increased public goods investments could make a differ- investments in soft infrastructure (e.g. producer associ- ence. The white maize domestic market in El Salvador is ations, extension systems, inspection and marketing ser- characterized by fragmentation and widespread informal- vices etc.) are needed to connect rural farmers to urban and ity that prevent price transmission, and a pricing system peri-urban wholesale markets and to processing or storage that favor intermediaries over producers. On the contrary, facilities that could efficiently procure their products. Equal- the commercial import market is ruled by few processors ly important is the provision of comprehensive technical and distributors that fetch high power concentration and assistance, which would enable farmers to enhance their coordination but whose operations often lack transparency. productivity, improve product quality, and adopt more effi- Poorly organized intermediaries, information asymmetries cient and resilient practices. Through targeted extension and price disconnection also affected the competitiveness services, training, and access to modern farming technol- of the banana sector in Dominican Republic. ogies, producers could better integrate into these markets, reducing inefficiencies and increasing their competitiveness. Above all, there is an urgent need for mechanisms that El Salvador’s launch of a maize-specific extension program could improve market information sharing across the in 2022 is one such example that could be expanded. entire value chain, and especially for farmers. In both coun- 61 Market structure and efficiency in agricultural value chains Table 17: Summary of policy recommendations by type of support and timeline Identified Challenge Proposed Recommendation Expected Result Type of Support Timeline Facilitate the creation of productive alliances between smallholder organizations and agribusinesses to Inefficiencies in the enhance credit access, reduce risks, Strengthened market access, supply chain and and improve market integration. reduced risks for smallholders, limited access to Producer support Mid-term These collaborations should focus improved productivity, and credit or markets for on addressing technical, commercial, increased incomes. smallholders financial, and social challenges to unlock income opportunities for smallholder farmers. Enhanced resilience of farmers Expand cost-effective risk-based Food price shocks and the food system to external insurance systems that cover production and food availability shocks, ensuring more stable Producer support Mid-term risks and price volatility, especially in shortages food supplies and reducing risks the face of climate change. to food security. Strengthen strategic planning through A more targeted approach to participatory processes involving Lack of effective sectoral investments that can farmers, government, and private sector planning for sectoral respond to current and future Producer support Long-term stakeholders to align investments development market conditions, leading to and incentives with market needs and sustainable productivity growth. conditions. Protection of low-income Limited consumer Implement targeted financial support consumers from food price protection against mechanisms to protect vulnerable inflation, with more effective use Consumer support Short-term rising food prices (food populations during food price shocks, of public resources to reach those affordability) while avoiding market disruptions. most in need. Improved market information Enhanced decision-making for systems and communication: Develop farmers, better market access, Market fragmentation mechanisms to collect, analyze, and reduced inefficiencies, and General services and lack of information Short-term disseminate pricing and demand improved price transparency support flow information across the value chain, with throughout the agricultural value a particular focus on informal actors. chain. Provide extension services, technical Increased farm productivity, Lack of knowledge and assistance programs, and access to adoption of sustainable practices, General services adoption of efficient modern agricultural technologies to and better integration into formal Medium-term support farming practices improve productivity, product quality, markets, leading to improved and resilience among farmers. profitability. Increase investments in general services support to strengthen transportation, market infrastructure, and post- production facilities, alongside soft Improved access to markets, Limited market infrastructure such as producer reduced inefficiencies in General services connectivity and Medium-term associations, extension services, and supply chains, and enhanced support inefficient logistics marketing and inspection services competitiveness of rural farmers. to connect rural farmers to urban wholesale markets and processing/ storage facilities. 62 Deep dives in El Salvador and the Dominican Republic 63 Market structure and efficiency in agricultural value chains 64 Deep dives in El Salvador and the Dominican Republic Annexes Annex 1: References ADOBANANO (2024a) ‘Roundtable Discussion: CFS (2021) Global Strategic Framework for Food Security ADOBANANO’. and Nutrition (GSF). Committee on World Food Security, p. 36. 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Transmission Along the Food Chain. Paris: OECD. Available at: https://doi.org/10.1787/752335872456. Ukav, I. (2017) ‘Market Structures and Concentration Measuring Techniques’, Asian Journal of Agricultural Exten- Von Cramon-Taubadel, S. and Goodwin, B.K. (2021) ‘Price sion, Economics & Sociology, 19(4), pp. 1–16. Available at: Transmission in Agricultural Markets’, Annual Review of Re- https://doi.org/10.9734/AJAEES/2017/36066. source Economics, 13(1), pp. 65–84. Available at: https://doi. org/10.1146/annurev-resource-100518-093938. UNSD (2024) Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture Voora, Vivek et al. (2023) Global Market Report: Banana — SDG Indicators, Sustainable Development Goals Overview. prices and sustainability. Global Market Report. Internation- Available at: https://unstats.un.org/sdgs/report/2016/ al Institute for Sustainable Development. goal-02/. World Bank (2024). Perego, V.M.E.; Brown, M.; Ceballos, Vagneron, I. and Roquigny, S. (2011) ‘Value distribution F.; Hernandez, M.; Berrospi, M.L.; Flores, L.; Mora, E. Inter- in conventional, organic and fair trade banana chains in the national Prices and Food Security: an Analysis of Food and Dominican Republic’, Canadian Journal of Development Stud- Fertilizer Price Transmission in Central America. Washington, ies, 32, pp. 324–338. Available at: https://doi.org/10.1080/ D.C.: World Bank. 02255189.2011.622619. Annex 2: Methodological Note This annex describes in greater detail the data sources that 1.A The Domestic Track for white maize were used to develop the analyses of the market structures The estimation of prices and margins along the domestic and price analyses of the white maize sector in El Salvador production chain for white maize correspond to the ac- and the banana sector in the Dominican Republic. tivities that center on the wholesale markets of San Salva- dor. They are provided on a per-quintal basis (the market 1 The white maize sector in El Salvador standard) and represent the conditions that value chain actors faced during the first quarter of 2024. Separate esti- Data sources for the analyses of market structures, mations were developed for operational costs and prices at costs, prices, and margins follow from interviews and farmgate, intermediation, and wholesale. exchanges with a key set of public and private actors. Infor- Estimations for farmgate costs and prices were de- mation on market structures was collected through data- veloped in close consultation with MAG-DGEA. Official cost sets and interviews provided by the Directorate General for data on semi-intensive maize production, compiled by MAG- Agricultural Economy of the Ministry of Agriculture (Direc- DEA, provides a starting point for this exercise, supplement- ción General de Economía Agropecuaria, MAG-DEA) and Con- ed by preliminary information collected on producer prices. sumer Defense (Defensoría del Consumidor). Information on 7 for recent cycles up until 2023, these estimates represent pricing and margins were collected through interviews and the monetary value of all costs implied in production if the correspondences with a sample of 2 producers’ associations, producer were to purchase all inputs on the market. The 5 wholesalers, and 4 importers and processing companies. costs shown in (A) are representative of those faced by This information was supplemented with the results of re- semi-intensive maize production systems, which cover the cent preparatory studies for the World Food Programme-fi- vast majority of the land used for maize production in El Sal- nanced Programa de Alimentación y Salud Escolar (Romero vador. In the 2021-2022 and 2022-2023 cycles, production et al., 2022). It should be noted that the analyses of market costs rose by 47%, driven by steep increases in input prices structures and price movements are limited by the lack of (69% increase from one period to the next), increases in official data sources for the aggregate flows by volume of labor costs (49%), and a stagnation in average yields. The white maize and maize flour. prices shown in (D) represent averages of monthly prices from August (the beginning of the agricultural cycle) to July of the following year. For the 2022-2023 cycle, prices were taken from August to December 2022. 68 Deep dives in El Salvador and the Dominican Republic Table 18: Production costs, yields, and profit margins implied for producers, 2020-2023 Cycle 2020-2021 2021-2022 2022-2023 Production Cost (Total USD/Acre) $862.02 $1,247.97 A $780.85 % change from prior cycle 10% 45% Inputs $357.33 $605.21 $326.75 % change from prior cycle 9% 69% Labor $190.68 $283.85 $166.46 % change from prior cycle 15% 49% Harvest and Post-Harvest $190.61 $197.99 $178.24 % change from prior cycle 7% 4% Indirect Costs $123.40 $160.92 $109.40 % change from prior cycle 13% 30% Yields (QQ/Acre) 58.93 58.22 B 60.64 % change from prior cycle -3% -1% Unitary Production Cost (USD/QQ) $14.63 $21.44 C = A/B $12.88 % change from prior cycle 14% 47% Producer Prices (USD/QQ) $19.76 $29.36 D $13.09 % change from prior cycle 51% 49% E = (D-C)/D Implied Profit Margin (%) [(D-C)/D] 2% 26% 27% Source: own elaboration, based on interviews and (MAG, 2023b, 2023a) Second, per-quintal production costs were adjusted to This reduction follows from the technical budgets for pro- reflect the production conditions and practices that pro- duction that are maintained by MAG-DGEA, who assume ducers faced during the first quarter of 2024. These adjust- that a maximum of 40% of person-days would be supplied ments appear in below First, the per-hectare costs for maize by paid labor for any given small maize producer. Fourth, production shown in were adjusted to reflect the per-quintal administrative fees, contingencies, and interest payments prices of fertilizers (NPK 15-15-15, ammonium sulfate, and were deducted to account for the farmer’s own labor, the urea) published at the start of the 2023-2024 production cy- general absence of contingencies in budgets, and the fact cle (MAG, 2023c). A reduction in per-quintal costs for these that approximately 90% of producers do not make use of fertilizers reflects a total per-hectare cost to production of credit services (lines 4, 5 and 6). $1,099.37 during the 2023-2024 season (line 1). Second, This adjusted cost per acre (line 7) implies that maize the technological package provided by PIATEC24, valued at farmers in Q1-2024 faced average unitary costs of produc- $139.55 during the 2023-2024 cycle, was deducted (line 2). tion of approximately $12.86 per quintal. It should be noted Third, a reduction of 60% of the person-days needed for that these average costs obscure the variation between the cultivation, harvest, and post-harvest was applied (line 3). use of paid labor and additional fertilizers. 24 This package includes 11.4 kg of seeds, one quintal (45.4 kg) of NPK 15-15-15 fertilizer, and one liter of foliar fertilizer or seed treatment 69 Market structure and efficiency in agricultural value chains Table 19: Production costs during the 2022-2023 cycle, on Calle Gerardo Barrios. The pricing unit of MAG-DGEA adjusted to reflect the receipt of inputs and the use carries out weekly interviews and consultations that inform of family labor the process of identifying prices offered by wholesalers, the implied prices at which intermediaries procured the maize that they sold on Calle Gerardo Barrios, and the operation- Item Value (USD) al costs that contextualize the prices and margins reported 1 Cost per acre (2022-2023) (+) $1,099.37 by actors in the market. The information collected for this report coincides with the consultation performed by MAG- 2 Input Subsidy (-)25 $139.55 DEA during the week of 28-April 2024. Information on costs 3 Family labor (60%) (-) $307.24 during intermediation refer to the per-quintal costs of trans- porting maize, including vehicle costs, fuel, and labor costs 4 Administration (-) $28.52 for the drivers. Information on the costs faced during the 5 Contingencies (-) $19.01 wholesale process refer to the per-quintal costs of cleaning, 6 Interest (-)26 $20.00 storing, and repacking domestically sourced maize, reported directly from the wholesalers. Per quintal operational costs 7 Adjusted costs per acre (=) $585.04 and prices during intermediation and wholesale are repre- 8 Yields (quintals per acre)27 45.5 sented as averages of the reported values from interviewees. 9 Unitary Production Cost per quintal (=) $12.86 The average operating costs, prices, and implied mar- gins during production, intermediation, and wholesale are 10 Price paid by intermediaries $16.00 thus summarized in the table below. In the first quarter of 11 Profit margin 24.4% 2024, producers faced average prices of $12.86 per quintal. They sold to intermediaries at approximately $16.00 per Source: own elaboration, based on (MAG, 2023b, 2023a) quintal. Intermediaries faced transportation costs of $1.00 per quintal, and sold to wholesalers at $18.50 per quintal. Estimates for operational costs and prices during Finally, wholesalers also faced storage and cleaning costs of intermediation and wholesale during quarter 1 of 2024 approximately $1.00 per quintal, and sold at the market on were developed through consultations with the price-mon- Calle Gerardo Barrios at $21.00 per quintal. itoring unit of MAG-DEA and interviews with 5 wholesalers Table 20: Accumulated prices, costs, and margins by value chain stage for domestically produced white maize grain A Production B Intermediation C Wholesale Storage / Production Sale Transport Sale Sale cleaning c = a+b f = c+d+e i = f+g+h Price $16.00 $18.50 $21.00 MC (a) π (b) MC (d) π (e) MC (g) π (h) Marginal cost (MC), profit (π) $12.86 $3.14 $1.00 $1.50 $1.00 $1.50 a/i b/i d/i e/i g/i h/i % final wholesale price 61% 15% 5% 7% 5% 7% 25 The input subsidy includes the costs of seeds, 1 quintal of fertilizer, and one liter of herbicide inoculant or fertilizer treatment for the seeds. 26 According to MAG-DEA, the average loan amount is $500, with an annual interest rate of 4% 27 Yields have been adjusted to reflect the actual value recorded for 2022-2023, and not the predicted value at the time at which these costs were published by MAG. 70 Deep dives in El Salvador and the Dominican Republic 1B The import track for white maize tion on prices offered to wholesalers, was collected through The estimation of operational costs, prices and margins consultations with four importer-processing companies. along the import chain for white maize correspond to the Estimates of the operational costs and prices that follow activities undertaken by brokers, importers, processing from wholesale were developed from the consultative pro- companies, and domestic wholesalers active form the port cess that was carried out with five domestic wholesalers on of Acajutla to San Salvador. They are provided on a per-quin- Calle Gerardo Barrios, who sell grain of both domestic and tal basis and represent the conditions that value chain ac- imported origins. tors faced during the first quarter of 2024. Estimates of Finally, a preliminary estimate of the production costs operational costs and prices were developed at the point of and wholesale prices for white maize flour were collected importation (brokerage), intermediation on the parts of from two sources. First, information on production costs fol- importing companies, and wholesale. low from interviews with two processing companies. Sec- At the point of importation, the per quintal cost of im- ond, information on wholesale prices for white maize flour ported maize is represented by its CIF price. Information was collected from the price data maintained by MAG-DEA. on CIF prices follows from data published by the Central However, detailed information on operating costs and Reserve Bank of El Salvador (BCR). During the first quar- prices are only available throughout the entire chain for ter of 2024, the average CIF price for imported white maize white maize grain. These figures during importation, inter- grain was $14.82. mediation, and wholesale are thus summarized in the ta- Estimates of operational costs and prices that follow ble below. In the first quarter of 2024, brokers sold white from intermediation were developed from information maize grain to importing companies at an average price of from two sources. First, per quintal estimates for the costs $14.82 per quintal. Importing companies faced costs for im- of import services, transportation, and storage, as well as port services and transport/storage of $1.01 and $1.17 per the basic prices for grain offered by importers to wholesal- quintal respectively, and sold to wholesalers at a price of ers, were provided through consultations with Consumer approximately $18.00 per quintal. Because this grain arrives Defense, which regularly monitors these costs and prices. to wholesalers without any need for cleaning and packag- Second, additional information on the activities central to ing, they consider their operational costs in these areas to storing and transporting imported grain, as well as informa- be negligible, and they sold it at between $19.00 to $20.00 per quintal. Table 21: Per quintal accumulated prices, costs, and margins by value chain stage for imported white maize grain A Brokerage B Intermediation C Wholesale USD per quintal Import Transport / CIF Costs Sale Storage Sale Services storage e = a+b+c+d h = e+f+g 1 Accumulated price $18.00 $19.00-20.00 MC (a) MC (b) MC (c) π (d) MC (f) π (g) 2 Marginal cost and profit $14.82 $1.0128 $1.17 $1.00 - $1.00-2.00 a/h b/h c/h d/h f/h g/h 3 % final wholesale price 78% 5% 6% 5% - ~5% Source: own elaboration, based on interviews and (MAG, 2023a; BCR, 2024) 28 Average value reported by the Defensoría del Consumidor 71 Market structure and efficiency in agricultural value chains 2 The banana sector in the Dominican multiple producers to sell to brokers under the minimum prices set by Fair Trade. Republic Estimates for producer costs follow from the price Data sources for the analyses of market structures, benchmarking system established by Fair Trade, confirmed costs, prices, and margins follow from interviews and by consultations with producers associated with ADOBANA- exchanges with a key set of public and private actors. In- NO. Producer costs are estimated annually for producers in formation on market structures was collected through the Dominican Republic by Fair Trade International in order consultations with specialists in two key institutions: first, to define minimum farmgate and FOB prices for bananas. Ministry of Agriculture (specifically, the Vice ministries of Cost estimates consider items across four categories: labor, Extension and Sectoral Planning), and second, with the Do- fertilizers, fuel and administrative costs/contingencies. La- minican Association of Banana Producers (ADOBANANO). bor comprises the bulk of productive costs; it is set to 70% Information on market concentration and the structure of of the country’s minimum wage, plus an allocated amount the export market was provided by the Directorate of Cus- for workers’ benefits. Fertilizer costs follow from applica- toms (DGA). Finally, information on costs, prices, and mar- tions that are recommended under common conventional gins was collected through consultations with the Institute and organically certified production practices. Fuel costs re- for Price Stabilization (INESPRE), with producers associated sult from the use of engines for irrigation pumping. It is as- with ADOBANANO, with representatives of Fair Trade Inter- sumed that these three cost categories represent 85% of the national in the Dominican Republic, with three exporting total production costs faced by a farmer, with the remaining companies, and with one producers’ cooperative. Finally, 15% spent on administration (including certifications) and this information was supplemented with the findings that contingencies. Organic costs exceed those of conventional proceeded from a comprehensive value chain analysis and production by approximately $2.50 to $3.00 per box (up to consultative process supported by the European Union 42%), primarily as a function of the lower yields that result and the Value Chains for Development (VC4D) initiative from most organic practices. In particular, these higher costs (Feschet, Pauline et al., 2020). are reflected through relatively lower labor productivity (Fair Trade, 2024). These estimates should be considered preliminary, and not representative of the conditions under which all value Table 22: Estimated conventional producer chains actors operate. Exact information on the range of costs per 18.14 kg box in 2023, in USD costs, prices and margins associated with production, in- termediation, export, or domestic sale are limited to the responses of available interviewees. They represent the av- Conventional Production Per 18.14 kg box erage values faced by these actors in 2023, prior to further (1,575 boxes per ha per year) increases in production costs and decreases in domestic Labor $4.20 prices. Fertilizers $1.42 2A: The export track for bananas Fuel $0.30 The estimations of operational costs, prices, and margins along the export-oriented chain for banana correspond to Administrative $1.04 the activities undertaken by producers and exporting com- Total $6.96 panies, ending with the shipment of bananas at FOB prices to brokers. They are provided per 18.14 kg box, and rep- Source: own elaboration, based on (Fair Trade, 2024) resent the conditions that value chain actors faced during 2023. These estimates carry several important assumptions. Estimates for exporter costs also follow from the price First, they assume that the producer and exporter are oper- benchmarking system established by Fair Trade, which cal- ating under the Fair Trade pricing regime for conventional culates the per-box costs for the use of inputs (boxes and and organic bananas, which represents the majority of ba- pallets), the use of transportation methods (banavac), for nana exports from the Dominican Republic by volume. Sec- freight services, and for port charges. These costs are as- ond, they reflect the activities of an independent producer sumed to be uniform across conventional and organic ba- with yields of 1,575 boxes per year under conventional con- nanas, and are summarized in the table below. ditions, and 1,100 boxes per year under organic conditions. Finally, they assume an established relationship between the independent producer and an exporter who buys from 72 Deep dives in El Salvador and the Dominican Republic Table 23: Estimated conventional producer costs per Finally, estimates for the minimum prices at farmgate 18.14 kg box in 2023, in USD and point of export are based off these production and ex- port costs. Fair trade updates these prices annually through a consultative process, publishing them in October of each Per 18.14 kg box Costs for services borne by exporters year. Recent prices under this methodology are shown in Box $2.55 the table below. Pallet $ 0.56 Banavac $ 0.16 Port freight $0.34 Port Charges $0.41 Total $4.02 Source: own elaboration, based on (Fair Trade, 2024) Table 24: Minimum farmgate and export (FOB) prices for conventional and organically produced bananas under the Fair Trade pricing regime, 2020-2024 Conventional Banana Conventional Banana Organic Banana Organic Banana Port Year Farmgate $/Box Port FOB $/Box Farmgate $/Box FOB $/Box 2020 $7.15 $11.00 $9.75 $13.55 2021 $7.15 $11.00 $9.75 $13.60 2022 $7.30 $11.70 $9.80 $14.20 2023 $7.75 $12.55 $10.10 $14.90 2024 $7.85 $12.45 $10.30 $14.90 Source: own elaboration, based on (Fair Trade International, 2023) Consolidated costs, prices, and margins for producers prices at farmgate of $7.75 and $10.10. Exporters incurred and exporters are shown in the table below. In 2023, con- operational costs of $4.02 per box for both conventional and ventional and organic producers incurred operational costs organic bananas, and sold to brokers at minimum FOB pric- of $6.96 and $9.46 per box, respectively, with minimum sale es of $12.55 and $14.90. 73 Market structure and efficiency in agricultural value chains Table 25: Per box costs, accumulated prices, and margins by value chain stage for conventional and organic bananas under the Fair Trade pricing system, 2023 Per box (18.14 kg) Production Export 1 FT Conventional Production Sale to Exporters Export Services FOB Sale 2 FT Organic c=a+b f = c+d+e Price 1 $7.75 1 $12.55 2 $10.10 2 $14.90 MC (a) π (b) MC (d) π (e) Marginal cost (MC), profit (π) 1 $6.96 1 $0.89 1 $4.02 1 $0.78 2 $9.46 2 $0.64 2 $4.02 2 $0.78 a/f b/f d/f e/f % FOB price 1 55% 1 7% 1 32% 1 6% 2 63% 2 4% 2 27% 2 5% Source: own elaboration, based on interviews and (Fair Trade International, 2023) 2b: The domestic sale track for bananas at farmgate over the past two years: in early 2023, there is evidence that per-box prices for green bananas rose to $6.00 The estimation of operational costs, prices, and margins per box. Producers who specialize in selling green bananas in the domestically oriented chain for banana produc- to the domestic market often incur lower labor and fertilizer tion are complicated by the systematic lack of data collect- costs, and may earn margins of up to 6 to 8%. Bananas that ed in the sector. Basic information has been made available are rejected at the point of consolidation for export are often through the farmgate and wholesale prices collected with sold informally for a loss. MAG, as well as interviews with two producers that spe- cialize in domestic production. Systematized data on oper- Intermediaries incur logistical costs of between $0.30 to ational costs for producers, intermediaries, and wholesalers $0.50 per box when transporting bananas from farmgate to in the domestic sector is not collected by official sources, points of wholesale, and in 2023 sold to wholesale markets complicating any effort to model their activities. The below for between $6.50 to $7.00 per box. These prices imply that analysis assumes the perspective of a medium producer intermediaries capture significant margins when wholesale who sells green bananas to wholesale markets in Santo Do- prices rise. mingo via intermediaries Finally, the wholesale market in Santo Domingo may Producers who sell green bananas to the domestic incur an average storage and movement cost of $0.26 per market typically do so at prices of $3.50 to $5.00 per box, box after purchasing from intermediaries. In 2023, average with slim margins. Bananas that are rejected from the ex- wholesale prices spiked to a high of $8.26 per box in re- port process are typically sold at between $3.50 to $4.00 sponse to a shortage of cooking plantains. The low marginal per box. Bananas that are grown specifically for domestic costs for selling bananas implies that, during the price spike sale (rather than bananas that are rejected from export) of 2023, wholesalers also captured relatively high margins may be sold for between $4.00 to $5.00. However, a large of up to 12%. degree of price fluctuation has characterized the spot prices 74 Deep dives in El Salvador and the Dominican Republic Annex 3: Meetings and Interviews El Salvador Meeting Date Participants Departamento de información de precios de Néstor Martínez, Jefe Departamento de información de precios 18/04/2024 mercado-Ministerio de Agricultura y Ganadería Fernando Palacios, Técnico de precios Asociación Cooperativa de Producción, Francisco Peña, Socio Comercialización y Servicios “Compañero Eric” de 18/04/2024 Dennys González, Socio RL (ACOPEROERICK de RL) Juan Rodríguez, Presidente Asociación Cooperativa de Producción, Emerson Hernández, Administrador Comercialización y Servicios “El Éxito de Santa 19/04/2024 Clara” de RL (ASAESCLA de RL) Marcos Martínez, Socio FAO El Salvador 29/04/2024 Luca Gilardone, especialista legal Ricardo Iraheta, Director Ministerio de Agricultura, Oficina de Planeación 29/04/2024 Christofer Valladares, Coordinador de política comercial Estratégica y Seguimiento MAG-OPES Juan Santos Fuentes, Jefe de políticas y planificación Johanna Duke, Jefa División Estadísticas Agropecuarias Ministerio de Agricultura, Dirección General de 29/04/2024 Néstor Martínez, DGEA Economía Agropecuaria – MAG-DEA Fernando Palacios, DGEA Mayorista 30/04/2024 Antonio Ayala, propietario Mayorista 30/04/2024 Miguel Piloña, propietario Mayorista 30/04/2024 José Antonio Torres, Administrador Importador/procesador: Centroamericana de Omar Salazar, Propietario 30/04/2024 Mercadeo SA de CV (CEMERSA) María Fernanda Amaya, Gerente Calidad Gerardo Henríquez, Superintendente Superintendencia de Competencia 30/04/2024 Pedro Nubleu, Coordinador de estudios Rebeca Hernández, Intendente económica Intermediario/comercializador 01/05/2024 Enrique Bermúdez, Propietario Ricardo Salazar, Presidente Defensoría del Consumidor 02/05/2024 Diana Burgos, Directora de vigilancia de mercados Imed Rodríguez, Jefe Planta de Producción Harina Importador/procesador: Global Alimentos SA de CV 03/05/2024 Johanna Umaña, Directora de operaciones Otoniel Perla, Propietario Importador/procesador: Groupersa SA de CV 03/05/2024 Abigail Perla, Propietario Importador de fertilizantes: CADELGA SA de CV 03/05/2024 José Manuel Moreno, Gerente de Ventas 75 Market structure and efficiency in agricultural value chains Dominican Republic Meeting Date Participants Lorena Catrain, FAO Carlos Avila, FAO FAO República Dominicana – Introducción al sector Andres Sedano, FAO 13/05/2024 bananero Bélgica Núñez, CNC, asesora agrícola Juan José Pinal, especialista en la gestión de proyectos Javier Tavares, economista, Min. De Economía Antony Arzeno, Director de Comercialización Instituto de la Estabilización de Precios (INESPRE) 13/05/2024 Roberto Jiménez, dirección de Comercialización Dirección General de Aduanas (DGA) 13/05/2024 María Marmolejos, Encargada, Departamento de Estadísticas Ministerio de Agricultura, Viceministerio de Extensión y 14/05/2024 Darío Vargas, Viceministro Capacitación Agropecuaria Ministerio de Agricultura, Viceministerio de Planificación Rafael Paulino, Viceministro 14/05/2024 Sectorial Ernesto Pérez Cuevas, Asesor Claudio Fernández, director, Dirección de Comercio Interno Ministerio de Industria, Comercio, y MIPYMES, Yonaira Mejía, encargada, Dirección de Comercio Interno 14/05/2024 Viceministerio de Comercio Interno Emmanuel Heredia, analista, Dirección de Comercio Interno Miguelina Estévez, encargada, Departamento de Comercio Interno Karel Castillo, presidente, ADOEXPO Roselyn Amaro Bergés, vicepresidente ejecutiva, ADOEXPO Claudia Chez, consejo ejecutivo, ADOEXPO Asociación Dominicana de Exportadores (ADOEXPO) y 14/05/2024 Salvador Estévez, presidente, Grupo Banamiel exportadores asociados Gian Ferreira, director de comercialización, Cana Group Corp. Michelle Castillo, COO, Cana Group Corp. Dennis Hoffart, Cana Group Corp. Hilario Pellegrini, presidente Domingo López, vicepresidente Gladis Almánzar, secretaria Humberto Dionicio Matlas, Tesorero Asociación Dominicana de Productores de Banano 15/05/2024 Gil Blaz Martínez, Vocal (ADOBANANO) Aquiles REwe Morel, Vocal Ramón Antonio Faña, Vocal Osvaldo Tineo, Vocal Cristian Flores, Vocal Gustavo Gandini, vicepresidente Asociación Bananos Ecologicos de la Linea Noroeste 15/05/2024 Rosalba Gomez Jaquez, gerente del Departamento de Desarrollo (BANELINO) social y Medio Ambiental Savid Dominicana 16/05/2024 Helen Nícolas, director de certificaciones Marike de Peña, presidente, Latin American and Caribbean Comercio Justo 16/05/2024 Network of Fair Trade Small Producers and Workers (CLAC) Euclides Paulino, especialista económica Centro de Exportación e Inversión de la República Eloy Alvarez, coordinador de la gestión de información 22/05/2024 Dominicana (Pro Dominicana) Carolina Perez, directora, departamento inteligencia de mercados Patricia Cano, gerente de relaciones interinstitucionales 76