IN SEARCH OF VIABILITY: RESTRUCTURING, EU MARKET

UNCLAS SECTION 01 OF 02 PARAMARIBO 000253

SIPDIS


SIPDIS

STATE FOR WHA/CAR LLUFTIG, WHA/EPSC, WHA/CEN, EB/TPP/ABT
STATE PLEASE PASS TO USTR/SHAWN DONNELLY USTR/JAMES MURPHY

E.O. 12958: N/A
TAGS: ECON EIND EINV EAID ETRD EAGR KPRV HO NS
SUBJECT: IN SEARCH OF VIABILITY: RESTRUCTURING, EU MARKET
ACCESS, AND COMPETITIVENESS FOR SURINAME'S BANANA EXPORTS

REF: A. 03 PARAMARIBO 067


B. 04 PARAMARIBO 196

C. TEGUCIGALPA 668

D. 05 PARAMARIBO 337

PARAMARIBO 00000253 001.2 OF 002


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Summary
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1. The European Union's (EU) development assistance package
for Suriname's banana sector targeted improving
productivity in the hopes of making Suriname's state owned
banana company SBBS - attractive enough to potential
buyers for the next round of privatization in June 2006. As
an African, Caribbean and Pacific (ACP) banana exporting
g
country, Suriname also expects to gain from the EU's
revised 2006 liberalized tariff rates for ACP banana
imports. It is as yet unclear whether the combined aid and
lowered tariff restrictions are sufficient to make the
company attractive enough to potential buyers, especially
if non-ACP Latin American banana producers (i.e., "dollar
bananas") still manage to crowd out Suriname exports in the
EU market. End summary.


2. Beginning in 2003 and 2004 the EU spend almost 2.5
million Euros to help restructure SBBS after the GOS had
declared the company bankrupt and suspended its operations
(See Ref. A). The EU invested an additional 2 million Euros
in 2005 for irrigation improvements. Finally, on February
28 the Government of Suriname (GOS) received an additional
4.46 million Euros bringing the total assistance package to
approximately 9 million Euros to help modernize and
rehabilitate the ailing state owned banana company. IDB
also contributed an additional 7.3 million USD.


3. As a consequence of EU development assistance, banana
exports resumed in 2004 and the GOS began the process of
preparing to privatize the firm (See Ref. B). In 2005 SBBS
produced 3.3 million boxes, a 256 percent increase since
resumption of production in 2004. By September 2005, SBBS
was again fully operational and able to re-employ 1,750
laid-off workers. Productivity yields realized in 2005 were
1,918 boxes per hectare. F.o.b. costs in 2005 averaged 7.81
USD per box while the goal was set at 6.21 USD per box. At
a recent signing ceremony between Suriname's Minister of
Planning and Development Cooperation, Rick van Ravenswaay,
and local EU representative, Helena Laakso, both sides
expressed confidence that Suriname's banana sector will
soon see better days as they anticipate the next round of
privatization.


4. This financial assistance comes on the heels of the
EU's decision in November 2005, to adopt a new regulation
setting the import tariff for bananas from MFN countries
(i.e., "Latin dollar bananas") at 176 Euros per metric ton
(m/t). The new import regime, which includes a duty-free
annual import quota of 775,000 m/t for ACP bananas, went
into effect January 1, 2006. In obtaining export licenses
in 2005 for 35,000 m/t of bananas, Suriname exporters spent
a total of 9 million Euros. For 2006, Suriname is expecting
with the new tariff structure to spend only 3 million Euros
-a significant saving. This new rate has drawn the ire of
non-ACP producers (see Ref. C),however these EU
adjustments are meant to have the positive effect of
decreasing costs for Suriname's banana producer and thus
freeing more funds for working capital.


5. According to Minister van Ravenswaay, the GOS will
continue to work to further "stabilize" the company as it
moves to the next privatization round. The last round of
privatization efforts in May 2005 failed to attract any
bidders (see Ref. D). Some trade experts have estimated
that the average non-ACP Latin American bananas f.o.b.
costs average $5.60/box, it is yet to be seen whether the
effects of the new EU tariff of 176 Euros per m/t on dollar
bananas can keep Surinamese exports competitive with their
f.o.b. costs in 2005 averaging 7.81 USD per box. The
stabilization of the company alluded to by the Minister
will need to take the dollar banana benchmark into account
in order to make the company attractive enough to potential
buyers.

PARAMARIBO 00000253 002.2 OF 002




6. A "Call for Expression of Interest" was published in
Paramaribo newspapers on Saturday April 22, 2006. The call
was opened to all national and international registered
companies who are either directly involved in the banana
business or are in a partnership with such an international
company. This move is seen as giving fair notice to local
bidders who complained that they were excluded in last
round by larger international firms. SBBS plantations are
located on 2 estates, Jarikaba, which covers 1,350
hectares, and Nickerie, which covers 1,012
hectares. Currently the company has 1,547 hectares under
production. The deadline for submission of interest was
April 29. A decision is expected by June.

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Comment
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7. As SBBS goes through its current privatization cycle, it
remains unclear whether future/continued productivity gains
under EU assistance and tutelage can get Suriname banana
exports to the benchmark f.o.b. costs of so-called dollar
banana exporters from non-ACP Latin American countries. A
show of interest by international bidders in this tender
round will signal a new found confidence that the gains in
SBBS's productivity and market access can/will sustain the
competitiveness of Suriname's banana sector.

BARNES