Higher banana prices linked to increase in armed conflict in the Philippines, U of I study shows
Ben Crost with maps
Benjamin Crost
May 30, 2019

URBANA, Ill. – Experts often recommend that developing countries focus on high-value export crops such as fruits and vegetables. However, the effect of such practices on conflict-affected countries is not clear, and there is a risk that higher export revenue may lead to increased insurgent violence, according to a University of Illinois study.

The research focused on banana production in the Philippines and showed a correlation between higher banana prices and insurgent activity in certain areas, says U of I agricultural economist Benjamin Crost, who is a co-author of the study.

“The paper shows evidence that armed rebel groups in a country that exports bananas can fund themselves by extorting banana plantations, which means that the global banana trade can fuel civil conflict in producing countries,” Crost says.

Crost and his co-author, Joseph H. Felter of Stanford University, obtained declassified data from the armed forces of the Philippines containing incident reports on encounters between the army and rebel groups in the field. They combined this information with data on banana prices, production, and location of plantations.

“We find that when the world market price of bananas goes up, the number of violent incidents and casualties increases in places that have banana production,” Crost says. The data show that an increase in prices lead to a large increase in conflict in provinces where bananas are produced in large plantations with an area above 25 hectares (approximately 62 acres).

The Philippines is the world’s fourth largest banana exporter, providing about 10 percent of the total export market. Bananas are the country’s most important export crop, valued at about $470 million in 2011.

Almost all export bananas are of the Cavendish variety, which is well suited for shipping over long distances. Production mostly takes place on large plantations in Mindanao and the Vinayas, in the southern part of the country. The export market is highly concentrated and dominated by a small number of multinational firms.

The Philippines has several long-running conflicts between government and rebel groups. While the Islamic separatist groups on Mindanao are most well-known internationally, the most geographically widespread conflict is with the New People’s Army, a Maoist guerilla group. They are active in most of the country, and typically carry out small-scale attacks on army outposts and police stations.

There is substantial anecdotal evidence that rebel groups fund their activities through extortion of banana plantations, Crost says. Direct data is not available, because paying off terrorists is illegal and companies may be prosecuted in the US and other countries. However, anecdotal evidence is abundant from anonymous sources, and from local media reports. The Philippine government estimates that the New People’s Army collects over $28 million annually in extortion payments from the Mindanao region alone.

Large banana exporters are lucrative targets for extortion because their production is concentrated in a small area. “They are easy to disrupt, because if you blow up the processing plant it is going to cost the banana company a lot of money. If they can’t get the bananas out they rot relatively quickly,” Crost says.

If the price is high, the company stands to lose more money, and they are more likely to be willing and able to pay, Crost adds.

The increase in rebel violence can take both direct and indirect forms. Direct violence occurs when the company is extorted and doesn’t pay, leading the rebels to carry out their threat, for example by blowing up a production plant. Indirect violence occurs when the company does pay, and the rebel group can fund more guns and troops to carry out other attacks.

The existing strength of the rebel group also matters. “We do find that the effect is stronger for places where the rebels already have some control,” Crost says. “It’s definitely places where the rebels have enough capacity to make a credible threat.”

Previous research on agricultural crops and rebel activity has showed mixed results. For example, a study of coffee in Colombia found that higher prices led to a decrease in violence. However, coffee is grown by many small local farmers that are much more difficult to extort, Crost points out. 

The contribution of this paper is to show that it is not possible to generalize across all agricultural commodities; the effect of production arrangement is important. Crost says that large agricultural plantations are comparable to mines, which are also lucrative targets for extortion.

“We’ve known for a long time that mineral commodities can have that effect but people thought agricultural commodities were different,” he says. “Our argument is that agricultural plantations are more like mines, because they have similar characteristics of mineral exports in that they are very concentrated.”

For comparison, the researchers also looked at sugar and rice in the Philippines. For sugar, which is also grown on large plantations, they found that results were similar to bananas. However, for rice, which is grown by small farmers for a domestic market, there was no effect of price on insurgent activity.

What is the takeaway for the consumer? The solution is not to stop buying bananas, Crost says.

There may not be much individual people can do. But Crost suggests that multinational companies could avoid production in areas of conflict and focus on conflict-free locations, such as Ecuador and Costa Rica. And local governments could encourage production capacity in areas that are free of rebel violence.

“We shouldn’t stop growing bananas, because it’s a big revenue generator for poor countries, and that’s a great thing. But you want to be sure you don’t put this into places that already have a problem with armed groups,” Crost says.

The article, “Export crops and civil conflict,” is published in the Journal of European Economic Association and is available online.  Authors include Benjamin Crost and Joseph H. Felter. The research was supported by the USDA National Institute of Food and Agriculture Hatch funds.