Competiveness of Latin American Exports in the U.S. Banana Market

U.S. banana demand differentiated by country of origin is estimated using the generalized dynamic Rotterdam model. Results indicate that dynamic factors play a significant role in determining the allocation of U.S. banana expenditures across exporting sources. Of particular interest is Guatemala’s increased share and Costa Rica’s decreased share of U.S. banana supply. A number of factors explained why Guatemala replaced Costa Rica as the leading U.S. supplier in 2007. (1) Guatemala is the least expensive source on average. (2) Habit persistence, adjustment costs, and other dynamic factors favor Guatemala’s exports. (3) Given increases in the relative price of Costa Rica’s bananas, the price competition between Costa Rica and Guatemala is highly significant. (4) Bananas from Costa Rica are highly responsive to own-price while imports from Guatemala are more price-inelastic. (5) Heavy rains and fluctuating temperatures in Costa Rica have decreased banana production and exports