Outstanding collections from Russian buyers for exports shipped in the first weeks of the financial blockade to that country exceed $50 million. In total there are $ 85 million of accumulated loss in income for Ecuador in these five weeks that the Russian conflict with Ukraine has been going on.

Part of the loss of the export sector due to the conflict between Russia and Ukraine corresponds to the pending collections for shipments -especially flowers and bananas- made in the first weeks of the financial blockade.

That value is what the foreign exchange earnings from Ecuadorian exports to the Ukrainian and Russian markets have been reduced since February 24, when the conflict began, and this is how the Ecuadorian Federation of Exporters (Fedexpor) quantifies it. Those $85 million lost are equivalent to 6% of the total non-oil-non-mining exported to the world in March 2022.

“Some shipments have been diverted to markets in Europe and the United States. However, the high concentration of volume demanded by the Russian market, especially in bananas and flowers, makes it impossible for an alternative market to absorb such an amount of product without generating downward pressure on the price due to oversupply. This has a direct impact on the reduction of foreign exchange generated by the same volume exported”, explains Fedexpor.

Another effect they cite is that costs continue to rise due to the increase in international prices of inputs such as agrochemicals, vegetable oils and fats, paper, cardboard, aluminum, raw materials for balanced products, and also higher energy costs for industrial use. And that adds to what was already affecting them: cargo transportation costs due to less availability of quotas and shipping routes to certain destinations and higher fuel prices. They register average increases of 25% in the logistics cost to export and that has tripled to import machinery from Asia.

Given this, exporters consider that the country’s strategy should focus on opening markets that allow expansion for all export chains and Asians “such as China and South Korea become an important platform for agricultural and food supply with high prices.” potential, just as the Central American countries have become the axis of export development for a large part of export manufacturing”. They detail the path and the opportunities.

Start of the trade negotiation process with China:

  • Once the Feasibility Study is concluded, through a memorandum of understanding, the negotiation process of a commercial agreement begins. And the next relevant step will be to agree on the terms of reference and start the first round in April 2022, with a team that will have a new chief negotiator.
  • The expectation of the export sector is to obtain free preferential access for the current supply, which faces around $140 million in tariffs, and better conditions for all the potential products of the agricultural and food supply.
  • China represents a market 80 times larger than the Ecuadorian one, more than $3,660 million in non-oil exports, it is the first supplier for Ecuador of some productive inputs and machinery and it registers an annual increase of 12% in its food imports.

Resumption of trade negotiations with South Korea:

  • Since the interruption in 2016, there has been renewed interest in resuming negotiations for a comprehensive trade agreement with South Korea. Both countries expect a 90% opening of trade and exemptions for a maximum period of ten years, with differentiated treatment for certain sensitive products. The approximate date to resume the negotiation is April 2022.
  • For the export sector, this is the opportunity to match conditions with competitors such as Colombia, Chile and Peru, which have benefited from free access for their products for more than five years.
  • The tariffs for emblematic products of the Ecuadorian food basket can reach up to 30% ad valorem, which leaves out competition and eliminates any possibility of increase for new volumes to that market.
  • South Korea is the tenth largest economy in the world. Its consumers have incomes five times higher than those of Ecuador. It is the destination of $125 million of the country’s non-oil exports. As of the validity of the trade agreement, Peru tripled its non-oil and non-mining exports to that market.

Final stage of negotiation with Mexico:

  • With a 90% progress in the table of access to markets and origin, a new round of negotiation scheduled in person in Quito is pending, with the expectation of closing at the level of vice ministers of both countries.
  • The expectation of the export sector is to guarantee free access to all products in the current and potential supply, particularly for the basket of traditional products such as bananas and shrimp, where there is the possibility of complementing trade by seasonality and varieties. (I)