Small island countries face significant challenges associated mainly with their small size, remoteness and vulnerability when trading and competing in the global market. Smallness combined with insularity has been synonymous with small domestic markets, and lack of scale economies, human capital and entrepreneurship. Recent empirical studies also show that small islands are in a disadvantaged position in doing business in the global market as a result of their inherent cost associated with smallness. For example, the cost disadvantage for (micro) islands in the manufacturing sector (clothing and electronic assembly) is 36% higher compared to a median-sized country, and 58% higher for tourism industry (Winters and Martins, 2004).
These issues lead us to ask how the business sector survives in these islands at all and the consequences that this may have on the consumer. In the South Pacific, the economy of small island countries is characterized by a large informal sector and widespread subsistence agriculture and fishing. Cultivation and export of indigenous root crops, export of some specialized agricultural products, fishing to supply foreign fishing fleets within territorial waters, prevalent but mainly small tourist sectors, small industries manufacturing products that are costly to transport, retail outlets, and at times substantial mineral resources exploitation are common economic activities in these islands (Asian Development Bank, 2004). Discussing the private sector in the small islands can also be misleading since there are only a few "big" businesses (mostly engaged in natural resource extraction or retailing); the very large majority of firms are small or micro livelihood businesses.
Armed with such evidence, can small island countries produce and export their goods and services competitively? Or, are they doomed to failure because of their size and geography? Despite their huge cost disadvantage, several island economies have managed to survive through trade, capitalizing on preferential trading agreements, using their sovereignty, developing small transient market niches which create quasi-rents, and through support from remittances and aid (Prasad, 2004). In fact, some small islands have excelled in small-scale, high-value products and have put to good use their island identity (Baldacchino, 2002). Recently, the concept of "resourcefulness" of small island economies has drawn attention from scholars. Baldacchino (1999a, 1999b, 2002, 2005a, 2005b) has done extensive research on this concept of uniqueness of small economies and their inherent political and economic capacities. There is a shift from focusing exclusively on vulnerabilities of small islands towards a more positive element of resilience of small islands.
This article looks into how small-scale informal sector activities in a small island country can propel a niche product in international trade. It explores how Fiji's small-scale farmers have contributed to the exports of kava in international markets and how it has affected their livelihoods. It also demonstrates how success can breed failure and why small island countries should be vigilant in order to stay competitive in the global market.
Fiji's Experimental Economic History
Fiji, independent since 1970, is an island archipelago in the central South Pacific, with Suva as its capital city, and a total population of 846,085 (Fiji Bureau of Statistics, 2006). Since its occupation by Europeans, Fiji's initial development has been based on the plantation colony model. Fiji had been trying to find its holy grail for exports as early as the 1850s, when it was already trading in coconut oil, tortoise shell, sandalwood and bechede-mer (Stokes, 1969). Westerners who had settled the country tried raising sheep and cattle, but cotton planting became successful in the 1860s (Seemann, 1861). It is worth remembering that Britain first became interested in Fiji for its potential of supplying cotton to the Empire as an independent source (rather than obtaining it from the United States). …