1. The Banana Chain:The macro economics of the Banana Trade

Adelien van de Kasteeleon behalf of IUF

Amsterdam, February 1998

1. BANANAS: THE PRODUCTION CHAIN

In 1996 world production of the most important fruits was around 400 million tons. Bananascompete with grapes for second place behind citrus, both accounting for 13-14% of total world freshfruit production. Banana production has been increasing by around 3% per year over the last decade.

Bananas are grown in all tropical regions and are one of the oldest known fruits. Because they areused as a staple food, they are of importance for domestic consumption, growing quickly and beingharvested the whole year round. Since the introduction of the cultivated banana onto the US market100 years ago, banana trade has increased rapidly. Currently, about 20% of total production isentering world trade.

World trade is dominated by three companies, Dole Foods, Chiquita Brands and Fresh Del MonteProduce, with over 100 years’ presence in banana plantation production in Central America andColombia, and together controlling 65% of world exports. They are followed by the Ecuatoriancompany Noboa, which controls another 10%, and the European company Fyffes, which controlssome 6-7%.

With the integration towards a single European market, the traditionally different supply sources ofEuropean and US companies led to a very complex European trade regime which has been attackedever since it became effective in July 1993. In the past 5 years, it has dramatically influenceddevelopments within the sector.

Table 1:

1996: 57m. tonnes, annual increase 3%4 major producers 45% world production: India, Brazil, Ecuador, IndonesiaCultivation: Plantations (export); independent growers (domestic/export)Main companies with plantations: Chiquita Brands, Dole Food , Fresh Del Monte Produce

PRODUCTION

1996: 79% of total production: Asia (94%); Africa (95%);

Central America (45%); South America (70%) In main export countries only 20-25%

DOMESTICMARKET

1996: 11,5m. tonnes / export value $4bn.Major exporters: Latin-America: Ecuador, Costa Rica, Colombia Asia: Philippines ACP: Windward Islands, Ivory Coast, CameroonMain traders: Dole, Chiquita, Del Monte, Noboa, Fyffes

EXPORT

A strict system is needed to guarantee the quality of bananas on themarket, leading to vertical integrationAll major companies have their own reefer vesselsMain ports USA: Gulport, Wilmington. PhiladelphiaEurope: Antwerp, Hamburg Livorno, DoverCompany owned or national agentsDistribution increasingly in direct partnerships with retail chains

PACKHOUSESEXPORT HARBOURTRANSPORTIMPORT HARBOURRIPENINGDISTRIBUTIONRETAILCHAINS

Major importers 1996: EU15 (30%), USA (30%), Eastern Europe (12%), Japan (8%)

CONSUMPTION

2. BANANA PRODUCTION

FAO estimates for banana production for 1996/97 indicate a production increase to around 57m.tonnes, up from 45m. in 1989 and around 38m. at the beginning of that decade.

Six main producer countries (India,Brazil, Indonesia, Ecuador,Philippines, and China) account for57% of total world production.Indonesian production has beenunderestimated, but has beenincreasing significantly over the lastdecade.

As Figure 2 a) shows, China, Ecuadorand Indonesia have known thebiggest increase in production, whichhas more than doubled in the lastdecade. In Africa growth has beenless, and production is almost totallydirected at the domestic market(96%).

86 88 90 92 94 96

Colombia

ChinaPhilippines

IndonesiaEcuador

BrazilIndia

0

2000

4000

6000

8000

10000

BANANAS: Main Producers(000' tonnes)

Fig. 2 a). Banana production Source FAO

1997

At the start of the nineties,expectations of rapid growth due tothe opening up of world markets ledto the expansion of bananaproduction, especially in the exportcountries Ecuador, Philippines,Colombia, and Costa Rica.

The introduction of the EU bananaregime has obliged the companies tointroduce major restructuring whichhas been especially felt in CentralAmerica. But production in theCaribbean also came under heavypressure to improve efficiency.

BANANA Production 1996

Colombia4%

China6%

Ecuador10%

Brazil10%India

17%

Others39% Indonesia

8%

Philippines6%

Fig. 2 b) Banana production 1996 Source FAO

1997

Bananas are cultivated in two different systems:

- Export directed plantations: Up to 1,000’s of hectares with advanced production and logistictechnique. A system of units in different stages of growing and ripening, traversed by irrigationsystems and banana rails to the packhouses guarantees a steady harvest throughout the year. Thecompanies, as well as bigger producers and co-operatives, use this system. The plantations aremost common in Central America, Colombia, and the Philippines. In other export countries,like Ecuador, they normally have a smaller acreage. Plantation harvests of around 2,000-2,500boxes (of 18,2 kilo/ha) are common, but differ from the more traditional ones with 1,300-1,500boxes/ha up to 3,700 boxes/ha on the most modern plantations in Costa Rica.

With the arrival of US companies in Africa (Cameroon and Ivory Coast), plantations have beenset up for export into Europe. Indonesia , because of low labour costs, attracts investment inplantations.

- Smallholdings directed at the domestic market: With lower inputs, and often less productivesoils, these farms produce smaller bananas of a lower quality. Production levels are also lower,from 200-300 boxes/year up to 1,000 boxes/year, depending on soil, climate and combinedcultures (e.g. inter-cropped with cocoa bushes). Except for the Caribbean Islands, wheresmallholders export 80% of their production.

2.1 Production costs

Because of the different systems, production costs differ widely and are calculated to be about 2-3times higher in traditional production. But available data also vary and are difficult to comparebecause of different calculation methods.

Table 2: Production costs per box, various estimations in $US

FAO (Ex-Finca)

1994

CIRAD (FOB)

1995

*)

BANDECO

1997

FOB ex-finca

Novotrade

1997

FOB ex-finca

Ecuador 2.95 2.95 3.70 3.29 5.01-5.81 4.70-5.40

Costa Rica 3.25 3.25 5.56 4.78

Colombia 3.64 3.64

Honduras 5.22-6.22 4.45-5.25

Ivory Coast (1995) 3.40 8.53

Martinique 12.38

St. Vincente 8.39

Dominica 9.37

*) Based on CIRAD figures of production costs per MT.

Other figures (source unknown) from Costa Rica show the differences according to productionlevels.

They show a range of $4.71 - $5.93 per box ex-finca, based on production levels from 2,500 -1,600 boxes/ha on a 250ha plantation.

Some observations that can be made:

• Main differences are due to variations in labour costs, because of salary differences and labourefficiencies due to type of holding. Salary costs in Costa Rica are higher, according toBANDECO $14.87 per day against US$6.42 per day in Ecuador.

• Financial costs are not taken into account, with the exception of the Novotrade figures(around $0.50 per box). CORBANA (Costa Rica) gives total costs for Costa Rica of $6.77,including $1/box financial costs, while average FOB price for 1996 was $5.67 per box. Thisresulted in a net loss per box of $1.10.

• Similar problems are indicated for Ecuador and Honduras, where contract prices aresystematically under production costs. The official minimum price in Ecuador in 1997 was$3.30, which results in a. net loss of $1.50 per box minimum. (Novotrade). In January 1998the minimum price was increased to $ 5,95 for the high season to June.

• In Honduras in 1996, Dole paid $2.89 per box with a premium of $0.17 for good quality, butsigatoka costs were paid for by Dole. In 1997 this has changed. Dole now pays $3.17 per boxwith a quality premium of $0.22 per box, but has passed the sigatoka costs on to the farmer.Real sigatoka costs are about $0.45-0.80 per box. (Novotrade).

Therefore, real costs are definitely higher than formal cost calculations allow, especially asfinancial costs and decent wage levels for labour are not normally taken into account.

Because of that, Indonesia has an attractive cost structure. A recent study of the pineapple sectorin the Philippines found that a worker in the Philippines gets $3.50 a day, while in Indonesia$1.61 is paid. In India wages are equally low, and the liberalisation process is leading to increasingforeign agricultural investment

3. THE WORLD MARKET: BASIC FIGURES

Exports were around 7m. tonnes in 1980-85, and these were boosted from 1988 onwards as thecompanies prepared themselves for a rapid market expansion. The opening up of Eastern Europeand East Asia, the single market in Europe and the progress of the GATT talks lifted expectationsfor this growth. The World Bank predicted that in a free-trade regime, the ACP countries would losenearly half of their market to the far more competitive Dollar banana. The Dollar companiesanticipated this increase and started to reinvest in plantations in Central America, and also in Asia(Philippines, Indonesia). The three major companies already controlled 70% of world trade inbananas, including half of the EU, and they looked forward to grabbing the rest. At the same time,they increased exports to Europe to raise their market share in case any kind of quota was imposed.

However, it did not work out exactly like that and exports have been around 10-11m. tonnes forthe last three years. Eastern Europe did not develop as rapidly as the companies intended, and theEuropean market became restricted for Dollar bananas. Sooner or later, everybody had to adapt tothe developments within the European Union which, with nearly 35% of world imports at thattime, plays a major role in the world banana trade.

World Banana Exports('000 tonnes)

0

2000

4000

6000

8000

10000

12000

1991 1992 1993 1994 1995 1996 1997

Others

Ecuador

Costa Rica

Colombia

Philippines

Panama

Guatemala

Fig. 3 a). World banana exports Source FAO 1997

Exports

In 1996 an average of 22% of worldproduction, 11.5m. tonnes, entered theworld market. Exports are almost totallyconcentrated in Latin America. Thebanana companies boosted banana exportproduction in Central America, Colombiaand Ecuador during this century to supplythe US and European markets.Consequently, these countries have beenresponsible for around 65-70% of worldexports over recent decades. Indonesia isstill a small exporter. Given theextremely cheap labour costs, it surelyhas potential to grow.

Banana Exports 1997(prelim.figures)

Colombia12%

Costa Rica16%

Ecuador39%

Philippines10%

Panama5%

Others13%

Guatemala5%

Fig. 3 b). Banana exports 1997 Source: FAO 1998

Due to rapid further concentration,Ecuador, Costa Rica and Columbiacurrently account for nearly 64% of totalworld exports. Ecuador, especially,increased its exports world-wide. In 1991exports to the US and the EU accountedfor 64% of its total exports, and in 1996,only for 39%. Noboa played an importantrole, in this change, boosting exports fromsome 350,000 tonnes in 1991 to 1.5m.tonnes in 1996. New destinations weremainly China, Argentine, Chile andEastern Europe. In 1993-94, Honduraslost significant market share in Europe,and was not able to compensate by movinginto other areas as the big companies weretoo busy restructuring their CentralAmerican business.

Latin American main exporters('000 tonnes)

0 1000 2000 3000 4000 5000

Honduras

Guatemala

Panama

Colombia

Costa Rica

Ecuador

1997

1995

1993

1991

Fig. 3 c). Lat-American exports 1991-1997

(1997 prelim.) Source FAO 1998

Imports

Total net imports were around 11m.tonnes in 1996, valued at over US$5bn.The EU and the US remain the majorimporters, with substantially higherimports than in 1991. Their share in totalimports, however, is declining because ofgrowing trade to all other regions.

Major changes are the increasing importsof Former Soviet Union (FSU), and ofRussia in particular. For 1999, totalimports of 2m. tonnes were expected, ofwhich 875t. tonnes were to Russia, upfrom 50,000 in 1991.

World imports 1996

North-America

35%

EU1529%

Japan8%

Others10%

Other Europe

8%FSU4%

Far East6%

Fig. 3 d). World imports 1996 Source: FAO1998

However, imports to Russia dropped in 1996, and figures for 1997 are not known yet. Chinaimported over 500t. tonnes in the first half of 1996 from Ecuador, but shipping stopped as Chinadid not pay. In 1997 exports restarted.

Imports to the EU, including the three new countries, have declined since 1992. But 1992 importswere well up from 1990-91, as companies bumped up imports in case a quota system was introduced.Comparing 1996 with 1990, the imports of the current EU15 countries increased by over 9%.Preliminar FAO figures for 1997 indicate an further increase of EU15 imports to 4,412t. tonnes.Germany is far out Europe’s biggest market with over 1,2m. tonnes.

Table 3: World net banana imports 1990 - 1996 (‘000 tonnes)

1990 1991 1992 1993 1994 1995 1996

Japan 758 803 777 913 929 874 819

EU15 2,948 3,183 3,335 3,218 3,000 3,107 3,158

East-Eur/FSU 154 348 485 579 1,062 1,301 1,028

D'ing countries 603 943 911 1,256 1,302 1,350 1,719

of whichChina

21 30 93 160 513

Nord-America 3,098 3,228 3,532 3,515 3,697 3,666 3,776

The EU15 figures before 1995 have been adjusted Source: FAO 1998 / Eurostat 1997

Imports per capita differ widely. The United Arab Emirates are the absolute winner with31.5kg/capita, followed by New Zealand with 20kg/capita. North America, Chile, and most EUcountries have per capita imports of 10-14kg/capita compared with 2kg/capita in Eastern Europeand 0.2kg/capita in the Far East and North Africa.. Within the EU Sweden has the highest percapita consumption, around 17,5 kg, followed by Germany, Norway, Portugal and Iceland, all around14 kg/capita.

Banana per capita import - 1995

0

5

10

15

20

25

30

35U

n.A

rab

Em

ir

New

Zea

land

Cze

ch.R

ep

Kuw

ait

Slo

vaki

a

Nor

way

Can

ada

US

A

Sw

itse

rlan

d

Sin

gapo

re EU

Fig. 3 e). Banana per capita import 1995. Source: FAO 1997

3.1 The EU market

Total net supplies, or apparent consumption, in the current EU15 countries increased from 3,559ttonnes in 1990 to 3,886t tonnes in 1996. EU domestic supplies have declined by some 10%, buttraditional ACP supplies have remained fairly stable. Dollar imports increased considerably between1990-1992, as have non-traditional ACP supplies over the last few years.

European Union Supplies(000' tonnes)

EU

ACP

Others ($)

0

500

1000

1500

2000

2500

3000

3500

4000

1991 1992 1993 1994 1995 1996

EU imports 1991 and 1996('000 tonnes)

0 200 400 600 800

Ecuador

Colombia

Costa Rica

Panama

Honduras

Guatemala

Ivory coast

Cameroon

Santa Lucia

Jamaica

St Vincent

Dominica

Somalia 1996

1991

Fig. 3 f). EU supplies Source: FRuiTrop 1997 Fig. 3 g). EU imports 1991-96 Source: Eurostat

1997

The ACP countries, Cameroon and Ivory Coast, where the US companies are investing, have seenthe biggest increases. Conditions in the new plantations are comparable with Central America, butwith less disease problems at this stage, which means they will be able to compete more easily withthe Dollar bananas. Honduras and Panama saw their exports diminish considerably, althoughHonduras’ exports did go up again in 1996.

Import, Wholesale, Retail prices(in 1992 US$)

0,00

5,00

10,00

15,00

20,00

25,0092 94 96 92 94 96 92 94 96

retail

wholesale

import

France Germany USA

But although ACP countries sawincreases in their total imports tothe EU during this time, theirimport prices have gone downdue to the competition withDollar bananas. Meanwhile,import prices for Dollar bananaswent up because of the quotasystem. In figure 3 h). acomparison between the French,German (Chiquita) and the USmarket is made. In the US, notonly import prices, but alsowholesale and retail margins aresignificantly lower, whichdemonstrates the importance ofthe EU market for the dollarcompanies.

Fig. 3 h). Import, wholesale and retail prices Source: FAO 1997

In France, import prices and wholesale and retail margins decreased, but import prices decreasedmost. In Germany, Chiquita wholesale margins improved, even when import prices went down again.Even wholesale margins for other bananas were slightly up. In 1993-94 consumption fell inGermany due to the higher prices. However, an average 5% fall in prices in 1995-96 has helpedsales to recover, up 11% in 1995 and 3.5% in 1996.

This seems to confirm the result of a market study of the Gesellschaft für Konsumforschung(GfK) in Germany, which showed that price and quality rather than brand determine consumerpurchases. The study was immediately challenged by Chiquita with its own findings that about 50%of consumers buy brands, of which 80% favoured Chiquita!

A comparable slow down in consumption was seen in Scandinavia, where per capita consumptionfell due to the price increase following their entry into the EU.

4. EUROPEAN REGULATION

At the end of the eighties, existing differences between the different banana companies seemed tobe well established and, facing the prospect of opening up huge new markets in Eastern Europe andAsia, it only seemed to be a question of boosting banana production to assure ‘fruitful’development of the banana business. But life turned out not to be that easy. With the restrictedEU market, and no Eastern-European miracle, even big companies like Chiquita turned out not tobe untouchable. With the introduction of the EU banana regime in 1993, the world banana marketdefinitely changed.

First, the companies had to define their position with regard to the new regime in the EU, whichaccounted for some 35% of world imports, and develop a new market strategy. And now, fiveyears later, the cards seem to have been reshuffled and companies will have to face modificationof the 404/93 regime, and possibly eventual deregulation. Meanwhile, the whole fresh-fruit sectorhas become far more competitive. Again, the fruit companies have to define the key elements ofa successful strategy.

4.1 EU regulation

With integration of the European market, the EU tried to combine two main objectives:

- to create an integrated market for bananas harmonising different banana trade agreements,

- to guarantee that access to this market for their traditional ACP and European suppliers was nothampered by the foreseen influx of cheap Latin American bananas.

The complicated 404/93 trade mechanism, introduced on 1 July 1993, was the result.

The EU established four categories of suppliers, each receiving different treatment:

1. EU producers (mainly Canary Islands, Martinique and Guadeloupe), covered by internal aspects ofthe common market. For this category, income support up to 854,000 tonnes is guaranteed incase prices fall below the costs of production. This mechanism has been used for several years.

2. Traditional ACP countries, i.e., the ACP banana suppliers in the years preceding the singlemarket, have duty-free access up to a maximum amount of 857,700 tonnes per year.

3. Non-traditional ACP countries (e.g. Dominican Republic) and quantities from traditional ACPcountries above the ceiling of 857,700 tonnes.

4. Third countries, the so-called 'Dollar' countries which, together with category 3 producers, sharea tariff quota of 2m. tonnes - duty free for non-traditional ACP countries and with a tariff of 75ECU per tonne for the Dollar bananas. The quota to be increased to 2.5m. tonnes with theaccession to the EU of Sweden, Finland and Austria.

The Dollar allocation was granted to trading companies in the following way:

* ‘A’ licences: 66.5% reserved for traditional traders in Dollar bananas;

* ‘B’ licences: 30% reserved for established operators of Community and/or traditional ACPbananas;

* ‘C’ licences: 3.5% for ‘newcomers’ with ambitions within the sector.

The allocation of Dollar quotas to the ACP companies was designed to cross-subsidise the expensiveACP bananas with some Dollar banana quota rent and thus strengthen the position of the ACPcompanies in relation to the Dollar companies. At the same time, it led the Dollar companies toinvest in ACP countries to build rights to future Dollar quota allocation within this category.

Within this tariff quota, each import category is again subdivided according to specific economicactivities, such as producing, purchasing, transport and ripening, making the future allocation of100% of actual quotas only possible if a company operates in all economic activities. Therefore,

this last subdivision directly resulted in the need for further ongoing vertical integration to guaranteethe future allocation of quotas.

Due to the insufficient level of quota allocation, the system has resulted in an active trade inDollar licences which, depending on demand, have been fluctuating enormously up to around $7-8per box. The total cash value of the licences is calculated to be over $1bn. annually.

4.2 The WTO dispute

The system has been under attack from the moment it became effective. Five main LatinAmerican growers (Costa Rica, Venezuela, Colombia, Guatemala and Nicaragua) protested againstthe system under the rules of GATT shortly after its coming into effect. GATT found that the EUimport regime contravened GATT rules. The EU did not accept the findings, but offered to settlewith the named countries in exchange for no further dispute. All but Guatemala signed acompensatory 'Framework Agreement' , which was included in the last phase of the Uruguay Roundin April 1994. Ecuador and Honduras did not participate not being members of GATT at that time.

The Framework Agreement allocated quotas for the involved countries, which meant that nationalgovernments were entitled to distribute export licences. The banana companies protested as theysaw an increase in the problems they already had with the system. Chiquita, especially, decided toactively oppose the system, and has done so ever since with various complaints.

The official case was brought to the WTO by the US, and in 1996 a dispute panel was established. Inthe final ruling, the WTO dispute panel found that the EU’s tariff quota regime for negotiating andallocating quotas acted in a discriminatory way. The quota system as such was not condemned. TheEU immediately confirmed its intention to fully comply with the dispute ruling and itsrecommendations. It has until the end of 1998 to modify the EU regime.

4.3 The future of the EU regime

In designing the modification of the current 404/93 regime, the EU has chosen to continue amanaged market for the import of bananas. The EU proposal is to keep the 2.2m. tonnes annualquota that has been in place since mid-1994 on ‘dollar’ fruit. A tariff of Ecu75 per tonne ispayable up to this quantity. An additional 353,000 tonnes is proposed, reflecting the expansion ofthe EU (Sweden, Finland, Austria) with a duty of Ecu300 per tonnes for third countries andEcu100 per tonne for ACP countries.

The total ACP preferential quota would also remain, although there would not be country specificquotas any more. To compensate the ACP countries for the changes in the regime, the EUproposes to award Ecu530m. in transitional aid over ten years to banana producers in the ACPcountries. However, this amount, spread over some twelve countries, will be less than the actualamount received in cross-subsidies through the sale of quota allocations.

The main change is the redistribution of the controversial licensing system, where the so-called‘B’-licences, granted to ACP producers, will disappear. However, it is not at all clear how thisredistribution will take place. In the new proposal, only countries with a substantial export interestmight remain with a country-specific quota. Regarding tariff-quota management, a system basedon historical reference (but what period?) seems to be the most likely to be installed. But otheroptions like an auction system are also being evaluated.

A system based on historical references will not only reinforce the position of the big bananacompanies and again grant them a subsidy of about US$1 bn, the cash value of the licenses. It alsodoes not provide opportunities for market access to new operators, including ‘Fair Trade’operators. The Dutch fair trade operators currently spend one third of total costs on the purchaseof licences, while at the same time, they are able to both pay the farmer a higher price and

compete on price in the market. On the other hand, an auction system could open upopportunities for newcomers and provide incentives for market innovation.

Meanwhile, supporters of further liberalisation, like the German firms and Chiquita, have alreadyquestioned whether the Brussels proposals will be acceptable to the WTO, which has until the endof 1998 to approve the new scheme’s implementation.

5. CHANGING COMPANY STRATEGIES

The ways that the banana companies have been adapting to the EU regime and the changing worldmarket have been various. Chiquita has taken a very formal position from the start. It seemedneither to believe in the introduction of the mechanism nor, once it was installed, to trust in itsimminent abolition. Consequently, Chiquita adopted a far more formal position than the othercompanies, which adapted themselves in a more pragmatic way to the new situation.

The EU regime accentuated the differences between the EU and US companies although, in theend, all are involved in the same fight for a good mix between sourcing ACP and Dollar bananas toobtain maximal access to Dollar licences. But not all survived and Geest, the former main UKbanana company, did not succeed and sold its banana division in 1995.

In Table 4 a short overview is given of the main companies, their sales and estimated market sharesin 1992 and 1994, together with their anticipated positions for 1997.

Table 4: Main companies, results and market shares 1992-97

SALES($m.)

Profit/loss($m.)

World Share(% of boxes)

EU(% of boxes)

USA(% of boxes)

1992

Chiquita Brands

Dole Food Company

Fresh Del Monte Produce

Fyffes

Geest

2,723

3,120

900

890

n.a.

(284)

16

(63)

47

5

525m.

34%

20%

15%

2-3%

3-4%

200m.

> 30%

12%

7-8%

4-5%

5-6%

165m.

1995

Chiquita Brands

Dole Food Company

Fresh Del Monte Produce

Fyffes + Geest

Noboa

2,566

3,804

1,068

1,700

-

9

89

(72)

65

-

610m.

>25 %

22-23 %

15-16 %

7-8 %

12 %

180m.

19 %

15-16 %

8 %

17-18 %

170m.

35%

35%

18%

1%

1997

Dole Food Company

Chiquita Brands

Fresh Del Monte Produce

Fyffes

Noboa

4,336

2,434

> 1,200

1,460

160

0

> 100

54

625m.

25-26 %

24-25 %

16 %

6-7 %

13 %

210m.

18-19 %

15-16 %

10-11 %

16-17 %

200m.

Sources: Eurofood, Fruchthandel, Reuters, Annual Reports, Solidaridad, Euro PA (1994), ADL (1995), author’s

estimations

The winners and losers are clearly shown in this overview. The main conclusion is that Chiquita isbeing overtaken by Dole due to the loss of market share Chiquita has seen in the EU and elsewhere,owing to the more aggressive strategies of Dole Food and Del Monte. Dole Food is the world’sleading fresh fruit company and, although Chiquita is still mentioned as the banana leader, thedifferential between them has grown very small. Dole is clearly the winner in market strategy.This conclusion seemed to be confirmed by changes in the control of banana production which wereto the disadvantage of Chiquita. In Honduras, Guatemala and Ecuador, Dole has increased its control,while in Costa Rica, Del Monte is expanding, and in Asian production, Del Monte and Dole aredominant.

The impact of the EU regime on the market in the last few years has been considerable and hasemphasised already existent general tendencies. More details are given in annexed overviews foreach company.

5. 1 Diversifying banana supply sources.

Traditionally, US companies concentrate in Central and South America. To cover the Asianmarket,. Dole and Chiquita worked from plantations in the Philippines. At the start of the nineties,Chiquita and Dole also entered Indonesia, opening up banana plantations in joint ventures with theSinar Mas group. The production of these plantations is aimed at exports within the Asian region.Indeed, last years Indonesian export to Japan was increasing. In 1997 Del Monte also entered thatcountry. The current position of Chiquita and Dole in Indonesian banana production is not known.

On the other hand, the European companies, mainly sourcing from ACP countries and overseasterritories, maintained control by making marketing contracts which were often exclusive withproducer associations and/or marketing boards, without direct involvement in primary production.

The establishment of supplier categories within the EU regulation forced both groups to becomeactive in each other’s regions:

- established operators of the Euro and/or ACP bananas: the 30% reserved Dollar licences gavethem the opportunity to spread imports from ACP bananas to the more valuable Dollar bananaoutlets. Geest decided to invest $150m. in a new 3,000ha plantation (Costa Rica). Diseases andlabour problems made the investment a financial failure, and after the takeover by Fyffes/Wibdeco,the land was sold to a consortium of Latin American businessmen.

Fyffes expanded its marketing contracts in Central America and Ecuador, and succeeded in spreadingits sources over ACP, Euro and Dollar bananas. But Fyffes’s entrance into Honduras (throughcontracts with independent growers) and Guatemala (production contracts) did not succeed, and nowit works mainly through agreements with other traders (a.o. Dole).

- US companies: a foothold in the ACP and/or Euro banana countries assured them a future part ofthe 30% Dollar licences reserved for this category.

Indeed, all US companies have invested in Cameroon and/or Ivory Coast, mainly through jointventures with French companies (e.g. Dole/Compagnie Fruitiere) and tried to get a foothold in themarket for Caribbean bananas. To obtain control over Euro bananas, they invested in Spain andhave deals with co-operatives on the Canary Islands (Fyffes/Coplaca, Chiquita/Coslo).

The involvement of the US companies in production in the ACP/Euro region increased from80,000 tonnes in 1992 to 400,000 tonnes in 1994. Recently, Dole considerably expanded itscontrol in the Ivory Coast via its participation in Compagnie Fruitiere, which acquired 67% of SCB,Ivory Coast’s leading banana supplier.

The question is what the consequences of abolishing B licences, as proposed by EC Commission, willbe. For the Dollar companies, especially Dole and Del Monte, which have meanwhile establishedthemselves in the ACP countries, there is not much of a problem, as their new plantations aremodern enough to compete. But for Fyffes, which swapped at least part of its shipping agreement

from the Dollar countries for licences, the future is less clear. And the other ACP traders will losetheir income from the sale of B licences. Moreover, the additional support proposed in themodification of the EU regime will not cover this loss, and will be channelled through other (aid)channels.

5. 2 Vertical integration

US banana companies have been functioning along the whole production chain from production toimport/ripening. However, the EU rule, according to which licences are allocated on the basis ofmarket share in the different categories of economic activity (purchasing/producing,distribution/transport, ripening/wholesale), lead to the further integration of operations. Moreover,this vertical integration was stimulated as a result of the Marrakesh Agreement, which rules thatcompanies need not only import licenses but also export licenses from the countries involved. Thislead to further investments in production.

The US companies have been looking to expand their European network in Southern Europe.Again, Dole especially has been expanding, combining all stages of industry and aiming at volumegrowth. It successfully bought Pascual Hermanos, the troubled company abandoned by Chiquita, andmade it profitable again in a short time.

The position of independent importers has become difficult. As long as they do not operate in thewhole chain, their licence volume will decrease. For example, Cobana Fruchtring, when it lost itscontacts with Chiquita, had to survive through agreements with companies like Geest, Fyffes andPomona. Fyffes made optimal use of this situation and realised joint ventures with over tencompanies within three years.

The complicated license system has generated a lively trade in licences, which makes companies lessdependent on the official licence distribution. But at a high cost, the estimated value is nearly $1bn.The amount to be paid for the licences varies widely from $0.50-$7.00 per box, which means thatat bad times it comprises more than 50% of the total import price.

5. 3 Diversifying markets

The expansion into new markets is a general trend within the food industry that is mirrored in otherindustries. The increasingly saturated markets in the USA and Europe make continuing growth moredifficult, and efforts are directed to strengthen positions in selected core activities. Volume growththrough market expansion is sought elsewhere in developing regions. All main companies areexpanding in Eastern Europe and Asia for that reason. In the banana sector, investments in 1989-91 were directed at global expansion. The restrictions in the European markets led to increasedefforts to develop other markets (Near East, South America, Far East), where per capitaconsumption is still much lower.

The EU regulation has had a double effect. Firstly, the companies are obliged to invest in trade withthe EU12 to maintain their import licences and, therewith, their future market share. The EU15not only accounts for around 30-35% of world imports, but the increased price level for Dollarbananas also makes the loss of market share a double loss. And secondly, the Dollar companies hadto invest in export to other countries in order to divert the banana surplus generated by thedecreased trade with the EU during 1992-94.

Imports into the EU from Dollar countries diminished by 250t between 1992-1994, the biggestlosers being Honduras and Panama. Ecuador was not granted country allocation, but maintained itsshare of the European market, functioning as a buffer for the banana companies.

The Near East had the biggest increase in banana imports in 1992-93 and is increasingly suppliedfrom Latin America. The three southern countries of America (MERCOSUR) nearly doubledimports since 1992, almost totally supplied by Ecuador. The Former Soviet Union (FSU) market

has grown rapidly since 1994, but showed a decline last year. More recent are the increased importsin China. Although the potential is significant, limitations in infrastructure (adequate ripening andstorage), may be a constraint in the near term.

In a the fight over the Japanese market, Del Monte won access to distribution channels, lowering itsprices and giving the other two a hard time. Losses for Chiquita have been such that, for a time, itreduced its banana trade to Japan while maintaining its ripening and distribution facilities. Given therecent decision of the Japanese government to relax limitations on agricultural imports and therapid increase in Chinese imports, Chiquita, like the other fruit companies, has stepped up activitiesin the Far East. Sumitomo too plays a role in the Far East, with sourcing reported from both thePhilippines and Ecuador

5. 4 Reduced dependency on the banana trade

All companies have been diversifying to other fruits, but again the EU regulation has accelerated theprocess. See the annexes for more detail.

- Within Dole food operations, their banana trade accounts for an estimated 35% of turnover. Otherfresh fruits and vegetables, and packaged fruits and juices make up for the other 65%. Fallingprofits have obliged Dole to reconsider its business lines. It decided to sell off its more problematicactivities (parts of its juice and dried fruits business), while it invested in the development of itsfresh fruit business: melons, pineapples, grapes, kiwis, apples, etc. In 1994, Dole became Chile’sleading fruit exporter, accounting for over 12% of Chilean exports.

- Chiquita’s operations are more concentrated on bananas (±60%) and expansion in 1990-91increased long-term debt. The recent crisis obliged it to invest in the restructuring of bananaoperations, and restructuring charges and interest expenses hugely affected results. Chiquita hasbeen investing in other fresh fruits, but to a lesser extent, and has a packaged-food division ofcanned vegetables, juices, etc.

- Del Monte Fresh Produce is the world's leading pineapple producer and a leading melon exporter.Since being acquired by the IAT Group, it runs the fresh fruit exporter United Trading Company(UTC) in Chile, through which it plans to expand its fresh fruit business to Europe and Asia.

- Fyffes is also a mixed fruit company, with their banana trade accounting for 25-30% of totalbusiness. Through its rapid banana expansion, Fyffes became more dependent on them, butcorrected this to some extent when, in 1994, it also invested in Chile with the take-over ofNAFSA, a fresh fruit exporter.

On the European fresh fruit market the fruit companies compete especially with South Africa(Capespan). Capespan plans to boost exports over 100m. boxes of fruit internationally in 1998.However, the recent deregulation of deciduous exports leads to the opening up of moredistribution channels, and to new and different distribution joint ventures. Dole Food is alsoinvolved in one of these, securing marketing rights to Sunpride branded fruit in ContinentalEurope.

Another big player is Albert Fischer (1997: £1,19bn.sales) , which was said to be approached byone of the large outfits in 1997. Albert Fischer has positioned itself as a global fruit supplier inrecent years, with an impressive network of distribution companies in Europe, and has become anattractive investment for the world’s fruit giants.

5. 5 Market orientation

Given the increased concentration in the market and the retail sector, all food companies are obligedto strengthen their market orientation. The increased competition with other brands and privatelabels has led to a process whereby supply contracts and conditions are increasingly determined by

the retail chains, the so called reversion of the production chain. Efficiencies are no longer soughtonly within the companies, but along the whole production chain. Consequently, requirements in thearea of dependable supply, (information) technology, marketing and logistics are constantlyincreasing. Due to the high investments involved in these developments companies are looking forpartnerships through ‘preferred suppliers’ relations. In this situation it becomes difficult for smallercompanies to remain competitive.

Dole is developing an aggressive strategy in this field, leading to partnerships with retailers,wholesalers, and distributors, to set up integrated import, ripening and distribution systems. It statesclearly in its Annual Report that is has shifted its focus from the supply side to the market side.

Another example of these development is the recent take-over of the fresh produce division of theBritish Perkins Food and the Dutch fresh fruit trader Van Dijk Delft by the Dutch The GreeneryInternational, which handles over 50% of the Dutch fruit and vegetable production. Through thetake-over The Greenery has strengthened its positions towards the retail chains and has widened theproduct range they can offer with tropical fruits like avocados, citrus and bananas. This gives them akey position within the fruit chain where new distribution systems are being developed in jointefforts between producers, traders and retail.

The increased market orientation makes the banana companies much more sensitive andvulnerable in respect of consumer opinions, with the effect that actions on the consumers’ side,like the Fair Trade initiative and the UK banana campaign, can have a far-reaching impact. Therecent EU study of the attitudes of EU consumers to Fair Trade Bananas found an overwhelminginterest (400,000 tonnes based on conservative estimates). Equally, the attention the big fruitcompanies are paying to the combined banana campaign from the Costa Rican trade unionSITRAP, UK Bananalink/World Development Movement and the IUF shows the growing concernof the companies for their image. The discussions in the UK between the Banana Group of themajor fruit companies (excepting Wibdeco) and the retail sector, through the British RetailConsortium (BRC), concerning a Code of Conduct, and the recent negotiations with Del Monte inCosta Rica (Bandeco) about union rights and social and economic conditions which resulted in aSITRAP-Bandeco agreement, are clear examples of what combined consumer/trade union actioncan achieve.

Chiquita still seems to follow a more conservative strategy which concentrates on advertising tostrengthen its presence in the wholesale/retail sector and to improve brand awareness. In 1995, itstarted the ECO-OK programme with the US NGO ‘Rainforest Alliance’, through which Chiquitawants to establish itself as the environmental leader of the banana companies. In Europe, where theECO-OK certification is not recognised as an ECO-label, the campaign is primarily directed at theretail sector.

5. 6 Restructuring business

All the above mentioned trends have resulted in a global restructuring of the banana business. Theintroduction of the EU regulation in 1993 not only made the over-capacity in banana productionthat was created at the beginning of the nineties evident, but it also made other producer andsupplier patterns obligatory. All companies involved have been both reconsidering core activitiesand reorganising within them to become more cost effective and to guarantee their leading positionin the market. Two aspects should be considered:

* Company restructuring, concentration on core activities

Chiquita has sold off its meat operations over the last two years, while Dole has separated its realestate activities. Del Monte Fresh Produce, concentrating on fresh fruits, is the result of the DelMonte split up in 1989 and no longer belongs to Del Monte Foods, which stayed in the canned foodbusiness. Geest sold the wholesale division in a management buy out in April 1995, and the splitting

up of the company in July 1995 reflected the growing importance of its convenience foodbusinesses. The banana activities were then sold off in December 1995.

* Restructuring in the banana business

The spread of supply sources and the ongoing vertical integration led to an expansion throughEurope, Africa and the Caribbean, as has already been mentioned. Dole and Fyffes especially havebeen very active in take-overs, which form the bases for the strengthening of their EU marketposition. The need for international restructuring in a climate of increased competition, not only inthe EU but also as a result of the diverted trade on the other markets, has intensified the pressure onproduction costs in the Dollar zones as well as in the other countries.

The developments in Central America reflect the effects of the financial reconstruction measuresthe companies have been taking. Investments are increasing the yields of the higher producingplantations, while less productive lands have been abandoned. As an example, in Costa Rica, whichhas an average production of around 2,000-2,500 boxes/ha, Dole's most modern plantation producesup to 3,700 boxes/ha. Meanwhile, Chiquita has been disposing of 1,200ha of less productive lands inHonduras, using the severe strike of 1994 as an argument. Moreover, new forms of labourorganisation are being introduced in the plantations, with Total Quality Programmes itemising thework and responsibility. The constant pressure for low-cost production is worsening primary andsecondary labour conditions.

But the ACP countries are also feeling the results of the intensified competition. Prices for theirbananas have dropped on the European market, and tropical storms have caused considerabledamage to vast areas on the Caribbean Islands. They face difficulties in maintaining productionlevels and reaching sufficient quality at reasonable cost. But investments are risky, given theuncertainty of price and level of exports, and given that the EU might agree to alter its regime inline with USA/WTO demands. For example, in St Vincent, an irrigation project to installequipment on 160ha of bananas in the North Eastern Eco-zone is to be set up with money fromthe EU Stabex (stabilisation of export earnings) programme). It must increase production from450 to 1,000 boxes per hectare. It is supposed to be the first part of a 1,600 hectare project. Buteven with this increase in production, production levels are still far below those of CentralAmerican plantations.

The need for diversification in the Windward Islands is repeatedly mentioned, but given theconditions on the Islands [this] it is far from an easy task to find alternatives which guaranteereasonable income and employment levels.

6. CONCLUSIONS ON THE MARKET, CHANGING COMPANY STRATEGIES

* Five major companies control the world market: Chiquita Brands (USA), Dole Food (USA), DelMonte Fresh Produce (Mexico), Noboa (Ecuador) and Fyffes (Ireland). The first three are theDollar companies that have control over 65-70% of world banana trade. Noboa, the dominantEcuadorian exporter, is roughly estimated to have a trade volume of around 13% of the worldmarket. Fyffes, which took advantage of the EU trade regime most strongly, has emerged as thedominant European company and is expected to handle around 6% of the world market.

* These companies cover the whole chain, controlling production, transport vessels, storage andripening facilities and distribution. The EU regulation has intensified the vertical integration inEurope, leading to several take-overs of importers, ripeners and distributors in the last five years,especially by Dole Food and Fyffes. Fyffes’s intention to expand its control over production inthe Dollar countries has been less successful.

* The situation of oversupply following the implementation of the EU regime has forcedcompanies to expand to other markets. Trade to Eastern Europe, the Middle East, SouthAmerica, and lately to China has been growing significantly. But competition in the Far East hasalso been fierce, and will surely continue if China stabilises as a major importer.

The import to the EU, after the decline in 1993-94, is increasing again since 1995.

* All companies have not only been diversifying their banana supply sources, but have also beenexpanding into other fresh fruit and vegetable and packaged foods business, thus becoming lessdependent on bananas.

* The overall banana crisis has led to a global restructuring of the banana companies. Thecompanies are concentrating on their core business of fresh fruits and selling off other divisions,but it has also intensified the pressure on production costs. The consequences are dramatic. Inrecent years, the abandonment of plantations, and the consequent massive dismissals, have beenfollowed by rationalisation of the higher producing plantations. Total quality management hasbeen, and continues to be, introduced widely, leading to higher production per worker and lessfixed labour contracts, thus resulting in further unemployment. Governments are being pressed tolower taxes and levies. And on top of that, recent labour reforms facilitate the companies inachieving a much more flexible use of labour. Because of this, primary and secondary labourconditions are worsening.

* Not all companies have reacted in the same way, and the crisis has left winners and losers:

- Chiquita has posted severe losses since 1992 and only made a small profit in 1995 and 1997.It is judged to have made the wrong decisions in Europe in that it did not expand further after1993 and expected the rapid break up of the EU regulations, but it also lost in the Pacific area. Itplans to strengthen its market position through emphasis on building up brand awareness,whereby it wants to position itself as the industry’s environmental leader. However, sufferingsevere losses of market share in Europe and Asia, it founds its position as the premier bananacompany seriously challenged by Dole.

- Dole and Fyffes have a far more aggressive market strategy and are the winners in thissituation. They are both investing strongly both in Europe and in the different supplier areas, andhave gained European market share. Dole is the most advanced in market strategy, setting upnew integrated partnerships with distributors and retailers. However, one of Fyffes mainstrengths lies in its access to the B licences, which enabled it to spread its sourcing further toLatin America. But at the same time, inexperience with Latin American sourcing practices,and counter attacks from the existing companies, caused it to fail in setting up a strongly basednetwork of its own. Deals with, among others, Dole were inevitable. The question is, once it is

without the B licenses, what will its future in Dollar bananas be, and how vulnerable will itbecome to new advances from fruit companies that want to use its distribution network?

- Since it was acquired by the Abu-Ghazaleh family, Fresh Del Monte Produce has the capitalfor a far more aggressive market strategy and, indeed, has been strengthening its position. It isestimated to have gained market share in not only Europe, but also in the US.

Of the national companies, Noboa (Ecuador) has been expanding rapidly, trading all over theworld.

* To again modify the EU regime will not be without consequences, which also depend on the waythe licences will be distributed among existing companies. If it is to be based on historical sales,the actual subsidy to the established companies will remain, and the entrance of newcomers willremain quite impossible. But in any case, the ACP traders that lose their B licences, and theproducers they source from, will have to confront a far more difficult situation. The additionalEU support will only partially compensate this loss and will be channelled through yet otherchannels. Prolonged support will be necessary to make the banana sector in these countries morecompetitive or to enable them to move to alternative economic activities.

References:

Chapter 1-3:.

• FAO, Banana statistics, April/May 1997

• FAO, Banana information note, February 1998

• Fruchthandel, different issues

• Rabobank, The world fresh fruit market. Utrecht, the Netherlands, 1993

• Rabobank, The world of fresh fruit trade, Utrecht, the Netherlands, 1997

• David Hallam a.o., The Political economy of Europe’s Banana Trade, University of Reading,1997

• Eurostat, intra and extra European Union statistics, 1995-96.

Chapter 4:

• Solidaridad, Yellow fever, Proposal for Quota allocation for Fair Trade Bananas. Utrecht, theNetherlands, 1995

• Farmers' Link, Banana trade news bulletin, 1994-1997

Chapter 5 / Annexes:

• Annual Reports 1993-1997 Chiquita Brands International, Dole Food Company.

• www.hoovers.com / internet sides banana companies

• Farmers' Link, Just green bananas! Norwich, UK, 1995

• The world of bananas, WINFA seminar on fair trade, 1997.

• Different issues of:

Agra Europe, Eurofood; Eurofruit Magazine; Fruchthandel

Financial Times, Reuter Textline, Business Week, The Guardian,

Tropifruit, Marchés Tropicaux.

Appendix A:

CHIQUITA BRANDS INTERNATIONAL Inc.

Cincinnati, Ohio, USA

Chairman and CEO: Carl H. Lindner

A.1. Financial Results 1991-1997 (in US$m.)

1997 1996 1995 1994 1993 1992 1991

Net sales 2,434 2,435 2,566 2,506 2,533 2,723 2,604

Operating income 84 176 71 103 (97) 198

Net income (loss) 0.3 (51) 9 (72) (51) (284) 128

Chiquita Brands International (known in Central America and Columbia since the end of the lastcentury as the United Fruit Company) was, for decades, the world's largest banana producer anddistributor, and still claims to be premier in bananas. It has about 35,000 employees, of which30,000 (from 35,000 in 1994) are in Central and South America (1996).

The company also markets other fruits and vegetables. Less well known are its processed foods.These activities accounted for 64% of its revenues before it sold its main meat business (NorthAmerica) in 1995 after severe losses. Bananas are still said to account for 60% of its sales.

Chiquita is controlled by the American Financial Corporation (AFG-USA), which has a 43% stake(1997). AFG is the holding company for many of the business interests of Carl Lindner and hisfamily. Its main business is insurance, these include: non-standard auto; speciality lines, such asworkers’ compensation, professional liability, non-profit liability and multi-peril crop insurance;and general commercial and personal lines, including home-owners coverage. AFG’s primaryinsurance subsidiaries include Great American Insurance Company and its subsidiaries, as well as anon-standard auto subsidiary in the UK. AFG also sells retirement annuities through its AmericanAnnuity Group.

The net sales of Chiquita Brands have diminished since 1991, mainly due to lower banana volumes.Chiquita’s losses were aggravated by high net annual-interest expenses of around $165m. in 1993-95, as the company is deeply in debt. In 1995, sales were up again and, for the first time in years,the company made a profit. However, in 1996, due to considerable farm damages in Latin Americaafter record floods caused damages of around $70m., it showed losses again.

Continuous losses

One of the main problems for Chiquita has been the European nightmare. Focusing on a formalstance from which to attack the EU banana regime through the GATT/WTO, has caused it tomake severe political and economical miscalculations:

Firstly, the regime seems to have turned out to be much more long lasting than Chiquita had everimagined, holding it back from the necessary counter-attack. Unlike the other big fruit companies,it did not invest effectively in ACP countries and was less active on the European market.

Secondly, it chose a quite passive market position and trusted to its brand strength. But, althoughit has repeatedly been trying to prove in several market studies that consumer loyalty to Chiquitais very high, and that consumers are prepared to pay a premium and even go to other shops ifthey cannot find Chiquita, the contrary has been proven. It has faced ongoing lower Europeanbanana volumes, and, in particular, it has lost market share in Germany. In addition, it reduced the

number of ripening and distribution companies it worked with in Germany, importing exclusivelythrough Atlanta-Scipio, based in Hamburg since 1993. According to the marketing institute,Nielsen, Chiquita had an estimated 18% market share in Germany in 1996, down from nearly 40%in 1993. Even if it has been able to maintain its share in the other European markets, losing morethan half of the German market means that its total market share in Europe has fallen below15%.

And thirdly, Chiquita seems late in strengthening its non-banana fruit and vegetable business. Likethe other fruit companies, it has been diversifying into other products, but to a lesser extent.With its expansion in 1990-91, it became highly indebted. And, once confronted with theconsequences of the EU banana regime, Chiquita had first of all to attend to the restructuring ofits banana business. It divested itself of its meat operation during 1992-1995 after severe losses. In1995 it sold its Numar edible oils group in Costa Rica, its stake in the troubled Pascual Hermanosin Spain, and shut down part of its juice business.

But despite all its complaints about the EU Regime, Europe is the only market where it reallymakes a profit because of the higher margin. Europe and other international markets accountedfor 85% of Chiquita’s operating income in 1996.

Only recently, after reducing overall borrowings and apparently under pressure from the problemsit faces in its banana business, does it seem to be shifting its attention towards non-bananaoperations, especially to vegetables and vegetable related products. The new acquisitions are partof a realignment of marketing operations which, together with agressive general cost-cuttingmeasures and a multi-year reorganisation of management structure, are aimed at finally boostingChiquita’s lagging profits.In 1996, Keith Lindner became vice chairman of the board and was succeeded as President of theChiquita Banana Group by the group’s vice president Robert F. Kistinger.

A.2. Main acquisitions and divestments since 1993:

1993 Compagnie des Bananes (CDB), 49% owned by Chiquita Brands, takes 33% of SocieteBananiere Caraibe (Sobaca), with option for the remainder, from Fabre-Domergue group(Martinique). Also a distribution agreeement is signed.

1994 Joint venture with Eurobrands, Italy to market fruit juice on the European market.

1995 Sale of last part of its meat division to Smithfield, the other parts being sold in 1992-1994.

1995 Sale of its share in Pascual Hermanos (Spain), now part of Dole Foods.

1995 Sale of Numar edible oils in Costa Rica.

1997 Acquired Friday Canning Corporation (Wisconsin), American Fine Foods (Idaho), Owatonnacanning (Minnesota) in a combined $77m. deal.

1997 Acquired 83% in Blueberries Farms of Australia.

1998 Acquired Stokely, USA, a vegetable canning company.

1998 Direct Fruit Marketing GmbH, joint venture Chiquita’s European Frupac operations andAtlanta.

A.3. Bananas

Chiquita expanded banana production in 1990-1991, expecting world-wide growth in the bananatrade. It was one of the first banana companies to invest in Eastern Europe in representation andstorage houses. Chiquita directly blames the EU regime for its losses and is the driving force behindthe US inquiry, under US trade Law 301, and the WTO dispute demand.

But it not only lost market share in Europe. It withdraw from the Philippines after the land reformprocess, and had to reduce its Japanese green-banana trading. Over the last two years, it has tried torecover its position in the Far East, in Japan and in new trade with China.

Given its position, brand promotion is essential to Chiquita. It claims to deliver the highest qualityand prices its bananas far higher than others. The difference was often over 50% per box. Its policyhas made it lose supermarket contracts to Dole and other companies, and not only in Germany. Inrecent years, Chiquita has developed retailer- and consumer-oriented advertising campaigns(especially in Germany and France) to restore the market share of its high-priced Chiquita label,attempting to convince the public that quality is more important than price.

But its main goal it to establish itself as the environmental leader of the banana companies. In 1995,Chiquita started the ECO-OK programme with the Rainforest Alliance, an international NGOdedicated to the conservation of tropical forest. The programme is directed at achieving ‘sound,safe, and environmentally improved agricultural practices’ (Annual Report 1996) in all itsplantations, and at the start of 1997, 25,600 acres had been certified in Costa Rica and Panama.One of the main criticisms of the programme has been the lack of effective restriction of the use ofagro-chemicals as an ECO-label should demand. Especially as Chiquita, together with Dole and themain Chemical companies, are involved in lawsuits with some 11,000 workers in different countriesover the harmful effects of the highly toxic DBCP. Meanwhile, the certification is intended toreinforce Chiquita's market strategy.

Chiquita sold Fyffes to Fruit Importers of Ireland in 1986, considering it no longer part of its corebusiness. In 1995, Chiquita approached Geest to buy its banana operations. However being deeply indebt, it was unable to find the cash for the deal. The losses in the European market have also madeChiquita lose market share on a world level. Currently, the company is estimated to have revenuesof over $1,3bn. dollars coming from its banana activities, and to control around 24-25% of worldtrade.

A.4. Other activities

Actually Chiquita is active in other tropical fruits like mangoes, kiwis and citrus, as well as otherfresh fruits and vegetables, including avocados, asparagus and potatoes, under a variety of brandssuch as Consul, Amigo and Premium. It entered into the Chilean fruit export business in 1992 withthe acquisition of Frupac, one of the leading Chilean export firms. In 1997, it bought an 83%stake in the fruit company Blueberry Farms of Australia for around $13m. In order to float itsChilean exports on the European market, it announced a joint venture between Chiquita’sEuropean Frupac and Atlanta, called Direct Fruit Marketing in early 1998. And in the US,Chiquita has citrus production for the US and European market.

Chiquita’s packaged foods division consists of a range of products, including:

- Ready-to-eat salads

- Edible oil products (margarine, cooking oil and shortening). Although Chiquita sold the CostaRican Numar group activities, it still sells edible oil-based consumer products in Honduras underthe Numar and Clover brands.

- Fruit juices and drinks, under the Chiquita Naked Juice, Ferraro brand. In Italy it produces fruitjuices for Europe.

- Processed bananas, among others, for use in baby food.

- Canned vegetables and other products. Chiquita's Friday Canning Corporation is a majorprocessor of private-label canned vegetables.

With several acquisitions last year in the USA (American Fine Foods, Owatanna Canning, FridayCanning Corp, Stokely Inc) it has bumped up its vegetable-related revenues from around 5% to15% of total sales. Lately, it has announced the closure of three vegetable plants at the FridayCanning Corporation in Wisconsin.

Appendix B:

DOLE FOOD COMPANY INC.

Westlake Village, California, USA

Chairman and CEO: David H. Murdock

B.1. Financial Results 1991-1997 (in US$m.)

1997 1996 1995 1994 1993 1992 1991

Net sales 4,336 3,840 3,804 3,499 3,108 3,120 2,964

Operating income 164 193 138 123 133 223

Net income (loss) 160 89 23 68 78 16 134

Source: Annual Reports, Hoover estimate (1997)

Dole Food Company, formerly known as Standard Fruit in Latin America, is the world’s leadingproducer and marketer of fresh fruits and vegetables. It seems to be successfully challengingChiquita’s leading position even in bananas. It also deals in canned fruits and juices. Dole Food isactive in more than ninety countries, and has around 47,000 employees world-wide (1996).

Dole was founded in 1851 in Hawai, its subsidiary, the Standard Fruit Company was created in 1909by the D'Antoni family, and sold to Dole in the mid sixties. In 1995, Dole decided to separate itsreal estate and resort business, Castle & Cooke, from the food business, as the two businesses aretoo distinct in operation. David Murdock continues to lead both companies as CEO, but they areseparately listed on the New York Stock Exchange.

Dole revenues have been increasing steadily from $2.9bn. in 1991 to $3.8bn. in 1996. But theiroperating income has gone down in the food business from $223m. to $123m. in 1993, clawingback to $164m. in 1996. In 1992, the company blamed the world recession and lower prices fortheir fall in operating income and spent $89m. in a two-year cost-reduction program. The lowresults in the Pacific Rim and Europe, and a further 1994 loss in the USA reduced income, but theyare compensated for this by increasing results in Latin America however. Net income was down in1995 due to losses in the discontinued operations.

B.2. Main acquisitions and divestments since 1993:

- Joint venture Compagnie Fruitiere for distribution in France and Spain. Common investmentin Cameroon and Ivory Coast.

1993 Acquired Saman-Micasar, a leading dried fruit company in France.

1994 Acquired 35% in Jamaica Producers Fruit Distributors Ltd., Dartford, Kent, UK. 1993 sales$225m. Combination has 20% of the UK market.

1994 Acquired D&C, Agrofruta, Chile’s ninth fresh fruit exporter.

1995 Disposed of part of juice business and dried-fruit business, USA.

1995 Acquired the New Zealand operations of Chiquita Brands. Until then Dole had no financialinterests in New Zealand excepting the markets through Market Gardeners. In late 1994,Chiquita had 39% of the market and Dole 18%.

1996 Acquired 90.8 % in Pascual Hermanos, the largest fruit and vegetable firm in Spain.

1996 Acquired a majority stake in Paul Kempowski & Co, Germany, a large banana ripener anddistributor. (25,000 boxes/week)

1996 A marketing joint venture with Langeberg Food Ltd., one of South Africa’s leading cannedfruit companies.

1996 Joint venture with BAMA Group, Norway, forming Dole-BAMA Fresh Salads.

1997 Acquired SCB Plantations, Ivory Coast through Comp. Fruitiere.

To improve their results, the company resolved to further identify their most profitable businessunits and to concentrate on those activities. For that reason, Dole decided to sell the major part ofits juice business and dried-fruit business in the USA. To conform with general developments in thefood sector, Dole shifted its management attention from the supply to the market side of thebusiness, paying much more attention to strengthening its distribution network and supplypartnerships with the retail sector. Moreover, unlike Chiquita, Dole has followed a pragmatic marketapproach since the introduction of the EU banana regime. It invested in production and distributionin the ACP countries and Europe to obtain maximum access to banana import licences.

This approach has not been without success. In Germany where Chiquita lost half of its marketshare, Dole is estimated to have doubled its share from around 13% in 1992. Also, in Asia Dole leftChiquita behind. In the growing Middle and East-European market, both are present. However, nodata about market shares are available. The conclusion is that Dole has clearly won the marketbattle with Chiquita, and even if Dole has not yet taken the lead in the world banana business, theday does not seem far off when they will.

B.3. Bananas

As stated above, Dole’s world-wide banana volumes have steadily been increasing. Together withChiquita, Dole controls the North American market with an estimated market share of around 35%(1994). Chiquita reduced its presence in Japan in 1994, but Dole had severe problems with DelMonte, which was seeking a distribution system into the Japanese market through price-cutting.Using investments in fresh and packaged food, the company has tried to guarantee itself a share inthe vast and growing Asian market. In December 1996, it opened the largest distribution facility inJapan.

Dole has had a very pragmatic approach to the European market. Specialising in Dollar bananas, ithad to provide itself with access to ACP countries’ bananas to maximise its access to importlicences. It began by marketing ventures with European producers in the Canary Islands and formerEuropean colonies in Africa and the Caribbean. In 1993, it tried to get hold of Fyffes, but failed inthe attempt. The 35% acquisition in 1994 of Jamaica Producers Fruit Distributors Ltd., a leadingdistributor of bananas and other fruits in the United Kingdom, allowed Dole access to around 20% ofthe UK banana market.

The joint venture with Compagnie Fruitiere resulted in access to production in Cameroon and theIvory Coast, but it also permits Dole to use the Compagnie Fruitiere’s distribution networks inFrance and Spain for its bananas and other fruits and vegetables. In 1997, the takeover of 67% ofthe SCB plantations in the Ivory Coast provided Compagnie Fruitiere with modern plantations, andpacking houses capable of serving the traditional Dollar markets. SCB control some 100,000 tonnesof bananas. Once again, this is bad news for Chiquita which had a sourcing deal with SCB.

Previously mentioned arrangements have substantially increased Dole's banana sales in Europe.Total sales of Dole Food Europe were over $1b. in 1996, up from around $570m. in 1993.Meanwhile, Dole has developed a modern fruit terminal in Italy (Livorno). In 1996, it had anetwork of twelve facilities in France, seven in Spain, four in Italy and one in Germany. It also has alarge distribution centre near Istanbul, and is expanding into St. Petersburg.

B.4. Other activities

Dole Food includes fresh fruit, fresh vegetables and packaged foods.

Fresh fruit and vegetables

The company has increasingly diversified in fresh fruit; oranges, kiwi fruit, mangoes andpineapples. Following major acquisitions, it has become Chile's major fruit exporter (grapes, applesand other fruits). In New Zealand it is involved in the export of kiwi fruit and other fruits.

Dole appeared in Chile in 1981 as the Standard Trading Company. In 1994, it managed its firsttake-over in production with the acquisition of Agrofruta, a sister company of C&D Internationaland the ninth largest export firm. With the purchase of C&D, Dole Chile became the undisputedleader of Chile's fruit export sector, outstripping the traditional industry leader David Del CurtoSA. The company deals in apples, pears and grapes, and more recently has been expanding intostone-fruit. In 1996, Dole Chile marketed some 19m, cartons of fresh fruit world-wide, up fromaround 12m. cartons in 1993, and representing about 12% of total Chilean fruit exports. Dole hasinvested some US$40m. in the last five years to upgrade and expand its packing, cold storage andCA capacity, and now operates eleven packing houses throughout the fruit producing regions ofChile.

In the US, Dole sources fruits from different states, and through a ‘jet-fresh’ programme in Chile.In the US, it runs the largest fully-integrated citrus organisation and is also the leading supplier ofgrapes. The Philippines is Dole’s major pineapple production area, but it also produces vegetables(and of course bananas). In Japan, it contracted over 1,000 Japanese farmers to grow fruit andvegetables for the Japanese and other markets. In Europe, Dole sources pineapples from the IvoryCoast through its joint venture with Compagnie Fruitiere. Dole Honduras continues to be the mainsource of Dole branded grapefruits, however, currently it is expanding into US sourcing.

The North American market is its main market for vegetables where it deals in more than twentydifferent types (including artichokes, broccoli, carrots and assorted lettuces). Given theconcentration in the US retail sector, Dole focuses on long-term partnerships built on a year-round supply and increasingly requiring logistical support. It also has a growing line of value-addedproducts in one of the USA’s fastest-growing grocery segments -- single-serving salads, fresh-cutvegetables and salad kits that include dressings. In 1995, it opened a new plant in California toprocess vegetables. To reduce the agricultural risks in the USA, Dole is downsizing its investment in

agricultural properties, and sources increasingly from premier growers. Since 1996, it has beendisposing of many of its North American agricultural (vegetable) lands.

The expansion of the Dole distribution network in Europe after the introduction of the EUbanana regime also helped the company to broaden its fresh fruit, processed fruits and vegetablesbusiness, so that it was not based only on the sourcing of fresh fruits in Chile. In Spain, it gained amajor acquisition with Pascual Hermanos (fresh fruits and vegetables). Pascual was facing severefinancial problems, and because of this Chiquita had decided to dispose of its stake.

In Norway, Dole entered into a joint-venture with the BAMA Group, active in fresh fruit andvegetables, to form Dole-Bama Fresh Salads. It stood as a model for the roll-out of Dole’s value-added salads throughout Europe. Dole expanded in Europe from fresh-cut pineapple and tropicalfruit salads to other fresh salads, which were also later introduced in the US.

Packaged foods

Dole is particularly strong world-wide in canned pineapple products and tropical fruit salads. Withover 6,000 workers in the Philippines, it farms around 10,000ha and operates a pineapplecannery that is one of the largest fruit canneries in the world, exporting world-wide. For theselection of fresh products and the distribution of packaged foods, it works together with QuantumCorporation in the Philippines.

In an alliance with Langeberg Food (South Africa) in 1996, Dole planned to extend its productline of deciduous canned fruit in the European market. However, at the end of 1997, poorEuropean results led Langeberg to shift its focus elsewhere and retire from the UK market. Thepartnership with Dole will apply to Germany, Benelux and Scandinavia but has to be redefined.

In 1995, Dole disposed of the main part of its juice business to the Seagram Company, world-wideleader in fruit drinks. Dole maintained its canned pineapple juice business. In Honduras, Dole has amajority-owned beverage operation which supplies beverages, edible oils and soap products. It alsobottles for Coca-Cola and has a total share of around 75% of the Honduran soft-drinks market.

Appendix C:

FRESH DEL MONTE PRODUCE

Coral Gables, Florida, USA

Chairman and CEO: Mohammad Abu-Ghazaleh

C.1. Financial Results 1992-1997 (in US$m.)

1997 (3Q) 1996 1995 1994 1993 1992

Revenue 937 1,189 1,068 992 880 ± 900

Income (loss) 121 (134) (72) (64) (58) (63)

Fresh Del Monte Produce grows, transports and markets fresh fruit world-wide. It is the thirdlargest banana company, and the biggest in pineapples. In 1996, the company had 14,600employees world--wide. The Abu-Ghazaleh family, of the United Arab Emirates, owns about two-thirds of the firm through a holding company, the IAT Group. Since late 1997, Fresh Del MonteProduce shares have been traded on the New York Stock Exchange. In 1996, bananas accountedfor 61% of Del Monte’s gross profit and pineapples for 36%.

No longer part of Del Monte Foods

The 1995 ownership structure is basically a product of the break up of RJR Nabisco in 1989. DelMonte was split into three units: processed foods, fresh fruit, and international food and beverages.

The processed-food arm, Del Monte Foods USA (San Francisco), was bought by Myrell LynchInvestment Funds (1994 sales: $1.6bn.). It owns the Del Monte brand and has stuck to thecompany’s core business of canned fruit and vegetables. Del Monte International was taken over bya management buy-out and sold to Royal Foods of South Africa. It has had problems ever since itsstart.

Del Monte Fresh Produce was sold to Polly Peck which went bankrupt in 1992, after which thedivision was sold to the Mexican investor group, GEAM, headed by Mr. Cabal, for $525m. In July1994, it was announced that Del Monte Foods of San Francisco had agreed to a $1bn. take-over byGEAM. Mr. Cabal’s intention was to re-merge Del Monte Foods with Del Monte Fresh Produce,thus obtaining full rights over the Del Monte brand.

However, in September 1995 Cabal was discovered to have made illegal loans to himself, and hisassociates, worth US $1bn. The government moved against Cabal, in part to prevent the purchaseof Del Monte USA as it would be financed illegally. Cabal disappeared. The company came understate administration and the government put pressure on GEAM (Grupo Empresarial AgricolaMexicano) to sell-off Del Monte Fresh Produce. The big companies, as well as Ecuador’s premierexporter Noboa (Bonita label), were all mentioned as interested parties although, after all thefinancial problems were taken into account, the real worth of Del Monte Fresh Produce was unclear.In 1996, 80% of the shares were sold for US$534m. to Grupo IAT, owned by the Abu-Ghazalehfamily, with administrative headquarters in the United Arab Emirates. Grupo IAT owns Chile'sfourth-largest fruit exporter, United Trade Company UTC. The other 20% stayed in the hands ofGEAM.

Notwithstanding the financial and ownership problems, Del Monte Fresh Produce had been growingas well in bananas as in other fruits, and sales passed $1bn. in 1995. Del Monte has been active inthe Pacific Market, where it lowered prices considerably to get access to the distributor network inJapan. Since Del Monte was acquired by the Abu-Ghazaleh family, the company’s financial profile

has improved significantly. New capital and cost-cutting measures have enabled the company toinvest and expand aggressively in production and marketing world-wide. Late in 1997, Del Montemade a public equity offering, of which it received net proceeds of around $177m.

The company is making a profit again, its share in total banana trade has grown as have its marketshares in Europe and North America. Besides bananas and pineapples, Fresh Del Monte also intendsto expand the exports of fresh fruit from its Chilean operation UTC.

C.2. Main acquisitions after 1993:

1994 Joint venture with four Brazilian companies from Pernambuco, Interfruit, to produce 200,000tonnes of Del Monte bananas per year.

1994 Investment in Mexican agricultural lands to expand non-banana fruit production.

1996 Control over UTC, Chilean fruit exporter, due to the acquisition of FDMP by the IAT group.

1997 Nusantara Tropical Fruit, Indonesia. Joint venture with Umas Jaya Agro Industri for thedevelopment of a plantation on Sumatra.

C.3. Bananas

In 1996, Del Monte claimed to have passed sales of 100m. boxes of bananas world-wide, whichreflect 15% of total banana exports. Like Dole, Del Monte has been investing in ACP countries, ithas invested in Cameroon, to spread its sourcing between Dollar and ACP banana countries. Its jointventure in 1997 in Indonesia with Umas Java Agro Industri was to set up Cavendish Bananaproduction for export to East Asia.

Recently it has been far more aggressive on the European market. Its intensified market orientationmakes it, like the other fruit companies, more alert to consumer response. The combined bananacampaign from the Costa Rican trade union SITRAP, UK Bananalink/WDM and the IUF, led tofaster results than had been expected, and Del Monte (Bandeco) was the first company to sign anagreement with the SITRAP in December 1997.

C.4. Other activities

Apart from bananas, Fresh Del Monte is active in pineapples and other tropical fruits. Thecompany is the world's biggest producer of pineapples through its subsidiary Pindeca, Costa Rica, andhas extensive plantations in the Philippines. Besides its own production, it buys from independentgrowers.

Following the 1997 flotation, Fresh Del Monte is expected to substantially expand its UTCoperation. It has been buying significant farming capacity in Chile, and plans to increase exportsfrom 3.5m. in 1997 to some 4.2m. in 1999-2000, aimed at the European as well as the Japanesemarket, where it recently opened a wholly-owned subsidiary.

Appendix D:

FYFFES

Dublin, Ireland

CEO: David McCann

D.1. Financial Results 1991-1995 (in I£m.)

1997 1996 1995 1994 1993 1992 1991

Revenu 1,460 1,430 1,118 897 623 524 608

Income 54 48 42 36 32 28 27

(I£1,460ml,n = US$2,040m.)

Fyffes is the main European banana company, and it also deals in other fruits and vegetables. It hasbeen expanding enormously since the introduction of the EU Regime through take-overs and jointventures all over Europe. It has nearly tripled sales since 1992, and has become the fifth mostimportant banana company on a world level.

The foundation for Fyffes was laid in 1882 by Edward Wathen Fyffe. In 1913 United Fruit tookover, but after more than a hundred years of family involvement, Neil McCann, who retired aschairman in December 1995 and whose great-grandfather was the first Fyffes agent in Dublin,bought the business in 1986 from Chiquita, which did not consider it part of its core business,through the Fruit Importers of Ireland (then renamed Fyffes). The McCanns had 9% of Fyffes, buthave been expanding their share. Late in 1997, a US Chicago-based fund manager, David Herrero,acquired 3%, considering the company undervalued.

The agreement under which Chiquita sold Fyffes gave Chiquita the rights to the Fyffes trademarkfor three years and a 'non-use' clause prevented Fyffes from using the trademark outside the UK andIreland until 2006. In 1989, Chiquita stopped using the trademark but invoked the clause to preventFyffes from using it to sell into the European market. However, in 1992 after a complaint with theEuropean Commission, Fyffes won the world-wide rights to the Fyffes trademark.

Fyffes has been working hard on its expansion through marketing contracts and take-overs in ACP,as well as in Dollar countries. It sees no problem in challenging the bigger companies and enteredinto different countries with contracts with independent growers. In 1992, Fyffes bid for Del Montebut lost. And in 1993 Dole offered £420m. for Fyffes, but was turned down at the last moment.

After getting the trademark rights in 1992, Fyffes started its expansion onto the European market,which - in its own words - has not yet come to an end. It mainly invests in joint ventures wherein itobtains controlling stakes. In 1993, it abandoned its plans to purchase Saba, the largest Swedish fruit

distributor, but is has a supply contract with them. Following more then ten acquisitions in twoyears, Fyffes has obtained a foothold in all of Europe's main markets.

In December 1995, the take-over of Geest Bananas became a fact after months of rumours. In a 50-50 joint venture (Wibco) between Fyffes and WIBDECO, Geest Bananas was bought for £147m.

D.2. Main acquisitions:

1993 50% Eurobananan Canarias, Spain. Joint venture with the Canary Islands’ largest bananagrowing co-operative Coplaca (25% of the Spanish market). Sales around $100m.

1993 50% Lembcke A/S, Danish fresh fruit distributor, with sales of over $130m. (40% of theDanish market).

1994 70% JA Kahl, German fresh produce company, with sales over $90m.

1994 50% Velleman en Tas, Rotterdam's (Netherlands) largest fruit-terminal operator withsales over $250m.. In 1997 ,Fyffes expanded its stake to 100%.

1994 33% Sofiprim, a French distributor of fruit and vegetables, with sales over $100m.

1994 50% Tropic International, a French fresh produce group and banana ripener, with salesover $45m.

1994 40% Jamaica Banana Holdings, JV with Jamaica Producers Group (55%) to cultivate twoestates (1250ha). Government has 5%.

1995 Majority stake in Grupo Angel Rey, through Eurobanan Canarias, creating the largesttrading group within the Spanish fruit and vegetable sector.

1995 50% Swithenbanks, UK distributor of fresh fruit. Sales ± $28m.

1995 Geest Bananas in a 50% joint venture with WIBDECO, the Windward Islands BananaDevelopment and Export company.

1995 50% Peviani, a major Italian fresh fruit and vegetable import-export group, with 1995sales of $120m.

1996 50% Anaco International, Netherlands, fresh produce, one of the largest Canary Islands’importers with 1995 sales of $65m.

1996 13% Ahorner GmbH, an Austrian fruit trader.

1997 NAFSA, Chilean Fruit exporter.

Fyffes beat the Ecuadorian Noboa, because its attack on the EU trade regime made it an unreliablepartner for WIBDECO.

Late in 1996, Fyffes announced its intention to upgrade and expand seven Geest Bananas ripeningcentres, and to retain the Geest Banana name because of its brand value.

D.3. Banana production

Fyffes has tried to move into Central America since 1990 to establish itself in Dollar bananaproduction. Until then it was only present in Belize, one of its original ACP sources. In 1990, Fyffesplayed a role in breaking the market power of Chiquita and Dole in Honduras, but not withoutviolent problems which further destroyed the already poor relation between Fyffes and Chiquita. In1992, it also became involved in COBSA, Guatemala, bringing an area of over 3,500ha underproduction.

However, the lack of experience in production and banana sourcing within these countries brokeFyffes up. It retired from Honduras, and in Guatemala sold its operations off to Dole. In addition,Fyffes has set up a long-term shipping agreement with Dole to transport bananas from LatinAmerica.

D.4. Other activities

Through its extensive European network, Fyffes is active in other fruits and vegetables. Toexpand other fresh fruit sales, it acquired the Chilean fruit exporter NAFSA, which exported 4m.cartons of fruit last season.