By,

Rohit Kumar Shaw (028/2013)

IMI KOLKATA
CASE ANALYIS: CHIQUITA BRANDS INTL
What role has politics played in the history of Chiquita Brands and its
predecessor?
Chiquita is the successor to the United Fruit Company, which began in 1899 as a merger
between the Boston Fruit Company and railroad companies owned by Minor Keith in
Costa Rica. The United Fruit Company operated throughout Latin America and the
Caribbean, including Costa Rica, Honduras, Cuba, Nicaragua, Colombia, Panama,
Guatemala, and Ecuador. United Fruit Company (UFC) adopted a vertically integrated
business model as soon as it started to grow. UFC wanted to avoid the impact of any kind
of threat on the bananas production process. Chiquita has been involved in political,
environmental, legal and labour controversies in many parts of the world and has
attracted more attention than any other foreign company in Latin America as the
archetypical representative of United States imperialism in Latin America.
The United Fruit Company was frequently accused of bribing government officials in
exchange for preferential treatment, exploiting its workers, paying little by way of taxes to
the governments of the countries in which it operated, and working ruthlessly to
consolidate monopolies. Latin American journalists sometimes referred to the company
as el pulpo ("the octopus").
The United Fruit Company (UFCO) owned vast tracts of land in the Caribbean lowlands.
It also dominated regional transportation networks. UFCO's policies of acquiring tax
breaks and other benefits from host governments led to it building enclave economies in
the regions, in which a company's investment is largely self-contained for its employees
and overseas investors and the benefits of the export earnings are not shared with the
host country.
As soon as they were involved in the economic environment, politics connections started
to be unavoidable. They created a situation where Bananas Republics had to cooperate
in order to maintain their level of exportation and hard currency flow. Moreover bananas
business was very high demanding in capital and very risky. The bananas plantations
were located in distant area and in the jungle. Without any support of politicians it would
have been very difficult to obtain and keep the different authorization needed.
One of the company's primary tactics for maintaining market dominance was to control
the distribution of banana lands. UFCO claimed that hurricanes, blight and other natural
threats required them to hold extra land. In practice, what this meant was that UFCO was
able to prevent the government from distributing banana lands to peasants.
The company has been accused of bribery, armed assault, abduction, stealing documents,
destroying banana shipments, sponsoring murder-for-hire contracts, participating in the
disappearance of a corrupt judge in Honduras, the poisoning and sterilization of 13,000
workers due to agrochemical and illegal pesticide use in Costa Rica, arbitrarily laying off
workers in Costa Rica for joining trade unions, laying off without protection hundreds of
workers in Guatemala and Honduras after Hurricane Mitch, causing deforestation in the
Sarapiqui region in Costa Rica and working to eliminate labour unions.
In 1998, a series of articles by Mike Gallagher and Cameron Mc Whirter was published in
the Cincinnati Enquirer under the name Chiquita: An empire built on controversy. This
series covered a year of research among different stakeholders of the company in
different countries and subsidiaries, which found questionable business practices,
dangerous use of pesticides and fear among plantation workers in Central American
countries and Colombia.
Therefore as an example when the Green Pope (Minor Keith UFC chairman) had any
kind of request such as construction permits he just had to ask for. In 1911 UFC overcame
the political limit by being implicated in a conspiracy in order to solve some problem that
could have hampered UFC expansion.
Chiquita inherited the strong political influence of UFC but started to act with more
diplomacy by using lobbying and political tools to increase pressure on international
relationships. Chiquita used legal political instruments to complain about discriminatory
framework of the EU regime. To sum up politics are well rooted in Chiquitas
management and instead of finding an alternative to the strong EU rules such as
acquiring small producers to increase the exportation quotas or trying enter new markets
using the strong power Chiquita had, they decided to continue to fight against and with
politics.






What role has protectionism played in the global banana market?
Bananas and plantains are perennial crops that grow quickly and can be harvested all
year round.
Bananas fall into two categories:
Cooking bananas, including plantains.
Sweet bananas, where the Cavendish sub-group is prominent, almost all bananas traded
worldwide are Cavendish.
International trade in bananas follows, to some extent, a regional pattern. For the sake of
simplicity, world banana trade can be split into three international trading systems.
In the first system (The Americas), the US, Canada and those Latin American
countries which do not cultivate bananas source their fruit in Latin America.
The second system, Europe, includes the whole European continent and
countries of the former USSR on the demand side, and countries of Latin America,
West Africa and the Caribbean on the supply side.
The third trading system, Asia, consists of Asian and Near East countries and
their suppliers, mainly the Philippines and Ecuador.
Banana Exporting Countries





Ecuador is the largest exporter of bananas in the world. Exports
expanded from one million tonnes in 1985 to 3.6 million tonnes in
2000.
Costa Rica is the second largest exporter (in 2000) after Ecuador.
Bananas are the single largest agricultural export.
Colombia Bananas in Colombia are the third most important
agricultural export. Over 90% of the Cavendish bananas produced in
year 2000 were exported. Banana crops in Colombia occupy
approximately 7 percent of the total area planted to fruit crops.






Banana imports are concentrated in two main markets: the United States (a free market)
and the European Union. In the period 1985-2000 the US and EC each captured an
average of 32 percent of all world banana imports.

1985 - 1992

Before the birth of the Single European Market, banana import policies in the European
Community varied broadly between the different countries. Imports were duty free in
Germany, where prices were lower and per capita consumption higher than any other
country in the Community. Belgium, Denmark, Ireland, Luxembourg and the
Netherlands applied a 20 percent tariff on third country imports (mainly dollar bananas).
France, Spain, Greece and Portugal produced bananas domestically, but they also
imported from ACP countries and dollar suppliers under license and subject to a 20
percent duty. Finally, Italy and the UK were ACP supplied, and dollar bananas were
restricted by quota subject to a 20 percent common external tariff.
Before 1992 prices in free markets were lower than in highly protected ones, and this was
the intended outcome of policies aimed at raising producer prices of preferred suppliers.
However, these were costly both for EC consumers and for non-preferred producers.

1993-1996

With the birth of the Single European Market (SEM) in 1993, the EC put in place the
Common Market Organization for Bananas (COMB). The policy consisted of allowing EC
domestic suppliers to export duty free bananas to all EC member states; defined quotas
for the duty free access of bananas from ACP countries; imposed a system of import
licenses for specific volumes of dollar bananas; and limited the imports of additional
dollar bananas through excessively high tariffs.


Latin American Countries namely Guatemala, Honduras and Panama
have banana as an important source of employment and exports
earnings. Aggregate production in these countries was relatively
stagnant in the last 15 years (1985-2000) due to weather-related
events, industrial disputes, crop diseases, increasing production costs
and depressed banana prices.
1999-2002

With the birth of the WTO in 1995, the Framework Agreement was challenged by
Guatemala, Honduras, Mexico and the US. Ecuador joined the claimants in 1996. The
WTO panel ruled that the EC did not comply with WTO rules. The most significant
changes to the Framework Agreement applied by the EC in 1999 included abandoning of
the system of license allocations.

Role that protectionism has played in the global banana market
At stake in the banana dispute is the welfare of the banana-dependent ACP and Latin
American nations, the profits of American and foreign banana producers, and the future
of the WTO, with respect to trade dispute settlement. News reports have characterized
the two sides of the dispute as being the U.S., which is supported by Honduras,
Guatemala, Mexico, and Ecuador, and the EU, which also represents the interests of
the ACP nations. Of course, the policies of the U.S. and the EU do not fully encompass
the interests of all parties involved. As discussed above, many independent Latin
American farmers do not side with the multinational interests of the U.S. and even
support some aspects of the EU banana regime. On the other hand, some Caribbean
farmers no longer want to be dependent on the paternalistic policies of the EU.

The U.S. claims free trade as its platform. It has called for the liberalization of trade
and an end to the EUs protectionism of former colonies and discrimination against Latin
American banana producers. The EU has claimed that its trade policies are required for
the development of the Caribbean countries. Without their protectionism, the Caribbean
nations one-product economies would collapse and the countries would be induced to
rely more heavily on the drug trade.

The EUs policy does help to maintain the economies of ACP nations, but it also creates
an unsustainable dependency. The EU has essentially guaranteed the consumption of a
fixed number of ACP bananas. This favouritism allows an inefficiently produced product,
the Caribbean banana, to sell for a relatively low price. Consequently, ACP banana
producers have been able to make profits with little investment in improving efficiency.
Furthermore, because the bananas are guaranteed, more and more Caribbean people
have turned to producing these fruit. As a result the economies of these countries have
become increasingly dependent on one good, a risky position. Compounding problems of
the ACP nations is their inability to compete with Latin American agriculture. Most
agricultural products that grow in the Caribbean grow better in Latin America due to the
scarcity of hurricanes, the wide land availability and the rich, fertile soil.

The U.S. idea to liberalize trade would cause the overall banana market to become more
efficient. This would mean lower banana prices for consumers, particularly European
consumers who now shoulder the $2 billion cost of the regime. Theoretically, freer trade
would also create more competition among suppliers. At the same time, it would end
trade discrimination against banana producers in developing Latin American countries.

Potentially, this could allow independent farmers to compete more effectively with large
multinational corporations for market share in the EU. Without the regime, the
independent producers would not have to absorb the large import tariffs, which affect
them much more heavily than they do the larger multinational corporations. In the long
term, an end to protectionism and an opening of trade barriers would force ACP nations
to abandon their risky one-product economies and diversify their economic position.
They would also be forced to make their existing production processes more efficient.

However beneficial, the problems associated with the U.S.-backed free trade ideas are
serious. An immediate end to the EU banana regime would have disastrous consequences
for the economies of ACP nations. Unfortunately, one viable option for the Caribbean
countries is black-market drug production. Currently, marijuana gets 30 times more per
pound on the market than bananas. Many Caribbean leaders forecast that a collapse of
their banana business may lead to an explosion in the drug trade.

At the same time, unrestricted free trade would probably lead to increased
monopolization of the banana trade by huge multinational corporations such as Dole and
Chiquita. The human rights violations associated with these companies would likely
worsen, and the companies would become monopolist price-setters. This could adversely
affect the independent Latin American producers, who are currently struggling to
compete with the multinationals.



What should Linder do about the EUs banana policy? How should Bob Dole
respond to Linders request?

Chiquita Banana did not take into account numerous factors when they were trying to sell
their product. The European Union placed tariffs on Latin American countries as they
granted preferential status to former African, Caribbean and the Pacific Rim colonies.
This made it more expensive for Chiquita Bananas to export their bananas to the
European Union, and would force Chiquita to increase their selling price.

Another problem with Chiquitas was that they decided to expand globally too fast and as
a result, were pushed further into debt. Long term debts almost double (refer Exhibit 2)
and interest expense were more than doubled (refer Exhibit 1).

Linder should have opted following options:
1. Concentrate on existing market (Market Penetration): Linder should
concentrate on existing US market and
2. Product Diversification: Chiquita needs to offer something different to
consumers in order to compete in the market place. Chiquita must diversify
products and gain access to new markets while continuing to fight EU trade
barriers.
Chiquita must diversify and produce other fruits, making Chiquita less
susceptible to fluctuations in the banana market instead of continuing to
rely solely on banana production
To increase sales and lower trade barriers against bananas Chiquita should
invest in the forward linkage to introduce brand name banana derivatives
such as juice, canned goods, dried bananas, and baby food into the EU
market
Production should not be moved to APC countries; higher costs of
production will reduce competitiveness
In the long run Chiquita should keep pressuring the EU to lower trade
barriers through the WTO and the U.S. government and Section 301 to
regain its market share in the EU
3. Alternative Markets: Chiquita should explore alternative market like Japan,
Asia, and former Soviet Union which can be developed to introduce Chiquita
products to diversify markets and avoid dependency on the EU market.
Bob Dole, Kansas Senator can put pressure directly on the Latin American
governments because by virtue of the developing country status and smaller economic
size, these restrictions would impact far more to these countries as compared to US.
Doles measures:-
i. Legal provisions which have stripped Colombia of the aid which it receives
from US to reduce the international flow of illicit drugs
ii. Loss of preferential access to the U.S. market by Colombia and Costa Rica
iii. Keeping the banana issue on the front burner at USTR
iv. Diplomatic pressure through GATT bill
v. Support of the Section 301 Petition