CHAPTER 6

TRANSNATIONAL COMPANIES IN THE WORLD BANANA ECONOMY

6.1 Introduction

Exporting fresh fruits, such as bananas, is a challenge due to their perishable nature. Large-scale exports of bananas were only made possible in the early twentieth century with the development of steam ships and refrigerated transportation^[44]. Historically, large-scale banana exports have developed along with railway and sea transportation. The perishable nature of the banana requires a close control of the entire marketing chain at all stages from production to retail sale. This control enables marketing firms to guarantee a sufficient level of quality when the final product reaches consumers.

It is therefore not surprising that since the early twentieth century, banana trade has been dominated by vertically integrated companies that generally control production, packing, shipping, import and ripening. From 1900 to 1920, UFC (United Fruit Company) dominated the US market, while Fyffes had a quasi-monopoly in the UK and was predominant in the rest of Europe. Vertical integration enables firms to capture a larger share of the total product value-added and to benefit from service activities (shipping, ripening and distribution) that bring higher returns than production.

Banana production takes place in tropical areas that are prone to climatic disasters such as hurricanes, heavy rains and flooding. In addition, pest pressure is particularly high in hot and humid climates, and the banana tree is susceptible to a number of diseases. In large plantations there are also risks of worker strikes and other types of labour conflicts. Political instability in producing countries was also a risk, and in order to reduce them and to ensure smooth and regular supply, the large banana marketing companies had to diversify their sources of fruit by establishing plantations in several countries. As early as in the 1880s, the Boston Fruit Company, the ancestor of the UFC, which sourced bananas from Jamaica, bought land in Cuba and in the present Dominican Republic.

Producing and marketing large quantities of bananas enables transnational companies to generate economies of scale at all levels of the marketing chain. Intensive production takes place in large modern plantations of 1,000 ha and above, where input use and labour costs are rationalized. Producing large quantities permits loading of entire vessels, thus reducing the unit cost of transportation. Banana marketing companies invested in reefer vessels early on (Chiquita was famous for its ‘White fleet’). Owning vessels gave them control over availability of sea freight. Using large ripening facilities also generates scale economies.

In spite of its rather oligopolistic nature, trade in bananas is extremely competitive, which makes unit margins low. Transnational companies are able to generate profit due to the large quantities of bananas that they market. In addition, size gives the company the financial resources to invest in technological innovations.

The largest banana marketing companies produce or source bananas in at least 4 different countries, own vessels and facilities in harbours, and have storage, ripening and distribution facilities in various importing countries. For these reasons, they are usually called ‘multinational companies’ or ‘transnational companies’(TNCs). Table 24 below shows key data on the largest four banana TNCs. The term ‘TNC’ usually excludes firms that export fruit from a single country. However, some of these ‘national’ firms share characteristics proper of TNCs, as in the case of the Ecuadorian firm Noboa (Bonita), the world’s fourth largest banana exporter.

Table 24 Performance of the four largest banana TNCs (2001)

Source: companies’ annual reports. Figures in brackets are FAO estimates

6.2 The central role of TNCs in international banana trade

a) Production

The importance of TNCs in the production of bananas for export varies considerably across countries. The direct involvement of TNCs in production through company-owned plantations is very strong in some Central American countries such as Panama, Costa Rica and Honduras (Table 25). In the cases of Ecuador and Nicaragua their involvement is limited (Dole is the only foreign company that owns plantations in Ecuador). In Africa and Asia TNCs have some control over production, generally through joint ventures. Del Monte is present in Cameroon and Dole in Cameroon and Côte d’Ivoire (through a 40 percent stake in the French firm Compagnie Fruitière). Chiquita, Dole and Del Monte all have agreements or joint ventures with banana producers in the Philippines. Overall, it is estimated that about half of the bananas marketed by Dole and Del Monte originate from company-owned plantations (Rabobank 2001a).

Table 25 Concentration of national banana production for export by TNC in 2001

Source: FAO estimates

However, the involvement of TNCs in production has changed over time. It increased in the late 1980s when companies were preparing for the opening of the EC banana market, but has decreased since 1993 due to a more difficult market situation and a range of problems at production level. Fyffes used to own plantations in Jamaica, Belize and the Windward Islands, but has now withdrawn. Of the 4 leading TNCs, Fyffes is the only one that does not own any banana plantations, purchasing its bananas through contracts with producers. The TNCs are no longer directly involved in production in the Caribbean.

Chiquita has reduced the number of its plantations in Central America. Sixty four percent of its total exports originated from company-owned farms in 1984 (FAO 1986) but the proportion was down to 49 percent in 2002 after the company sold its Armuelles division in Panama. Following hurricane Mitch in 1998, both Chiquita and Dole reduced the acreage of their plantations in Honduras by not rehabilitating them entirely.

The disengagement from production partly reflects a change in bargaining power in the marketing chain. Controlling the downstream end of the marketing chain has become more important than controlling production, as demonstrated by the success of Fyffes. The Irish company gained market shares in the EC partly through an expansion of its marketing and distribution network after the 1993 EC banana import regulation.

b) Exports

Virtually all exported bananas belong to the Cavendish variety group, which accounts for some 43 percent of global banana production. Approximately 26 percent of the total Cavendish crop is exported, which means that only 11 percent of the world banana harvest enters international trade. This trade is highly concentrated, with the leading 3 TNCs accounting for an estimated 56 percent of world banana exports in 2000 (Table 26).

TNCs control a higher share of the producing country exports than their share of production might suggest. In addition to their own production, they establish long-term contracts with independent growers. In Costa Rica, for example, while they control slightly less than half national output, the leading three TNCs account for 84 percent of national exports. They do not own plantations in Nicaragua, but Chiquita markets nearly all the national production via the firm Bananic. Virtually all Honduran exports are made by Standard Fruit (Dole) and Tela (Chiquita). Chiquita in Panama accounts for nearly 90 percent of exports. On average, TNCs account for 80 percent of the total exports from Central America.

Table 26 Banana export shares (estimates) of top three TNCs in 2000 (mln boxes)

Source: FAO and Corbana

The role of TNCs is less important in South America, where they market about a third of the shipments. This is due to their low share in Ecuador’s exports (less than 30 percent), although they account for more than half of Colombia’s shipments.

In the Philippines, TNCs have developed joint ventures and partnerships with local producers and exporters, which give them almost two thirds of the export market. Although they are also present in Cameroon and Côte d’Ivoire, they only account for less than one third of exports because EC marketing companies are already well established in these countries. Similarly, the share of the largest three TNCs in Caribbean exports is low due to the dominant position of Fyffes. Fyffes is the only exporter of bananas from Belize.

Despite these associations, the contribution of the largest three TNCs to world banana exports decreased in the 1990s. These firms accounted for over 65 percent of exports in 1980 but their share has since declined to between 56 and 59 percent at the start of the 21^st century (Table 27).

Table 27 Shares (estimates) of top TNCs in world banana exports 1980-2002

Source: FAO and Corbana

c) Imports

The share of world banana imports of TNCs is higher than their share of exports. This is because, in addition to their own exports, they also purchase fruit from other independent exporters. Estimates of market shares differ significantly, as companies are reluctant to communicate the exact volumes of bananas sold in the main markets. The most frequently quoted reference is a paper by Adelien van de Kasteele (1998), where the world market share of the leading five banana marketing companies was estimated at 86 percent in 1997, with 66 percent for the top three companies. Another author (Roche 1998) finds lower market shares in 1996 (respectively 73 and 57 percent) but these estimates might not include imports of companies that are indirectly controlled by the TNCs.

While the leading three TNCs dominate North America, with close to 90 percent of the market, their shares of the Japanese and EC markets are much lower. Dole is the market leader in the United States and Japan, while Chiquita is the leader in the EC. Del Monte ranks third in the USA, fourth in the EC but comes second in Japan.

Only three transnational companies traded bananas over the period 1970-1984. Their share of world trade had increased steadily from 47 percent in 1972 to 65 percent in 1980. However, since 1985 two additional TNCs have emerged (Noboa and Fyffes), and by the end of the 1990s their combined share of the world banana market rose to 85 percent (Table 28).

6.3 Changes in competitive positions among the TNCs

The twentieth century saw the gradual erosion of concentration in the banana trade. The quasi-monopoly of United Fruit was challenged in the late 1920s with the emergence of Standard Fruit Company. Following an anti-trust decision by a US court that forced United Brands to sell its subsidiary Compañía Agrícola de Guatemala, a third large company emerged in 1972 when Del Monte bought it. In 1986 Chiquita sold Fyffes to Fruit Importers of Ireland. United Fruit Company had bought 50 percent of Elders and Fyffes in 1903 and the outstanding shares in 1910, which means that Fyffes had been a subsidiary of Chiquita for 83 years. The sale of Fyffes was to give rise to a fourth banana multinational in the 1990s.

The relative shares of TNCs in the world market changed during the 1980s and the 1990s. Table 28 shows that Chiquita’s increased between 1980 and 1992, while those of Dole and Del Monte remained almost unchanged. This reflects Chiquita’s expectations that the EC would liberalize its banana market with the completion of the Single European Market in 1993. However, this did not occur and Chiquita actually lost market share in the EC (and in the world) as a result of the new import rules. In 1997 Dole overtook Chiquita as the world’s leading banana company for the first time. Since then, the two companies have been neck-to-neck, with about one quarter of the world banana market for each. Del Monte’s share has remained relatively stable at some 15 percent throughout the last two decades.

There were only three dominant banana marketing companies in the period 1970-1984, but at least five significant players at the end of the 1990s. Noboa (Exportadora Bananera Noboa) was created in 1952 by an Ecuadorian trading and shipping group. It started by selling bananas to Standard Fruit (Dole) but four years later was shipping bananas directly to the United States. Its exports increased markedly after the Ecuadorian banana industry recovered from the crisis of the early-1980s. Ecuador was adversely affected by the 1993 reform of the EC import system and was not included in the 1994 Framework Agreement between the EC and other Latin American suppliers.

Noboa has taken advantage of the growth of emerging economies (Central European countries, Russia, China and Near East countries) to increase its shipments under the Bonita brand. In 1997 its total exports reached an all-time record of 75 million boxes, giving Noboa 13 percent of the world market. Although this share later diminished, it was estimated at close to 10 percent by the end of the 1990s (Table 28). The ReyBanCorp firm (Favorita) is another Ecuadorian contender, albeit of smaller size. It accounted for some 4 percent of world exports in 1999-2000.

The market share of the three leading TNCs was also challenged in the 1990s by the rise of Fyffes that exports only to Europe (the most profitable market). The Irish company substantially raised its share of the EC market from 1993 following the reform of the EC import system. Fyffes’ share of the world market was estimated to range between 7 and 8 percent at the end of the 1990s.

Table 28 Estimated shares of TNCs in world banana imports 1980-1999

Sources: FAO (1986) for 1980, Chambron (2000) for 1999 and Van de Kasteele (1998) for other years

6.4 Trade policy changes and TNCs: impacts and responses

a) The Agreement on Agriculture and tariff reductions

The Uruguay Round of multilateral trade negotiations launched in 1986 concluded in 1994 with the signing of the Agreement on Agriculture, whereby countries made a commitment to reduce their tariffs on agricultural imports. While several countries reduced their tariffs on banana imports, the impact on TNCs was not significant because the main banana importing countries already had low tariffs (with the exception of the EC, see below).

b) The EC banana import system(s)

Corporate responses to the COMB

With the completion of the Single European Market in 1993 the European Commission had to harmonize the banana market across EC countries (see Chapter 3). In brief, two tariff-quotas were created, one reserved for 12 so-called “traditional ACP countries” (traditional banana suppliers in the former colonies of Africa, the Caribbean and the Pacific) and one for all the other countries. While most ACP exporters trade in European currencies, other suppliers traditionally trade bananas in US dollars, and therefore this quota came to be known as the ‘dollar quota’.

The ‘dollar quota’ was allocated to market operators through a complex system of import licenses based on the geographic zone in which the operators sourced their bananas (ACP countries/other countries) and on the type of activities of the operators (primary importer/secondary importer/ripening). Of the total 2 million tonnes of the dollar quota (later extended to 2.2 million tonnes and then to 2.553 million tonnes in 1995), 66.5 percent was allocated to the traditional dollar zone operators (i.e. chiefly the leading three TNCs), 30 percent to traditional EC or ACP operators, and the balance to newcomers. The purpose of this allocation was to allow EC firms to balance their overall costs (‘cross-subsidization’), by allowing them to import cheaper bananas from the ‘dollar zone’ along with relatively expensive ACP bananas. As a result, the three TNCs lost a share of the EC market to the benefit of traditional European companies. The three TNCs enjoyed a virtual oligopoly in the open markets of Northern Europe until 1993 (e.g. Germany, the Netherlands, Belgium, Denmark), but this situation suddenly changed with the creation of the COMB.

The responses by TNCs to the new COMB varied widely, as companies followed differing strategies. Chiquita, for example, anticipating the EC would open its market in 1993 raised its Latin American production in the late 1980s and early 1990s. With 30 percent of the EC market in 1992, it was the leader in Europe and hoped to take advantage of market liberalization to increase its lead. Chiquita relied on its experience in the German market and brand recognition to make a difference with competitors. Instead, the COMB cut its market share to some 19 percent, which was a severe setback for the company because the EC market is one of the most profitable in the world. The company had to divert its surplus to other markets, driving down world prices.

Chiquita’s response was two-pronged. In the United States, the company engaged in intense political lobbying to push the government to file a complaint against the COMB at the WTO. The lobbying was supported by generous donations to major political parties^[45]. Chiquita managed to convince the Government of the United States to start a trade dispute (the so-called ‘WTO banana war’) with the EC. The firm also supported the complaints filed by exporting countries in Latin America against the COMB. In the EC, Chiquita used its subsidiary Atlanta to support several challenges to the COMB by the German government at the European Court of Justice. The court turned down the challenges but at the WTO the complaints were more successful. In 1997, the WTO ruled that the COMB violated international trade rules on various counts and gave the EC until January 1999 to modify its regulations. The EC reformed the COMB in 1999 but the system was again found in breach of the WTO agreements. By the end of the 1990s, Chiquita had still not managed to have the COMB modified in its favour.

In contrast to Chiquita, Dole did not count on the EC market opening up to dollar zone bananas. In anticipation of the COMB, it established a division of Dole Foods in London in 1989 and focused on strengthening its marketing and distribution network in the EC and on developing partnerships with large-scale retailers. In 1994 it took a 35 percent stake in Jamaican Producers Fruit Distributors Ltd., which had some 20 percent of the UK banana market. This was followed in 1996 by the purchase of a major stake in Paul Kempowski and Co., a large German banana ripener and distributor and the acquisition of Pascual Hermanos, the largest fruit and vegetable trader in Spain. Dole can now rely on a network of distribution and ripening facilities in France, Italy, Germany, Spain and Belgium.

Dole also made substantial investments in ACP countries through participation in local or EC companies in order to obtain banana import licences. It bought a 49 percent stake in Compagnie Fruitìere, a French company that produces bananas in West Africa and distributes them in France and Spain. The two companies made common investments in Cameroon and Côte d’Ivoire. In 1997, Dole bought the SCB plantations in Côte d’Ivoire through Compagnie Fruitière. SCB shipped about 100 000 tonnes of bananas to the EC. In all, Dole has supply arrangements with producers in the ACP countries of Jamaica, Cameroon and Côte d’Ivoire, as well as in the EC overseas territories of Martinique, Guadeloupe (France) and the Canary Islands (Spain).

Del Monte followed a similar strategy to Dole’s until 1996, albeit on a smaller scale. It invested in ACP countries (Cameroon) and in EC import and distribution firms (e.g. Interfrucht Weichert in Germany and Banacol in Belgium) to gain access to import licenses and strengthen its distribution channels in Europe. To lower its dependence on the EC market it also invested in Asia (Indonesia, Philippines). Del Monte’s response to the EC regime was partly hampered by financial difficulties and changes of ownership, until it was purchased by the IAT investment group in 1996.

Fyffes did not face the same challenges as Chiquita, Dole and Del Monte when the COMB was implemented. The company had been a traditional importer of bananas from Belize, Suriname, Jamaica and the Windward Islands, which gave it a fair share of the import licenses. Fyffes adopted the reverse strategy of Dole’s: it diversified its sources of supply into non-ACP Latin American countries, so as to have access to cheaper bananas. This was not done without difficulty, however. When Fyffes tried to establish contracts with Honduran growers who had just terminated their contract with Chiquita in 1989, the latter tried to prevent the deal, arguing that the contract with the growers still existed. A serious dispute arose between the two companies involving lawsuits. Eventually, following diplomatic pressure from the European Commission and the intervention of the president of Honduras, the dispute was settled and Fyffes could purchase bananas from Honduras (Roche 1998).

Unlike other TNCs, Fyffes owned only a few banana farms. Instead of investing heavily in production, Fyffes relied on long-term contracts with independent producers. It also signed a long-term agreement with Dole to ship bananas from Latin America on Dole’s vessels. Fyffes now sources bananas from Honduras, Guatemala, Costa Rica and Colombia in addition to ACP countries.

Fyffes expanded its market share by focusing on the downstream part of the supply chain. It forged a series of partnerships and alliances with both producers and distributors and engaged in joint ventures. It also made an impressive series of acquisitions of European firms. Fyffes took a 50 percent stake in EurobanaCanarias (Spain) and in Brdr Lembcke (Denmark) in 1993. In 1994 it bought shares of Velleman & Tas (Netherlands), Kahl-Munich (Germany), Sofiprim SA and Tropic SA (France), and Valley Gold (UK), and in 1995 it purchased half the shares of Swithenbanks. It acquired a 50 percent stake in Anaco International (The Netherlands) and in Peviani Spa (Italy) in 1996. This very same year it made its most notable acquisition, that of the UK banana company Geest, through a joint venture with the Windward Islands Banana Development and Exporting Company (WIBDECO). Fyffes and WIBDECO each own 50 percent of Geest.

Impacts: winners and losers (1993, 1999 and 2001)

Fyffes and Dole were the main beneficiaries of the COMB in the 1993-2000 period. Arguably, Fyffes benefited from an import system that was favourable to traditional importers of ACP bananas. However, the Irish firm also had a smart and ambitious strategy of acquisitions and partnerships. The priority given to investment in the marketing circuit instead of in production clearly paid off. Fyffes increased its banana sales from 14 million boxes (18.14 kg/box) in 1992 to over 45 million boxes in 1996 (Table 29). Its share of the EC market rose from some 10 percent in 1992 to 16-17 percent in 1997 (Table 30). The Group had market leadership in the UK, Ireland, Spain and Denmark at the end of the 1990s.

Table 29 Sales of bananas by Fyffes 1992-1996 (mln. boxes)

Source: Roche 1998

Dole’s adroit and pragmatic strategy of diversification and investments in EC and ACP companies was reflected in rising market share as evidenced in Tables 28 and 30. The company overtook Chiquita as the leading banana marketer in the world and in the EC market in 1997. It then accounted for over a quarter of world banana sales and nearly one fifth of EC sales. Its total sales of banana in Europe were over US$ 1 billion in 1996, from some US$ 570 million in 1993 (Van de Kasteele 1998).

Conversely, Chiquita appeared as the clear loser in the mid-1990s. Its share of the European market shrank from over 30 percent in 1992 to some 15 percent in 1997 (Table 30). While it had long been the leader on the EC market, it fell to 3^rd rank in 1997, behind Dole and Fyffes. Similarly, its share of the world market fell from over a third in 1992 to about a quarter in 1997. Obviously, Chiquita’s strategy of political lobbying and lawsuits to force a change in the COMB did not work in the 1990s. Lacking the vision to invest in EC and ACP firms, the company did not gain import licenses or improve its market control. In any case, its lack of financial resources for potential acquisitions seriously limited its options.

The overall effect of the COMB on Del Monte is more difficult to quantify, because the firm went through internal problems and ownership changes from the mid-1980s to 1996 (see below). Despite this, it managed to raise its share of the EC market and increase its profits from 1996 onwards.

The 1999 reform of the COMB

The EC reformed the COMB two years after the WTO ruling of 1997. In the new version of the COMB the most significant change to TNCs was the reform of the previous system of license allocation. The reference period chosen for calculating license allocation was 1994-1996. The distinction between operator categories was abandoned for a simpler system distinguishing ‘traditional operators’ and ‘newcomers’. The former obtained 92 percent of the tariff quota A/B (dollar quota). The new definition of traditional operator did not suit Chiquita, as it favoured EC companies. Therefore the 1999 reform of the COMB did not substantially modify the power relationship among the TNCs.

The 2001 reform

However, the new COMB was soon ruled incompatible with WTO rules, and the EC had to reform it again. This time, in view of previous failure to have the COMB accepted, the EC sought a bilateral approach. In April 2001 it reached two separate agreements with the United States and Ecuador on a system that could be acceptable to most parties and would not be challenged again at the WTO. In essence, the reform maintained the key features of the 1993 COMB (a tariff quota for the ACP suppliers and another one for the ‘dollar suppliers’) but 83 percent of the ‘dollar quota’ was allocated to ‘traditional operators’. The new definition of ‘traditional operators’ only applied to companies that were involved in the production or shipping of bananas in the producing countries. The allocation of import licenses was still based on their imports in the period 1994-1996. This new system gave Chiquita a higher market share, closer to what the company had before 1993. In addition, in January 2002, 100 000 tonnes were moved from the ACP quota to the ‘dollar quota’ in order to give Ecuadorian firms a larger share of the EC market as a compensation for the US-EC agreement. The EC announced its intention to move to a tariff-only regime by January 2006 at the latest.

In a way, Chiquita obtained what it had been seeking for 10 years: a reversal of the COMB and the return of its market share close to its pre-1993 level. The company has regained its leadership of the EC market with a share estimated to vary between 21 and 22 percent. Its share of world exports rose from 21.4 percent in 2001 to 22.5 percent in 2002. The losers of the 2001 settlements have been Dole and Del Monte. Dole had supported the Commission’s initial proposal for a system based on the “First Come First Served” approach, pending the establishment of a tariff-only system in 2006 (Dole 2001). It protested the settlements but there was little it could do, as the deals had been sealed by governments. Also, the long banana trade dispute had created much uncertainty and destabilized the banana industry. Many in the trade were not dissatisfied to see an end to this protracted trade dispute and the return to stability.

Table 30 Shares (estimates) of TNCs in EC imports 1992-2003

Sources: Industry estimates for 2003 and Van de Kasteele (1998) for other years

(1) Dole estimates its 2002 market share at 17 percent

(2) In 1992 and 1995 Fyffes and Geest were two independent companies. Data for Fyffes include EuroBananCanarias

Surprisingly, Fyffes did not seem to be adversely affected by the 2001 agreements. The company wrote in its annual report that the effect was ‘neutral’ (Fyffes 2002). Its imports into Europe even increased in 2002. Although the agreement resulted in the loss of some licenses, Fyffes was able to take over or engage in partnerships with enough importers, ripeners and distributors to retain a solid share of the EC market. This approach culminated in late 2002 when it bought the German importer Interfrucht Weichert from Del Monte. According to a company spokesperson, this would raise its market share from 15 to 17 percent. Fyffes owns 50 percent of EurobananCanarias SA, the other half being held by Coplaca, a co-operative of banana growers in the Canary Islands. If the fruit marketed by EurobananCanarias is considered, the total EC market share of Fyffes and its partners rises above 20 percent, very close to that of Chiquita.

6.5 Economic changes and TNCs: impacts and responses

a) The oversupply and price crisis of the 1990s: origins of the crisis

As seen in Chapter 1, world banana production increased considerably from the mid-1980s to the early 1990s. This rise found its origins in a series of factors among which the role of the TNCs was significant. Firstly, with the collapse of the Soviet Union and the conversion of many Central and European countries to market economies, the TNCs had high expectations that important banana markets would emerge. Previously, the Eastern block had imported bananas mainly from tropical countries with a socialist orientation (e.g. Cuba, Nicaragua) in which the TNCs were practically absent. Similarly, the gradual liberalization of China’s foreign trade in the 1980s held promises of rising banana exports. The TNCs recognized this growth potential and expanded production in Central and South America (Costa Rica, Honduras, and Colombia). In Ecuador, Noboa considered the potential growth in Eastern European and Asian markets and expanded its output accordingly. In the Philippines, a similar behavior was observed among producer groups that had supply arrangements with the TNCs and expected growth in the Chinese market.

Secondly, the prospects of a liberalization of the EC banana market raised high expectations among the TNCs, whose access to some European countries (France, the UK, Italy, Greece, and Spain) had long been restricted. Chiquita, in particular, believed that the EC would largely open up its market to ‘dollar bananas’ and engaged in an ambitious program for expanding production on ocean transport capacity. Once the TNCs realized that the market would not fully open up and that import licenses would be allocated according to historical imports, they raised their exports to the EC to have more import licences in the future (Hallam 1997). The EC (1994) noted that “1992 saw the peak of speculative trading in bananas as traders attempted to maximize their market shares in anticipation of the single market for bananas”. As a result, imports into the EC from the ‘dollar zone’ rose from 2.36 to 2.73 million tonnes between 1990 and 1992 (EC 2003).

However, the expectations of a sharp increase in world banana consumption did not materialize. The EC banana market was harmonized but did not fully open. There was a partial liberalization in countries that had been restricted, but free access markets such as Germany, Denmark and the Netherlands were now restricted. As a result, EC imports from the ‘dollar zone’ fell to 2.44 million tonnes in 1994 and 2.40 million tonnes in 1995. Other markets that had raised hopes of high growth did expand but not as anticipated. Chinese banana imports grew considerably from virtually zero in the early 1990s to about half a million tonnes in 1996, and remained at this level in subsequent years. Similarly, imports into Central and Eastern European countries grew markedly until 1995 when they reached a plateau and declined from year 2000 on. Russian imports fell in 1998 after several years of increase.

The markets of China and East and Central European countries did not live up to expectations for a few reasons. The assumption that the conversion of socialist economies to capitalism would lead to rapidly rising purchasing power proved over-optimistic. There was economic growth in many countries but it was weaker than expected, and increased income was not equally distributed was not widespread. Moreover, the lack of proper transport and refrigeration infrastructure meant that the delivery of bananas was restricted to large cities and harbour areas. Another factor dampening demand was the strong rise of the dollar in the second half of the 1990s. Since most Latin American producers and shippers sell their bananas in dollars, a stronger dollar increases import prices in countries that use other currencies.

In summary, the price crisis of the 1990s was due to an imbalance between a static demand and a growing supply. World banana prices fell markedly in the first half of the 1990s, especially in Europe, and partly recovered in 1998 as supply was curtailed by adverse climatic conditions in Latin America (heavy rains and flooding caused by the El Niño phenomenon in Ecuador, hurricane Mitch in Honduras and Guatemala). However, prices fell again in 1999 and reached record-low levels in 2000 as the gap between supply and demand widened.

b) Impact on TNCs

All TNCs were adversely affected by the economic crisis but Chiquita suffered most because of its weaker financial situation following COMB (Table 31): with a strong specialization in bananas, the loss of EC share (where prices are stable and remunerative) resulted in a further deterioration of its finances. From 1991 to 1999 it had a net loss in all but three years, and in 2001 filed for Chapter 11 protection against bankruptcy in the United States.

Del Monte also found itself in a difficult position. In 1989, the investment firm KKR took over RJ Reynolds (owner of Del Monte). Del Monte was split into 3 different companies: Fresh Del Monte Produce, a processed food company and an international food and beverage company. The new owner of Fresh Del Monte, Polly Peck, went bankrupt in 1992 and the company was sold to Grupo Empresarial Agricola Mexicano (GEAM). After a series of legal problems GEAM sold the company in 1996 to Grupo IAT, owned by the Abu-Ghazeleh family. Since then the company has benefited from stable management and has improved its financial situation. GEAM is now suing Grupo IAT companies in the US courts regarding the takeovers.

Dole was able to weather the banana crisis by marketing a more diversified range of fruit and vegetables and by its sheer size. Dole Food Co. was taken private in a leveraged by-out in 2003 by David Murdock, who now controls the company.

Table 31 Net income of the four largest banana TNCs 1992-1999 (in US$ million)

Source: Taylor (2003)

c) TNC responses to the crisis

While the impacts of the crisis varied across firms, the responses were rather similar. The TNCs implemented cost reduction strategies, cutting jobs in both exporting and importing countries. There was a shift away from company-owned vessels towards leased vessels, which reduced investment and gave companies more flexibility. There were internal changes and restructuring aimed at focussing on fruit and vegetables. For example, in 1995 Dole separated its fresh produce division from Castle and Cooke (the property division) and disposed of non-profitable subsidiaries (juice operations and dried fruit business in the US). Likewise, Chiquita sold its meat division and its edible oil operations in Costa Rica in the 1990s.

Their response to oversupply was a partial disengagement from production: farms were sold to local interests and replaced with long-term contracts with independent producers. Chiquita disposed of 1200 ha of less productive land in Honduras in the mid-1990s. Fyffes sold its stake in Central American farms in 1996, and sold its remaining farming interest in the Caribbean (Belize) in 2000 (Fyffes 2002). Overall, the percentage of bananas sourced from TNC-owned farms fell from some 60 percent in 1984 (FAO 1986) to about 50 percent in 1996 (Rabobank 2001). This withdrawal was paralleled by a shift in sourcing towards countries with lower labour costs and in some cases where legislation is more favourable to TNCs. TNCs reduced purchases from Panama and Costa Rica and increased shipments from Guatemala and Ecuador. There were also investments in product differentiation as explained in the following section.

The TNCs sought to expand their range of fresh fruit to reduce their exposure to periodic banana price crises. The most notable achievements were Fyffes’ alliances with large produce suppliers and marketing boards (Capespan in South Africa, Maroc in Morocco, ENZA and Zespri in New Zealand, Carmel). Fyffes is now the largest fresh produce distributor in Europe and the second in the world. It offers a wide range of fresh fruit and vegetables from many countries all-year around. Dole was already a diversified company and continued making acquisitions in the fresh produce sector. In the 1990s it purchased SAMAN, a French dried fruit business, Agrofruta, a Chilean fresh fruit exporter, and the New Zealand operations of Chiquita, just to cite a few examples. As a result, pineapples, other fresh fruits (orange, kiwifruit, grapes, apples) and prepared foods accounted for 65 percent of its sales in 1999. Similarly, Chiquita bought some fresh fruit companies such as Blueberries Farms in Australia in 1997. By that year less than 35 percent of the sales of Fyffes and Dole consisted of bananas, while the proportion was higher for Chiquita and Del Monte (Table 32).

Table 32 Banana sales of TNCs as a percentage of their total turnover (1999)

Source: Rabobank 2001a

Other attempts were made at diversifying activities but it is not clear whether these were always successful. For example, Chiquita invested in the canned vegetable business through three acquisitions in 1997 and 1998. Vegetable canning accounted for about 15 percent of Chiquita’s revenues in 2000, but the company sold this business in 2001(Chiquita 2002). Dole invested in cut flowers. Conversely, Fyffes concentrated on the fresh produce business, selling off its other ventures. In 1999, it disposed of its stake in United Beverage Holdings to Guiness Ireland Group (Rabobank 2001).

d) Concentration in the retail sector

In the 1980s, the retail sector started to become more concentrated, a process that further accelerated 1990s. This was something of an unprecedented situation for the TNCs, which had been used to doing business with a multitude of wholesalers and retailers. The emergence of large retail firms reversed the balance of power. Oversupply also strengthened the bargaining power of retailers. Furthermore, the emergence of large national banana exporters in countries such as Ecuador and Colombia further weakened the position of TNCs vis-à-vis retailers. The TNCs saw their prices and margins shrink and responded with the cost reduction strategies described above.

To better serve supermarket chains, banana TNCs now place an emphasis on shipping, marketing and provisioning of services. These activities generate higher profit margins than production. Innovations on marketing and logistics were adopted to better meet the needs of retailers. One of them was the use of refrigerated containers instead of conventional reefer vessels to transport bananas^[46]. This contributed to quality improvements, a reduction of handling and distribution costs and a better capacity to respond to the needs of retail clients.

The development of strong brand names has been another response to the oversupply crisis and the rising power of retailers. United Brands International changed its name to Chiquita Brands International in 1990, in order to capitalize on the high recognition of the Chiquita brand by consumers. Castle and Cooke changed its name to Dole Food Company the following year.

In addition, some TNCs implemented a strategy of diversification within bananas. Dole launched a range of ‘baby bananas’ in small snack packages for children and marketed organic bananas (see below). Fyffes marketed ‘fair trade’ bananas from the Windward Islands. Chiquita used its Better Banana Project as a sales argument to European retailers.

6.6 TNCs and social accountability

a) Pressure for more environmental and social sustainability

The expansion of banana production in the late 1980s and early 1990s was based on an intensification of input use in large plantations, giving rise to a series of environmental and labour problems. In 1992, the second International Tribunal on Water in Amsterdam condemned the Standard Fruit Company (Dole) for seriously polluting Costa Rica’s Atlantic region through its banana operations in the Valle de la Estrella. In the 1990s, ex-workers from Del Monte, Dole and Chiquita sued these companies and agrochemical firms for injuries that resulted from their exposure to a nematicide (‘Nemagon’) containing the chemical dibromochloropropane (DBCP) during the period from 1965 to 1990. In addition, many complaints were filed by trade unions at the International Labour Organization (ILO). ILO Conventions and national laws were violated in many instances, including child labour, excessive working hours, sexual harassment and health and safety regulations. The opposition of plantation management to independent worker unions gave rise to tense confrontations that in some cases took on a violent form. Union leaders denounced harassment, threats of dismissal and attacks by company-hired militias.

Further, the involvement of the TNCs in the national politics of some Central American countries and their support of non-democratic governments became a media issue at times over the course of the years. The term ‘banana republic’ derives from this association. In its 2000 report on corporate social accountability, Steve Warshaw, then President and CEO of Chiquita wrote:

“But along the way, the United Fruit Company became known as ‘the octopus’, an organization reputed to have such broad reach and influence that it could hold sway over governments and the lives of its employees. This reputation was born of many things, including allegations of the Company’s participation in labor rights suppression in Colombia in 1928 and involvement in a government overthrow in Guatemala in 1954, as well as its involvement in a bribery scandal in Honduras in 1975. And in the years since, some would argue that the Company has been closed and defensive in addressing concerns about its standards and practices. [...] Times have changed. And so has our Company.”

(Chiquita 2000)

As a result, TNCs came under increasing criticism from an array of NGOs concerned with human rights and environmental issues. Many of the NGOs were based in Europe and the United States, but there were also Latin American trade unions and environmentalists. Criticism peaked in the 1990s, fuelled by the high media coverage of the banana trade dispute between the United States and the EC. The two controversies became intertwined when some proponents of the COMB argued that this policy had enabled banana firms in ACP countries to provide fair treatment to workers and to protect the environment. These NGOs and ACP groups argued that abandoning the COMB would result in ‘a race to the bottom’ in the banana industry, where countries with lax environmental and labour laws would be able to undercut their competitors through low costs.

Formed by a number of NGOs in the 1990s (Banana Link together with the UK NGO Farmers Link^[47]), the European Banana Network (EUROBAN) has become one of the most aggressive and outspoken groups. It exerts pressure on TNCs to improve their practices and monitors their environmental and social performance. Banana Link launched a joint campaign with a Costa Rican banana worker union (SITRAP), the World Development Movement (an UK NGO) and the International Union of Farm, Food and Catering Workers (IUF). In 1998, it organized an International Banana Conference to propose an international banana agreement for more responsible trade in bananas (Kox 1998).

Critics of the TNCs found strong supporters in the Fair-Trade movement, the aim of which is to help small disadvantaged banana producers to gain access to import markets (see Chapter 5). Fair-trade works for workers’ rights and working conditions in plantations, against cases of social and environmental damages in large-scale banana plantations, and puts pressure on large-scale retailers to stock fair-trade bananas.

In addition to opposition from civil society organizations, and perhaps due to their successful awareness raising campaigns, the TNCs were also encouraged to improve their social and environmental performance by pressure from shareholders as the concepts of Corporate Social Responsibility (CSR) and ethical business became more common in the business community.

There were also a few initiatives at the intergovernmental level. In 2000, the United Nations adopted the Global Compact, a set of voluntary guidelines on corporate governance based on nine key principles governing human rights, labour rights and the environment. However, critics, including NGOs participating in the Compact, said this initiative was too slow and failed to include a system to verify the companies’ claim of compliance^[48]. As a result, the UN High Commissioner for Human Rights produced draft norms on the responsibilities of transnational corporations. The norms would require TNCs to be “subject to periodic monitoring and verification by the UN” (UNHCR 2003). They include provisions regarding discrimination, child labour, forced labour, worker remuneration, freedom of association etc. The Sub-commission for Protecting and Promoting Human Rights adopted the draft norms in August 2003 but they still need to be approved by the Commission for Human Rights, which consists of 53 countries.

Finally, market factors such as oversupply, fierce competition, the pressure of retailers and changing consumer preferences forced TNCs to differentiate their products to retain their market share. Offering ‘environmentally friendly’ and other types of ‘ethical’ bananas was seen as a means to gain or retain shelf space in supermarkets and to attract more consumers.

b) Responses

Note: more details on the environmental and social certification programmes mentioned below can be found in Chapter 5.

For decades the TNCs had responded to criticisms from NGOs with a mix of indifference and denial. However, the pressure intensified in the early 1990s. The first measure adopted was the establishment of industry or company codes of conduct (e.g. the code of the UK Group of banana importers). TNCs wrote, implemented and monitored the codes themselves and were therefore soon accused of being judge and jury. TNCs also started to have the implementation of the codes audited by its clients, but potential conflicts of interests made this type of monitoring unreliable.

As a result, TNCs gradually turned to certification against standards established by outsiders. In this system, the implementation of the standard is monitored by an independent certification body (third party verification).

Chiquita was the first TNC to engage in a certification programme. The expansion of banana production had pushed environmental concerns up the agenda in Costa Rica and various players discussed the idea of minimum standards in the early 1990s. One of them was the Rainforest Alliance, a conservationist NGO based in the United States, which had experience in environmental certification through its Smartwood programme. Negotiations between the Rainforest Alliance and Chiquita continued and they launched the Better Banana Project (BBP) in 1992. Eighteen months later the first two (independent) farms were certified. By 2001 all Chiquita banana farms in Latin America were certified. Although the Better Banana Project was open to other companies (ReyBanPac joined in 1994 and certified all its plantations in 1999), it was seen by some NGOs and competitors as Chiquita’s programme.

In the mid -1990s both Dole and Del Monte engaged in the process of certifying their farms against the ISO 14001 standard for environmental management systems. By 2002 most of their Latin American plantations were certified. Chiquita’s farms are also certified ISO-14001. In addition, Dole developed production of organic bananas in some of its Honduran farms in the 1990s. In 2001 it reached agreements with producers in the Dominican Republic and Peru to market their organic bananas under its brand.

In contrast to the environment, it has taken more time for TNCs to engage in programmes certifying compliance with labour standards. Labour is a critical strategic factor in the banana industry and the companies feared they would lose competitiveness if they adhered to more demanding labour management practices. It was not until 2002 that Chiquita had its first plantations certified against the SA-8000 standard for social accountability (in Costa Rica). It has now undertaken to have all its plantations certified against SA-8000. Chiquita has published comprehensive social responsibility reports every year since 2000. The reports provide a detailed review of the company’s social and environmental performance, including the areas where improvements are needed. Other TNCs have not yet gone very far in certification against international labour standards. Although Dole has been a signatory member of Social Accountability International (SAI) since 1999, only one of its banana divisions (Stanfilco in the Philippines) is certified against SA-8000.

Developing collaborative relationships with trade unions required a drastic change in management culture after decades of contentious relations. In 1997 Bandeco (a subsidiary of Del Monte in Costa Rica) signed an agreement with SITRAP, the local banana worker union. However, the agreement soon failed. Chiquita signed an agreement with the IUF and COLSIBA, the Central American federation of banana worker unions in 2001, in the presence of the Director-General of the ILO. Through this agreement, Chiquita reaffirmed its commitment to respect the core labour conventions of the ILO, including the convention on freedom of association (IUF 2001). According to the IUF, the agreement has brought about concrete improvements in Colombia and Honduras (IUF 2003).

c) Impacts of social and environmental certification on TNCs

At the beginning TNCs were under considerable pressure from NGOs, retailers and shareholders to improve their corporate image through certification (some critics talked of ‘green washing’). Certifications are a good sales argument in negotiations with buyers such as supermarket chains, as well as being useful in public relations campaigns^[49]. However, TNCs embraced social and environmental certification somewhat reluctantly. Engaging in third party monitoring systems was difficult because TNCs had a culture of secrecy and were not used to working with civil society organizations. Moreover, participative negotiating processes with the civil society are lengthy, which often conflicts with the TNC’s need for rapid results in the field as documented by Bendell (2001). Later on, some corporate managers recognized that certification could bring benefits beyond the mere improvement of corporate image: certification permitted cost reduction through a lower use of inputs, recycling, lower illness and workday loss rates and absenteeism, and a more motivated workforce. Certification also eased the relationships with local communities and workers unions.

Collaboration with NGOs and independent certification programmes has helped TNCs reduce criticism of their action. Perhaps the most striking turnaround was done by Chiquita, which changed from being the most frequent target of NGOs to developing an evolving image of a responsible company. Now that the TNCs have started producing in a more sustainable way in their plantations, the attention of human rights activists and environmentalists has turned to their independent suppliers and less known national marketing companies. In 2002, Human Rights Watch, an NGO based in the United States, released a detailed report showing that child labour and the restriction of trade unions were widespread in Ecuador’s banana sector (Human Rights Watch 2002). The report alleged that Chiquita, Dole and Del Monte violated their own company policies by buying from suppliers that committed these abuses. Later in 2002, Noboa was suspected of having instigated an attack on trade unionist during a worker strike in one of its plantations.

Some standards are criticized by environmentalists for not being demanding enough. ISO-14000, in particular, is a management system only, which leaves the company free to set its environmental performance targets as it wishes. In any case, bananas certified ISO-14001 or BBP do not carry a label, and therefore it is unlikely that they have a strong impact on consumers.

6.7 Medium-term outlook for the TNCs

The beginning of the twenty-first century presents a series of challenges for the TNCs. Firstly, they will need to adapt to changes in the banana import regime of the EC. The EC will incorporate 10 countries of Central and Eastern Europe in mid-2004, and their banana market systems will shift from free access to tariff-quota. The European Commission has also said that it would implement a tariff-only system by January 2006 at the latest. Currently TNCs benefit from the economic rents generated by the quota system (the so-called ‘quota rent’). An open market would enable TNCs to ship bigger quantities of bananas, but quota rents will be transformed into EC tariff revenues and prices might drop to such an extent that the market might become less profitable.

A second challenge is the strengthening of regulations on food safety in various countries (e.g. US Bioterrorism Act, EC regulation on Maximum Residues Limits), which increases the costs and administrative burden on banana producing and marketing companies. Moreover, concentration in the retail sector is likely to result in more strict quality requirements (e.g. traceability, certification), which will put pressure on TNC profit margins.

A third challenge is the expected fall in world banana prices in the medium term. FAO estimates that in the decade of 2000 supply is likely to outstrip demand, and as a consequence prices are anticipated to fall by about 1.5 percent per annum (FAO 2003a). National and international programmes aimed at reducing banana areas and promoting diversification away from bananas have had mixed success, and further competition to the TNCs can be expected from Ecuadorian exporters, especially if the EC abandons its tariff-quota and import license system in 2006. Moreover, the rise in imports of fruits during winter from the Southern Hemisphere is anticipated to put pressure on bananas, and TNCs are expected to respond by diversifying into other fresh produce or offering different types of bananas. Changing consumer preferences, including eating out, and processed foods are also expected to put pressure on banana prices.

A fourth challenge is technological change. The success of Fyffes and Dole and the problems confronted by Chiquita in the 1990s have demonstrated that in the era of information technology and globalization, the old paradigm of vertical integration (which presided over the banana industry for almost a century) has become less relevant. In the current context of oversupply and low cost communication, controlling fruit production has become less essential. Instead, a strategy of vertical coordination whereby TNCs engage in long-term contracts with independent suppliers, lease or rent vessels, and control the downstream side of the marketing chain (import, ripening and distribution) has proved more profitable. Vertical coordination enables firms to capture a higher portion of the final product’s value, gives them the opportunity to diversify their products and puts them on a more equal level with the large-scale retailers. However, most research point to increasing returns to large-scale retailers, sometimes at the expense of TNCs. Some of the dominant retailers are entering into long term contracts for the supply from a single TNC at what are interpreted by some traders as low prices, bringing a new unknown into the competitive equation of the other TNCs.

Last but not least, TNCs still face social challenges and need to demonstrate real progress towards environmental and social sustainability. They have launched a series of certification initiatives but have not managed to convince many critics that these have benefited workers, local communities and the environment. TNCs may have to work more closely with civil society organizations and NGOs in order to gain their trust. Otherwise these pressures may further accelerate the process of moving TNCs away from the production end of the commodity chain. Dole and Fyffes have reportedly entered into shipping arrangements with European importers of Fair Trade bananas, which shows that progress is underway.