IMI, NEW DELHI
CASE ANALYIS : CHIQUITA BRANDS INTL
Submitted By : Tabrez Ahmad 11XPGDM23
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. Chiquita has been involved in political, environmental, legal and labor 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. 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.
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 percent of the Cavendish bananas produced in year 2000 were exported. Banana crops in Colombia occupy approximately 7 percent of the t otal area planted to fruit crops.
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.
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.
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.
What should Linder do about the EU’s banana policy? How should Bob Dole respond to Linder’s 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 Chiquita’s 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. Perhaps they could offer fruit juices, canned goods or any other fruit related product that have not been introduced into the market yet. This would make them more appealing to consumers. 3. Alternative Markets : Chiquita should explore alternative market like Japan and Asia.