1.

The Banana Chain: The macro economics of the Banana Trade

Adelien van de Kasteele on 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. Bananas compete with grapes for second place behind citrus, both accounting for 13-14% of total world fresh fruit 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 are used as a staple food, they are of importance for domestic consumption, growing quickly and being harvested the whole year round. Since the introduction of the cultivated banana onto the US market 100 years ago, banana trade has increased rapidly. Currently, about 20% of total production is entering world trade. World trade is dominated by three companies, Dole Foods, Chiquita Brands and Fresh Del Monte Produce, with over 100 years presence in banana plantation production in Central America and Colombia, and together controlling 65% of world exports. They are followed by the Ecuatorian company Noboa, which controls another 10%, and the European company Fyffes, which controls some 6-7%. With the integration towards a single European market, the traditionally different supply sources of European and US companies led to a very complex European trade regime which has been attacked ever since it became effective in July 1993. In the past 5 years, it has dramatically influenced developments within the sector.

Table 1:
1996: 57m. tonnes, annual increase 3% 4 major producers 45% world production: India, Brazil, Ecuador, Indonesia Cultivation: Plantations (export); independent growers (domestic/export) Main companies with plantations: Chiquita Brands, Dole Food , Fresh Del Monte Produce 1996: 79% of total production: Asia (94%); Africa (95%); Central America (45%); South America (70%) In main export countries only 20-25% 1996: 11,5m. tonnes / export value $4bn. Major exporters: Latin-America: Ecuador, Costa Rica, Colombia Asia: Philippines ACP: Windward Islands, Ivory Coast, Cameroon Main traders: Dole, Chiquita, Del Monte, Noboa, Fyffes A strict system is needed to guarantee the quality of bananas on the market, leading to vertical integration All major companies have their own reefer vessels Main ports USA: Gulport, Wilmington. Philadelphia Europe: Antwerp, Hamburg Livorno, Dover Company owned or national agents Distribution increasingly in direct partnerships with retail chains Major importers 1996: EU15 (30%), USA (30%), Eastern Europe (12%), Japan (8%) PRODUCTION

DOMESTIC MARKET

EXPORT

PACKHOUSES EXPORT HARBOUR TRANSPORT IMPORT HARBOUR RIPENING DISTRIBUTION RETAILCHAINS 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 for 57% of total world production. Indonesian production has been underestimated, but has been increasing significantly over the last decade. As Figure 2 a) shows, China, Ecuador and Indonesia have known the biggest increase in production, which has more than doubled in the last decade. In Africa growth has been less, and production is almost totally directed at the domestic market (96%).
1997

BANANAS: Main Producers

(000' tonnes)

10000 8000 6000 4000 2000 0 86 India Brazil Ecuador Indonesia Philippines China 88 Colombia 90 92 94 96

Fig. 2 a). Banana production

Source FAO

At the start of the nineties, expectations of rapid growth due to the opening up of world markets led to the expansion of banana production, especially in the export countries Ecuador, Philippines, Colombia, and Costa Rica. The introduction of the EU banana regime has obliged the companies to introduce major restructuring which has been especially felt in Central America. But production in the Caribbean also came under heavy pressure to improve efficiency.

BANANA Production 1996

Others 39%

Colombia China Philippines 4% 6% 6% Indonesia 8% Ecuador 10% India 17% Brazil 10%

Fig. 2 b) Banana production 1996

1997

Source FAO

Bananas are cultivated in two different systems: Export directed plantations: Up to 1,000s of hectares with advanced production and logistic technique. A system of units in different stages of growing and ripening, traversed by irrigation systems and banana rails to the packhouses guarantees a steady harvest throughout the year. The companies, as well as bigger producers and co-operatives, use this system. The plantations are most common in Central America, Colombia, and the Philippines. In other export countries, like Ecuador, they normally have a smaller acreage. Plantation harvests of around 2,000-2,500 boxes (of 18,2 kilo/ha) are common, but differ from the more traditional ones with 1,300-1,500 boxes/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 been set up for export into Europe. Indonesia , because of low labour costs, attracts investment in plantations. Smallholdings directed at the domestic market: With lower inputs, and often less productive soils, 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 combined cultures (e.g. inter-cropped with cocoa bushes). Except for the Caribbean Islands, where smallholders export 80% of their production.

2.1 Production costs

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

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

FAO (Ex-Finca) 1994 CIRAD (FOB) 1995 *) FOB Ecuador Costa Rica Colombia Honduras Ivory Coast Martinique St. Vincente Dominica
*) Based on CIRAD figures of production costs per MT.

BANDECO 1997 ex-finca FOB

Novotrade 1997 ex-finca

2.95 3.25 3.64

2.95 3.25 3.64

3.70 5.56

3.29 5.01-5.81 4.70-5.40 4.78

5.22-6.22 4.45-5.25 (1995) 3.40 12.38 8.39 9.37 8.53

Other figures (source unknown) from Costa Rica show the differences according to production levels. 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 labour efficiencies due to type of holding. Salary costs in Costa Rica are higher, according to BANDECO $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. This resulted in a net loss per box of $1.10. Similar problems are indicated for Ecuador and Honduras, where contract prices are systematically 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 1998 the 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, but sigatoka costs were paid for by Dole. In 1997 this has changed. Dole now pays $3.17 per box with 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 as financial 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 sector in 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 increasing foreign agricultural investment

3. THE WORLD MARKET: BASIC FIGURES

Exports were around 7m. tonnes in 1980-85, and these were boosted from 1988 onwards as the companies prepared themselves for a rapid market expansion. The opening up of Eastern Europe and East Asia, the single market in Europe and the progress of the GATT talks lifted expectations for this growth. The World Bank predicted that in a free-trade regime, the ACP countries would lose nearly half of their market to the far more competitive Dollar banana. The Dollar companies anticipated 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 in bananas, 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 for the last three years. Eastern Europe did not develop as rapidly as the companies intended, and the European market became restricted for Dollar bananas. Sooner or later, everybody had to adapt to the developments within the European Union which, with nearly 35% of world imports at that time, plays a major role in the world banana trade.

World Banana Exports

('000 tonnes) 12000 10000 8000 6000 4000 2000 0 1991 1992 1993 1994 1995 1996 1997 Others Ecuador Costa Rica Colombia Philippines Panama Guatemala

Fig. 3 a). World banana exports

Source FAO 1997

Banana Exports 1997

Exports In 1996 an average of 22% of world production, 11.5m. tonnes, entered the world market. Exports are almost totally concentrated in Latin America. The banana companies boosted banana export production in Central America, Colombia and Ecuador during this century to supply the US and European markets. Consequently, these countries have been responsible for around 65-70% of world exports over recent decades. Indonesia is still a small exporter. Given the extremely cheap labour costs, it surely has potential to grow.
Others 13%

(prelim.figures) Guatemala 5% Panama 5% Philippines 10% Colombia 12% Costa Rica 16%

Ecuador 39%

Fig. 3 b). Banana exports 1997

Source: FAO 1998

Due to rapid further concentration, Ecuador, Costa Rica and Columbia currently account for nearly 64% of total world exports. Ecuador, especially, increased its exports world-wide. In 1991 exports to the US and the EU accounted for 64% of its total exports, and in 1996, only for 39%. Noboa played an important role, in this change, boosting exports from some 350,000 tonnes in 1991 to 1.5m. tonnes in 1996. New destinations were mainly China, Argentine, Chile and Eastern Europe. In 1993-94, Honduras lost significant market share in Europe, and was not able to compensate by moving into other areas as the big companies were too busy restructuring their Central American business.

Latin American main exporters

('000 tonnes)

Ecuador Costa Rica Colombia Panama Guatemala Honduras 0 1000 2000 3000 4000 5000 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 major importers, with substantially higher imports than in 1991. Their share in total imports, however, is declining because of growing trade to all other regions. Major changes are the increasing imports of Former Soviet Union (FSU), and of Russia in particular. For 1999, total imports of 2m. tonnes were expected, of which 875t. tonnes were to Russia, up from 50,000 in 1991.

World imports 1996

Other Europe FSU 8% 4% Far East 6% Japan 8% Others 10%

NorthAmerica 35%

EU15 29%

Fig. 3 d). World imports 1996 1998

Source: FAO

However, imports to Russia dropped in 1996, and figures for 1997 are not known yet. China imported over 500t. tonnes in the first half of 1996 from Ecuador, but shipping stopped as China did not pay. In 1997 exports restarted. Imports to the EU, including the three new countries, have declined since 1992. But 1992 imports were 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 Europes biggest market with over 1,2m. tonnes.

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

1990 Japan EU15 East-Eur/FSU D'ing countries of which China Nord-America 3,098 3,228
The EU15 figures before 1995 have been adjusted

1991 803 3,183 348 943

1992 777 3,335 485 911 21 3,532

1993 913 3,218 579 1,256 30 3,515

1994 929 3,000 1,062 1,302 93 3,697

1995 874 3,107 1,301 1,350 160 3,666

1996 819 3,158 1,028 1,719 513 3,776

758 2,948 154 603

Source: FAO 1998 / Eurostat 1997

Imports per capita differ widely. The United Arab Emirates are the absolute winner with 31.5kg/capita, followed by New Zealand with 20kg/capita. North America, Chile, and most EU countries have per capita imports of 10-14kg/capita compared with 2kg/capita in Eastern Europe and 0.2kg/capita in the Far East and North Africa.. Within the EU Sweden has the highest per capita consumption, around 17,5 kg, followed by Germany, Norway, Portugal and Iceland, all around 14 kg/capita.

Banana per capita import - 1995

35 30 25 20 15 10 5 Un.Arab Emir New Zealand Kuwait Czech.Rep Slovakia Norway Canada USA 0 Singapore Switserland EU ('000 tonnes) Somalia Dominica St Vincent
3000 2500 2000 1500 1000 500 EU 0 1991 1992 1993 1994 1995 1996 ACP Others ($)

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 3,559t tonnes in 1990 to 3,886t tonnes in 1996. EU domestic supplies have declined by some 10%, but traditional ACP supplies have remained fairly stable. Dollar imports increased considerably between 1990-1992, as have non-traditional ACP supplies over the last few years.
European Union Supplies
(000' tonnes) 4000 3500

EU imports 1991 and 1996

1996 1991

Jamaica Santa Lucia Cameroon Ivory coast Guatemala Honduras Panama Costa Rica Colombia Ecuador 0 200 400 600 800

Fig. 3 f). EU supplies

Source: FRuiTrop 1997

Fig. 3 g). EU imports 1991-96

1997

Source: Eurostat

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

Import, Wholesale, Retail prices (in 1992 US$) 25,00 20,00 15,00 10,00 5,00 retail wholesale import

92

94

96

92

94

96

92

94

France

Germany

USA

Fig. 3 h). Import, wholesale and retail prices

Source: FAO 1997

In France, import prices and wholesale and retail margins decreased, but import prices decreased most. 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 in Germany due to the higher prices. However, an average 5% fall in prices in 1995-96 has helped sales to recover, up 11% in 1995 and 3.5% in 1996. This seems to confirm the result of a market study of the Gesellschaft fr Konsumforschung (GfK) in Germany, which showed that price and quality rather than brand determine consumer purchases. 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 consumption fell due to the price increase following their entry into the EU.

96

0,00

But although ACP countries saw increases in their total imports to the EU during this time, their import prices have gone down due to the competition with Dollar bananas. Meanwhile, import prices for Dollar bananas went up because of the quota system. In figure 3 h). a comparison between the French, German (Chiquita) and the US market is made. In the US, not only import prices, but also wholesale and retail margins are significantly lower, which demonstrates the importance of the EU market for the dollar companies.

4. EUROPEAN REGULATION
At the end of the eighties, existing differences between the different banana companies seemed to be well established and, facing the prospect of opening up huge new markets in Eastern Europe and Asia, 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 restricted EU market, and no Eastern-European miracle, even big companies like Chiquita turned out not to be untouchable. With the introduction of the EU banana regime in 1993, the world banana market definitely changed. First, the companies had to define their position with regard to the new regime in the EU, which accounted for some 35% of world imports, and develop a new market strategy. And now, five years later, the cards seem to have been reshuffled and companies will have to face modification of the 404/93 regime, and possibly eventual deregulation. Meanwhile, the whole fresh-fruit sector has become far more competitive. Again, the fruit companies have to define the key elements of a 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 not hampered 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 of the common market. For this category, income support up to 854,000 tonnes is guaranteed in case 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 single market, 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 ACP countries above the ceiling of 857,700 tonnes. 4. Third countries, the so-called 'Dollar' countries which, together with category 3 producers, share a tariff quota of 2m. tonnes - duty free for non-traditional ACP countries and with a tariff of 75 ECU per tonne for the Dollar bananas. The quota to be increased to 2.5m. tonnes with the accession 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 ACP bananas; * 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 expensive ACP bananas with some Dollar banana quota rent and thus strengthen the position of the ACP companies in relation to the Dollar companies. At the same time, it led the Dollar companies to invest 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 economic activities, such as producing, purchasing, transport and ripening, making the future allocation of 100% 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 guarantee the future allocation of quotas. Due to the insufficient level of quota allocation, the system has resulted in an active trade in Dollar licences which, depending on demand, have been fluctuating enormously up to around $7-8 per 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 Latin American growers (Costa Rica, Venezuela, Colombia, Guatemala and Nicaragua) protested against the system under the rules of GATT shortly after its coming into effect. GATT found that the EU import regime contravened GATT rules. The EU did not accept the findings, but offered to settle with the named countries in exchange for no further dispute. All but Guatemala signed a compensatory 'Framework Agreement' , which was included in the last phase of the Uruguay Round in 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 national governments were entitled to distribute export licences. The banana companies protested as they saw an increase in the problems they already had with the system. Chiquita, especially, decided to actively 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. In the final ruling, the WTO dispute panel found that the EUs tariff quota regime for negotiating and allocating quotas acted in a discriminatory way. The quota system as such was not condemned. The EU immediately confirmed its intention to fully comply with the dispute ruling and its recommendations. 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 a managed market for the import of bananas. The EU proposal is to keep the 2.2m. tonnes annual quota that has been in place since mid-1994 on dollar fruit. A tariff of Ecu75 per tonne is payable up to this quantity. An additional 353,000 tonnes is proposed, reflecting the expansion of the EU (Sweden, Finland, Austria) with a duty of Ecu300 per tonnes for third countries and Ecu100 per tonne for ACP countries. The total ACP preferential quota would also remain, although there would not be country specific quotas any more. To compensate the ACP countries for the changes in the regime, the EU proposes to award Ecu530m. in transitional aid over ten years to banana producers in the ACP countries. However, this amount, spread over some twelve countries, will be less than the actual amount 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 this redistribution will take place. In the new proposal, only countries with a substantial export interest might remain with a country-specific quota. Regarding tariff-quota management, a system based on historical reference (but what period?) seems to be the most likely to be installed. But other options like an auction system are also being evaluated. A system based on historical references will not only reinforce the position of the big banana companies and again grant them a subsidy of about US$1 bn, the cash value of the licenses. It also does 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 purchase of 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 up opportunities for newcomers and provide incentives for market innovation. Meanwhile, supporters of further liberalisation, like the German firms and Chiquita, have already questioned whether the Brussels proposals will be acceptable to the WTO, which has until the end of 1998 to approve the new schemes implementation.

5. CHANGING COMPANY STRATEGIES

The ways that the banana companies have been adapting to the EU regime and the changing world market have been various. Chiquita has taken a very formal position from the start. It seemed neither to believe in the introduction of the mechanism nor, once it was installed, to trust in its imminent abolition. Consequently, Chiquita adopted a far more formal position than the other companies, 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 the end, all are involved in the same fight for a good mix between sourcing ACP and Dollar bananas to obtain maximal access to Dollar licences. But not all survived and Geest, the former main UK banana 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 shares in 1992 and 1994, together with their anticipated positions for 1997.

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

SALES ($m.) 1992 Chiquita Brands Dole Food Company Fresh Del Monte Produce Fyffes Geest 2,723 3,120 900 890 n.a. (284) 16 (63) 47 5 Profit/loss ($m.) World Share EU USA (% of boxes) (% of boxes) (% of boxes) 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 1997 Dole Food Company Chiquita Brands Fresh Del Monte Produce Fyffes Noboa 4,336 2,434 > 1,200 1,460 160 0 > 100 54 2,566 3,804 1,068 1,700 9 89 (72) 65 -

610m. >25 % 22-23 % 15-16 % 7-8 % 12 % 625m. 25-26 % 24-25 % 16 % 6-7 % 13 %

180m. 19 % 15-16 % 8% 17-18 %

170m. 35% 35% 18% 1%

210m. 18-19 % 15-16 % 10-11 % 16-17 %

200m.

Sources: Eurofood, Fruchthandel, Reuters, Annual Reports, Solidaridad, Euro PA (1994), ADL (1995), authors estimations

The winners and losers are clearly shown in this overview. The main conclusion is that Chiquita is being 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 worlds leading fresh fruit company and, although Chiquita is still mentioned as the banana leader, the differential 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 were to 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 are dominant. The impact of the EU regime on the market in the last few years has been considerable and has emphasised already existent general tendencies. More details are given in annexed overviews for each company.

5. 1 Diversifying banana supply sources.

Traditionally, US companies concentrate in Central and South America. To cover the Asian market,. 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 the Sinar 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 that country. 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 overseas territories, maintained control by making marketing contracts which were often exclusive with producer associations and/or marketing boards, without direct involvement in primary production. The establishment of supplier categories within the EU regulation forced both groups to become active in each others regions: - established operators of the Euro and/or ACP bananas: the 30% reserved Dollar licences gave them the opportunity to spread imports from ACP bananas to the more valuable Dollar banana outlets. Geest decided to invest $150m. in a new 3,000ha plantation (Costa Rica). Diseases and labour 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 spreading its sources over ACP, Euro and Dollar bananas. But Fyffess entrance into Honduras (through contracts with independent growers) and Guatemala (production contracts) did not succeed, and now it 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 of the 30% Dollar licences reserved for this category. Indeed, all US companies have invested in Cameroon and/or Ivory Coast, mainly through joint ventures with French companies (e.g. Dole/Compagnie Fruitiere) and tried to get a foothold in the market for Caribbean bananas. To obtain control over Euro bananas, they invested in Spain and have 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 from 80,000 tonnes in 1992 to 400,000 tonnes in 1994. Recently, Dole considerably expanded its control in the Ivory Coast via its participation in Compagnie Fruitiere, which acquired 67% of SCB, Ivory Coasts leading banana supplier. The question is what the consequences of abolishing B licences, as proposed by EC Commission, will be. For the Dollar companies, especially Dole and Del Monte, which have meanwhile established themselves in the ACP countries, there is not much of a problem, as their new plantations are modern 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 lose their income from the sale of B licences. Moreover, the additional support proposed in the modification 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 to import/ripening. However, the EU rule, according to which licences are allocated on the basis of market 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 that companies need not only import licenses but also export licenses from the countries involved. This lead 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 volume growth. It successfully bought Pascual Hermanos, the troubled company abandoned by Chiquita, and made it profitable again in a short time. The position of independent importers has become difficult. As long as they do not operate in the whole chain, their licence volume will decrease. For example, Cobana Fruchtring, when it lost its contacts with Chiquita, had to survive through agreements with companies like Geest, Fyffes and Pomona. Fyffes made optimal use of this situation and realised joint ventures with over ten companies within three years. The complicated license system has generated a lively trade in licences, which makes companies less dependent 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 that at 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 other industries. The increasingly saturated markets in the USA and Europe make continuing growth more difficult, and efforts are directed to strengthen positions in selected core activities. Volume growth through market expansion is sought elsewhere in developing regions. All main companies are expanding in Eastern Europe and Asia for that reason. In the banana sector, investments in 198991 were directed at global expansion. The restrictions in the European markets led to increased efforts to develop other markets (Near East, South America, Far East), where per capita consumption is still much lower. The EU regulation has had a double effect. Firstly, the companies are obliged to invest in trade with the EU12 to maintain their import licences and, therewith, their future market share. The EU15 not only accounts for around 30-35% of world imports, but the increased price level for Dollar bananas also makes the loss of market share a double loss. And secondly, the Dollar companies had to invest in export to other countries in order to divert the banana surplus generated by the decreased trade with the EU during 1992-94. Imports into the EU from Dollar countries diminished by 250t between 1992-1994, the biggest losers being Honduras and Panama. Ecuador was not granted country allocation, but maintained its share 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 supplied from Latin America. The three southern countries of America (MERCOSUR) nearly doubled imports 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 imports in China. Although the potential is significant, limitations in infrastructure (adequate ripening and storage), may be a constraint in the near term. In a the fight over the Japanese market, Del Monte won access to distribution channels, lowering its prices and giving the other two a hard time. Losses for Chiquita have been such that, for a time, it reduced its banana trade to Japan while maintaining its ripening and distribution facilities. Given the recent decision of the Japanese government to relax limitations on agricultural imports and the rapid increase in Chinese imports, Chiquita, like the other fruit companies, has stepped up activities in the Far East. Sumitomo too plays a role in the Far East, with sourcing reported from both the Philippines 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 the process. See the annexes for more detail. - Within Dole food operations, their banana trade accounts for an estimated 35% of turnover. Other fresh fruits and vegetables, and packaged fruits and juices make up for the other 65%. Falling profits have obliged Dole to reconsider its business lines. It decided to sell off its more problematic activities (parts of its juice and dried fruits business), while it invested in the development of its fresh fruit business: melons, pineapples, grapes, kiwis, apples, etc. In 1994, Dole became Chiles leading fruit exporter, accounting for over 12% of Chilean exports. - Chiquitas operations are more concentrated on bananas (60%) and expansion in 1990-91 increased long-term debt. The recent crisis obliged it to invest in the restructuring of banana operations, and restructuring charges and interest expenses hugely affected results. Chiquita has been investing in other fresh fruits, but to a lesser extent, and has a packaged-food division of canned 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 total business. Through its rapid banana expansion, Fyffes became more dependent on them, but corrected this to some extent when, in 1994, it also invested in Chile with the take-over of NAFSA, 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 more distribution channels, and to new and different distribution joint ventures. Dole Food is also involved in one of these, securing marketing rights to Sunpride branded fruit in Continental Europe. Another big player is Albert Fischer (1997: 1,19bn.sales) , which was said to be approached by one of the large outfits in 1997. Albert Fischer has positioned itself as a global fruit supplier in recent years, with an impressive network of distribution companies in Europe, and has become an attractive investment for the worlds fruit giants.

5. 5 Market orientation
Given the increased concentration in the market and the retail sector, all food companies are obliged to strengthen their market orientation. The increased competition with other brands and private labels 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 sought only within the companies, but along the whole production chain. Consequently, requirements in the area of dependable supply, (information) technology, marketing and logistics are constantly increasing. Due to the high investments involved in these developments companies are looking for partnerships through preferred suppliers relations. In this situation it becomes difficult for smaller companies 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 states clearly 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 the British Perkins Food and the Dutch fresh fruit trader Van Dijk Delft by the Dutch The Greenery International, which handles over 50% of the Dutch fruit and vegetable production. Through the take-over The Greenery has strengthened its positions towards the retail chains and has widened the product range they can offer with tropical fruits like avocados, citrus and bananas. This gives them a key position within the fruit chain where new distribution systems are being developed in joint efforts between producers, traders and retail. The increased market orientation makes the banana companies much more sensitive and vulnerable 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. The recent EU study of the attitudes of EU consumers to Fair Trade Bananas found an overwhelming interest (400,000 tonnes based on conservative estimates). Equally, the attention the big fruit companies are paying to the combined banana campaign from the Costa Rican trade union SITRAP, UK Bananalink/World Development Movement and the IUF shows the growing concern of the companies for their image. The discussions in the UK between the Banana Group of the major fruit companies (excepting Wibdeco) and the retail sector, through the British Retail Consortium (BRC), concerning a Code of Conduct, and the recent negotiations with Del Monte in Costa Rica (Bandeco) about union rights and social and economic conditions which resulted in a SITRAP-Bandeco agreement, are clear examples of what combined consumer/trade union action can achieve. Chiquita still seems to follow a more conservative strategy which concentrates on advertising to strengthen its presence in the wholesale/retail sector and to improve brand awareness. In 1995, it started the ECO-OK programme with the US NGO Rainforest Alliance, through which Chiquita wants to establish itself as the environmental leader of the banana companies. In Europe, where the ECO-OK certification is not recognised as an ECO-label, the campaign is primarily directed at the retail sector.

5. 6 Restructuring business
All the above mentioned trends have resulted in a global restructuring of the banana business. The introduction of the EU regulation in 1993 not only made the over-capacity in banana production that was created at the beginning of the nineties evident, but it also made other producer and supplier patterns obligatory. All companies involved have been both reconsidering core activities and reorganising within them to become more cost effective and to guarantee their leading position in 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 real estate activities. Del Monte Fresh Produce, concentrating on fresh fruits, is the result of the Del Monte split up in 1989 and no longer belongs to Del Monte Foods, which stayed in the canned food business. 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 food businesses. 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 through Europe, Africa and the Caribbean, as has already been mentioned. Dole and Fyffes especially have been very active in take-overs, which form the bases for the strengthening of their EU market position. The need for international restructuring in a climate of increased competition, not only in the EU but also as a result of the diverted trade on the other markets, has intensified the pressure on production costs in the Dollar zones as well as in the other countries. The developments in Central America reflect the effects of the financial reconstruction measures the companies have been taking. Investments are increasing the yields of the higher producing plantations, while less productive lands have been abandoned. As an example, in Costa Rica, which has an average production of around 2,000-2,500 boxes/ha, Dole's most modern plantation produces up to 3,700 boxes/ha. Meanwhile, Chiquita has been disposing of 1,200ha of less productive lands in Honduras, using the severe strike of 1994 as an argument. Moreover, new forms of labour organisation are being introduced in the plantations, with Total Quality Programmes itemising the work and responsibility. The constant pressure for low-cost production is worsening primary and secondary labour conditions. But the ACP countries are also feeling the results of the intensified competition. Prices for their bananas have dropped on the European market, and tropical storms have caused considerable damage to vast areas on the Caribbean Islands. They face difficulties in maintaining production levels and reaching sufficient quality at reasonable cost. But investments are risky, given the uncertainty of price and level of exports, and given that the EU might agree to alter its regime in line with USA/WTO demands. For example, in St Vincent, an irrigation project to install equipment on 160ha of bananas in the North Eastern Eco-zone is to be set up with money from the EU Stabex (stabilisation of export earnings) programme). It must increase production from 450 to 1,000 boxes per hectare. It is supposed to be the first part of a 1,600 hectare project. But even with this increase in production, production levels are still far below those of Central American plantations. The need for diversification in the Windward Islands is repeatedly mentioned, but given the conditions on the Islands [this] it is far from an easy task to find alternatives which guarantee reasonable 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), Del Monte Fresh Produce (Mexico), Noboa (Ecuador) and Fyffes (Ireland). The first three are the Dollar companies that have control over 65-70% of world banana trade. Noboa, the dominant Ecuadorian exporter, is roughly estimated to have a trade volume of around 13% of the world market. Fyffes, which took advantage of the EU trade regime most strongly, has emerged as the dominant European company and is expected to handle around 6% of the world market. * These companies cover the whole chain, controlling production, transport vessels, storage and ripening facilities and distribution. The EU regulation has intensified the vertical integration in Europe, leading to several take-overs of importers, ripeners and distributors in the last five years, especially by Dole Food and Fyffes. Fyffess intention to expand its control over production in the Dollar countries has been less successful. * The situation of oversupply following the implementation of the EU regime has forced companies to expand to other markets. Trade to Eastern Europe, the Middle East, South America, and lately to China has been growing significantly. But competition in the Far East has also 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 been expanding into other fresh fruit and vegetable and packaged foods business, thus becoming less dependent on bananas. * The overall banana crisis has led to a global restructuring of the banana companies. The companies 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. In recent years, the abandonment of plantations, and the consequent massive dismissals, have been followed by rationalisation of the higher producing plantations. Total quality management has been, and continues to be, introduced widely, leading to higher production per worker and less fixed labour contracts, thus resulting in further unemployment. Governments are being pressed to lower taxes and levies. And on top of that, recent labour reforms facilitate the companies in achieving a much more flexible use of labour. Because of this, primary and secondary labour conditions 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 after 1993 and expected the rapid break up of the EU regulations, but it also lost in the Pacific area. It plans to strengthen its market position through emphasis on building up brand awareness, whereby it wants to position itself as the industrys environmental leader. However, suffering severe losses of market share in Europe and Asia, it founds its position as the premier banana company seriously challenged by Dole. - Dole and Fyffes have a far more aggressive market strategy and are the winners in this situation. They are both investing strongly both in Europe and in the different supplier areas, and have gained European market share. Dole is the most advanced in market strategy, setting up new integrated partnerships with distributors and retailers. However, one of Fyffes main strengths lies in its access to the B licences, which enabled it to spread its sourcing further to Latin 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 based network 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 it become 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 capital for a far more aggressive market strategy and, indeed, has been strengthening its position. It is estimated 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 the world. * To again modify the EU regime will not be without consequences, which also depend on the way the 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 will remain quite impossible. But in any case, the ACP traders that lose their B licences, and the producers they source from, will have to confront a far more difficult situation. The additional EU support will only partially compensate this loss and will be channelled through yet other channels. Prolonged support will be necessary to make the banana sector in these countries more competitive 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 Europes 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, the Netherlands, 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, Marchs 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 Net sales Operating income Net income (loss) 0.3 2,434 1996 2,435 84 (51) 1995 2,566 176 9 1994 2,506 71 (72) 1993 2,533 103 (51) 1992 2,723 (97) (284) 1991 2,604 198 128

Chiquita Brands International (known in Central America and Columbia since the end of the last century as the United Fruit Company) was, for decades, the world's largest banana producer and distributor, and still claims to be premier in bananas. It has about 35,000 employees, of which 30,000 (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 (North America) 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 his family. Its main business is insurance, these include: non-standard auto; speciality lines, such as workers compensation, professional liability, non-profit liability and multi-peril crop insurance; and general commercial and personal lines, including home-owners coverage. AFGs primary insurance subsidiaries include Great American Insurance Company and its subsidiaries, as well as a non-standard auto subsidiary in the UK. AFG also sells retirement annuities through its American Annuity Group. The net sales of Chiquita Brands have diminished since 1991, mainly due to lower banana volumes. Chiquitas losses were aggravated by high net annual-interest expenses of around $165m. in 199395, 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 America after 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 formal stance from which to attack the EU banana regime through the GATT/WTO, has caused it to make severe political and economical miscalculations: Firstly, the regime seems to have turned out to be much more long lasting than Chiquita had ever imagined, 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, although it has repeatedly been trying to prove in several market studies that consumer loyalty to Chiquita is very high, and that consumers are prepared to pay a premium and even go to other shops if they cannot find Chiquita, the contrary has been proven. It has faced ongoing lower European banana 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 exclusively through 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 more than half of the German market means that its total market share in Europe has fallen below 15%. And thirdly, Chiquita seems late in strengthening its non-banana fruit and vegetable business. Like the 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 the consequences of the EU banana regime, Chiquita had first of all to attend to the restructuring of its banana business. It divested itself of its meat operation during 1992-1995 after severe losses. In 1995 it sold its Numar edible oils group in Costa Rica, its stake in the troubled Pascual Hermanos in 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 really makes a profit because of the higher margin. Europe and other international markets accounted for 85% of Chiquitas operating income in 1996. Only recently, after reducing overall borrowings and apparently under pressure from the problems it faces in its banana business, does it seem to be shifting its attention towards non-banana operations, especially to vegetables and vegetable related products. The new acquisitions are part of a realignment of marketing operations which, together with agressive general cost-cutting measures and a multi-year reorganisation of management structure, are aimed at finally boosting Chiquitas lagging profits. In 1996, Keith Lindner became vice chairman of the board and was succeeded as President of the Chiquita Banana Group by the groups 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 Societe Bananiere 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), Owatonna canning (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 Chiquitas European Frupac operations and Atlanta.

A.3. Bananas
Chiquita expanded banana production in 1990-1991, expecting world-wide growth in the banana trade. It was one of the first banana companies to invest in Eastern Europe in representation and storage houses. Chiquita directly blames the EU regime for its losses and is the driving force behind the 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 reform process, and had to reduce its Japanese green-banana trading. Over the last two years, it has tried to recover 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 quality and prices its bananas far higher than others. The difference was often over 50% per box. Its policy has made it lose supermarket contracts to Dole and other companies, and not only in Germany. In recent 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 NGO dedicated to the conservation of tropical forest. The programme is directed at achieving sound, safe, and environmentally improved agricultural practices (Annual Report 1996) in all its plantations, 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 of agro-chemicals as an ECO-label should demand. Especially as Chiquita, together with Dole and the main Chemical companies, are involved in lawsuits with some 11,000 workers in different countries over the harmful effects of the highly toxic DBCP. Meanwhile, the certification is intended to reinforce Chiquita's market strategy. Chiquita sold Fyffes to Fruit Importers of Ireland in 1986, considering it no longer part of its core business. In 1995, Chiquita approached Geest to buy its banana operations. However being deeply in debt, it was unable to find the cash for the deal. The losses in the European market have also made Chiquita lose market share on a world level. Currently, the company is estimated to have revenues of over $1,3bn. dollars coming from its banana activities, and to control around 24-25% of world trade.

A.4. Other activities

Actually Chiquita is active in other tropical fruits like mangoes, kiwis and citrus, as well as other fresh fruits and vegetables, including avocados, asparagus and potatoes, under a variety of brands such as Consul, Amigo and Premium. It entered into the Chilean fruit export business in 1992 with the 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 its Chilean exports on the European market, it announced a joint venture between Chiquitas European Frupac and Atlanta, called Direct Fruit Marketing in early 1998. And in the US, Chiquita has citrus production for the US and European market. Chiquitas 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 Costa Rican Numar group activities, it still sells edible oil-based consumer products in Honduras under the Numar and Clover brands. - Fruit juices and drinks, under the Chiquita Naked Juice, Ferraro brand. In Italy it produces fruit juices for Europe. - Processed bananas, among others, for use in baby food. - Canned vegetables and other products. Chiquita's Friday Canning Corporation is a major processor of private-label canned vegetables. With several acquisitions last year in the USA (American Fine Foods, Owatanna Canning, Friday Canning Corp, Stokely Inc) it has bumped up its vegetable-related revenues from around 5% to 15% of total sales. Lately, it has announced the closure of three vegetable plants at the Friday Canning 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 Net sales Operating income Net income (loss) 160 4,336 1996 3,840 164 89 1995 3,804 193 23 1994 3,499 138 68 1993 3,108 123 78 1992 3,120 133 16 1991 2,964 223 134

Source: Annual Reports, Hoover estimate (1997)

Dole Food Company, formerly known as Standard Fruit in Latin America, is the worlds leading producer and marketer of fresh fruits and vegetables. It seems to be successfully challenging Chiquitas leading position even in bananas. It also deals in canned fruits and juices. Dole Food is active 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 1909 by the D'Antoni family, and sold to Dole in the mid sixties. In 1995, Dole decided to separate its real estate and resort business, Castle & Cooke, from the food business, as the two businesses are too distinct in operation. David Murdock continues to lead both companies as CEO, but they are separately listed on the New York Stock Exchange. Dole revenues have been increasing steadily from $2.9bn. in 1991 to $3.8bn. in 1996. But their operating income has gone down in the food business from $223m. to $123m. in 1993, clawing back to $164m. in 1996. In 1992, the company blamed the world recession and lower prices for their fall in operating income and spent $89m. in a two-year cost-reduction program. The low results in the Pacific Rim and Europe, and a further 1994 loss in the USA reduced income, but they are compensated for this by increasing results in Latin America however. Net income was down in 1995 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 investment in 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, Chiles 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 financial interests 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 and distributor. (25,000 boxes/week) 1996 A marketing joint venture with Langeberg Food Ltd., one of South Africas leading canned fruit 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 business units and to concentrate on those activities. For that reason, Dole decided to sell the major part of its juice business and dried-fruit business in the USA. To conform with general developments in the food sector, Dole shifted its management attention from the supply to the market side of the business, paying much more attention to strengthening its distribution network and supply partnerships with the retail sector. Moreover, unlike Chiquita, Dole has followed a pragmatic market approach since the introduction of the EU banana regime. It invested in production and distribution in 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 market share, Dole is estimated to have doubled its share from around 13% in 1992. Also, in Asia Dole left Chiquita behind. In the growing Middle and East-European market, both are present. However, no data about market shares are available. The conclusion is that Dole has clearly won the market battle with Chiquita, and even if Dole has not yet taken the lead in the world banana business, the day does not seem far off when they will.

B.3. Bananas
As stated above, Doles world-wide banana volumes have steadily been increasing. Together with Chiquita, 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 Del Monte, 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 in the vast and growing Asian market. In December 1996, it opened the largest distribution facility in Japan.

Dole has had a very pragmatic approach to the European market. Specialising in Dollar bananas, it had to provide itself with access to ACP countries bananas to maximise its access to import licences. It began by marketing ventures with European producers in the Canary Islands and former European colonies in Africa and the Caribbean. In 1993, it tried to get hold of Fyffes, but failed in the attempt. The 35% acquisition in 1994 of Jamaica Producers Fruit Distributors Ltd., a leading distributor of bananas and other fruits in the United Kingdom, allowed Dole access to around 20% of the UK banana market. The joint venture with Compagnie Fruitiere resulted in access to production in Cameroon and the Ivory Coast, but it also permits Dole to use the Compagnie Fruitieres distribution networks in France and Spain for its bananas and other fruits and vegetables. In 1997, the takeover of 67% of the SCB plantations in the Ivory Coast provided Compagnie Fruitiere with modern plantations, and packing houses capable of serving the traditional Dollar markets. SCB control some 100,000 tonnes of 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 a network of twelve facilities in France, seven in Spain, four in Italy and one in Germany. It also has a large 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 and pineapples. Following major acquisitions, it has become Chile's major fruit exporter (grapes, apples and 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 first take-over in production with the acquisition of Agrofruta, a sister company of C&D International and the ninth largest export firm. With the purchase of C&D, Dole Chile became the undisputed leader of Chile's fruit export sector, outstripping the traditional industry leader David Del Curto SA. The company deals in apples, pears and grapes, and more recently has been expanding into stone-fruit. In 1996, Dole Chile marketed some 19m, cartons of fresh fruit world-wide, up from around 12m. cartons in 1993, and representing about 12% of total Chilean fruit exports. Dole has invested some US$40m. in the last five years to upgrade and expand its packing, cold storage and CA capacity, and now operates eleven packing houses throughout the fruit producing regions of Chile. 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 of grapes. The Philippines is Doles 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 and vegetables for the Japanese and other markets. In Europe, Dole sources pineapples from the Ivory Coast through its joint venture with Compagnie Fruitiere. Dole Honduras continues to be the main source 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 twenty different types (including artichokes, broccoli, carrots and assorted lettuces). Given the concentration in the US retail sector, Dole focuses on long-term partnerships built on a yearround supply and increasingly requiring logistical support. It also has a growing line of value-added products in one of the USAs fastest-growing grocery segments -- single-serving salads, fresh-cut vegetables and salad kits that include dressings. In 1995, it opened a new plant in California to process 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 been disposing of many of its North American agricultural (vegetable) lands. The expansion of the Dole distribution network in Europe after the introduction of the EU banana regime also helped the company to broaden its fresh fruit, processed fruits and vegetables business, so that it was not based only on the sourcing of fresh fruits in Chile. In Spain, it gained a major acquisition with Pascual Hermanos (fresh fruits and vegetables). Pascual was facing severe financial 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 and vegetables, to form Dole-Bama Fresh Salads. It stood as a model for the roll-out of Doles valueadded salads throughout Europe. Dole expanded in Europe from fresh-cut pineapple and tropical fruit 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. With over 6,000 workers in the Philippines, it farms around 10,000ha and operates a pineapple cannery that is one of the largest fruit canneries in the world, exporting world-wide. For the selection of fresh products and the distribution of packaged foods, it works together with Quantum Corporation in the Philippines. In an alliance with Langeberg Food (South Africa) in 1996, Dole planned to extend its product line of deciduous canned fruit in the European market. However, at the end of 1997, poor European results led Langeberg to shift its focus elsewhere and retire from the UK market. The partnership 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-wide leader in fruit drinks. Dole maintained its canned pineapple juice business. In Honduras, Dole has a majority-owned beverage operation which supplies beverages, edible oils and soap products. It also bottles 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) Revenue Income (loss) 937 121 1996 1,189 (134) 1995 1,068 (72) 1994 992 (64) 1993 880 (58) 1992 900 (63)

Fresh Del Monte Produce grows, transports and markets fresh fruit world-wide. It is the third largest banana company, and the biggest in pineapples. In 1996, the company had 14,600 employees world--wide. The Abu-Ghazaleh family, of the United Arab Emirates, owns about twothirds of the firm through a holding company, the IAT Group. Since late 1997, Fresh Del Monte Produce shares have been traded on the New York Stock Exchange. In 1996, bananas accounted for 61% of Del Montes 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. Del Monte 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 Lynch Investment Funds (1994 sales: $1.6bn.). It owns the Del Monte brand and has stuck to the companys core business of canned fruit and vegetables. Del Monte International was taken over by a management buy-out and sold to Royal Foods of South Africa. It has had problems ever since its start. Del Monte Fresh Produce was sold to Polly Peck which went bankrupt in 1992, after which the division was sold to the Mexican investor group, GEAM, headed by Mr. Cabal, for $525m. In July 1994, it was announced that Del Monte Foods of San Francisco had agreed to a $1bn. take-over by GEAM. Mr. Cabals 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 his associates, worth US $1bn. The government moved against Cabal, in part to prevent the purchase of Del Monte USA as it would be financed illegally. Cabal disappeared. The company came under state administration and the government put pressure on GEAM (Grupo Empresarial Agricola Mexicano) to sell-off Del Monte Fresh Produce. The big companies, as well as Ecuadors premier exporter Noboa (Bonita label), were all mentioned as interested parties although, after all the financial 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-Ghazaleh family, with administrative headquarters in the United Arab Emirates. Grupo IAT owns Chile's fourth-largest fruit exporter, United Trade Company UTC. The other 20% stayed in the hands of GEAM. Notwithstanding the financial and ownership problems, Del Monte Fresh Produce had been growing as well in bananas as in other fruits, and sales passed $1bn. in 1995. Del Monte has been active in the Pacific Market, where it lowered prices considerably to get access to the distributor network in Japan. Since Del Monte was acquired by the Abu-Ghazaleh family, the companys financial profile

has improved significantly. New capital and cost-cutting measures have enabled the company to invest and expand aggressively in production and marketing world-wide. Late in 1997, Del Monte made 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 market shares in Europe and North America. Besides bananas and pineapples, Fresh Del Monte also intends to 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 200,000 tonnes 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 the development of a plantation on Sumatra.

C.3. Bananas
In 1996, Del Monte claimed to have passed sales of 100m. boxes of bananas world-wide, which reflect 15% of total banana exports. Like Dole, Del Monte has been investing in ACP countries, it has invested in Cameroon, to spread its sourcing between Dollar and ACP banana countries. Its joint venture in 1997 in Indonesia with Umas Java Agro Industri was to set up Cavendish Banana production for export to East Asia. Recently it has been far more aggressive on the European market. Its intensified market orientation makes it, like the other fruit companies, more alert to consumer response. The combined banana campaign from the Costa Rican trade union SITRAP, UK Bananalink/WDM and the IUF, led to faster results than had been expected, and Del Monte (Bandeco) was the first company to sign an agreement with the SITRAP in December 1997.

C.4. Other activities

Apart from bananas, Fresh Del Monte is active in pineapples and other tropical fruits. The company is the world's biggest producer of pineapples through its subsidiary Pindeca, Costa Rica, and has extensive plantations in the Philippines. Besides its own production, it buys from independent growers. Following the 1997 flotation, Fresh Del Monte is expected to substantially expand its UTC operation. It has been buying significant farming capacity in Chile, and plans to increase exports from 3.5m. in 1997 to some 4.2m. in 1999-2000, aimed at the European as well as the Japanese market, where it recently opened a wholly-owned subsidiary.

Appendix D: FYFFES
Dublin, Ireland CEO: David McCann

D.1. Financial Results 1991-1995 (in Im.)

1997 Revenu Income 1,460 54 1996 1,430 48 1995 1,118 42 1994 897 36 1993 623 32 1992 524 28 1991 608 27

(I1,460ml,n = US$2,040m.)

Fyffes is the main European banana company, and it also deals in other fruits and vegetables. It has been expanding enormously since the introduction of the EU Regime through take-overs and joint ventures all over Europe. It has nearly tripled sales since 1992, and has become the fifth most important banana company on a world level. The foundation for Fyffes was laid in 1882 by Edward Wathen Fyffe. In 1913 United Fruit took over, but after more than a hundred years of family involvement, Neil McCann, who retired as chairman 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, but have been expanding their share. Late in 1997, a US Chicago-based fund manager, David Herrero, acquired 3%, considering the company undervalued.

D.2. Main acquisitions:

1993 50% Eurobananan Canarias, Spain. Joint venture with the Canary Islands largest banana growing 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 the Danish 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 with sales 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 sales over $45m. 1994 40% Jamaica Banana Holdings, JV with Jamaica Producers Group (55%) to cultivate two estates (1250ha). Government has 5%. 1995 Majority stake in Grupo Angel Rey, through Eurobanan Canarias, creating the largest trading 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 Banana Development and Export company. 1995 50% Peviani, a major Italian fresh fruit and vegetable import-export group, with 1995 sales 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.

The agreement under which Chiquita sold Fyffes gave Chiquita the rights to the Fyffes trademark for three years and a 'non-use' clause prevented Fyffes from using the trademark outside the UK and Ireland until 2006. In 1989, Chiquita stopped using the trademark but invoked the clause to prevent Fyffes from using it to sell into the European market. However, in 1992 after a complaint with the European 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 entered into different countries with contracts with independent growers. In 1992, Fyffes bid for Del Monte but 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 it obtains 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 two years, 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 5050 joint venture (Wibco) between Fyffes and WIBDECO, Geest Bananas was bought for 147m.

Fyffes beat the Ecuadorian Noboa, because its attack on the EU trade regime made it an unreliable partner for WIBDECO. Late in 1996, Fyffes announced its intention to upgrade and expand seven Geest Bananas ripening centres, 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 banana production. Until then it was only present in Belize, one of its original ACP sources. In 1990, Fyffes played a role in breaking the market power of Chiquita and Dole in Honduras, but not without violent problems which further destroyed the already poor relation between Fyffes and Chiquita. In 1992, it also became involved in COBSA, Guatemala, bringing an area of over 3,500ha under production. However, the lack of experience in production and banana sourcing within these countries broke Fyffes 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 Latin America.

D.4. Other activities

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