Michael Pollak mpollak at
Sun Mar 11 02:50:48 PST 2001

[Yet another good reason for the US to compromise on this banana issue. Is there any reason why Chiquita still punches so far above its weight? It's as if our foreign policy were still being run by United Fruit.]

Financial Times, Feb 16, 2001

INTERNATIONAL ECONOMY: US banana producers find different ways of living with EU restrictions: Chiquita has gone head on and is close to bankruptcy, Dole and Del Monte have learned to live with the curbs.


When the European Union handed down its new restrictions on banana imports in 1993, the three big US producers faced a critical decision: fight the system or work around it.

Eight years later the consequences of the different strategies they chose have become apparent.

Chiquita Brands International, which enlisted the US government in a determined campaign to dismantle the restrictions, is teetering on the edge of bankruptcy.

After riding the European banana market to record profits in the late 1980s and early 1990s, Chiquita last month said it could not meet debt payments and asked bondholders to swap Dollars 862m (Pounds 594m) in debt for equity shares. On February 13 the company reported a Dollars 69m loss in the most recent quarter, far worse than analysts had expected. Its European market share has fallen to near 20 per cent from about 40 per cent in the early 1990s.

Chiquita has filed suit against the European Commission, the EU's executive body, seeking Euros 564m (Pounds 360m) in damages for losses suffered because of the import restrictions.

Meanwhile, rivals Dole Food and Fresh Del Monte - although bruised as well by the European restrictions and falling banana profits - are in much better shape. Both have managed to increase their market share in Europe, largely at Chiquita's expense.

After eight years of fighting the European Commission, however, Chiquita appears if anything more determined than ever to see the banana regime dismantled. The regime, which is designed in part to protect less efficient banana growers in former European colonies, sharply curbed Chiquita's ability to sell Latin American bananas in Europe.

The company "spent hundreds of millions of dollars to establish a brand and a market" in Europe, said Stephen Warshaw, Chiquita's, chief operating officer. That investment was "illegally confiscated and expropriated" by the EU action.

Certainly the company has trade law on its side. The World Trade Organisation has repeatedly ruled that the regime is illegal, but the EU has refused to comply with those decisions.

More than any of its rivals, Chiquita invested heavily in the 1980s to exploit the European market, where a long-established system of trade protection allowed bananas to be sold at more than twice the price they commanded in the US. Over half the company's revenues came from European sales.

In the 1980s, Chiquita spent heavily to build a refrigerated shipping fleet for the Europe trade and buy more Central American plantations. That produced a heavy debt burden which became unsustainable when revenues collapsed after the new regime was imposed.

But despite the repeated WTO rulings in its favour, Chiquita appears little closer to an outcome that might restore its former glory in Europe. The EU is preparing to introduce a new regime for licensing banana imports dubbed "first-come first-served" - that Chiquita says would simply exacerbate the problem.

Its competitors, while not opposed to the trade litigation, played it differently.

Both Dole and Del Monte recognised quickly that the restrictions would curb sales of Latin American bananas in Europe, and chose to diversify, expand into new markets and buy into African and Caribbean operations that gave them preferential access to the European market.

Dole bought a 60 per cent share in Swedish fruit, vegetable and flower importer Saba Trading. It also bought a Spanish produce grower and acquired its way to becoming a leading US marketer of fresh cut flowers.

On bananas, the company took interests in producers in Jamaica, Cameroon and Ivory Coast, while at the same time buying up European importers that held the licences needed to import bananas under the new EU regime.

Del Monte has similarly expanded European distribution, while trying to cut costs, and also made a push into melons. It is a leader in fresh pineapples and has increased its banana business in Europe by 30 per cent, with half of its Dollars 2bn in revenues now coming from the continent.

Unlike Chiquita, both Del Monte and Dole appear reconciled to operating within the current web of trade restrictions.

Mohammad Abu-Ghazaleh, Fresh Del Monte's chief executive, said that success in Europe depends on corporate adaptability rather than what he called back-bench wrangling. It is tough, but manageable to do business in Europe regardless of what regime is installed, he said.

"I don't want to hang my mistakes and my bad management on somebody else," says Mr Abu-Ghazaleh, a member of the family that bought control of the group in 1996. "We will just have to adapt to the reality. We are in business, not politics."

Dole has similarly become more outspoken in calling for an end to the trade dispute. In a letter last month to the US Trade Representative's office, chief executive David Murdock urged the US to accept the first- come, first-served plan. "It is the continued uncertainty of this dispute that has the most corrosive effect on the banana industry," he wrote.

Mr Murdock charged that the continued effort by USTR to force a different solution was "a naked, political effort to achieve a one-company solution for Chiquita".

He said that Chiquita's ultimate aim was to gain "a guaranteed market share that is disproportionately greater than every other participant, including Dole".

Chiquita for its part continues to insist that it is only demanding what international law requires. "The issue is WTO compliance. It's what protects us, it's what's accessible to us and it's what we're counting on," says Mr Warshaw.

That doggedness, however, has not paid off on the bottom line. Said one European diplomat: "Dole pursued a smart business strategy, while Chiquita pursued a vendetta."

Copyright The Financial Times Limited 2000.

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