1. What role has politics played in the history of Chiquita Brands and its predecessor?

In 1899 Boston Fruit Company expanded it’s sourcing and distribution operations and
merged with a New Orleans based competitor to form United Fruit Company. In 1989
Carl Linder changed it’s name to Chiquita Brands International. In the 91 years
United Fruits company grew to dominate the international banana trade and to affect
profoundly the economic and social conditions of the Caribbean and Latin American
countries that grew and shipped it’s bananas. Chiquita’s export division had
substantial role to play in bringing healthy revenues and margins for the company.
The company provided benefits to the employees and investors through strong
bottom line performance. However Chiquita did very little for the development and
growth of other nations by way of ploughing back. The company established
dominance over the market very easily in its lifetime .It claimed that it was necessary
to hold buffer acres of land because of the banana’s plant strategy in the eyes of the
general public was actually a vicious game adopted to prevent the government from
distributing agricultural land to others.

On several occasions charges were held against the company such as : The company
mistreated the workers on its Central American plantations, polluted the environment,
allowing cocaine to be brought to the United States on its ships, bribed foreign
officials, evaded foreign nations' laws on land ownership, forcibly prevented its
workers from unionizing, and a host of other misdeeds.

Chiquita held great bargaining power in the banana industry.Through it’s well
established selling and distribution network,it was able to capitalize on the concepts
of economies of scale and made it increasingly difficult for smaller firms to survive
and as a result of which many firms were forced out of business. It developed
political connections over time working with government of the regions and helping
them earn the infamous label of ‘banana republics’.

The EU territory came back strongly by implementing trade barriers which were
highly unfavourable to the business of Chiquita .This was done to primarily protect its
home industries and other conolized regions. United Fruit Company (UFC) adopted a
vertically integrated business model as soon as it started to grow. UFC wanted to
avoid the impact of any kind of threat on the bananas production process. They
created a situation where « Bananas Republics » had to cooperate in order to maintain
their level of exportation and hard currency flow. Moreover bananas business was
very high demanding in capital and very risky. The bananas plantations were located
in distant area and in the jungle. Without any support of politicians it would have been
very difficult to obtain and keep the different authorization needed.
Chiquita inherited the strong political influence of UFC but started to act with more
diplomacy by using lobbying and political tools to increase pressure on international
relationships. Chiquita used legal political instruments to complain about
discriminatory framework of the EU regime. To sum up politics are well rooted in
Chiquita’s management and instead of finding an alternative to the strong EU rules
 such as acquiring small producers to increase the exportation quotas or trying enter
new markets using the strong power Chiquita had, they decided to continue to fight
against and with politics.

2. What role has protectionism played in the global banana market? Is this role
defensible?

The entire banana industry was dominated by just six large companies biggest two of them
were American based companies (chiquita & dule) and 3 Europe based companies (fresh
division of Del Monte, Geest PLC and Fyffes PLC, and at last the remaining market share
was held with Ecuador based company Noboa which was although comparatively smaller in
size but had great influence in banana industry,

EC amounted to 40% of world imports by volume, 60% of which came from Latin American
countries, as traded foodstuff banana came second only to cocoa, which made it’s a
multibillion industry.

In late 90’s major European country decided to form a union which later came to be known
as European Union with objective of providing free trade regime of member’s countries,
banana industry took a major hit because of the protective policies which came into existence
due to formation of EU.

Although none of the EC countries were bananas producing because of the fact that banana
production required tropical weather, so EU formulated a protective policies to support its
former colonies.

Protective policies are discussed below:-

● Adoption of the ACP-EEC convention Lome, most member of EU provided

preferential access to banana imports from developing countries, which were
essentially former colonies of Britain, France were given tariff free access to the EC
market.
● Banana producing economies were divided into four categories (i) non-ACP non
tradition (third country), (ii) non-ACP tradition, (iii) ACP countries and (iv) ACP
tradition.
● With former colonies, traditional ACP countries were also granted duty free access to
EU market in order to make them competitive with American companies.
● Non tradition ACP was granted free access to 2 million ton and with tariff up to
ECU/ton.
● Companies based biasness was also prevalent in the policy as 30% third country quota
was given to EC based companies like Geest and Fyffes under license B.
● This policy framework has a devastating effect of Latin American exporters. As EU
was the biggest market for them and due to new framework theur operation cost
increased many fold.

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The protectionism implemented the trade barriers in imports. 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.

Defensible in the following cases :

✔ ACP regions: Formal colonies of the European Union.

✔ Banana Industry is their main income
✔ Rivalry between ACP countries and Latin America implemented quota on imported
bananas from Latin America
✔ This helps the ACP countries maintain their economic stability

Indefensible in the following cases :

✔ Protect industry of ACP nations thus leading to economic stability

✔ Huge banana industries (Chiquita) provide better quality bananas than those of the
ACP countries
✔ European consumers do not have access to high quality bananas.

3. 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 and interest expense
were more than doubled. Doubling banana production was equivalent to double the losses.

Following are the steps which Lindner can take.

● Diversify Chiquita’s offering as it was planned by UFC i.e. avocado, cocoa and many
other fruits could be cultivated of tropical farmlands of Latin America.
● Financial assistance and latest technological support could be provided to traditional
ACP in order to increase efficiency and reduce production cost to tap tariff free status
provided to them by EU.
● As correctly thought by the Lindner, many of the Latin American countries were
developing and were directly affected by banana trade restriction, this reasoning could
be used to negotiate with EU.
● Branding and decommoditization of chiquita’s banana could be done as empirical
data suggest that consumer is targeted proficiently agrees to pay more for better
quality.
 ● Some of the land holding could be sold in order to fulfil current working capital
requirement.
● Concentrate on existing market (Market Penetration) : Linder should concentrate on
existing US market
● 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.
● Alternative Markets : Chiquita should explore alternative market like Japan and Asia.

Dole probable response:-

As clearly visible by the banana licensing policy that the entire framework was formulated to
restrict oligopoly status enjoyed by the American based companies and company
selective protective policies were used for EC based companies like Geest and Fyffes
hence it was a clear case of GATT term violation hence its should try to convince US
senate to use its influence over world political scenario to fight against this.