Student Bikash Majumdar (038)

Faculty Mentor Dr. Arindam Banik

Dated 24 June, 2015

INTERNATIONAL BUISNESS ASSIGNMENT

(PGDM 2014-16)

QUESTION1. What role has politics played in the history of Chiquita Brands and its predecessor?

Chiquita Brands has a formidable history as a company which perhaps used political leverages excessively to

maintain uninterrupted supply of its product throughout the world. The countries in which Chiquita functions

have a history of high political instability, and heavy dependence on US economically. The history of these

countries is marred by autocrats, revolutions exterminated and a working population that survived in the

tumultuous environment and had insignificant access to basic needs of workers. The scale of operation was huge

and Chiquita’s presence in these countries has been leveraged by US government for several deals; fact based

allegations reveal Chiquita and US government worked together in a two way ‘give and take’ relationship.

Chiquita is the successor to the United Fruit Company, which began in 1899 as a merger between the Boston Fruit

Company and railroad companies owned by Minor Keith in Costa Rica. The United Fruit Company operated

throughout Latin America and the Caribbean, including Costa Rica, Honduras, Cuba, Nicaragua, Colombia,

Panama, Guatemala, and Ecuador. Chiquita has been involved in political, environmental, legal and labor

controversies in many parts of the world and has attracted more attention than any other foreign company in

Latin America as the archetypical representative of United States imperialism in Latin America.

The United Fruit Company was frequently accused of bribing government officials in exchange for preferential

treatment, exploiting its workers, paying little by way of taxes to the governments of the countries in which it

operated, and working ruthlessly to consolidate monopolies. Latin American journalists sometimes referred to

the company as el pulpo ("the octopus").

The EU politics against the non-European nations was very harsh and it had a great impact on Chiquita. On July 1,

1993, the EC had adopted a new banana import regime. Under the terms of the new regime, Latin American

banana imports above a 2 million metric ton ceiling would face tariffs so onerous that no firm, including Chiquita,

could afford to exceed the quota. Moreover, to administer the quota, the EC established a complex licensing

system that would grant Chiquita’s EU based competitors the right to import a significant percentage of the 2

million metric tons permissible under the scheme.

The US government wreaks its political muscle on countries like Guatemala, Honduras, Costa Rica, Ecuador and

others which helps in exempting taxes and reduces the overall costs. So Chiquita took advantage of this and had

exempted several taxes for itself.

So the archaic method adopted worked for them for several decades and Chiquita grew powerful to such a level

that they became a threat to local banana industry of ACP region which were previous colonies of several

European nations. This threat from Chiquita was negated when the political leadership of EC took the decision of

waving off tariff on the import of bananas from ACP and created a ceiling on import of amount Chiquita could

bring in to Europe along with severe tariff rate of 20-30% ad valorem. The political leadership thought it

necessary to protect ACP’s banana industry and thus kept out Chiquita. To fight it the company wielded all its

political power by helping Latin American and South American countries to file petition to GATT and moving USTR

for support.

Thus overall it is noticed that politics played a major role in company’s history, right from initiation of the

company to its running head into Dole’s campaign for influencing political leadership in countries which went in

contract with EC, role of politics has been embedded deep in functioning of the company.

QUESTION2. What role has protectionism played in the global banana market?

Bananas and plantains are perennial crops that grow quickly and can be harvested all year round. Bananas fall

into two categories:

• Cooking bananas, including plantains.

• Sweet bananas, where the Cavendish sub-group is prominent, almost all bananas traded worldwide are

Cavendish.

Protection of the European banana selling companies by the EU has played a very significant role globally. Before

the EU policy, the global banana industry was dominated by the big US multi-nationals.

But on July 1, 1993, the EC had adopted a new banana import regime that established a Community-wide quota

on bananas imported from the Latin American countries where Chiquita sourced most of the fruit it sold in the

EC. This was all done to protect and safeguard Europe’s banana dealing companies which otherwise stood no

chance globally in front of the US MNC’s.

The countries which were essentially the former colonies of Britain and France, were granted tariff-free access to

the EC market, while banana imports from other regions, including Latin America, faced a variety of restraints

that differed widely across each of the countries in the community. Imports from EC territories (Martinique,

Guadeloupe, the Canary Islands, Crete and Madeira), Like imports from ACP countries, were given duty-free

access to all markets within the Community.

These strict policies against the non- European countries allowed European banana companies to flourish and

caused heavy losses to Chiquita and other US based banana companies. EU protected and safeguarded its

interest with such stringent policies.

International trade in bananas follows, to some extent, a regional pattern. For the sake of simplicity, world

banana trade can be split into three international trading systems.

In the first system (“The Americas”), the US, Canada and those Latin American countries which do not cultivate

bananas source their fruit in Latin America. The second system, “Europe”, includes the whole European continent

and countries of the former USSR on the demand side, and countries of Latin America, West Africa and the

Caribbean on the supply side. The third trading system, “Asia”, consists of Asian and Near East countries and their

suppliers, mainly the Philippines and Ecuador. Banana Exporting Countries such as Ecuador is the largest exporter

of bananas in the world. Exports expanded from one million tonnes in 1985 to 3.6 million tonnes in 2000. Costa

Rica is the second largest exporter (in 2000) after Ecuador. Bananas are the single largest agricultural export.

Colombia Bananas in Colombia are the third most important agricultural export. Over 90 percent of the

Cavendish bananas produced in year 2000 were exported. Banana crops in Colombia occupy approximately 7

percent of the total area planted to fruit crops.

Latin American Countries namely Guatemala, Honduras and Panama have banana as an important source of

employment and exports earnings. Aggregate production in these countries was relatively stagnant in the last 15

years (1985-2000) due to weather-related events, industrial disputes, crop diseases, increasing production costs

and depressed banana prices. Banana imports are concentrated in two main markets: the United States (a free

market) and the European Union.

QUESTION3. What should Linder do about the EU’s banana policy? How should Bob Dole respond

to Linder’s request?

We can see the role of protectionism in 2 ways, the economic and the political. Politically is a good defensible

role, it enables small local business to expand without aggressive competition and allows them to stay in a

comfort zone to grow on their own way.

Europe is not a producer of banana, but instead is a big consumer so in the economic aspect these extra

regulations, the prohibitions and the extras fees only make the product expensive for the consumer, because this

cost wise automatically added to the sale price. Also it makes inefficient the local production because without

competition there are no natural incentives to raise the efficiency and with shortage the product price also can be

establish at a higher value.

This protectionism is not viable on the long run because it weaken the local economy and not encourages competence, but most important it affects directly the consumer. From this case we can learn a couple of things, how to grow fast and how not to handle Company’s issues in the politics. One way to grow fast a company is to be allied with the government, however they should watch out to do the thing within the law margins because once you’re in politics is too easy to corrupt and take advantages of the political power like what happen to the United Fruit Company. Other lesson is that government don’t always do economic policies, they do political policies that will affect the economy but will be good at the population point of view. Like the banana policy is good only to the eyes of the

local producers but in the long run it will affect the local economy, and this unfair competition that is made by the government it will not last in the long run in a market environment. About the EU’s banana policy, Lindner and Chiquita as a company had already realized that the 301 process, even

if successful, could only produce results in the medium to long term.

Lindner had very few options.

1. Shifting output to less restricted markets in North America and Asia was a possibility

2. There were emerging markets in the former Soviet Union and Eastern Europe

3. Seek to increase its investment in ACP production as a hedge against market restrictions in the EU which its

other US based competitors, Del Monte and Dole, were doing

4. Try acquiring smaller EU distributors in order to obtain import licenses, a move that would allow the

company to sell more product into the European market

5. Try to put pressure on EU to change its policy by using its political connections in the US which Chiquita had

already done in the past

6. Bob Dole, Kansas state Senator, had already went to bat vigorously for Lindner and Chiquita, attempting on

several occasions to sway the Latin governments most actively involved in implementing the Framework

Agreement. Among the measures Dole sought were legal provisions that would have stripped Colombia of

the aid it receives under U.S. programs designed to reduce the international flow of illicit drugs and a bill

that would have required Colombia and Costa Rica to undo the Framework Agreement or lose preferential

access to the US market.

7. The senator was also active in keeping the banana issue on the front burner at USTR. Dole reportedly

sought to link passage of the GATT bill with action on behalf of Chiquita.

8. Bob Dole tried his best to safeguard the interest of Chiquita and took up the issue politically in the US.

Bob Dole, Kansas state Senator, had already went to bat vigorously for Lindner and Chiquita, attempting on

several occasions to sway the Latin governments most actively involved in implementing the Framework

Agreement. Among the measures Dole sought were legal provisions that would have stripped Colombia of the

aid it receives under U.S. programs designed to reduce the international flow of illicit drugs and a bill that

would have required Colombia and Costa Rica to undo the Framework Agreement or lose preferential access

to the US market.

The senator was also active in keeping the banana issue on the front burner at USTR. Dole reportedly sought

to link passage of the GATT bill with action on behalf of Chiquita.

Bob Dole tried his best to safeguard the interest of Chiquita and took up the issue politically in the US.