How to Become a Top Banana

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    It started with bananas in Europe. After World War II, the continent's banana market divided into two kinds. Such countries as Britain, France and Spain limited imports and gave preferential treatment to bananas grown in their former colonies. Thus Britain encouraged banana output in Jamaica, Dominica, St. Lucia; France extended special treatment to bananas grown in the Ivory Coast and the Cameroons. At the other extreme, Germany offered a free market with no import restrictions or tariffs.

    Britain and France took the position that banana production was essential for both the economic health and the social well-being of their former colonies. By the late 1980s, about one-third of the work forces on the small island nations were employed in banana production.

    Protected banana production, that is. Most of the bananas were grown on small family farms and tilled by hand on hilly terrain and poor soil, with little or no mechanization or irrigation. Yields were far below those in places like Honduras, Guatemala and Ecuador. In fact, the cost of growing bananas in the Caribbean was twice that for bananas produced on Latin American plantations. Without their favorable entree to Europe, the banana industries of these small islands might have disappeared.

    Chiquita nevertheless cracked the British market through its ownership of a British subsidiary, Fyffes Ltd., which grew bananas in the former British colonies. British consumers paid a relatively high price for those bananas, but Chiquita's margin from this trade was still small compared with the profits from its efficient plantations in Latin America. By 1986, as the European Union began to take shape, Chiquita executives hoped the restrictions would be lifted and its low-cost bananas could take over the market. So Chiquita sold off its Fyffes subsidiary.

    It would prove to be the first in a series of missteps by the Lindner-controlled company--suggesting at least the possibility that the ensuing banana war was really intended to bail out the Lindners from their costly business mistakes.

    Meanwhile, in a tariff-free and quota-free Germany, Chiquita had seized 45% of the market. Envisioning the same potential for all of Europe, as well as the former Soviet satellites that were opening up, Chiquita and its chief competitor, Dole Food, decided in the early 1990s to pour more money into production and flood the European market with bananas. With more bananas than buyers, prices--and hence profits--plummeted.

    Worse still, the E.U. announced that instead of an open market, which Chiquita had hoped for, it would expand the old system, with quotas and tariffs on bananas brought in from Latin America and preferential treatment for bananas grown in the former colonies. The new rules went into effect on July 1, 1993.

    They certainly should not have come as a surprise to Chiquita, the U.S. government or anyone else. The signs had been clear for years that Europe intended to continue giving preferential status to bananas from its former colonies. An investment report prepared in October 1990 by the Wall Street firm of Shearson Lehman Bros., Inc., predicted that Europe, contrary to Chiquita's hopes, would maintain the status quo for years to come.

    Even Chiquita knew at the time what it faced. In its 1992 annual report filed with the U.S. Securities and Exchange Commission, the company acknowledged that "although we will oppose these restrictive policies in the proper legal forums, we are prepared to adapt to this new regulated environment." By this time, Dole, the world's second largest banana producer and Chiquita's only real rival, had hedged its bets and arranged to acquire bananas from those countries with no tariffs and generous import quotas.

    Meanwhile, Chiquita's business was tanking. From 1992 to 1994, the company racked up $407 million in losses. Its stock price plunged from $40 to $11 a share. In meetings with government officials, Chiquita laid the blame squarely on the E.U.'s trade restrictions. The U.S. Trade Representative and the rest of the Clinton Administration bought the line, at least officially. And to this day, Chiquita officials insist that's the case. Steven Warshaw, Chiquita's president, told TIME, "The E.U.'s illegal banana regime is the cause of the company's poor financial results since 1992. It would be absurd to conclude otherwise... It is well accepted that the E.U.'s banana regime was specifically designed to expropriate market share from U.S. banana interests to benefit European multinationals and other interests within the European market ... Our stock price declined precipitously, and our industry has been substantially damaged."

    While there is little question that Chiquita's sales would be higher were it not for Europe's quota and licensing system, a close look at company filings with the Securities and Exchange Commission over the past 15 years shows that a good portion of Chiquita's decline is attributable to other causes. In the years it posted record losses, Chiquita said in the SEC reports, its costs "were significantly impacted" by outbreaks of banana disease, bad weather, a strike by workers in Honduras, as well as shipping and operating losses from its "Japanese 'green' banana trading operations."

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