Thursday, March 13, 2014

Yes, we have no bananas

The famous song of this title dates from 1923: Bananas. Bananas have been a hot topic in agricultural trade negotiations: I have a book on the subject on my shelves. They are an enjoyable fruit which provides an energy boost and are the biggest fruit of the planet in terms of production volume. During the Second World War they were not imported and youngsters didn't know how to eat them when they first encountered them. I can remember them being on ration.

Bananas have been controversial because they are largely produced in the Global South and exported in large quantities to advanced countries (although most of them are consumed in the producer countries or nearby). The trade has been dominated by a few large companies and margins for producers have been squeezed. There are also big fungus disease problems on the horizon, although mainly confined to Asia at present (also fortunately it is not wind borne and scientists are attempting to find means of control). The EU only produces bananas in relatively small quantities in Greece and the Canary Islands.

Now there has been a back to the future deal in terms of a merger between Chiquita of the US and Dublin-based Fyffes. The latter company dates from the late 19th century when it was set up to grow bananas in Jamaica for the British market. After hurricane damage, it was bought by the US-based United Fruit Company, but they got into trouble after their involvement in the Guatemalan coup in 1954. That didn't stop them sending their banana boats to help in the disastrous Bay of Pigs invasion of Cuba in 1961.

United Fruit was taken over by United Brands in the 1970s and changed its name to Chiquita. Fyffes was sold to Fruit Importers of Ireland in 1986. Chiquita has tend to focus on margins and quality, while Fyffes has been more of a mass market brand. Now they have come together in a $1 billion dollar merger designed to address declining profit margins. The new company will be called ChiquitaFyffes.

European retailers are increasingly using bananas as loss leaders and forcing producers and distributors to absorb wholesale cost increases. The Fairtrade Foundation has warned that the merger is like to squeeze producers further, although it will account for only 14 per cent of the world market, but 30 per cent of the European market. No challenge on competition law grounds is thought likely.

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