How to Become a Top Banana

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But how did it come to pass that the U.S. government launched a trade war over bananas at the expense of small American businesses, especially since the U.S. does not export bananas and Chiquita employs no American production workers?

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.