Chiquita Banana Case

Topics: European Union, Banana, Supply and demand Pages: 6 (3230 words) Published: November 6, 2012
a. How did the Common Market Organization for Bananas (“CMOB”) affect Chiquita? Six firms dominated the banana industry in the early 1990’s, three from Europe and three from the United States. In 1994, the three United States producers, Chiquita, Dole, and Del Monte, accounted for approximately 72.4% of world banana sales. Chiquita accounted for 48% of worldwide banana sales and 66.4% of banana sales of the three U.S. producers.

Prior to 1994, Europe accounted for nearly 40% of world banana imports by volume, of which roughly 60% came from Latin America, the primary location of Chiquita Brand International’s banana production. However, in 1993, a common banana import policy, council Regulation (EEC) 404/93, became effective four months prior to the official integration of the European Union. Title IV of the regulation induced changes in banana import policy. Banana imports were divided into four categories: Latin American and non-ACP sources, called “third country imports;” “traditional” ACP imports; “non-traditional” ACP imports (ACP imports above “traditional” quota amounts); and EC imports. “Third country” imports, the category in which Chiquita fell, were restricted to a two million metric ton (m.t.) quota with a 100 ECU/m.t. duty. Imports in excess of the quota were subject to an 850 ECU/m.t. duty. The 850 ECU/m.t. duty was roughly 250% a.v., while the 100 ECU/m.t. duty was roughly 30% a.v. “Traditional” and “non-traditional” imports were duty free, unless above the two million ton quota, which is well above the capacity of the smaller producers in this category. In addition to the quota and higher duties, “third country” and “non-traditional” importers (U.S. multinationals) were subject to a licensing provision limiting them to 66.5% of “third country” quota. 66.5% equates to 1.3 million m.t. of bananas annually at a duty of 100 ECU/ m.t.

At a 48% of the world’s market share, Chiquita would have accounted for 1.82 million m.t of Europe’s 3.8 million m.t. of banana imports in 1991 and 1.91 million m.t of Europe’s 3.98 million m.t. in 1992. (Note: these figures are assumptions and do not account for the probable lack of export to Asian countries.) In 1993, under Title IV regulations and assuming licensing provisions were distributed proportionately to the three major U.S.-based banana producers, Chiquita exports to European countries would have dropped to 0.86 million m.t. per year (at the 100 ECU/m.t. duty). That is a theoretical 0.96 million m.t. decrease in European banana exports for 1991 and 1.05 million m.t. decrease for 1992. Chiquita banana exports in 1993 cannot be calculated with available data, but the theoretical numbers from 1991 and 1992 suggest a significant drop-off in European exports following the inception of Title IV. The result for Chiquita was most likely surplus problems, finding new markets for banana exports, and flooding existing markets.

The result of the EU’s banana import policy was a decrease in supply and an increase in price for EU members. The rest of the world most likely would have experienced an increase in supply and lowering of cost, but figures to quantify said scenario are not available.

Chiquita’s market share, production, and sales figures in 1991/1992 and 1994 are similar, rendering the transitive property viable.

b. How were EU consumers affected by CMOB?

CMOB adversely affected not only banana producing and exporting nations but European consumers as well. CMOB created an artificial shortage of bananas in Europe and drove up prices. Europeans consumed 25% less bananas under the regime and paid 63% more for the privilege of doing so. ( However, not all Europeans were affected equally. Germany was the largest consumer of bananas in Europe and had no restrictions on imports before CMOB (bananaramma p.270). Once it went into effect, however, banana exports to Germany fell by 250,000 t per...
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