Further banana consolidation presents new challenges

The desperation rapidly enveloping the banana industry in the Windward Islands is leading us to grasp at all kinds of straws, even imaginary ones, as we try to find ways to keep this lifeline open. In the process there is the tendency to turn to all kinds of prescriptions, to turn to finger-pointing and the blame-game, and to sink into all kinds of internal bickering.{{more}}

It is critical that all those who have a stake in the industry or who are interested in its resuscitation, take stock of trends in the industry and market developments so that we can realistically reappraise our own situation in the light of these and take appropriate action. Our prospects for the future do not depend on statements of political convenience, from whichever quarters, but on the degree to which, a globally tiny part of the industry can consolidate, seek strategic partners and spaces in the market and work assiduously to advance these.

Recently there was the announcement of the merger of global giants, Chiquita and Fyffes. What is most interesting is the reason for this merger as given in the official press release announcing the merger:

“Greater scale and efficiency via a larger, more diversified organization should result in annual sales of 160 million boxes.”

That should not be lost on the industry in the Windward Islands – achieving greater efficiency and scale of operation. How to do this? Through consolidation, creating a larger organization.

Chiquita and Fyffes are not alone in this. Another of the global giants, in its outlook for the future contained in its Annual Report for 2013, says that the company intends to become more vertically integrated. Del Monte had sales of US$427 million in 2013, but sees vertical integration as the way forward.

Further evidence of this trend is provided by the Belgium-based fruit company, Univeg, acquiring 905 of the shares in the lone Surinamese banana company SBBs. That company has over 5,000 acres in production and annual sales of US$ 65 million. It is now to operate under the name Food and Agricultural Industries (FAI NV). SBBS is a major beneficiary of European Union funds for the banana sector, including the current Banana Accompanying Measures (BAM).

In welcoming the acquisition, Suriname’s Minister of Agriculture had this to say: “We have found a good home for the future development and marketing of our bananas.”

This trend of consolidation is the response of the major suppliers to the European market to trends there. The rise in the power of the major retailers is forcing suppliers “…to secure reliable programmed sources of year-round supply of fruit,” according to the prestigious magazine EUROFRUIT (Feb 27, 2014). The magazine states that while the industry has a long-term future, profitability within the industry is likely to fall within the next 10 years, given rising production costs and flat prices.

It goes on to say that producers should pay attention to emerging markets, outside the traditional North American and European ones, since by 2018 there will be more middle-class households in developing countries than in developed ones.

That kind of analysis is what should underpin our strategic path forward, not knee-jerk reactions which vary from “get out of bananas’ to blind projections of restoring the glory days. Our industry is too fragmented, too inefficient, too politically battered, too plagued by self-interest. The islands have a marketing agent with a foothold in the British market, but we are unable to synchronize our production and marketing efforts, unable to get governments, farmers, marketers and agricultural industries to work hand in hand.

We, too, must find the means to respond appropriately, as the giants are doing.