Banana Wars.

Independent Central American producers are squeezed by trade feud.

FROM THE CORPORATE CORRIDORS OF CHIQUITA BRANDS International's Ohio headquarters to its steamy Central American plantations, banana war wounds are ripening.

Restrictions on banana imports to Europe, as well as a glut of bananas on the world market--some say because of dumping by Ecuador--has left the giant U.S. banana companies hunting for survival strategies. Even though a US.-European agreement was reached in April to end the costly banana war, fruit giants Chiquita Brands International, Dole Food Co. and Del Monte are revamping the way they do business. And that's hurting small farms in Central America.

In Changuinola, western Panama, the 368 worker-owners of the Atlantic Banana Cooperative were among the first hit. In December, they celebrated the final payment of a US$7.2 million loan they used to buy a falling state company in 1992. But the celebration was dampened by news that Chiquita, which exports the cooperative's fruit, would no longer pay $3.11 for a 42-pound box of fruit. It was dropping its rate to $2.86.

"We can survive at that level, but we cannot prosper," says Bolivar Aguirre, the cooperative's president. The cooperative has not yet laid off any workers, but it may postpone a planned pay raise and construction of 400 new houses to replace aging company-built homes. Aguirre expects to sell just 1 million boxes in 2002, a 17% drop from past years.

Other Central American farmers are also selling fewer bananas and getting less for them. Some, like Aguirre, pin the blame on Europe.

The European Union, which represents a 15-nation market, dropped its 25% tariff on Central American bananas after it was ruled illegal by the World Trade Organization. But, until the April deal, European countries favored their former banana-producing colonies like Jamaica, the Canary Islands, Madeira and French West Indies over those of Central America. The idea behind the preferential treatment was to protect African and Caribbean farmers unable to compete with large plantations managed by U.S. multinationals in Latin America.

The European Union has agreed to modify quotes through 2006, when it will lift them all together. Chiquita, Dole and Del Monte for now are cutting their losses by reducing costs and slashing the prices at which they buy from independent producers like the Changuinola cooperative.

"There are no clear rules of the game. They change all the time," says Ricardo Pinzon, president of the independent producers' association in Panama, which sells almost all its fruit to Europe.

So high are emotions in the banana dispute that the Changuinola cooperative in Panama has named the European Union in a discrimination complaint it filed before the International Labor Organization. "We want a better life for our children," says Chito Quintero, a cooperative member.

Peeling away costs. Along with Chiquita and Del Monte, Dole has failed to renew many agreements with independent producers. It has also fired 4,000 workers, then rehired them on less attractive contracts that delete bonus payments. And Dole has begun buying greater volumes of cheaper bananas from Ecuador, where production costs are around half those in Costa Rica and Panama. Ecuador exported more than 250 million boxes of bananas in 2000--as much as the Central American countries combined--sparking accusations of dumping.

Jorge Sauma, head of Costa Rica's National Banana Corp., alleges Ecuador is selling below cost, at around $1.50 for a 42-pound box. Costa Rican bananas, by comparison, cost $4.40 a box to produce and sell for about a dollar more. But the case of Costa Rica, the world's second-biggest exporter of bananas behind Ecuador, is unusual in Latin America. Costa Rican banana workers typically earn up to $18 a day--double the minimum wage-- and are covered by social benefit programs as well as subsidized housing, health care and electricity. About 58% of Costa Rica's banana production is handled by independent companies, much of it on small-scale plantations.

Chiquita has so far refused to follow Dole into Ecuador. Instead, it issuing the European Union executive body for $525 million in damages related to past banana quotas. It is also trying to make up lost European revenues by boosting sales in the United States. "We do not wish to join the race to the bottom," says David McLaughlin, an environmental director at Chiquita. But as it awaits an answer on the lawsuit, Chiquita already is in deep trouble.

In the 1980s, the former United Fruit Co. marketed aggressively in Europe, where profit margins have traditionally been higher than in the United States. Before 1992, Chiquita provided 40% of the European Union's fruit. Now it supplies just 20%.

In January, Chiquita announced it was unable to make payments on $862 million in publicly traded debt, adding that it was been pushed to the brink of bankruptcy by the Clinton administration's failure to force the European Union to trade fairly. The company estimates it has lost more than $1.3 billion because of the banana restrictions.

Luis Umana of Costa Rica's Association of Independent Banana Producers wants the multinationals to share the banana problem by cutting production at their own plantations, not just by ending contracts with independent producers. "Workers are already being laid off. We have fruit but no one to sell it to," Umana says. "We want to export bananas but we are not interested in exporting poverty."

Enrique Vazquez, Chiquita's manager in Costa Rica, says the company is doing its best by selling Costa Rican bananas wherever it can--such as the cheaper markets of China and Eastern Europe. And he denies that Chiquita will soon buy fruit from Ecuador. "We are not making anything on these sales," he says. "Fundamentally there has been an important loss of competitiveness by Costa Rica, principally over costs."

Costa Rica's banana plantations provide 40,000 direct and 100,000 indirect jobs in rural areas where there are few job alternatives. It is the same scenario across much of Central America. Most banana plantations sit in remote areas and the companies often provide housing, health care, schools and even electricity for entire communities.

Local effect. Robert Vargas, who heads a local business group in Puerto Armuellas, Panama, the base of Chiquita's Pacific coast operation, says, "This area depends on bananas for 80% of its commerce. If Chiquita left, many of these people would have no choice but to head for Panama City."

Ironically, the retreat of U.S. multinationals opens new opportunities for local growers. National Banana Corp.'s Sauma says the upheaval may force Costa Rica to rely less on the three big U.S. distributors and to negotiate directly with Europe. The producers' association is also trying to work out a deal with Dublin, Ireland-based Fyffes, Europe's only large importer. "We have gotten into a position where we are very dependent on three multinationals," he says. "We may have to change that if they cancel more contracts."

One local grower, Panama's Central American Fruit Co., has already created a marketing strategy around a banana it calls the Panabana, which sells directly to Europe. "Selling independently is a better value for us but the risks are greater," says Angel Hidrogo, the group's general manager.

And in Costa Rica, the Congress has approved a proposal to create a specific banana brand name, similar to Panabana, that will come with a marketing campaign stressing its socially responsible farming methods. "Costa Rican bananas are not like others. They come with many social guarantees," says Umana. "We need to make this known to consumers."

The agreement to end the banana trade war should, eventually, loosen the squeeze on Central American producers. Until then, they're learning the hard way.

Yellow Fever 

The big three U.S. banana companies--Chiquita, Dole and Del Monte--have traditionally dominated Latin America's production. But there's trouble in paradise.

* Costa Rica: Dole is buying fewer bananas here, preferring bananas from Ecuador, where workers' wages are only $2 a day. Costa Rica's banana exports fell from $333 million in 1999 to $263 million in 2000.

* Honduras: Chiquita last year laid off 650 workers and announced it would replant only half its fields destroyed by Hurricane Mitch in 1998.

* Panama: Last year, this country sent 92% of its bananas--worth $152 million--to Europe. But don't expect the same in 2001. Chiquita recently cut 554 jobs, citing losses of $17 million annually, and wants a cooperative to take over its Pacific operations.