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An analysis of the Banana Supply Chain

Marketing chain

Banana market structure is very heterogeneous, depending on the producing and importing countries.

The presence of diverse economic actors is also different, from country to country and among regions, at the several stages of the banana chain. 

Export bananas may be grown by many small independent growers (with a higher presence in the Caribbean banana producing countries and Ecuador), national banana companies (mainly in Ecuador and Colombia) or large transnational companies (the presence of multinationals is higher in Central America and increasing in Africa and Asia). 

At a later stage of the chain, after cleaning, packaging and quality control, bananas are transported through independent reefer carriers or by the fleet owned by multinationals. 

When they arrive to the importing country they may pass through importers or wholesalers, needing to be ripened before they arrive to the different retail outlets in order to be purchased by the consumers. 

However, the major feature of the international banana market on the whole is its oligopolistic nature, meaning that a few major transnational banana marketing corporations dominate international banana marketing and trade, being able to exercise their market power at several or all the stages of the banana marketing chain.

The special characteristics of a product of high perishability, such as bananas, require the careful control of the growing, packaging, transport, handling, ripening and distribution process. 

This leads to a highly vertically integrated banana sector, where large transnational companies tend to control from direct growing of bananas in producing countries, through ownership of specialized refrigerated shipping and ripening facilities, to even distribution networks in importing countries. 

The high investment of capital required in this export oriented banana business later enables these companies to profit from economies of scale, since they are able to provide consistently large quantities of high quality banana at lower costs and from different geographical sources, due to the technological advantages they enjoy in production, shipping and marketing. 

Therefore, they control the higher proportion of banana value added, since it is normally concentrated in shipping and marketing activities. 

This is the reason why, even if production and export of bananas are highly concentrated in developing countries, it is mainly developed countries who tend to capture the benefits of banana trade, through their large transnational banana marketing companies.

The following graph represents, to a certain extent, a scheme of the international banana marketing chain:

Banana marketing chain

Source : UNCTAD Secretariat

Until the seventies transnational banana corporations were present at every stage of the banana marketing chain, from growing to final consumers. They owned plantations, transport infrastructures and ripening facilities. 

However, in the last 20 years there has been a move away of multinationals from direct growing in order to focus on more specific marketing and distribution activities. 

Multinationals tend now to establish long term supply contracts with independent local banana growers, specifying shapes, quantities, standards of quality, packaging and so on. 

In many cases multinationals also provide inputs in order to control the quality.

By following this strategy of moving away from direct growing , multinationals avoid production risks, such as those related to the occurrence of natural disasters as well as environmental and social costs of production. It is the local producer who has to face these costs and has to comply with environmental and social standards. 

At the same time they are still controlling the banana marketing chain through their supply contracts. Since most of the value added in bananas comes from transport and distribution activities, multinationals keep the higher share of margins. Independent producers are usually organized in associations in order to negotiate their contracts with multinationals. However, there have been some attempts from independent producers to internationally commercialise their bananas, with diverging results. In some cases, such as Comunbana (a multinational banana marketing company launched by the Union of Banana Exporting Countries), it failed because it lacked the required great scale and the huge amounts of capital, as well as the coordinated work of several producing countries. However, there have been some examples of success, such as Uniban. 

The retreat of multinationals may open new opportunities for local growers in developing countries, looking for more direct negotiation with Europe, for example .

Therefore, traditionally the international banana market has been a producer driven market, where transnational banana marketing companies played a prominent role in setting the rules of the game. 

However, during the last decades, this situation has changed. 

Banana companies are facing the challenge of the increasing role that is being played by supermarkets and retail chains in the distribution of bananas in developed countries, mainly in the EU and USA. This tendency is also developing in Latin America and Asia. 

Actually it is possible to say that the international banana market is assisting to a process that could be called reversal of the marketing chain. 

Increasing concentration and consolidation in retail chains has improved their position and power in the market and allowed them to move backwards in the marketing chain in order to better control it, determining conditions of production and distribution of bananas and benefiting a higher share of the profits, without necessarily taking direct ownership.

This downstream shift of power in the banana marketing chain, and for produce in general, is leading to increasing vertical coordination, mainly through supply chain management practices used by the retail chains . 

Supermarkets tend to build long-term relationships with preferred suppliers in order to guarantee a continuous supply at the required levels of quality . The aim is streamlining operations by eliminating non value adding transactions.

 According to Van de Kasteele, The Banana Chain: the macro economics of the Banana Trade (1998): "To conform with general developments in the food sector, Dole shifted its management attention from the supply to the market side of the business, paying much more attention to strengthening its distribution network and supply partnerships with the retail sector. Given the concentration in the US retail sector, Dole focuses on long-term partnerships built on a year-round supply and increasingly requiring logistical support". 

Another example of a banana company paying special attention to retail developments is Chiquita: 62% of its North American sales go to the top 20 retailers, this figure being 32% in Europe (Chiquita, 2000 Corporate Responsibility Report).

Last updated on 4/4/2011

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