A mega merger is creating the world’s largest banana company - it has been announced that Chiquita of the USA and Dublin-based Fyffes will be merging to form a giant banana distribution company.
The merger takes place against the background of rising global consumption and production of bananas. But there is a significant retail price squeeze as the major supermarkets put pressure on distributors such as Chiquita and Fyffes to absorb increases in wholesale costs.
Many supermarkets are now buying direct from banana growers. In the UK, fierce supermarket price wars have forced down the price of loose bananas, making them cheaper now than 20 years ago. Many supermarkets use bananas as a loss-leader to attract customers into their stores.
The merger is likely to give the horziontally integrated company more negotiating (monopsony) power with suppliers - the new business will distribute over 160 million cases of bananas per year and put it well in front of rivals Del Monte and Dole. In Europe Fyffes has a market share of 16%, the combined European market share will be closer to 30% and their global market share is estimated to be 16%.
The global banana market is an oligopoly - 80% of the world banana market in the hands of only three companies.
Around one third of the bananas sold by Fyffes meet the criteria established by the FairTrade Foundation. Although the bulk of bananas grown in the world are consumed in the country of production, when it comes to banana exports, only 12% of the final retail price stays in the producing countries.
An even smaller proportion goes to small farmers (5%-7%) or to plantation workers (1%-3%). Few banana growers are able to pay their workers a living wage.
The new company, ChiquitaFyffes, will be worth around $1bn (£600m). It will be listed on the New York Stock Exchange but based in Dublin, Ireland.
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