The Global Fresh Fruit and Vegetable System: An Industrial Organization Analysis

1. By William H. Friedland Present by Sarah Mensen The Global Fresh Fruit and Vegetable System: An Industrial Organization Analysis

2. Friedland argues that from the start of the globalization of the Fresh Fruit and Vegetable (FFV) industry, a handful of firms have emerged that have become transnational, where not only the industry is globalized, but the various firms within the industry are themselves global in character, even if many of them still have a national base.

3. Three Basic Segments • Producers-directly produce product • Marketers-handle the product to consumers • remain locally, regionally, or nationally based. • Distribution-serve as intermediaries between producers and marketers. • Rise of globalization in the FFV industry. Production and Handling

4. The increase of urbanization after the industrial revolution cause a decline in people producing their own food. • With these needs came a rise in specialized production of foods like sugar and wheat. • As population grew, new production locations emerged. • California, U.S. Midwest, Argentina, Canada, and Australia • Grain production for export • Cargill, Dreyfus, and Bunge specialized in the distribution of grains. • Processing foods and technologies of preserving food grew • Canning improved • Nestle, Heinz, and Campbell • Frozen food technology History of the food system

5. The international growth of the fresh produce industry historically has been very uneven. • During the 1920s, the United States production-distribution system of produce began to develop systematically. • Commodities started to be available year round. • Bananas were the first to be sold year round. • Lettuce became available by coordinating production in different locations. • Tomatoes became available by growing them in different locations, then harvesting them with they are “mature green,” then shipped to local ripeners who would heat the tomatoes and gas them with ethylene gas to make them look red and ripe. FFV History

6. Distributors helped provide the link from farmer to consumer. • Most distribution firms were very small, but the banana distributors became economically important. • Most distributors are involved with local markets, but a few are involved with regional and national markets. • Since the 1980s, large firms have emerged that are involved with global production and distribution. distributors in the FFV

7. Supermarkets started demanding a steady and predictable flow of fresh produce. • Two major changes • The production season has expanded through plant-breeding programs, changes in horticultural practices, and the development of many production locations. • Expansion of varieties of vegetables and fruits, particularly tropicals. FFV History

8. These developments caused growth elsewhere. • Health-food movement and concerns about food safety. • Development of production capacity through the export of capital and technological expertise. • Establishment of capital-intensive “cool chains,” which maintain chilled temperatures from origin to consumer. • Banana trading began as early as the 1870s. • early trade, though international, was not transnational. • The trade in other fresh fruits and vegetables did not become truly transnational until sourcing of production spread widely beyond national borders and a nearly global market developed. • Sourcing is still very uneven. FFV History

9. Three elements characterize the FFV industry • The industry consists of three separate segments, only the distribution segment is truly transnational. • The distribution segment of the industry is highly concentrated. • There is significant variation in history, size, and internal structure of the firms involved in FFV distribution. Industrial Organization of FFV

10. The FFV industry can be conceptualized in the shape of a dumbbell. This metaphor also illustrates the articulation between the three segments. • Production and marketing are much larger than distribution in terms of the numbers of people involved. • Distribution, in contrast, is very capital- and energy-intensive, requiring trucks, airplanes, and ships, all with refrigeration capacity. Structure of ffv

11. Distribution firms are involved to some degree with production, but impose on marketing only to a limited degree. • Mostly involved with marketing through brand labeling. • Partial involvement with production refers to countless practices by which these firms source their commodities. • Contracting • Joint ventures Distribution firms

12. Chiquita • American based, history in banana production and distribution. Expanded to other fruits and vegetables in the 1960s. First tried to expand to lettuce in 1969, but failed in 1983. • Dole • American based, in 1961 was bought by Castle and Cooke, pineapple producers. Expanded to bananas in 1964 and 1967. In 1977, purchased Bud Antle, which was a lettuce producer. Then expanded to other commodities. Transnational firm organization

13. Polly Peck • Originally based in U.K., small firm that produced clothing, then was taken over in the 1980s, took advantage of citrus orchards, and started shipping citrus to Europe. In 1989, they expanded into electronics and recreation, took over DMT (Del Monte Tropical), Sansui, and moved into the top one hundred British corporations. • Albert Fisher Group (AFG) • Is different from the other firms; it is not banana-based. The firm has distinct transnational characteristics while focusing on a small number of national markets. • Bought out in 1982 by Tony Millar who gave it the name AFG. Transnational firm organization

14. Millar made AFG successful • Acquired family-based firms in distinctive but strategic locations. • Acquired firms that mainly catered to food-service providers rather than firms selling to supermarkets or greengrocers. • Acquired firms with some cash, some shares in AFG, and a deferred payment plan conditioned on profits during the next two to three years. • AFG focuses on selling to food service market, but they also sell fresh produce to wholesalers, but it concentrates on firms that transform raw food into foods eaten in restaurants, institutions, cruise ships, and so on. • AFG is different when it comes to transportation, only using some minor road transportation. • It’s policy is to get as close to each end of the food chain as possible. • Fisher refuses to become involved with food labeling, unlike Dole, Chiquita, and Del Monte.

15. Base- national base and whether the firm has a historical commodity base • Number of countries- as represented by the number of countries in which the firms or its subsidiaries are present, to including all countries in which the firm does business • Number of subsidiaries- as represented by wholly or partially owned subsidiaries • Conglomerate- whether the firm has substantial financial interests in nonfood or nonfresh produce activity or both • Vertical integration- the degree to which the firm integrates upstream into production (growing), is engaged in transportation and if so in what form, and is oriented toward the retailing segment of the market • Value adding- whether the firm, engages in activates that process commodities to some degree or otherwise enhance the value of commodities in the market. Friedland’s analysis of firms

17. The FFV industry is transnationalizing only in its distributional segments, not in its production or marketing segments. • Although marketers drive the system with demands for quality, volume, price, and predictability, it is the distributors who assemble capital and logistics to deliver perishable commodities in salable form. • Two strategies to meet the new transnationalized markets for FFV • Build form an established commodity base, primarily bananas, into other commodities, most frequently through acquisitions. • Assembling capital resources to acquire significant number of small firms or important firms with established records in importing or distributing fresh produce form a variety of locations to provide broad geographical and commodity availability. • Based on the growth of consumers, and ability to source commodities, new or utilize existing transportation systems, and to deliver commodities in volume to markets. Conclusion