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THE GLOBAL FRESH FRUIT AND VEGETABLE SYSTEM:

AN INDUSTRIAL ORGANIZATION ANALYSIS

By William H. FriedlandPresent by Sarah Mensen

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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.

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PRODUCTION AND HANDLING

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.

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HISTORY OF THE FOOD SYSTEM 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

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FFV HISTORY

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.

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DISTRIBUTORS IN THE FFV

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.

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FFV HISTORY

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.

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FFV HISTORY 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.

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INDUSTRIAL ORGANIZATION OF FFV

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.

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STRUCTURE OF FFV 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.

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DISTRIBUTION FIRMS

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

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TRANSNATIONAL FIRM ORGANIZATION

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.

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TRANSNATIONAL FIRM ORGANIZATION 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.

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Millar made AFG successfulAcquired 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.

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FRIEDLAND’S ANALYSIS OF FIRMS 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.

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Chiquita Dole/Castle and Cook

Polly Peck/DMT

Albert Fisher

National Base USA USA UK, North Cyprus,

Turkey, USA

U.K.

Commodity Base

Bananas Pineapples, bananas

Citrus (Polly Peck),

Bananas (DMT)

None

No. of countries

14+ 15 10+ 10

No. of subsidiaries

240+ 37 45 71

Conglomerate No Yes; Hawaii real estate

Yes; electronics, recreation

No

Vertical integration Growing

Yes Yes Yes No

Transport

Ships Ships Ships, air Minor road

Retail Labeling Labeling Labeling (DMT)

None

Value adding Yes Yes Yes Yes

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CONCLUSION 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.