1. The Global Fresh Fruit and Vegetable System: An Industrial Organization Analysis Article by William H. Friedland Presentation by Anne LaFrinier

2. This article focuses on the restructuring of an industry as it globalizes, and explains the process by which firms become transnational in character This article focuses on the restructuring of an industry as it globalizes, and explains the process by which firms become transnational in character Specifically, this article focuses on the fresh fruit and vegetable (FFV) industry and how it has become globalized Specifically, this article focuses on the fresh fruit and vegetable (FFV) industry and how it has become globalized

3. Production of FFV There are three segments of production in the FFV industry: There are three segments of production in the FFV industry:  Producers-those who directly produce the product  Marketers-those who handle the product to consumers  Distributors-those who serve as intermediaries between the first two groups Within the FFV industry, the distribution segment has become globalized Within the FFV industry, the distribution segment has become globalized Although marketers drive the system with demands for quality, volume, price, and predictability, the distributors provide the capital and logistics needed for delivering perishable food items in salable form Although marketers drive the system with demands for quality, volume, price, and predictability, the distributors provide the capital and logistics needed for delivering perishable food items in salable form

4. Globalization in the FFV Industry While the distribution segment of the FFV industry is represented by a few transnational firms, they are much smaller in scale than other global markets While the distribution segment of the FFV industry is represented by a few transnational firms, they are much smaller in scale than other global markets Eg. The global automobile industry is worth hundreds of billions of dollars, while in comparison the global FFV industry is worth only hundreds of millions of dollars Eg. The global automobile industry is worth hundreds of billions of dollars, while in comparison the global FFV industry is worth only hundreds of millions of dollars

5. A History of the Food System Urbanization during the industrial revolution caused a decline in people producing their own foods, and there was an increase in specialized production and exportation of food, such as wheat and sugar Urbanization during the industrial revolution caused a decline in people producing their own foods, and there was an increase in specialized production and exportation of food, such as wheat and sugar This represented the beginning of a globalized food system This represented the beginning of a globalized food system In the next stage, processed foods began to grow in importance, bringing on an improvement in canning In the next stage, processed foods began to grow in importance, bringing on an improvement in canning The next stage brought an increase in frozen foods due to developments in frozen food technology The next stage brought an increase in frozen foods due to developments in frozen food technology

6. FFV Industry History The most recent stage in food consumption includes an increased demand for fresh fruits and vegetables The most recent stage in food consumption includes an increased demand for fresh fruits and vegetables The international growth of the FFV has been uneven, with beginnings in the banana trade as early as the 1870s The international growth of the FFV has been uneven, with beginnings in the banana trade as early as the 1870s Supermarket chains since the 1980s have increasingly demanded a steady and predictable flow of fresh produce Supermarket chains since the 1980s have increasingly demanded a steady and predictable flow of fresh produce Two major developments have orchestrated this change: Two major developments have orchestrated this change:  The extension of the production season through plant-breeding programs, changes in horticultural practices, and the increase in production areas  The expansion of varieties of fruits and vegetables available

7. Other Causes Additional factors contributing to an increase in FFV include: Additional factors contributing to an increase in FFV include:  The growing health food movement and food safety concerns  The development of production capacity through the export of capital and technological expertise  The establishment of “cool chains” which maintain chilled temperatures from the commodity’s origin to the consumer The distances involved in food shipment have created a transnational industry The distances involved in food shipment have created a transnational industry For example, countries in South America, Africa, and Asia are currently responsible for providing fresh produce for North American, European and Japanese/Hong Kong markets For example, countries in South America, Africa, and Asia are currently responsible for providing fresh produce for North American, European and Japanese/Hong Kong markets

8. FFV Industrial Organization and Structure Distribution is capital- and energy-intensive, requiring refrigerated trucks, airplanes, and ships Distribution is capital- and energy-intensive, requiring refrigerated trucks, airplanes, and ships The FFV industry consists of three distinct elements: The FFV industry consists of three distinct elements:  The industry consists of three segments, of which only one (distribution) is transnational  The distribution segment is highly concentrated  The history, size and internal structure of the firms involved in FFV distribution differ significantly

9. Distribution Firms Distribution firms are partially involved in production, through: Distribution firms are partially involved in production, through:  Contracts, which usually include specifications on timing, quality of product, and price  Joint ventures, through which capital requirements might be provided by the distributing firm, with specifications on aspects of production, quality, and division of income from sale of the commodities

10. The Main Distribution Firms in the FFV Industry Chiquita-an American-based business, started initially as a banana distributor, then began expanding into other fruits and vegetables in the 1960s. An expansion in 1969 into lettuce, however, proved unsuccessful and was shut down in 1983 Chiquita-an American-based business, started initially as a banana distributor, then began expanding into other fruits and vegetables in the 1960s. An expansion in 1969 into lettuce, however, proved unsuccessful and was shut down in 1983 Dole-an American-based business, started as a pineapple producer, expanding into bananas in the mid-sixties, lettuce in the 1970s, and was involved in acquiring other companies Dole-an American-based business, started as a pineapple producer, expanding into bananas in the mid-sixties, lettuce in the 1970s, and was involved in acquiring other companies Polly Peck-originally based in the UK, initially was a small firm that made clothing, was taken over in 1980 after which the company started shipping citrus to Europe from Turkey Polly Peck-originally based in the UK, initially was a small firm that made clothing, was taken over in 1980 after which the company started shipping citrus to Europe from Turkey

11. Distribution Firms Polly Peck, cont’d: Polly Peck, cont’d:  The distribution of citrus from Turkey to Europe helped make Polly Peck a major FFV distributor to Europe and the Middle East  The company acquired Del Monte Tropical (DMT- traditionally a US-based banana company) and an electronics company in 1989,  Went bankrupt in 1990,  Sold DMT in 1992

12. Distribution Firms Albert Fisher Group (AFG): Albert Fisher Group (AFG):  AFG is different from other FFV distribution firms in that it has transnational characteristics while focusing on a small number of national markets  It was originally a small produce operation located in the UK, but was bought out in 1982  What followed was the acquisition of several small, family-based firms that catered mainly to food-service providers and wholesalers rather than to supermarkets, in locations such as California, Florida, Germany, and Belgium

13. Distribution Firms AFG Cont’d: AFG Cont’d:  AFG’s recognition of the fact that Americans eat nearly half of their meals outside the home has led to a focus on selling to restaurants, institutions, cruise ships, etc in the US  It is not a conglomerate; unlike the other FFV distribution firms it has no major stakes in transportation  The company’s interest lies in firms that process and prepare foods  AFG is not involved in food labeling, distancing itself from retailing

14. Distribution Firms Friedland analyzed FFV distribution firms in these areas: Friedland analyzed FFV distribution firms in these areas:  Base: both the national base and the commodity base  Number of countries: in which the firm or its subsidiaries are present  Number of subsidiaries  Conglomerate: whether the firm has financial interests in nonfood areas  Vertical integration  Value-adding: whether the firm engages in activities that process commodities or otherwise enhance the value of commodities in the market

15. Analysis Results ChiquitaDole Polly Peck/DMT Albert Fisher Group National base USAUSA UK, North Cypress, USA UK Commodity Base Bananas Pineapples, bananas Citrus (PP), bananas (DMT) None # of Countries 14+1510+10 # of Subsidiaries 240+374571 ConglomerateNo Yes, Hawaii real estate Yes, electronics, recreation No Vertical integration growing growingYesYesYesNo transport transportShipsShips Ships, air Minor road retail retailLabelingLabelingLabelingNone Value Adding YesYesYesYes

16. Analyis Results All corporations were involved in at least ten different countries, showing vast globalization All corporations were involved in at least ten different countries, showing vast globalization Chiquita has the highest amount of subsidiaries at over 240 Chiquita has the highest amount of subsidiaries at over 240 Two of the companies are not conglomerates (Chiquita and AFG) Two of the companies are not conglomerates (Chiquita and AFG) Out of the top corporations, only AFG is marginally involved in vertical integration—only slighltly in the distribution segment; the other companies are vertically integrated in all three segments Out of the top corporations, only AFG is marginally involved in vertical integration—only slighltly in the distribution segment; the other companies are vertically integrated in all three segments

17. Distribution Firms Distribution firms typically follow two types of strategies to meet the new transnational FFV markets: Distribution firms typically follow two types of strategies to meet the new transnational FFV markets:  The first involves a company moving from an already established commodity base (usually bananas) into other commodities. Examples of this include Dole, Chiquita, and DMT  The second involves the acquisition by a parent firm of smaller firms already established in importing or distributing a variety of types of fresh produce from a variety of locations, which is demonstrated by Albert Fisher

18. A Conclusion The degree to which distribution firms become globally successeful—when their strategy involves the purchase of smaller established firms—depends on the extent of integration initiated by the parent firm between its many subsidiaries The degree to which distribution firms become globally successeful—when their strategy involves the purchase of smaller established firms—depends on the extent of integration initiated by the parent firm between its many subsidiaries The strategy of the expansion of companies already experienced in food distribution tends to be more successful due to this experience The strategy of the expansion of companies already experienced in food distribution tends to be more successful due to this experience