What does the merger of Chiquita and Fyffes mean to the trade?

With its share of the $7bn banana market jumping to 29%, the proposed merger of US giant Chiquita and Dublin-based Fyffes will create the world’s biggest banana supplier.

So how does Chiquita Fyffes stand to benefit? How scared should retailers and growers be over its enhanced power? And will retail prices - which have stayed flat at 68p/kg for the past three years in the UK [BrandView] despite rising production costs - go up?

ChiquitaFyffes estimates it will save $40m through cost efficiencies by 2016 if the merger is approved by competition authorities by the end of the year, as it hopes.

Fyffes chairman David McCann, who would be CEO of the merged operation, says it would create a “more diverse and smoother running business” with “more growth opportunities” for employees.

What he didn’t mention was the additional negotiating power it might deliver. But most experts believe it will have little if any impact on the sell side.

Though the big five - Chiquita, Fyffes, Del Monte, Dole, Nboa - control 75% of global banana sales, it will take more than a merger to tip the balance, according to Rabobank fresh produce analyst Cindy Van Rijswick.

“It doesn’t matter if ChiquitaFyffes is a $5bn company, the retailers are still more powerful,” she says. “If they push for higher prices, the other players still make up 60% of the market so it isn’t like retailers won’t have alternatives.”

KPMG head of food Chris Stott agrees: “This deal will create a lot of synergy geographically for both suppliers, easing the pressure from rising production costs [which have hit profits for all the leading suppliers], but bananas remain a key promotional item for UK supermarkets and I can’t see that changing.”

Bananalink international coordinator Alistair Smith is more hopeful. Pointing to Chiquita’s success in the US, where the average price has risen to 80p/kg ($1.33), he thinks the merger is a tipping point. “The UK banana market just isn’t profitable. Average retail prices are 30% higher in Germany and up to 80% higher in France so why can’t they go up here?”

With UK prices falling by 37% since 2002 - when they averaged £1.08 - growers claim retail prices are not even close to covering costs. The Fairtrade Foundation, too, has slammed the supermarkets for creating an “unrelenting cycle of poverty” for banana growers.

But one of the UK’s leading wholesalers refutes the suggestion that bananas are a loss leader for retailers. “We make money on our bananas. It’s all about the supply chain. The fact Sainsbury’s is able to sell Fairtrade bananas at the same price as non-Fairtrade is because it has created a fantastic supply chain,” he adds.

Indeed, Fairtrade Foundation commercial director Ashish Deo says his immediate concerns are with the grower. “There were five major suppliers before this merger and now there are four so there is further concentration of power and less places for growers to sell their bananas and suppliers can potentially dictate harsher terms,” he says.

“Chiquita and Fyffes certainly have a history of strong ethical practice, but it is a concern that the grower will get squeezed as, in a sector like fresh produce at the moment, which is so ripe for consolidation, it usually gets worse for people at the bottom.”

UK-based premium banana brand Banabay, a grower and importer of bananas from Ecuador into retail and wholesale, agrees. “This merger clearly increases buying power for the new brand and reduces the number of customers in the marketplace for growers, so we can envisage more of an impact at the grower end of the supply chain than for consumers,” says MD Mark O’Sullivan.

“If growers do feel the strain, it will be to the advantage of companies prepared to pay more for fruit,” he adds.