Chiquita Brands International:Out of Bankruptcy and Toward Sustainability

by Rona Fried

Food is a fairly recession proof stock category. In our last Progressive Investor issue, we pointed to the strong performance of the organic/ natural food companies even in this stagnant economy. We didn’t mention Chiquita (CQB) – as Rodney Dangerfield would say – the company gets “no respect.” But Chiquita has come a long way and deserves recognition from the corporate responsibility and social investing community.

To discuss CQB from a financial standpoint, we interviewed our contributing partner, Patrick McVeigh, vp investment research for Lowell, Blake & Associates. When we compiled our SB20 list (the top sustainable stocks) Patrick suggested Chiquita as one of his favorites. We also interviewed Amy Russillo from the Rainforest Alliance, the NGO that initiated and coordinates the Better Banana Project.

PI: Chiquita is the most controversial company we chose for the SB20 list. Several people asked, why Chiquita?!
Patrick McVeigh:
That’s partly why we like it. It makes people think about the issues more deeply. It’s easy to support a company like Horizon Organic (HCOW) – they are a small company that sells organic dairy products, clearly sustainable products. Chiquita, on the other hand, is a large, mainstream company involved in one of the most important food businesses in the world – bananas are the fourth biggest selling food product and the biggest selling fruit.

If I were to pick the worst industry and the worst company historically, I would choose bananas and Chiquita. Chiquita used to be called United Fruit Company and had a horrible reputation of being involved in running countries, suppressing labor rights, deforestation and having awful growing conditions on their farms. It’s also been a terrible investment for shareholders. The company went bankrupt.

PI: What made it turn around?
Patrick McVeigh:
Clearly, what they were doing wasn’t working. Their reputation in Latin America made for difficult labor practices. They needed a new path. They got a new board of directors, a new chairman and CEO, new management, and became the first and only major banana company to work with the Rainforest Alliance Better Banana Project. They went through a long process to certify their farms. They stayed committed even through major financial problems. They also committed to a corporate goal of disclosure and transparency in all they do.

Is it a perfect company? No, they still use fungicides and pesticides. They’re using less. But I’m impressed by their commitment to go from being the worst company I could imagine to one of the best. We’re talking about turning around a ship.

Can any company become more sustainable? We would say yes. Here’s an example of a company in an industry where it’s difficult to do it. It’s easy for a very successful company to spend some money on CSR (Corporate Social Responsibility) reports to mollify critics. In this case the company was bankrupt and did it because they believed this was the best way to operate in the business. It goes to the core of the company.

PI: Being a food company would they be a good company to invest in during this stagnant economy?
Patrick McVeigh:
Yes. Our approach on the food side is to invest in companies selling basic food items. Bananas are a cheap, healthy food and pretty consistent regardless of the economy. Demand for bananas isn’t cyclical – pricing fluctuates because of too much supply – they are easy to grow and too many people sell them.

Management’s been doing a good job. Over the last 2 years, they’ve done a great job reporting on their social and financial performance. The other major banana companies, Dole and Del Monte, didn’t join the Better Banana Project. I think Rainforest Alliance is a great group. They awarded Chiquita with their “Sustainable Standard Setter” award and Chiquita received the “Golden Shell Award” for the most sustainable agricultural operation in the Philippines. [Chiquita also won the U.S. Plastic Lumber “Green Award” for plastics recycling, and a DuPont award for environmental stewardship in packaging.]

We view it as a turn-around situation. As an investor, that’s often when you make the most money.

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Ok, Chiquita has come a long way, but why aren’t they growing bananas organically? To understand the role of organics in banana production we talked with Amy Russillo, Business Manager of the Rainforest Alliance.

PI: Why is IPM (Integrated Pest Management) in the Better Banana Project standards instead of organic?
Amy Russillo:
Integrated pest management means that agrochemicals are used only as a last resort. If organic methods are possible they must be used. The company has to show continual improvement by finding ways to eliminate more and more chemicals.

Bananas can’t be grown organically on a large scale because of the Sigatoka fungus, which is endemic to most banana-growing areas. The bananas ripen prematurely and are so small they have to be thrown away. It devastates entire farms. There is no known organic control for this fungus, therefore organic bananas can only be grown where the fungus hasn’t gotten a foothold, or in greenhouse conditions (small producers do this but production costs are much higher). Once it’s there you can’t get rid of it. FAO estimates organic can’t exceed 2% of the banana crop.

If you really want to grow organically, you can cut down pristine rainforest and plant it with bananas. We would not certify a farm that was converted from rainforest any time during the last 20 years.

Banana companies don’t want to use chemicals – it’s probably their greatest cost. Through the IPM program and the constant improvements we require, Chiquita reduced its chemical use by 80%, saving $4-5 million annually. We’re also concerned about which pesticides they use, not just the amounts. We’d like them to eliminate certain very toxic ones completely and we’re challenging them pesticide-by-pesticide. They show us the technology they’ve come up with and allow us to disseminate it to other banana producers.

The Better Banana standards cover many issues beyond “organic”, which is mostly about the use of agrochemicals. What about waste management and water use? Under organic certification you can burn waste if you want to – of course, most organic farmers don’t. And we require reforestation – a certain proportion of land has to be forested. Chiquita planted 2500 acres in trees native to the area. Organic standards also don’t cover social issues.

Water is the issue we want the industry to focus on in the near term. It takes an amount of water equivalent to 100 times the weight of the bananas to wash off bugs and the latex that oozes out when bananas are cut from the stalk. In the past companies installed filtration systems to keep pollutants out of waterways. Now, we’re piloting a water recycling system that pays for itself in a year.

We consider this a long-term relationship. We’ve shown that conservation and business can work together. Traditionally, industry has been very closed, skeptical and worried about outsiders. Chiquita has gone beyond its nasty history and come to full disclosure and openness. In the past, NGO’s have come across as “holier than thou” and we’ve learned to help companies find solutions rather than just trying to stop them.

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