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Enforcing Business Contracts in South America: The United Fruit Company and Colombian Banana Planters in the Twentieth Century

Published online by Cambridge University Press:  13 December 2011

Marcelo Bucheli
Marcelo Bucheli
Affiliation:
MARCELO BUCHELI is the 2004-5 Harvard-Newcomen Postdoctoral Fellow in Business History at Harvard Business School and professor of economic history atUniversidad de los Andes in Bogotá.
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Abstract

In the first half of the twentieth century, the United Fruit Company, based in Boston, Massachusetts, created an impressive network that produced bananas in Colombia for distribution to the U.S. market. The company grew its own fruit but relied as well on local entrepreneurs. United Fruit imposed draconian contracts on the growers, forcing them to trade on terms that were very favorable to the company. These practices set the standards for other exporters operating in the country, even those based in Colombia.

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Articles
Information
Business History Review , Volume 78 , Issue 2 , Summer 2004 , pp. 181 - 212
Copyright
Copyright © The President and Fellows of Harvard College 2004

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References

1 Several works of García Márquez were inspired by the operations of United Fruit in Colombia. The best examples are One Hundred Years of Solitude (New York, 1992)Google Scholar and Leaf Storm (New York, 1972)Google Scholar.

2 According to Mira Wilkins, the process of vertical integration by United Fruit in the early twentieth century is a textbook case of a company that successfully followed the general growth trend of American multinational corporations during that period. See Wilkins, Mira, The Maturing of Multinational Enterprise (Cambridge, Mass., 1974), 422–3CrossRefGoogle Scholar.

3 Some of the most representative works that take this viewpoint are Kepner, Charles and Soothill, Jay, The Banana Empire (New York, 1935)Google Scholar; Zanetti, Oscar and García, Alejandro, United Fruit Company: un caso de dominio imperialista en Cuba (Havana, 1976)Google Scholar; and Schlesinger, Stephen and Kinzer, Stephen, Bitter Fruit: The Untold Story of the American Coup in Guatemala (New York, 1983)Google Scholar.

4 In addition to García Márquez's works, we can mention Asturias, Miguel Angel, Green Pope (New York, 1971)Google Scholar and the poem “United Fruit Company,” included in Neruda, Pablo, Canto General (Berkeley, 1991)Google Scholar.

5 See White, Judith, “The United Fruit Company in the Santa Marta Banana Zone (Colombia): Conflicts of the 20s” (B.A. thesis, Oxford University, 1971)Google Scholar; LeGrand, Catherine, “El conflicto de las bananeras,” in Nueva Historia de Colombia, ed. Tirado, Alvaro (Bogotá, 1986)Google Scholar; Botero, Fernando and Guzmán, Alvaro, “El enclave agrícola en la Zona Bananera de Santa Marta,” Cuadernos Colombianos 8 (1977)Google Scholar. Although these studies mention local planters, they analyze them only for their role in labor conflicts, not as entrepreneurs. In general, the role of the multinationals' Latin American local providers as entrepreneurs has been neglected by the literature. This is partly because most studies on multinationals in the extractive sector have accepted the assumptions of dependency theory, which asserts that multinationals create economic enclaves that have few or no links to the rest of the national economy. It also assumes that the local elite is merely an extension of the multinationals' interests, with very limited influence on local economic development. Dependency theorists assume that once a multinational leaves the enclave, the local elite will be unable to keep the export business alive. Past studies assumed that this was the case with United Fruit in Magdalena. For a definition of an economic enclave according to dependency theory, see Castells, Manuel, “Urbanizatión Dependiente en América Latina,” in Urbanizatión y Dependencia, ed. Schteingart, Martha (Buenos Aires, 1973)Google Scholar. For a discussion of dependency theory's constraining effect on the development of business history as a discipline in Latin America, see Dávila, Carlos and Miller, Rory, Business History in Latin America: The Experience of Seven Countries (Liverpool, 1999)Google Scholar; and Barbero, María Inés, “Business History in Latin America: Issues and Debates,” in Business History around the World, eds. Jones, Geoffrey and Amatori, Franco (Cambridge, U.K., 2003)Google Scholar. Lawrence Grossman did a study of the subcontracting system in the banana sector created in the Windward Islands by the St. Vincent Banana Growers' Association after 1953. Grossman's study also reveals the power of this organization in limiting the local growers' independence. This case did not include United Fruit, which did not operate in those islands. See Grossman, Lawrence, “The St. Vincent Banana Growers' Association, Contract Farming, and the Peasantry,” in Banana Wars: Power, Production, and History in the Americas, eds. Striffler, Steve and Moberg, Mark (Durham, 2003)Google Scholar; and Grossman, Lawrence, The Political Ecology of Bananas: Contract Farming, Peasants, and Agrarian Change in the Eastern Caribbean (Chapel Hill, 1998)Google Scholar.

6 After divesting from Colombia in the 1950s, United Fruit followed the same process in Central America almost a decade later. The incentives to divest stemmed primarily from the growing power of labor unions and the nationalistic policies of local governments in the 1960s and 1970s. Shareholders and institutional investors began to view production operations as risky and encouraged management to sell off the company's “tropical assets.” The change was endorsed by the company's shareholders and by financial analyst firms, such as Moody's. The company continued its production operations in the Central American republics, which were ruled by more foreign-business-friendly governments in the form of dictatorships that repressed labor unionism. On the international divestiture process, see Bucheli, Marcelo, “United Fruit Company in Latin America,” in Striffler, and Moberg, , Banana Wars; Marcelo Bucheli, Bananas and Business (New York, forthcoming)Google Scholar; and Wilkins, The Maturing of Multinational Enterprise, 423. For the divestiture process in Colombia, see Bucheli, Marcelo, “United Fruit Company in Colombia: Impact of Labor Relations and Governmental Regulations on its Operations, 1948–1968,” Essays in Economic and Business History 15 (1997): 65–84Google Scholar, and also Bananas and Business. Other studies on particular United Fruit divisions have discovered a similar trend. Steve Striffler has shown how labor activism pushed United Fruit into using a subcontracting system in Ecuador, shifting control of production to the locals in the 1960s. Philippe Bourgois and Aviva Chomsky also found that labor and political problems stimulated the company's divestiture in Costa Rica. See Philippe Bourgois, “One Hundred Years of United Fruit Company Letters,” in Striffler and Moberg, Banana Wars; Chomsky, Aviva, West Indian Workers and the United Fruit Company in Costa Rica, 1870–1940 (Baton Rouge, 1996)Google Scholar; and Striffler, Steve, In the Shadows of State and Capital: The United Fruit Company, Popular Struggle, and Agrarian Restructuring in Ecuador (Durham, 2002)Google Scholar.

7 It would be possible to examine the contractual relationship between United Fruit and the Magdalenan and Urabense planters within the theoretical framework developed by the new institutional economics theory of contracts, as Alan Dye did in his study of the Cuban sugar industry. See Dye, Alan, Cuban Sugar in the Age of Mass Production: Technology and the Economics of the Sugar Central, 1899–1929 (Stanford, 1998)Google Scholar. However, while I have analyzed information on the dynamics between the company and the planters, I have not utilized quantitative methods of analysis. James Robinson has made a remarkable contribution in building a mathematical model of the contractual relations of United Fruit in Magdalena and Urabá, which influenced my interpretation. See James Robinson, “Hold-up in the Tropics: United Fruit Company in Magdalena and Urabá, Colombia” (unpublished ms., 2001).

8 Cartagena and Barranquilla are the other two most important cities of the Colombian Caribbean. A complete history of the three cities can be found in Nichols, Theodore, Tres puertos de Colombia (Bogotá, 1973)Google Scholar.

9 White, “The United Fruit Company,” 12. The Riofrio area constitutes part of the main core of what is known as the Magdalena Banana Zone.

10 Colombia is divided politically into separate regions called departments.

11 White, Judith, La United Fruit Co. en Colombia: historia de una ignominia (Medellín, 1978), 20Google Scholar.

12 LeGrand, “El conflicto,” 194.

13 Herrera, Roberto and Romero, Rafael, La zona bananera del Magdalena: historia y léxico (Bogotá, 1979), 6Google Scholar.

14 White, “The United Fruit,” 13–14; Herrera and Romero, La zona bananera, 6.

15 Bulmer-Thomas, Victor, The Political Economy of Central America since 1920 (Cambridge, U.K., 1987), 15–16, 35–7CrossRefGoogle Scholar.

16 Posada-Carbó, Eduardo, The Colombian Caribbean: A Regional History, 1870–1950 (Oxford, 1996), 53–4CrossRefGoogle Scholar.

17 Ellis, Frank, Las transnacionales del banano en Centro América (San José, 1983), 116, 129, 133, 138, 143, 145Google Scholar.

18 This description is a summarized version of the information I gathered from dozens of contracts between United Fruit and different local growers from 1900 until the early 1940s. The contracts I consulted belong to the notary records of Notaria Primera de Santa Marta, Santa Marta, Magdalena, Colombia.

19 This information came from interviews with former planters; the contract dates are from notary records.

20 White, “The United Fruit,” 54; Kepner and Soothill, Banana Empire, 288.

21 Kepner and Soothill, Banana Empire, 288–9.

22 Ibid.; Herrera and Romero, La zona bananera, 10–11.

23 LeGrand, “El conflicto,” 198.

24 May, Stacy and Plaza, Galo, The United Fruit Company in Latin America (Washington, D.C., 1958), 17Google Scholar.

25 Meisel, Adolfo and Posada-Carbó, Eduardo, “Bancos y banqueros de Barranquilla,” Boletín Cultural y Bibliográfico de la Biblioteca Luis Angel Arango 25, no. 17 (1988)Google Scholar.

26 The Kemmerer mission, led by economist Edwin Kemmerer, organized the country's first central bank. For a discussion of the evolution of the Colombian financial system, see Mora, Mauricio, “Transformación del sistema bancario colombiano, 1924–1931,” Desarrollo y Sociedad, no. 30 (1992)Google Scholar.

27 Kepner and Soothill, Banana Empire, 290. The amount of United Fruit loans was incredibly high by local standards. By 1921, the company had lent one million dollars to the local farmers. See White, “The United Fruit,” 19. Studies suggest that the total amount of loans increased over time. According to Posada-Carbó, in 1931 the company was struggling to gain repayment for loans amounting to three million dollars, and by 1943 some growers still owed two million dollars. See Posada-Carbó, The Colombian Caribbean, 56.

28 White, “The United Fruit Company,” 55.

29 Ibid., 56–9.

30 Corso, Adriana, “El grávamen bananero: un caso de historia política en el Magdalena, 1925–1930” (M.A. thesis, Universidad del Norte, Barranquilla, Colombia, 1996), 63Google Scholar.

31 Quoted by Posada-Carbó, The Colombian Caribbean, 56.

32 Interview with Jose Rafael Dávila, a former entrepreneur and member of a landowning family in the banana zone. Santa Marta, June 1999. This view was shared by other landowners interviewed in the region.

33 This description is based on my observations while doing field research in Magdalena. A good study of the cultural life of the Ciénaga elite during the times of the banana boom before World War II can be found in LeGrand, Catherine, “Living in Macondo,” in Close Encounters of the Empire Kind: Writing the Cultural History of U.S.–Latin American Relations, eds. Gilbert, Joseph, LeGrand, Catherine, and Salvatore, Ricardo (Durham, 1998)Google Scholar.

34 Cepeda, Fernando and Pardo, Rodrigo, “La política exterior colombiana (1930–1946),” in Nueva Historia de Colombia, vol. 3, ed. Tirado, Alvaro (Bogotá, 1989), 23Google Scholar.

35 Eduardo Posada-Carbó has described a group of planters who invested their profits in other businesses, such as beer, cattle, and trade, during the 1920s. Posada-Carbó, The Colombian Caribbean, 204.

36 For a good study of the development of the city of Santa Marta before the banana boom, see Nichols, Tres puertos, 151–66.

37 Interviews with Luis Riascos, Eduardo Solano, and Jose Manuel Dávila, all members of families involved in the banana export business. Riascos and Solano were exporters themselves. Santa Marta, July 1999.

38 Interviews with Luis Riascos, Eduardo Solano, Jose Manuel Dávila, and Rafael Perez Dávila. Santa Marta, July 1999.

39 Arthur, Henry, Houck, James, and Beckford, George, Tropical Agribusiness, Structures and Adjustments: Bananas (Boston, 1968), 182Google Scholar. Although these authors only considered the imports of fruit to the United States, the data can be considered accurate because, by that year, 100 percent of the Colombian bananas went to the United States. See Valles, Jean-Paul, The World Market for Bananas (New York, 1968), 208Google Scholar.

40 Herrera and Romero, La zona bananera, 12.

41 Interview with Eduardo Solano and Luis Riascos, former banana entrepreneurs in Magdalena. Santa Marta, July 1999.

42 Santa Marta Chamber of Commerce, articles of incorporation of the Federación de Productores de Banano de Magdalena, Santa Marta, 1952Google Scholar.

43 The information about the prices charged by the Federación to its German buyers is from the following sources: Colombia, Superintendencia de Sociedades Anónimas, Consorcio Bananero, File 267: Deutsche Importeurgruppe Columbianischer Bananen, Declaratión official, 30 June 1953; Richard Lehman to Francisco Dávila, letter dated 11 May 1953; A. van Hoboken & Zonen to Francisco Dávila, letter dated 14 May 1953.

44 United Fruit Company–CFS, Monthly Report, Monthly Letter, Honiball to Sisto, Mar. 1948.

45 Colombia, Superintendencia de Sociedades Anónimas, Consorcio Bananero, File 267: Minute of the delegates of the Second Banana Congress in Santa Marta (no date), 5.

46 May and Plaza, The United Fruit Company, 76.

47 Interview with Rafael Correa Diaz-Granados, former provider to United Fruit in the postwar period, Ciénaga, Magdalena, July 1999.

48 Notaría Primera de Santa Marta: contracts between the local planters and United Fruit, Federatión, and Consorcio Bananero.

49 Interview with Rafael Pérez Dávila, banana entrepreneur, Santa Marta, Magdalena, July 1999.

50 See White, “The United Fruit Company,” and LeGrand, “El conflicto.”

51 United Fruit Company–CFS, Land Investigations in Turbo (various reports).

52 For a detailed study of this process, see Bucheli, Bananas and Business.

53 After transferring these responsibilities to the locals, the company placed its associate producers in the same category as the Federación had done, revealing the distance it was putting between itself and the local planters. United Fruit Company–CFS, Monthly Report, Monthly Letter, McMillan to Walwood, 8 Mar. 1963.

54 United Fruit Company–CFS, Form 840 comments, Mar. 1963, “Actual Performance 1963 versus Original Budget for 1963.” A similar trend continued for the rest of the year, according to the Form 840 comments for the months of April, May, and June of 1963.

55 The calculation was based on data taken from Arthur, Houck, and Beckford, Tropical Agribusiness, 55.

56 Posada-Carbó, The Colombian Caribbean, 56.

57 United Fruit Company–CFS, Monthly Report, “Summary of Amounts due from Banana Producers as of December 31, 1964.”

58 United Fruit Company–CFS, Monthly Report, Monthly Letter, Bosy to Mason, May 1967; Bosy to Chagnot, June 1967.

59 United Fruit Company–CFS, Monthly Report, Monthly Letter, Bosy to Ronan, July and Oct. 1967.

60 United Fruit Company–CFS, Monthly Report, Management Comments, Dec. 1967.

61 United Fruit Company–CFS, Monthly Report, Monthly Letter, Bosy to Ronan, Feb. 1968.

62 Ibid.

63 Ibid., Lascano to Mullin, Dec. 1969.

64 Interview with Eduardo Solano, last manager of the Consorcio, and Luis Riascos. Santa Marta, July 1999; Colombia, Superintendencia de Sociedades, Consorcio Bananero, Memorando de la Comision de Bananeros para Enrique Blair, Ministro de Agricultura, Bogotá, 3 Aug. 1967; Consorcio Bananero, Asamblea de Accionistas, Minute no. 4, Santa Marta, 10 Sept. 1966; Consorcio Bananero, Asamblea de Accionistas, Minute no. 6, Santa Marta, 30 Mar. 1967, 5. Interview with former Magdalena congressman Rafael Perez Dávila, Santa Marta, 30 Mar. 1999.

65 This difference emerged during my interviews with the entrepreneurs when I asked about their backgrounds and the backgrounds of others involved in the business. The studies by LeGrand, “El conflicto,” Botero and Guzmán, “El enclave,” and White, “The United Fruit Company,” describe the social origins of the Magdalena elite. García, Clara I., Urabá: Región, adores y conflicto, 1960–1990 (Medellín, 1996)Google Scholar, describes the origins of the Urabense planters.

66 Roldán, Mary, A sangre y fuego: La Violencia en Antioquia, Colombia, 1946–1953 (Bogotá, 2003), 217–82Google Scholar.

67 A good study of Urabá in the 1960s can be found in Parsons, James, Urabá: Salida de Antioquia al mar (Bogotá, 1979)Google Scholar.

68 García, Urabá, 38.

69 Kamalprija, Val, Descriptive Survey of the Colombian Banana Market Structure for Export (Bogotá, 1967), 90–1Google Scholar.

70 I based this description on interviews with Aurelio Correa, former president of the Corporación Financiera de Desarrollo Industrial, Bogotá, June 1998; Andrés Restrepo, pioneer entrepreneur of Urabá, Bogotá, July 1999; Eliseo Restrepo, pioneer entrepreneur in Urabá, June 1998; and Irving Bernal, pioneer entrepreneur in Urabá, July 1999. Also see, Kamalprija, Descriptive Survey, 91, and García, Urabá, 38.

71 Arthur, Houck, and Beckford, Tropical Agribusiness, 65.

72 For a chronology of the events of this period, see Turbana, A History of Turbana and Uniban and Banana Growing in Colombia (Medellín, n.d.), and Uniban, , Informe sobre Uniban (Medellín, 1980)Google Scholar. I also used the interviews quoted in footnote 70.

73 United Nations Food and Agriculture Organization, The World Banana Economy (Rome, 1971), 19Google Scholar. Uniban continued increasing its participation, exporting 56 percent of the fruit in 1971, and 58 percent in 1973. See United Nations Food and Agriculture Organization, The World Banana Economy, 1970–1984 (Rome, 1986), 15Google Scholar.

74 A United Nations report highlighted Uniban's favorable position, which was due to its ability to use the depots and water transportation facilities of United Fruit. See United Nations–FAO, The World Banana Economy (1986), 15.

75 Uniban, , Informe sobre Uniban (Medellin, 1980), 12Google Scholar.

76 Uniban, Informes y Balance 1979, 5.

77 In 1998 I visited the industrial complex of Urabá and interviewed dozens of managers, technicians, and employees at all levels and at every stage of the production process. For the classic studies that suggest this kind of cause–consequence dynamic, see Castells, “Urbanization dependiente en América Latina,” in Schteingart, Urbanizatión y Dependencia.

78 For a more detailed description of the war in Urabá, see Garcìa, Urabá.

79 Sierra, Luis Eduardo, El cultivo del banano: productión y comercio (Medellín, 1993), 19.Google Scholar

80 For a detailed description of this process, see Bucheli, Bananas and Business.