From Conquest of the Tropics by Frederick Upham Adams
Chapter VI – Birth of the United Fruit Company
Only those who have lived in the tropic and are familiar with the hazards which confront the cultivation and marketing of its fruits can readily understand the motives which impelled a union of the interests of the Boston Fruit Company and those headed by Minor C. Keith. It was not a move calculated to control competition or to rear a monopoly; it was the business step imperatively required to secure the permanency of the banana industry.
In 1898, the year preceding the organization of the United Fruit Company, the total importation of bananas from the American tropics did not exceed 12,000,000 bunches, or about one-fourth of those imported in 1913. It is doubtful if any food product has shown a similar increase in any equal period in the world’s history. The sole reason why the year 1913 did not exceed the figure of 50,000,000 bunches of imported bananas is that no more were available for shipment to the consuming sections of the United States and Europe.
The problem in 1898 was to produce more bananas for a steadily mounting popular demand. That is the problem to-day. The field was open to all comers in 1898. It is open to all who care to enter it to-day. Under such conditions the presumption that a banana monopoly ever existed, now exists, or is possible cannot be entertained by those who understand the first rudiment of the laws of business and commerce.
At the time of the organization of the United Fruit Company the following firms, corporations, and persons were engaged in importing bananas into the United States:
- Boston Fruit Company,
- Tropical Trading and Transport Company, Ltd.,
- Columbian Land Company, Ltd.,
- Snyder Banana Company,
- J.D. hart Company,
- Orr & Laubenheimer Company, Ltd.,
- Camors, McConnell & Company,
- New Orleans Belize Royal Mail & Central American Steamship Company,
- W.W. & C.R. Noyes,
- John E. Kerr & Company,
- J.H. Seward Importing & Steamship Company,
- Aspinwall Fruit Company,
- West Indian Fruit Company,
- Monumental Trading Company,
- West India Trading Company,
- Henry Bayer & Son,
- Camors-Weinberger Banana Company, Ltd.,
- J.B. Cefalu & Brother,
- S. Oteri,
- The Bluefields Steamship Company, Ltd.,
- W.L. Rathbun & Company.
There were undoubtedly other firms and individuals engaged in a small scale in the banana business, but the above list includes all those of consequence in the trade. The first four were merged into the United Fruit Company. Some of the others have retired, others have been absorbed by the companies which now compete with the United Fruit Company, but not a firm, corporation, or individual engaged in the banana business at the time of the incorporation of the united Fruit Company has failed because of the operations of that company.
Prior to 1899, the year of the formation of the United Fruit Company, there had been organized, according to the best available information, not less than 114 companies or firms which engaged in the importation of bananas to the United States. Of this large list—as has been stated—only twenty-two of any consequence were still in existence when the United Fruit Company was formed.
Most of these banana companies were inadequately financed, and most of them were under the management of men who had no practical knowledge of the banana industry. Few had been in business for as long a period as ten years, and most of them handled insignificant quantities of bananas. With monotonous regularity these mushroom banana companies would spring into being, struggle along for a short time, and then drop out of existence, leaving behind no assets for their stockholders.
Such experimental banana companies still are founded, most of them with capital stock ranging from $50,000 to $200,000. These amounts of money are sufficient to finance a banana plantation, but it is as idle to expect to become a producer, importer, and national distributor of bananas with such capital as it would be to expect to compete successfully with the Western Union and the Postal Telegraph with a new company thus financed.
When the banana industry was in its infancy there was a possibility of temporary success even with the most crude and wasteful of methods. The cargoes were small, and it was not difficult to dispose of the fruit over the ship’s sides a few bunches at a time. The market was largely confined to the port in which the ship docked, the prices were high, and the consumption small.
The fruit was generally secured by purchase from the native tropical planters, sometimes by contract, but more often in the open market. Few companies, even in the late 90’s, grew any bananas on their own plantations, and when they did, these formed merely the nuclei of their cargoes, the remainder being secured by purchase. Practically all of the importers of this early period looked to one source of supply and had only one port of entry in the United States. In some instances, the importer simply chartered space on steamers and stored it with bananas; the more ambitious importers chartered ships, but these were of low speed and had a capacity for a comparatively small number of stem of bananas.
Arriving in the United States, the fruit was unloaded by hand, and in the early days the prospective purchasers would assemble on the wharves to secure their supplies. Naturally, they chose their own fruit, buying as they did only a few bunches at a time. In later years, however, the importers adopted the custom of selling the fruit by “steamer run,” viz: as it came out of the steamer, declining to permit the buyer to pick out the best bunches. Some importers had stores and ripening rooms where they could keep a portion of their fruit and sell it gradually. What was left, after every possible local demand had been satisfied, was then shipped to various interior points usually consigned to some broker. Sometimes the fruit was shipped a long distance, from New Orleans to Chicago, but it was not often necessary to assume such risks.
The importers knew little concerning the business as a whole; they were not familiar with the interior markets or how to reach them, and the industry in all of its departments was conducted in a wasteful and haphazard manner, the public paying their share of these blunders in high prices for bananas, and the importer paying their share in losses which generally ended in bankruptcy.
New Orleans took the first step for a business organization designed to secure a proper distribution of bananas in 1896, three years prior to the formation of the United Fruit Company. In this year, four of the New Orleans companies formed the New Orleans Importing Company, a selling organization intended to dispose of the fruit imported by its members. The New Orleans experiment was successful while it lasted, but jealousies and dissensions among the heads of the four companies requiring it services caused its dissolution after a few months.
Another effort in the same direction was made early in 1899 when similar problems resulted in the formation of the Southern Banana Exchange. Like its predecessor, it worked satisfactorily, but its usefulness was cut short in three or four months by the inability of its members to get along without friction.
The truth of the matter is, that the banana industry, prior to the formation of the United Fruit Company, had made sorry progress compared with other importing enterprises. The Boston Fruit Company and those concerns headed by Mr. Keith were the most progressive in their methods, but they were handicapped by conditions which will now be considered.
The Boston Fruit Company and the Keith interest were the leading factors in the banana industry. The Boston Fruit Company derived its product solely from the West Indies and confined its market to the Atlantic coast and to the northern sections of the interior of the United States. The Keith interests cultivated bananas in Central America and Colombia and shipped them mainly to New Orleans and other Gulf ports, but lacked the facilities for reaching far into the southern and western territory naturally tributary to these shipping and railroad termini. The competition between the Boston Fruit Company and the Keith interests, nor was there any prospect that their activities would conflict.
Neither of these interest had the capital with which to take advantage of obvious opportunities, but the time had arrived when moneyed men were willing to listen to the possibilities of the banana as an investment. They still declined to class it as a conservative investment, and, such is the proverbial timidity of capital, it is not so considered to-day, as stock quotations eloquently testify. Your cautious man of money seek investments which he can look at and study personally from day to day, the securities of which he can convert into cash almost at a moment’s notice, and the tropics—well, the tropics are far from New York and Boston.
Hence a tropical investment must prove and double prove itself before the average man of money will consider it, and then the lure must be attractive, in dividend per cents. But in the years which had passed since Carl B. Franc, Captain Lorenzo D. Baker, Andrew W. Preston, Minor C. Keith, and others faced the hardships and risks of the pioneer, certain things had been proved beyond possibility of doubt.
The most favorable thing proved by these pioneers was that the people of the United States liked bananas and would eat them in unlimited quantities if offered at prices which would compete with such home fruits as apples, peaches, pears, and oranges. The second favorable consideration proved was that bananas could be grown cheaply and in large quantities in certain tropical sections, provided weather condition continued favorable.
The disturbing and discouraging element was found in the fact that a flood, drought, or high wind would destroy a crop in a given section and eliminate it as a source of production for a year or more. Capital pays more attention to one flaw in a new proposition than it does to ten of its glowing promises. Possibly this is the reason why we have such a thing as capital. In any event, capital in 1898 declined to enthuse over an enterprise which could not prove its ability to supply at all times the commodity in which a large investment was to be made.
There was ample justification for this attitude. The Boston Fruit Company had learned by grim and expensive experience that the tropics could frown as well as smile. Hurricanes leveled some of their best plantations in Jamaica. The replanted tracts would later be swept away by roaring floods. Drought shriveled the fronds of the banana plants in Cuba and San Domingo. Nor was nature the only one strike blows. Warring factions waged revolutions and counter-revolutions in Cuba and San Domingo. There was no stability of governments, no assurance that the field workers of to-day would not follow some ambitious “general” on the morrow in the quest of “liberty” or loot. The Boston Fruit Company did not have a source of banana supply which it could insure against sweeping disaster without warning. Under the most favorable circumstances its total supply was insufficient to meet the rapidly increasing demand, and any curtailment meant not only money losses but damaged prestige as well.
The enterprises headed by Mr. Keith faced the same menace. Terrific floods in Costa Rica and Panama Swept away the railroad tracks and bridges and overwhelmed the loaded plants in large districts. In one year a protracted drought in the Santa Marta district of Colombia practically killed all the plantations. Revolutions in some of the Central American republics played their part in determining whether crops would be harvested or not.
But luck, chance, or the law of average decreed that these disasters to the banana crops should be local, and that a large portion in the American tropics would survive in any year despite the rage of the elements and the fury of warring political factions. The obvious remedy of a banana importing concern was to provide for sources of supply in many district scattered all over the America tropics. This expedient was so obvious and so imperative that it should have suggested itself and been adopted years prior to the formation of the United Fruit company. It was the natural, reasonable, sensible, and logical thing to do.
The consolidation of the interests of the Boston Fruit Company and the companies controlled by Minor C. Keith was brought about, as a matter of fact, not as the result of a carefully considered plan, but through a financial disaster which seriously threatened Mr. Keith. In the latter part of 1898 the firm of Hoadley & Company failed. Mr. Keith had drawn bills against this company to the amount of $1,500,000. He was conducting extensive operations in many tropical sections, and this failure was serious blow. For Year Mr. Keith had consigned his bananas to Hoadley & Company, through the port of New Orleans. There was consequent shattering of his plans for the marketing of bananas.
I told in a former chapter of the time when 1,500 Jamaica negroes worked nine months for Mr. Keith without wages owing to the inability of the Government of Costa Rica to pay money due for railroad construction. He failing of Hoadley & Company and the financial crippling of Mr. Keith gave Costa Rica a chance to prove that republics are not always ungrateful. This crisis found Mr. Keith obligated to Costa Rica, which held his drafts in large amounts, but this made no difference. The government officials of that republic promptly offered to lend Mr. Keith any reasonable amount of money to tide him over his difficulties, and he accepted their aid. The Costa Rican banks and others cooperated, and two weeks after the failure Mr. Keith arrived in New York City and made a settlement in full with his creditors.
Mr. Keith, on account of the failure of his agents, was compelled to make new arrangements for the sale of his fruit and entered into negotiations with Andrew W. Preston, president of the Boston Fruit Company. The latter organization had just formed the Fruit Dispatch Company for the purpose of expediting and extending the distribution and sale of bananas. An arrangement was made by which a portion of the Mr. Keith’s product would be handled by the Boston Fruit Company or its branches, and it was in this manner that Mr. Preston and Mr. Keith came in closer business contact. It has been explained that Mr. Keith took up banana cultivation and transportation as a means to supply freight for his tropical railroads, but in the years which had passed since 1871 his banana enterprises had progressed to a stage which demanded a large share of his time. Instead of being a secondary interest, as mr. Keith had intended it to be, his banana enterprises threatened to divert his whole time from the railroad projects on which he had set his ambition.
Andrew W. Preston, president and directing spirit of the Boston Fruit Company and its branches, was anxious to secure new sources of banana supply, and was fully aware that some of these should come from Central and South America.
Under such conditions it was easy to initiate and conclude negotiations looking to the lawful consolidation of the properties of these two non-competitive groups of banana companies. Mr. Preston, Mr. Keith, and their associates were also influenced by a hope that such an amalgamation would create an enterprise sufficiently conservative and devoid of risks to attract the outside capital required to place the banana business on a more secure financial foundation.
It had been obvious of years that the banana industry was one which must be conducted on a large scale. It could be gambled in on a small scale, but there is a wide difference between rearing a conservative banana enterprise and taking a chance on the luck of a ship and a local banana plantation. Most agricultural products can be raised on a small scale. Wheat, corn, oats, barley, garden truck, apples, pears, grapes, and scores of other food and fruit products can be brought from the soil by individual of limited means, who can compete successfully with those who cultivate much larger tracts. Cotton is in the same class, but sugar and bananas are in an entirely different class.
Sugar and bananas can be produced on a small scale, but their economical production positively demands vast acreage and vast expenditures for the complicated equipment of handling and transportation. It was a demonstrated fact in 1899 that no banana enterprise could hope for permanent success unless financially equipped to insure a widely scattered source of supply, adequate means of transportation, and, finally, methods of distribution which would place bananas within speedy reach of all of the consuming centres in the United States.
Investors had never been offered a chance in a banana enterprise of this character. Would it prove attractive? Mr. Keith, Mr. Preston, and their associates discussed the question of a consolidation of interest and gave careful consideration to the various details. It was found possible to enlist financial support for the organization of a properly equipped banana enterprise. The United Fruit Company was not, strictly speaking, a consolidation of the interest of the northern and southern groups headed respectively by Andrew W. Preston and Minor C. Keith. The United Fruit Company was incorporated on March 30, 1899, under the laws of New Jersey, as a single, individual corporation, with an authorized capital of $20,000,000. Shortly thereafter, $1,650,000 was subscribed and paid for in cash at par, and during the first year $11,230,000 in stock was subscribed. It was authorized under its charter to acquire, by purchase or development, banan and other properties and to conduct them in the manner provided by law.
Under this charter the United Fruit Company, on April I, 1899, offered to purchase all of the property, business, and shares of the Boston Fruit Company and of its associated companies of $5,200,200 cash. This offer was later accepted and resulted in the acquisition by the United Fruit Company of the assets of the Boston Fruit Company, and its seven branch companies, viz: the American Fruit Company, Banes Fruit Company, Buckman Fruit Company, Dominican Fruit Company, Quaker City Fruit Company, and Sama Fruit Company, also the Fruit Dispatch Company.
These seven branches of the Boston Fruit Company were organized from time to time for business convenience, and were owned outright or largely controlled by the parent company. This system of branch companies was the conventional expedient of the time and was not a subject of comment or criticism.
The Banes Fruit Company, Dominican Fruit Company, and Sama Fruit Company were companies organized and owned by the Boston Fruit Company, and were operated solely for the purpose of owning plantations and growing bananas in Cuba and San Domingo. They were strictly agricultural propositions. The American Fruit Company, Buckman Fruit Company, and Quaker City Fruit Company were organized by the Boston Fruit Company to transport bananas from Cuba, San Domingo, and Jamaica to the United States, and to sell them in different points in the northern and northeaster sections of the country. The Boston Fruit Company imported bananas into the port of Boston; the American Fruit Company imported bananas to New York City, the Quaker City Fruit Company to Philadelphia, and the Buckman Fruit Company to Baltimore. The Boston Fruit Company furnished to the American, Quaker City, and Buckman companies all of the bananas imported and sold by them. In other words, all of these companies were merely branches of the Boston Fruit Company.
The Fruit Dispatch Company was organized and wholly owned by the Boston Fruit Company, and was a selling corporation only. It still maintains a separate corporate existence, but is owned outright by the United Fruit Company.
To all intents and purposed the Boston Fruit Company and the branches organized and owned by it were one corporation in 1899. The branches were organized and maintained for purposed of convenience and for conventional business reasons, mainly local. It was within the power and the right of the Boston Fruit Company to absorb its branches at any time, or to make such other disposition of them as it saw fit. Despite this obvious fact, it has been alleged that the United Fruit Company acquired these branch companies because they were competitive with the Boston Fruit Company—an absurd and utterly unfounded statement. The source of banana supply did not extend south of Jamaica and there was no port of entry south of Baltimore. So much for the northern or Boston group.
On April 5, 1899, the United Fruit Company purchased from Minor C. Keith and his associates all of the properties owned by the Tropical Trading and Transport Company, Ltd., the Colombian Land Company, Ltd., and the Snyder Banana Company, all three of which had been under the management and control of Mr. Keith. These three properties were acquired for about $4,000,000. The Colombian Land Company, Ltd., and the Tropical Trading and Transport Company, Ltd., were corporation whose operations were restricted solely to the cultivation of banana plantations in Colombia and Costa Rica respectively. The Snyder Banana
Company owned plantations in Panama and chartered a few steamers which carried its fruit and other freight from Bocas del Toro to New Orleans and Mobile. The width of the Caribbean separated this group from the one to which it had been united, and the ports of entry and distribution were no nearer than Baltimore and Mobile.
Such is the plain history of the organization of the United Fruit Company. Its legal incorporation meant more than the birth of a corporation. (It was the actual birth of the banana industry.) It had taken thirty-four years of blunders, experiments, disasters, partial successes and assumption of the innumerable risks and hardships incident to a struggle with the virgin tropics to create an enterprise fit to take advantage of the experience which had so dearly been bought. The great experiment of whether bananas could be produced and handled on a vastly larger scale had yet to be made, and there were many who did not hesitate to predict that the ambitions plans of the newly organized United Fruit Company would end in overwhelming failure.
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