Chiquita Brands International

FINA 6387-Managerial Analysis

Chiquita Brands International

Assignment 1

Team:

-Angelina Emerson

-Ashrita Hegde

-Yuru Geng

October 16, 2013

1) What kind of demand curve does Chiquita face? Do you expect demand to be price elastic? Does the case evidence support your expectation?

We think the demand curve that Chiquita faces is price inelastic when we look into the determinants. First of all, bananas are among the most widely consumed foods in the world. From 1985 to 2012, the world imports of banana grew 117% from 7 million MT to 15 million MT (SFAOSTAT, http://www.fao.org/economic/ est/est-commodities/bananas/banana-imports/en/). World consumption per capita of bananas and plantains in the period under study grew at a rate of 1 percent annually (The World Banana Economy, FAOSTAT). During 1998 to 2000, the United States had the largest import volume of banana, about 33% among the world (The World Banana Economy, FAOSTAT). In 2000, total shipments of bananas to the United States were valued at $1.02 billion, representing 32% of the total value of fresh fruit imports that year. (The World Banana Economy, FAOSTAT). The first determinant would be the availability of substitute goods, obviously there is lack of substitute for bananas. Apparently, the demand would be inelastic when there is no substitute. The second determinant is the percentage of income. Take the United States as an example, the per-capita personal income in the United States in 2009 is $38,637 (http://bber.unm.edu/econ/us-pci.htm), while the per capita banana consumption is 11.2 kilograms with the retail price of $1.4 per kilogram (Recent Developments in global banana markets, Ekaterina Krivonos, FAO). The banana consumption is only 0.04% of income. Therefore, the consumers are not sensitive towards the price changes. Consumption of bananas would still be a small fraction of income even though the price has increased over the last decade. The third determinant...