The fish that ate the whale | Rich Cohen

Published in: 2013

Amazon | Goodreads

Sam Zemurray – El Amigo, the Banana Man or the Gringo – was a quite unkown historical figure in both the American business world as well as the political history of the world – even though he made quite a mark on both worlds. In 1891, as a 14 year-old, Zemurray left Bessarabia in Russia (Today’s Moldova), together with his aunt for USA, starting out a new life in Alabama. Zemurray would later on become one of Americas richest men and have a huge impact on the historical turns of Central America as well as the creation of the state of Israel, through secretly helping with money and ships in the wake of WW2.

THE BANANA BUSINESS IN THE LATE 19th CENTURY. By the end of the 19th century, the world of bananas consisted of shipping companies, warehouses, plantations, ripening rooms, loading bays, and docks. At the top were the owners of the largest players such as United Fruit, often old New England families. Around and below them were many small and midsized importers. Beneath them were sea captains who rented cargo space. Then came the dock agents, purchasers, inspectors, and overseers who worked the wharves and filled the hotels and taverns. Then the stevedores, loaders and unloaders, African Americans, and Sicilians. At the bottom of the trade came the “fruit jobber”.

STARTS OUT AS A HUSTLING FRUIT JOBBER. At the age of 18, Zemurray stumbled upon a niche within the banana trade – ripes. It was all about logistics. Ripes would be ruined in less than a week after they reached the US. The big fruit companies monopolized the upper segments of the industry and to get in there one needed capital, railroads, and ships. But they saw no value within the ripes which they dumped at cheap prices. Zemurray bought ripes at the port of Selma, hopped on a train and through the postal services in advance contacted potential customers along the route. He told them that there would be a short window of opportunity for them to buy discounted bananas at the train stations during brief stops along the route. Zemurray repeated this scheme and was after a while able to take one step after the other up the value chain of bananas. By the age of 21 his net worth reached $100k (around $3.3m in today’s dollars).

UNITED FRUITS – THE STANDARD OIL OF BANANAS. In 1905, Zemurray together with a partner, purchased a steamship company for $10k. United Fruit (UF), the giant of the industry, also known as “the octopus” also took a 25% silent part in the venture. By then UF wrapped its tentacles around every start-up in the industry. As UF grew bigger, it met with all banana companies and said that either they joined UF (by selling out and getting paid in UF shares) or they would be destroyed by UF’s market power. This way, UF merged with 27 banana companies and came to dominate the American banana market. This was before the government went after any would-be Rockefeller´s. UF owned the most ships (115 – the largest private navy in the world), planted the most fields, had the most capital, and controlled both supply and demand.

TAKES AIM AT UNITED FRUITS. Zemurray went to Honduras and bought 5,000 acres of land next to the Cuyamel River. This was the start of Cuyamel Fruit Company. To compete with UF he needed to reach scale quickly. Zemurray acquired enough land to become an increasingly significant player. Understanding every bit of the banana industry, he bought land very cheaply from peasants who saw nothing other than worthless black soil. Zemurray however understood that this land was in the most valuable banana land in the world. He knew that the land would not be this cheap forever, and he borrowed from anyone who would lend him money.

CUTS A DEAL WITH THE GOVERNMENT. Zemurray went across Honduras, meeting government officials and seeking deals that would exempt his company from taxes and duties. Such corrupt deals were standard in the industry. The trade depended on cheap fruit, cheap labor, cheap land, and no extra fees. The smallest additional cost would drive the price above the market rate set by UF.

TURNS TO THE MAFIA WHEN THE BANKS SAYS NO. Zemurray continued looking for still more land and needed more money. But he was heavily overextended with loans from banks all across America. He secured the needed funds from unorthodox sources, like mobsters, at rates approaching 50%.

HONDURAS IN DEFAULT. Honduras was on the brink of default, owing significant money to the UK, which threatened to come over and acquire the money themselves unless the Honduran government quickly made their payments. US Secretary of State, Philander Knox, and the banker J.P. Morgan, agreed to refinance the Honduran debt to avoid any type of failure in the Monroe Doctrine (a principle of US policy, originated by President James Monroe, that any intervention by external powers in the politics of the Americas is a potentially hostile act against the US.). This meant that the future for business ventures within the nation was grim. Heightened taxes meant death for an over-leveraged banana business. Zemurray contacted Knox, who was annoyed by this small-time banana entrepreneur and threatened Zemurray to not get involved. Knox figured Zemurray would not obey and sent federal agents to track him.

INITIATES AND FINANCES A COUP. In going against Knox and JP Morgan, Zemurray was challenging two of the most powerful men in America. Zemurray secretly met with ex-Honduran President Manuel Bonilla. They hired mercenaries, acquired a battleship, and sailed to Honduras. Through tactical brilliance and successful bluffing (threatening to send reinforcements when there were none), Zemurray’s men successfully ousted the Honduran government and reinstated Bonilla.

A THANKFUL BONILLA. After a successful revolution Zemurray got new concessions. He got the permission to import any equipment duty-free, to build any railroads, highways, and other infrastructure he might need. He also got a $500k loan to repay the expenses from the coup, as well as an additional 24,700 acres on the north coast of Honduras. No taxes, no duties, free land. Zemurray was ready to take on UF.

THE BANANA BATTLE GOES ON. As the years went on, the battle between Cuyamel and UF escalated. United Fruit was larger, but Cuyamel was by far the better business — greater output per acre, more efficiency per employee, less spoilage per ton, higher returns on capital. UF’s monopoly and control over prices was being threatened for the first time in decades. Once the Great Depression struck, both companies were hit hard, but UF was hit the hardest.

ZEMURRAY SELLS OUT… UF knew it needed Cuyamel to disappear if it were to survive. It could no longer beat Cuyamel at the fruit game. In 1929, in a paper-deal, United Fruit offered to acquire Cuyamel Fruit. The only requirement was that Zemurray, who would be the majority owner, had to leave the day-to-day operations. He agreed. The value of Zemurray’s position was $31m, equivalent to $485m today [2021].

…BUT SOON GETS BACK IN AGAIN. For several years, UF worked on while Zemurray turned philanthropic in his early retirement. But UF was poorly managed, and the board ignored Zemurray’s letters requesting operational changes. After seeing his fortune disappear in UF’s depressed stock and being laughed out of a board meeting one day, Zemurray took control once again. Under Zemurray’s management, UF turned around, but the market had changed for the worse. Geopolitical turmoil was never-ending, fruit diseases spread like wildfire, and Zemurray wasn’t young anymore. The war stories continued (United Fruit helped the CIA to topple Guatemala), but the lack of stability wasn’t good for business. Zemurray kept UF alive until he passed away in 1961. The company only went downhill from there, eventually selling out to a corporate raider, Eli Black, in 1968.

A TRUE BANANA-MAN. Zemurray believed in the power of physical labor. A life in an office was for the feeble and weak who cut themselves off from the actual. His years in the jungle gave him experience rare in the trade. Unlike most of his competitors, he understood every part of the business, from the executive suite to the ripening room where the green fruit turned yellow.

BANANA FARMING 101. A banana plant can grow 20 inches in 24 hours. The banana plant is never out of season. A single plant can bear fruit as many as three times a year for 20 years or more. After that you simply dig up the rhizome, hack it to pieces, plant each piece, and watch those grow for another 20 years. The “banana tree” is not a tree. It’s a herb, the world’s tallest grass. The banana is also not a fruit, it’s a berry. Though the plant can be grown all over the world it will, with two exceptions, bear fruit only in the tropics. Iceland and Israel are the exceptions: Iceland because it grows on the slopes of the volcano’s; Israel for reasons that remain unknown. The banana is a clone, a replica of all the others of its species. Thus, if a parasite or a disease mutates to kill one banana, it will eventually kill all members of that species. That’s what happened to the Big Mike and is now happening to the Cavendish.

Leave a Reply