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Chiquita hikes banana prices - again

By Lorraine Heller , 18-Dec-2006

Fruit supplier Chiquita has again raised its banana prices in North America, a move that has helped the company offset a slump in sales after the implementation of new EU banana import rules, as well as the recent spinach E. coli outbreak in the US.

The Cincinnati-based firm yesterday announced a 4 percent hike in banana pricing in an interquarter update for its fourth quarter 2006.

The increase, which is nevertheless more moderate on a year-over-year basis, will likely help get the company back on track after a difficult trading year. In October this year, Chiquita said its bottom line had been and would continue to be negatively impacted by changes in rules regarding banana imports into the European Union.

According to the latest price and volume update, banana volumes sold in North America remained essentially flat during the two month period, compared to the equivalent period last year. The company said this was a result of weather-related disruptions that had impacted supply since late 2005.

As anticipated, banana prices in the company's core European markets improved from the third quarter, as the negative impact from hot summer weather and excess supply subsided. However, pricing remained down year-over-year, primarily due to the continued impact of the EU regulatory changes, which resulted in an increase in industry volume and price competition.

The company's volume sold in its core European markets increased slightly, which Chiquita claims reflects its ability to maintain its position as the leading supplier in these markets.

Whereas Chiquita had previously enjoyed a European market with little competition, in January 2006 the European Commission imposed a higher tariff on bananas imported form Latin America - Chiquita's primary source of bananas - while allowing a duty-free annual import quota of 775,000 tons for bananas from certain African, Caribbean and Pacific countries. This resulted in a surge in costs for the firm.

The company's recent performance was also impacted by high temperatures in Europe during the third quarter, which reduced consumer demand for bananas and depressed prices. Hot weather also contributed to significant price weakness in trading markets, where the firm incurred "substantial losses" on the sale of temporary excess supply from Latin America.

In addition, Chiquita's packaged salad business Fresh Express experienced lower sales and unforeseen costs as of September due to consumer concerns regarding the safety of fresh spinach in the US, after the recent E. coli outbreak.

In October the company announced a number of organizational changes and new appointments in a move designed to strengthen its flagging business. These included the naming of newly appointed global product leaders, a chief information officer and a new president of its Fresh North America business.

The move came just weeks after Chiquita embarked on a number of debt-reducing initiatives, including the prospective sale of its shipping fleet, the suspension of its quarterly cash dividend, and requesting a temporary waiver from its lenders.

These moves, Chiquita had said, were "prudent steps" to help it resurface from a challenging market environment.

In last week's trading update, Chiquita said banana volume sold in the company's trading markets, comprised of European and Mediterranean countries that do not belong to the European Union, rose to approximately 4.1 million boxes versus 2.4 million boxes in the year-ago two- month period. The company continued to sell excess bananas from Latin American producers into these markets; however, the firm said pricing improved significantly, well above the depressed levels in the third quarter.

In Asia Pacific and Middle East, pricing improvement was driven primarily from Japan, as the company recovered from much lower pricing levels in that country in the year-ago period.

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