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Chiquita posts good results, but faces challenges ahead

By Lorraine Heller , 24-Feb-2006

Chiquita has said that 2005 was a "terrific" year for the company, despite a $19m net loss in its fourth quarter resulting largely from the flooding of 1,600 hectares of the company's banana farms in Honduras.

 

The banana producer this week announced $3.9bn in net sales for the financial year ended December 31 2005, a 27 percent increase from last year's $3.1bn.

"We realized the best annual financial results in more than a decade in spite of fourth quarter challenges of flooding in Honduras, the impact of a lower year-over-year euro-dollar exchange rate and continuing high costs for fuel and ship charters," said Fernando Aguirre, chairman and chief executive officer.

Sales of bananas increased 14 percent in the year, with profits boosted by higher pricing in Europe and temporary contract price increases in North America, implemented after the flooding. The company also applied surcharges late in the year to offset rising fuel costs.

However, the company would not reveal if prices are due to rise further.

"All I can say is that we will certainly attempt to recover industry cost increases and capture the value of the Chiquita brand to maintain our price premium," the company's Michael Mitchell told FoodNavigator-USA.com.

Chiquita's Fresh Cut segment also boasted a surge in sales to $539m from $10m in 2004. This increase was due to the acquisition in June of packaged salad business Fresh Express, but the segment still saw a $3m operating loss in the year.

However, the company continues to face significant challenges ahead, resulting from the ongoing banana battle with the EU.

In January 2006, the European Commission implemented a new regulation for the import of bananas into the European Union. This imposed a higher tariff on bananas imported form Latin America, while allowing a duty-free annual import quota of 775,000 tons for bananas from certain African, Caribbean and Pacific countries.

And with Latin America being Chiquita's primary source of bananas, the company is not happy.

The new banana tariff, which increased to €176 from €75 per ton, results in an increase in cost of around €1.84 ($2.20) for each box of bananas imported by Chiquita into the EU form Latin America, said the company.

Based on its 2005 volumes, the company this year expects to incur tariff costs of around $110m.

According to Aguirre, the new tariffs will result in "higher costs and market uncertainty," though the company added that it is too early to determine the impact of the new regime on industry volumes and prices, including the extent to which the company may be able to pass on increased tariffs and other industry costs to its customers.

And although Chiquita expects the overall negative impact of the new regime to be "substantial," Aguirre is optimistic.

"We are committed to overcoming these challenges and winning in the European market in the long-term with our clear brand leadership and excellent customer relationships," he said.

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