Banana supplier Chiquita has reported a sharp fall in profits after new European tariffs on bananas forced the company to slash its prices in the region and increase its prices in North America in an attempt to offset losses.
Operating income for the company's second quarter dropped by 39 percent to a total of $45m, compared to the prior-year figure of $75m.
And in its banana segment, profit was down 65 percent to $26m compared to $73m.
"The new banana import regime has presented us with challenges in Europe this year, particularly when compared to the pricing we achieved in that market in 2005," said Fernando Aguirre, Chiquita chairman and chief executive officer.
"However, we continue to sustain our premium versus the competition as we attempt to pass through higher tariffs and industry-related cost increases," he added.
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 Latin America is Chiquita's primary source of bananas.
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 had said this year it expects to incur tariff costs of around $110m.
In its second quarter ended June 30 2006, Chiquita decreased banana prices in its core European markets by 14 percent on a US dollar basis. This resulted in a $38m reduction in its overall segment operating profits.
The firm was also hit by $18m incremental costs associated with higher banana import tariffs in the EU.
And in order to partly offset the losses made in Europe, the firm raised banana prices in North America by 9 percent in its second quarter, a move coupled with an 8 percent decrease in volume sales.
The company hopes this "meaningful improvement" in banana pricing will continue to help boost profits, together with its expansion into higher-margin convenience outlets.
Indeed, the higher pricing contributed to a 21 percent increase in second quarter net sales to $1.2bn compared to $1bn in the year-prior period.
Total sales figures were also boosted by the acquisition of Fresh Express, a packaged salad business acquired in June last year, which brought up sales in Chiquita's fresh cut segment to $314m, compared to $21m last year.