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No ease on rising banana prices, Chiquita

By Lorraine Heller , 12-Dec-2007

Leading banana supplier Chiquita has said its prices continue to climb as the company struggles to face rising industry costs.

In an interim fourth quarter report released yesterday, the firm reported year-over-year increases in banana prices in all markets for October to November 2007.



"Rising industry costs, particularly from fuel and purchased raw products, continue to pressure our margins," said Fernando Aguirre, Chiquita chairman and chief executive officer.



North American banana pricing was up eight percent from last year, reflecting increases in base contract prices and higher year-on-year surcharges linked to a third-party fuel price index, said the firm.



In Europe prices were also up eight percent (or 22 percent on a US dollar basis).



In Asia Pacific and the Middle East pricing rose 4 percent year-on-year on a U.S. dollar basis, while in the company's trading markets (mainly European and Mediterranean countries that do not belong to the EU) prices were up two percent.



Although banana volumes sold in the US were marginally up from last year, the price increases did not come without obstacles in Europe, where the firm reported a seven percent decline in volumes. This, it said, was a result of its strategy to maintain its price premium and not pursue volume at unfavorable margins.



The cost and market pressures Chiquita has faced in recent years have made their way repeatedly to the company's balance sheet, with last month's third quarter results coming as no exception.



Chiquita reported a net loss of $28m in the third quarter, which compares to a $96m loss in the year-ago period.



Some of the recent hits to the firm's business have come from a new EU banana import regime, an E coli contamination in the US, a terrorist funding scandal, and overall increased industry costs.



In response to these pressures, Chiquita recently announced a wide sweeping restructuring plan.



Aguirre reiterated yesterday that the plan was designed "to improve profitability by consolidating our operations and simplifying our overhead structure".



The strategy, which is expected to lead to annual cost reductions of $60m to $80m, includes consolidating operations and slashing 160 management jobs in order to improve efficiency and innovation.



The firm said that its "strategic growth plan" has been significantly slowed down by the challenges it has faced recently. "Reaching our goals will take us longer than we originally estimated," said Aguirre last month.

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