US sees more banana price hikes as Chiquita recovers EU losses

By Lorraine Heller

- Last updated on GMT

Related tags European union International trade

Banana prices in the US have seen a significant increase in recent
months, as leading supplier Chiquita attempts to offset losses
after facing tough trading conditions in Europe.

The banana firm, which this week announced interim price and volume levels for its third quarter, said prices in North America have risen 10 percent in the first two months of the quarter, compared to the same period last year.

In contrast, prices in the EU, Switzerland, Norway and Iceland fell by 17 percent on a local currency basis, forced down by hot weather that resulted in depressed consumer demand, as well as an increase in market competitors.

Recent regulatory changes in Europe have had a significant impact on Chiquita, which had previously enjoyed a market with little competition.

But 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.

Indeed, the "challenges"​ faced by Chiquita as a result of the new European banana regime resulted in the company last month reporting a sharp fall in profits. Operating income for the firm's second quarter dropped by 39 percent to a total of $45m, compared to the prior-year figure of $75m.

The firm was hit by $18m incremental costs associated with higher banana import tariffs in the EU. In its banana segment, profit was down 65 percent to $26m compared to $73m.

As a result, the company has shifted focus to maximize sales of premium-quality fruit, which contributed to an 11 percent rise in total European banana volumes this quarter, despite the lower prices.

But in the US, higher prices were accompanied by a slight fall in volumes during July and August, as the company also struggled to recover from whether-related disruptions that have impacted banana supply since late 2005.

Banana prices in Asia Pacific and the Middle East fell 11 percent on a US dollar basis in July-August, while volumes rose 20 percent primarily as a result of growth in markets outside of Japan.

The latest price increases in the US come just a few months after a previous 9 percent price hike, which accompanied an 8 percent drop in volumes in Chiquita's second quarter.

Similarly, the fall in EU prices follows a second quarter drop of 14 percent, which had resulted in a $38m reduction in the company's overall segment operating profits.

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