Citing pricing issues, Wal-Mart to cut banana orders from Chiquita by a third
Citing pricing issues, Wal-Mart to cut banana orders from Chiquita by a third
A June 7 U.S. Securities & Exchange Commission filing by Chiquita Brands International in Cincinnati brought to light news that the nation's largest retailer, Wal-Mart, cut its Chiquita banana orders by 33 percent.
Chiquita corporate spokesman Mike Mitchell told The Produce News that the lost business "is not new," with the Wal-Mart business having been lost in December over pricing differences. A new contract went into effect on May 1.
Chiquita made full public disclosure of company issues to the SEC as part of its ongoing effort to buy Fresh Express in Salinas, CA. In the disclosure statement, Chiquita indicated: "Bidding for contracts or arrangements with retailers, particularly large chainstores and other large customers, can be highly competitive. In late 2004, we learned that we would lose a portion of our contract volume with Wal-Mart, a major customer for our North American banana sales, when the contract renewed in the second quarter of 2005. Under the new contract, our banana volume is approximately two-thirds that of the volume under the prior contract. As a result, we expect our share of banana volume sold by the top 25 retailers in the United States to decline to approximately 33 percent in 2005 from 37 percent in 2004. The average decline in banana prices paid by our retail customers in the North American market in the past decade has been approximately 1.5 percent per year, and there can be no assurance that those prices will not continue to decline.
Mr. Mitchell emphasized to The Produce News that Chiquita remains "a major supplier to Wal-Mart. Given five months to prepare for the lost business, "we have placed some of volume with other customers or on the spot market. I dont think it will have any impact on our production. We can move to other markets comfortably.
The SEC statement forced Chiquita to make some interesting comments on the banana trade. In a prelude to the comment on Wal-Mart, Chiquita wrote: "Our customers are primarily retailers and wholesalers. In North America, to a significant extent, and increasingly in Europe, our retail customers are large chainstores. These retailers and wholesalers are generally seeking fewer suppliers that can provide a wider range of fresh produce. In North America, we frequently enter into one- to three-year product and service contracts with these large retail customers with agreed-upon pricing which may fluctuate seasonally. However, those contracts may not permit us to pass on unexpected cost increases when they arise. Bidding for contracts or arrangements with retailers, particularly large chainstores and other large customers, can be highly competitive.
Ulysses Yannas, an analyst with Buckman, Buckman & Reid in New York, told The Cincinnati Post that suppliers are constantly struggling to meet Wal-Marts demands for the lowest prices. He said that because Wal-Mart is such a large retailer, it is often a suppliers biggest customer, which gives it extra clout.
In its effort to acquire Fresh Express for $855 million, Chiquita outlined other dark clouds facing the banana company.
Foremost, Chiquita indicated that changes in the European Union banana import regime expected to be implemented in 2006 could adversely affect our European business and our operating results.
Weather concerns are an obstacle facing both Chiquita and Fresh Express. "In 1998, our farms in Honduras and Guatemala were destroyed or damaged by widespread flooding caused by Hurricane Mitch, and as a result, we spent $94 million in capital expenditures to rehabilitate our operations in Honduras and Guatemala. In January 2005, the Atlantic coast of Costa Rica and Panama experienced torrential rains, which produced significant flooding damage to many farms owned by major banana marketers, including us, and independent growers in the region.
"We expect to incur a loss in supply of more than 3 million boxes of banana production from our owned farms and independent suppliers in 2005, mostly in the first half of the year. We are experiencing increased costs due to higher expenses for alternative banana sourcing, logistics and farm rehabilitation associated with the flooding. These incremental costs, including write-downs of damaged farms and the impact of volume shortfalls, totaled $8 million in the 2005 first quarter and are currently expected to total approximately $10 million to $15 million for the year. Higher spot-market sales prices in North America, as well as temporary contract price increases that we applied in February, March and part of April 2005, have mitigated our higher costs resulting from the flood.
Chiquita also revealed that "authorities are investigating prior activities by certain Chiquita employees. Our management recently became aware that certain of our employees shared pricing and volume information with competitors in Europe over many years in violation of European competition laws and company policies, and may have engaged in several instances in other conduct which did not comply with European competition laws or applicable company policies. We have stopped the conduct and notified the EC and other regulatory authorities of these matters, and we intend to fully cooperate with any related investigations. Based on our voluntary notification and cooperation with the investigation, the EC has notified Chiquita that it will be granted immunity from any fines related to the conduct, subject to customary conditions, including our continuing cooperation with the investigation. Accordingly, we do not expect to be subject to any fines by the EC. "However, if at the conclusion of its investigation, which could take one or more years, the EC were to determine, among other things, that we did not continue to cooperate, we could be subject to fines, which, if imposed, could be substantial.
On this investigation Chiquita concluded, We do not believe that any of the foregoing will have a material adverse effect on us; however, there may be factors that we do not know at this time, including the possibility that additional instances of improper conduct could be discovered, and, as such, no assurance can be given.
In the June 7 SEC document, Chiquita also revealed: "There are three proceedings [which generally involve multiple individual cases] pending involving potential liability of our Italian subsidiary Chiquita Italia S.p.A. ("Chiquita Italia ) for additional customs duties related to the use of 'false' licenses to import bananas into Italy during the years 1998 to 2000.
Chiquita corporate spokesman Mike Mitchell told The Produce News that the lost business "is not new," with the Wal-Mart business having been lost in December over pricing differences. A new contract went into effect on May 1.
Chiquita made full public disclosure of company issues to the SEC as part of its ongoing effort to buy Fresh Express in Salinas, CA. In the disclosure statement, Chiquita indicated: "Bidding for contracts or arrangements with retailers, particularly large chainstores and other large customers, can be highly competitive. In late 2004, we learned that we would lose a portion of our contract volume with Wal-Mart, a major customer for our North American banana sales, when the contract renewed in the second quarter of 2005. Under the new contract, our banana volume is approximately two-thirds that of the volume under the prior contract. As a result, we expect our share of banana volume sold by the top 25 retailers in the United States to decline to approximately 33 percent in 2005 from 37 percent in 2004. The average decline in banana prices paid by our retail customers in the North American market in the past decade has been approximately 1.5 percent per year, and there can be no assurance that those prices will not continue to decline.
Mr. Mitchell emphasized to The Produce News that Chiquita remains "a major supplier to Wal-Mart. Given five months to prepare for the lost business, "we have placed some of volume with other customers or on the spot market. I dont think it will have any impact on our production. We can move to other markets comfortably.
The SEC statement forced Chiquita to make some interesting comments on the banana trade. In a prelude to the comment on Wal-Mart, Chiquita wrote: "Our customers are primarily retailers and wholesalers. In North America, to a significant extent, and increasingly in Europe, our retail customers are large chainstores. These retailers and wholesalers are generally seeking fewer suppliers that can provide a wider range of fresh produce. In North America, we frequently enter into one- to three-year product and service contracts with these large retail customers with agreed-upon pricing which may fluctuate seasonally. However, those contracts may not permit us to pass on unexpected cost increases when they arise. Bidding for contracts or arrangements with retailers, particularly large chainstores and other large customers, can be highly competitive.
Ulysses Yannas, an analyst with Buckman, Buckman & Reid in New York, told The Cincinnati Post that suppliers are constantly struggling to meet Wal-Marts demands for the lowest prices. He said that because Wal-Mart is such a large retailer, it is often a suppliers biggest customer, which gives it extra clout.
In its effort to acquire Fresh Express for $855 million, Chiquita outlined other dark clouds facing the banana company.
Foremost, Chiquita indicated that changes in the European Union banana import regime expected to be implemented in 2006 could adversely affect our European business and our operating results.
Weather concerns are an obstacle facing both Chiquita and Fresh Express. "In 1998, our farms in Honduras and Guatemala were destroyed or damaged by widespread flooding caused by Hurricane Mitch, and as a result, we spent $94 million in capital expenditures to rehabilitate our operations in Honduras and Guatemala. In January 2005, the Atlantic coast of Costa Rica and Panama experienced torrential rains, which produced significant flooding damage to many farms owned by major banana marketers, including us, and independent growers in the region.
"We expect to incur a loss in supply of more than 3 million boxes of banana production from our owned farms and independent suppliers in 2005, mostly in the first half of the year. We are experiencing increased costs due to higher expenses for alternative banana sourcing, logistics and farm rehabilitation associated with the flooding. These incremental costs, including write-downs of damaged farms and the impact of volume shortfalls, totaled $8 million in the 2005 first quarter and are currently expected to total approximately $10 million to $15 million for the year. Higher spot-market sales prices in North America, as well as temporary contract price increases that we applied in February, March and part of April 2005, have mitigated our higher costs resulting from the flood.
Chiquita also revealed that "authorities are investigating prior activities by certain Chiquita employees. Our management recently became aware that certain of our employees shared pricing and volume information with competitors in Europe over many years in violation of European competition laws and company policies, and may have engaged in several instances in other conduct which did not comply with European competition laws or applicable company policies. We have stopped the conduct and notified the EC and other regulatory authorities of these matters, and we intend to fully cooperate with any related investigations. Based on our voluntary notification and cooperation with the investigation, the EC has notified Chiquita that it will be granted immunity from any fines related to the conduct, subject to customary conditions, including our continuing cooperation with the investigation. Accordingly, we do not expect to be subject to any fines by the EC. "However, if at the conclusion of its investigation, which could take one or more years, the EC were to determine, among other things, that we did not continue to cooperate, we could be subject to fines, which, if imposed, could be substantial.
On this investigation Chiquita concluded, We do not believe that any of the foregoing will have a material adverse effect on us; however, there may be factors that we do not know at this time, including the possibility that additional instances of improper conduct could be discovered, and, as such, no assurance can be given.
In the June 7 SEC document, Chiquita also revealed: "There are three proceedings [which generally involve multiple individual cases] pending involving potential liability of our Italian subsidiary Chiquita Italia S.p.A. ("Chiquita Italia ) for additional customs duties related to the use of 'false' licenses to import bananas into Italy during the years 1998 to 2000.
