Banana disease concerns Fresh Del Monte

by Monica Watrous
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CORAL GABLES, FLA. — A fungus strain threatening the global banana supply isn’t a light concern for Fresh Del Monte Produce, Inc.

The Tropical Race 4 (TR4) strain of Panama disease has spread from Southeast Asia to the Middle East and Africa, damaging the Cavendish banana, the most common variety found in grocery stores.  

“The media maybe has exaggerated the situation, but the situation exists, and the danger exists,” said Mohammad Abu-Ghazaleh, chairman and chief executive officer, during an April 29 call with analysts to discuss first-quarter earnings. “I have seen through my career this disease has wiped out farms in Indonesia, in Sri Lanka, in other places. I have seen it myself, and it exists in the Philippines for the last 40-something years. So it is not like something that does not exist. It exists, and it is dangerous.”

While Mr. Abu-Ghazaleh said he doubts the disease will wipe out the entire banana industry, he said its impact would be negative and costly for producers. Fresh Del Monte has switched to a less vulnerable banana variety to reduce risk of infection, though the company said no variety is completely resistant to the disease.

Pricing of the crop poses a greater concern for the company, he added.

“The costs keep increasing even though we do not have the disease yet, but the price does not move, and I do not know where this is going,” Mr. Abu-Ghazaleh said. “I mean, if the price doesn’t really go along the cost increases, I do not see how the industry can survive for a long time, to be honest, and that is my worry … costs are taking prices by far, and the market does not realize and the retailers and buyers do not realize this, that one day they will end up with no fruit to sell, and they will lose that golden goose that they are milking out of it today. That is the fact today.”

Though severe winter weather challenged Fresh Del Monte during the first two months of the quarter, the company said it benefited from its long-term strategic initiatives of expanding its global market position, enhancing the product mix and developing new channels.

Higher sales volume for bananas, pineapple and non-tropical products in North America helped the company grow a healthy profit during the quarter. Also contributing to positive performance were increased banana sales volume and pricing in the Middle East, higher sales volume in the prepared food business in the Middle East and favorable exchange rates in Europe.

“We are well-positioned in our marketplace as we continue to seek ways to improve our performance,” Mr. Abu-Ghazaleh said. “Our business is growing, and we have the right strategies in place to continue to expand our healthful value-added product mix.”

For the first quarter ended March 28, the company had net income of $58.6 million, equal to $1.04 per share on the common stock, up 43% from $41.1 million, or 71c per share, in the prior-year period.

Net sales increased 6.9% to $982.3 million, up from $918.8 million the year before, reflecting strong performance across all business segments.

For the banana segment, net sales increased 7.6% to $436.9 million, and volume was 6% higher than in the prior-year period.

Net sales for other fresh produce were up 4.7% to $454.3 million, reflecting higher sales in the company’s pineapple and non-tropical product lines that partially offset lower sales volume in the fresh-cut product line.

For the prepared food segment, net sales rose 15% to $91.1 million, due to higher sales volume in the company’s poultry and canned pineapple product lines.
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