Asda is almost a dirty word in banana circles these days. When the supermarket launched a protracted price war late last year, with the per kilo price dropping below 50p, suppliers warned of the dangers of long-term category devaluation. And in a move that has been welcomed with dismay by the trade, the retailer is now at it again.
The strategy already appears to have sparked a new price war, despite the fact that bananas are unlikely to be an item people will shop around for. The price has come down steadily in recent weeks to the current 67p per kilo. Bananas were cut from 97p to 85p per kg three weeks ago, with Sainsbury’s, Tesco and Morrisons promptly following suit. Asda then led the pack with a further price cut to 74p per kg, with Waitrose lowering its price to 79p. And how long before we see the 46p retails of last October?
One leading supplier dubs the current level “an unsustainable price which obviously helps no one”. He adds: “67p/kg is running below cost price, making it £12 a box which, with ripening and distribution costs, make it unviable. This is something that Asda does and has done for the last few years, last October, the previous June. They look at the profitability of a product and can work on a slimmer budget and then undermine everybody else’s position in the market. Interestingly, if you look at the data from last year there was no increase in sales.”
Indeed, category growth of 4.8 per cent to £630m is largely as a result of pricing rather than consumers buying more, although there was a 1.6 per cent increase in volume sales [Kantar, 52 w/e 11 July].
Current banana sales are in their usual summer slump, with the combination of competitive summer fruit and the school holidays slowing sales.
There have been relatively few production issues from UK-supplying countries in recent months. Only the Dominican Republic has been hit hard with Black Sigatoka problems set to last until at least the end of September. The extent of the problem could depend on the amount of aerial spraying that is possible. In many large operations, well-developed infrastructure means that the problem, which causes the bananas to ripen prematurely, can be dealt with swiftly, but it remains to be seen how Dominican producers will cope with the issue.
There have been few signs of hurricanes forming in the Caribbean, but importers are watchful in the region.
Jorge Sauma, ceo of Costa Rican national banana corporation Corbana, reports banana exports grew 12.5 per cent in the first five months of the year, against the same period in 2009. Some 48 million boxes were exported, compared to 43m boxes in 2009. This growth percentage is expected to remain the same until the end of 2010. Exports to the UK increased by 22 per cent in the year to May 2010, with 3.8m boxes exported.
In the fierce international marketplace, this quarter has seen some interesting performances from the industry’s big players. Dole seemingly emerged the strongest from the latest round of reporting, with operating profit climbing 57 per cent on 2009 levels to $33m, although non-banana business is said to have had a big impact.
Chiquita reported a profit - of $95m, up on $89m the previous year - despite a 3.8 per cent drop in sales. Chief executive Fernando Aguirre said the business’s priority was “revitalising Europe”, a situation echoed by others. Earlier in the year, there was an eight per cent decline in European demand, coupled with excess fruit arriving in Europe, which deflated the market. Del Monte also reported this month, announcing a fall from $52.2m to $21.1m in net income for the second quarter.
The UK industry received a boost this quarter with the Fresh Produce Consortium successfully lobbying for “unnecessary” controls on banana imports from the Dominican Republic to be dropped, reducing the “lengthy delays” and costs to importers. One importer says the “duplication of efforts” had cost between £800-£1,000 a week to handle.
Importers will also have to deal with some challenging shipping conditions in store. Shipping rates seem likely to rise, with demand on the up, and the Bunker Adjustment Factor seeing oil sitting at $452 a tonne.
Autumn appears likely to pick up in the banana industry but trading will remain tough in the ultra-competitive sector.
AMBITION BURNS THROUGH FOR BRAZILIANS AGRICOLA FAMOSA
Brazilian firm Agrícola Famosa has made a name for itself in the melon market for more than a decade and now has its sights firmly set on the banana market. Sales and banana project manager Andrei Mamede outlines the company’s operations and ambitions.
The banana project started in 2007, with the objective of developing a viable alternative production line for Intermelon and Agrícola Famosa.
The venture started small with only 57 hectares of production. Today, we have implemented another 113ha, totalling 170ha of banana production. We have 150 people working on our banana project. The idea was to put an emphasis on quality and the improvement of the production techniques and then eventually increase the amount of cultivation areas. The idea is to double the cultivation area every year. In a period of six to seven years, we should reach 3,000 hectares of banana production.
We aim to achieve this growth by purchasing estates close to our farms, as well as buying other farms in the region. As we have done with the melon project, we want to perfect all aspects of the business, from very effective production management to excellent post-harvest control.
Our strategy, as we have done with melons and watermelons, is to become one of the main players in the market while maintaining great quality standards.
The general growing conditions on the border of the states of Ceará and Rio Grande do Norte give us very important logistical and productive advantages. The Latosol soils, low wind velocity and the excellent quality of the water we use give us very favourable conditions for banana farming. On the top of that, we are located in a Black Sigatoka-free area. All of these advantages give us one of the best production conditions in the world.
On the logistical side, we are also situated in a very strategic location as we are only a couple of hundred kilometres from the ports of Pecem and Fortaleza. Consequently, the containers of Agrícola Famosa bananas only take eight days to reach Europe. In general, we have three vessels each week leaving for Europe and one vessel for North America.
Since 2007, Agrícola Famosa has exported bananas to various countries in the world, from Uruguay and Argentina to Morocco, Libya and Europe. Of course, our main target is Europe, especially Spain, Germany, Russia and France.
We have done some trials to the UK but are yet to export in significant volumes. This year, we should start sending more volumes to the UK in order to increase our presence in that market. Of course, currency fluctuations with sterling concern us, but our cost effectiveness, higher quality standards, better prices and the influence of the British market should compensate for the losses incurred from these fluctuations.
Our plans for the banana project are ambitious but very tangible. I truly believe that Brazil will be the place for banana growing in the near future and Agrícola Famosa will be the most capable company in the country to lead this market.
On the other hand, I hope that at the end of this month during the negotiations in Brussels, the EU will understand the true potential of Brazil as a reliable supplier of bananas and will eventually increase the quota and bring down the entry price tariffs.
No comments yet