The chief of U.S. multinational Fresh Del Monte Produce says he expects to see numerous investments made around the world pay off over the coming years.
CEO Mohammed Abu-Ghazaleh also said he expects the pineapple market to “rationalize” this year following a period of supply outstripping demand, and spoke about the company’s increasing penetration into the avocado market.
Abu-Ghazaleh’s comments came during an earnings webcast on the company’s fourth-quarter and 2018 financial results. Over the year the company swung to a loss, registering a net loss of US$21.9 million compared to net income of US$120.8 million in 2017, while net sales increased by 10% to US$4.49 billion.
Asked about the future prospects of the company’s heavy investments in numerous areas over recent years, Abu-Ghazaleh said that while the company had made some mistakes in the past – such as with Philippine banana production, much of which is based in an area seeing civil unrest – he was confident that the future was bright.
He said that most of the capital expenditures were “really heavy in certain projects” over the last year and have been paying back more or less as expected.
“For instance, when we acquired a Mann Packing last year, they were already into building a brand new fresh-cut facility and distribution center in Gonzales, Salinas,” he said.
“And this project, by itself, is a very costly project. So – and as we took over the company, we found out that there were some incorrect layouts and specifications done to the plant, and we had to expand as well the facility by constructing more. This is one of the big investments that we have done in 2018, and we have a carryover into 2019 as well.”
Another big project has been the reactivation of banana plantations in Panama that began last year – an investment aimed at reducing costs in the banana business segment by relying less on third-party growers. The banana segment was one of the company’s most challenging areas in 2018.
“The first production [from Panama] actually came on last week with the first few containers that were shipped,” he said.
“Now, you tell me why do we have Panama plantation bananas? Because when you look at our cost in terms of production compared to third-party costs that we are already sourcing now, there is significant variation here which will translate as we go forward in the years 2020 and forward.”
Del Monte also has six container ships under construction in China – which it has been financing since last year – and later this year it is planning to open a new and modern avocado packhouse in Mexico, which Abu-Ghazaleh anticipated would open around August.
“So these are very big investments in reality, plus all other regular investments that we do in our fresh-cut like new machineries, new automation, that’s what we are going forward with,” he said.
“It’s actually automating more and more our fresh-cut operations in order to reduce our labor cost, which is increasing drastically over the years. So if you look at all these, and as we go forward in the year, we’ll keep updating you about these. But once all these projects come into — in line, I think that then, we will see a lot of added value — value added going forward.”
Pineapple supply-demand levels to “rationalize”
The CEO also mentioned that Costa Rican pineapple supply had “increased tremendously”, which he said began hitting the markets in late 2017 and continued into 2018.
“As we speak today, we noticed that a lot of small farmers and producers, medium-sized producers, are already abandoning their orchards, and I expect that supplies will start — supply and demand will be more in line by the end of this year,” he said.
“Because it’s not like bananas; it’s a very intensive, let’s say, capital expenditure into the pineapple unlike bananas. And my expectation that pricing should improve as we go forward. And don’t forget that we have a very dominant position in the market, and we will not compromise that dominance at any cost.”
He added that many pineapple marketers and distributors had sustained “large losses”, which he expected would deter many from continuing in the business.
“As far as ourselves, I mean, we have a certain OI [operating income] that we would like to maintain on goal, and I think that we are slowly coming back to this level, which I believe we can sustain,” he said.
“And don’t forget, we have our rosy pineapple that will come online, hopefully, towards the end of the year, which will give us a different perspective in this field. I mean, that’s a completely different new game.”
Avocado growth expectations
On avocados, Abu-Ghazaleh said he believes Del Monte is “very much into the business” and he explained it is aiming for continued growth.
He said the company had done a “great job” of penetrating the market, highlighting that when the three-week grower strike took place in Mexico last year during the fall, the company was able to continue supplying its customers.
“Through our planning and vision, I believe that we were one of the very few, if not the only, maybe player in the avocado business that we were able to keep supplying our buyers with the avocados,” he said.
“We had the foresight to have volumes in place before the strike took over, and we were able to keep supplying our customers even if it’s not at 100% fulfillment, but we were able to keep their shelves still stuffed with avocados, which was a very big — and that’s why we noticed that a lot of these customers that were not our customers, as a matter of fact, now starting to be more aligned with Fresh Del Monte and wanted to continue building that relationship and the programs with avocado.
“So with avocados, we are very confident that we will grow this business, especially once we finish our packing station. And it’s a very big packing, I mean, station. It’s about 180,000 square-foot facility, which is very sizable. And I think it will give us a different edge in terms of quality and consistency.”