As expected, preventing potential loss of competitiveness, the Ecuadorian authorities opted for only a slight increase of the official banana price for 2019. Next year box of bananas will have a minimal cost of $6,30 – a mere $0,10 increase versus 2018.
However, $0,10 is not the only increase the industry is facing. The most significant one seems to be the cost of freight. Which comes from the fact that the price of oil just keeps climbing up.
Patrick Pouyanne, CEO of Total, spoke in an interview for Bloomberg last September of a scenario where no one should be surprised if the price of a barrel reaches $100. The interruptions in the supply from Iran, Venezuela and Libya, and the time that is necessary for Saudi Arabia to increase its production will be the main reasons behind it.
If we add the changing gasoline consumption regulations, like cutting sulphur oxide emissions as well as further oligopolization of the shipping market, the low freights of 2017 and the beginning of 2018 seem, at least for now, to stay in the past.
The other increase is to be expected in the cost of carton. A significant factor if we consider that it represents 75% of the total cost of the materials used in packing. The demand for cellulose as a replacement of plastic, and its costs of production (as well as transportation) continue to increase. Unfortunately, investments in new mills will not be enough to return to the prices we have seen in 2017.
Finally, the spot cost of the fruit. Up until week 41 the average spot price this the year kept between 5% and 10% above the official price. Although it was below the average 2017 spot price, we will see if it picks up in the last weeks of the year where there are no indicators of oversupply of bananas worldwide. With global consumption of bananas growing, a similar situation can be expected throughout 2019.
The strategy of Freskita® in this uncertain time is to continue strengthening long-term business, under contract, with customers that have a strong presence in the market. The final goal being to reach the consumer together, with the highest possible level of service and quality.
We are ending 2018 with higher-than-expected growth in volume of 200% versus 2017. We are positive about the next 12 months and we have already ensured a very important amount of Global Gap® and (for the first time) Rainforest® certified fruit for 2019.