Three main factors
Hugo explains that in week 9 prices dropped from $18 to around $7. “The drop in prices was continuous, till very low current prices of about $2 a box.” The perfect storm actually came through says Hugo and it’s caused by three main factors.
“First of all, it’s the big volumes available at the moment in all the banana producing countries which has caused an over stock/over supply of bananas in the whole system. Cheaper fruit from other producing areas like Costa Rica, Colombia, Guatemala and Mexico are also putting pressure at the markets for the prices to come down reaching levels lower than the regular average. Unfortunately, temperature changes have shifted the production curves causing all the fruit to come out at relatively the same time in all producing countries.“
The second factor is the multinationals and Russian Market are demanding less extra fruit, according to Hugo. “Multinationals and Russian supermarkets at the moment buy mainly their contracted volumes, which due to the crisis of high prices and low production at the beginning of the year are much lower than past years. Most of the bigger companies stopped buying SPOT. While earlier this year, it was a fight on the SPOT market. All exporters searched for additional volumes to supply their clients. The highest bid won the fruit. Now, only a few months later, the SPOT market has collapsed.”
Another important factor that helped the market crash, are the shipping line problems. Hugo explains that there is a huge lack of space and empty containers that have created a situation of Force Majeure. Chile and Peru are taking most of the spaces in the ships/routes that we share. Chile has big volumes of fruit available and is paying higher freight rates than Ecuador. “Ecuador used to pay quite low freight prices for the shipments and we had quite a lot of freedom in how we organized our programs. It has been almost 3 years of very low freight rates, which pushed the shipping industry to mergers and bankruptcy last year. Having passed this, now the shipping companies with the limited availability of spaces and containers they have decided to change their focus from volume to profit, which means that the country/region that pays the most gets the spacing. Rather than pricing, we do expect them to also look for long-term solutions that create a win-win situation for all of us. The same way we need them to move our cargo, they need us to fill the ships.”
This logistic issue is also affecting the profit of many companies. “We signed contracts in the beginning of the year, based on a certain freight rate. These are now incorrect because the shipping lines are charging us more money. That leaves us with two options. Don´t sell the fruit because the shipping lines are charging more or sell the fruit, but loose money because of these higher prices. It’s a difficult situation.”
Russia
Hugo describes the Russian market as another factor that needs to be taken into consideration. “Amazingly, their demand behaviour has been quite strange. Normally, this period is high season for us in terms of exporting to Russia. However, since week 10/11, importers seem to be cautious, buying less and are not renewing contracts. This is against all speculations or predictions producers made that demand and price would remain high, because of the soccer World cup this summer.”
Ginafruit
The company Ginafruit is performing well under all of these circumstances according Hugo. The programmed volumes are sustained and it’s even expected to continue growing. “We export an average of 150.000 boxes a week, which is still a lot more than last year. The intention is to end this year with volumes around 180.000 boxes a week.” The main goal of the company has always been to work with yearly programs and hopes to continue the increase of the production basis. An additional 200 hectares are expected to be bought this year.
Concerning export destinations, Hugo explains that Asian markets have been an impressive region to him. “Totally unexpectedly they have become one of our most important export markets. Markets that are dominated by Philippine bananas. When we tried to enter these markets in 2013, the Ecuadorian banana wasn´t known, people doubted the quality and the transit time was very long. It began to change and nowadays Ecuadorian bananas is a constant in the supermarkets.”
Other markets for GinaFruit are Algeria, Iran, Iraq, Russia, and Poland. Recently, the company started supplying Lidl and Aldi in Germany. “At this moment we are unable to sell more than the contracted fruit because of the shipping line issues. Normally at this time of the SPOT market we sell good volumes to markets like Iran, Iraq, EAU, Saudi Arabia, China, Algeria and Libya. Unfortunately, we have lost all these sales opportunities due to the lack of shipping spaces.”
Thought weeks to come
“The situation doesn’t seem too promising in the near future. I would expect the low prices, with it’s smalls ups and downs based on production volume, to continue up to week 38/40 of 2018, so we still have a very bumpy road ahead of us."
The Ramadan volume is already loaded and in the water, the World Cup won't create a heat on the demand, if so, it should be what we are supposed to be loading right now, which we aren’t; China is expected to come out with their own production in the next two months which means they will lower the demand from Philippines hence pushing this production to alternative markets in which Ecuador also sells like South Korea, Japan, Iran, Iraq and other Asian countries that load through St. Petersburg. Europe, Russia and the US enter on their normal low demand period due to the children’s vacations, high temperatures, and alternative local fruit.
For more information:
Hugo Castro
Ginafruit
Machala, Ecuador
T: +593 999423369
E: gerencia@ginafruit.com.ec
www.ginafruit.com.ec