CQB » Topics » Sourcing

These excerpts taken from the CQB 10-K filed Feb 27, 2009.

Sourcing

Bananas grow in tropical climates where the temperature generally does not fall below 50 degrees Fahrenheit. Under normal circumstances, banana plants can produce fruit for harvest approximately every seven months. If banana plants are destroyed (e.g. from flooding, disease or other causes), replantings will bear fruit for harvest in approximately nine months under normal circumstances. After harvest, bananas are washed and, in most cases, cut into clusters and packed into 40-pound boxes. The boxes of bananas are placed on pallets and loaded into containers for shipment.

During 2008, approximately one-fifth of all bananas sold by Chiquita were sourced from each of Costa Rica and Guatemala. Chiquita also sources bananas from numerous other countries, including Panama, Ecuador, Colombia, Honduras, Nicaragua and the Philippines. Chiquita sold its Ivory Coast operations in January 2009. In 2008, Chiquita entered into long-term strategic sourcing agreements in Mozambique and

 

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Angola and expects to begin sourcing bananas from these countries in 2010. In 2008, approximately one-third of the bananas sourced by Chiquita were produced by subsidiaries on owned farms and the remainder were purchased from independent growers under short and long-term fruit supply contracts in which Chiquita takes title to the fruit either at packing stations or once loaded aboard ships.

Although Chiquita maintains broad geographic diversification in purchased bananas, it relies to a significant extent on long-term relationships with certain large growers. In 2008, Chiquita’s five largest independent growers, which operate in Colombia, Ecuador, Costa Rica and Guatemala, provided approximately 48% of Chiquita’s total volume of purchased bananas from Latin America. In January 2008, Chiquita entered into a new agreement with an affiliate of C.I. Banacol S.A., a Colombia-based producer and exporter of bananas and other fruit products, for the continuing purchase of bananas produced in Colombia and Costa Rica through 2012. Through this agreement, Chiquita purchases approximately 15 million boxes of bananas per year, primarily from Colombia, which continues to account for more than 19% of the company’s purchased banana volume.

Purchasing bananas allows the company to reduce its financial and operating risks and avoid the substantial capital required to maintain and finance additional banana farms. Typically, banana purchase agreements have multi-year terms, in some cases as long as 10 years. However, the applicable prices under some of these agreements may be renegotiated annually or every other year and, if new purchase prices cannot be agreed upon, the contracts will terminate. The long-term purchase agreements typically include provisions relating to agricultural practices, packing and fruit handling, environmental practices, food safety, social responsibility standards, penalties payable by Chiquita if it does not take delivery of contracted fruit, penalties payable by the grower for shortages to contracted volumes, and other provisions common to contracts for the international sale of goods. Under some fruit supply arrangements, Chiquita provides the growers with technical assistance related to production and packing of bananas for shipment.

Chiquita believes that its agricultural practices contribute to the quality of the bananas it produces. Chiquita also specifies many of the same requirements for its growers.

The production of bananas is vulnerable to (1) adverse weather conditions, including windstorms, floods, drought and temperature extremes, (2) natural disasters, such as earthquakes and hurricanes, (3) crop disease, such as the leaf fungus, black sigatoka, and (4) pests. See “Item 1A—Risk Factors” for further information on risks inherent in the production of bananas.

Labor costs in the tropics for Chiquita’s owned production of bananas represented 3% of the company’s total operating costs in 2008. These costs vary depending on the country of origin. To a lesser extent, fertilizer costs are important as well as paper costs for the production and packaging of bananas.

Sourcing

The company sources all of its raw products for the Salads and Healthy Snacks segment from third-party growers, primarily located in California, Arizona and Mexico. Often, the company enters into contracts with these farmers to help mitigate supply risk and manage exposure to cost fluctuations. The company works with the growers and harvesters to develop safe, innovative, quality-enhancing and cost-effective production and harvesting techniques.

Sourcing

The company sources all of
its raw products for the Salads and Healthy Snacks segment from third-party growers, primarily located in California, Arizona and Mexico. Often, the company enters into contracts with these farmers to help mitigate supply risk and manage exposure to
cost fluctuations. The company works with the growers and harvesters to develop safe, innovative, quality-enhancing and cost-effective production and harvesting techniques.

FACE="Times New Roman" SIZE="2">Logistics

Once harvested, the produce is typically cooled and shipped by environment-controlled
trucks to the company’s facilities where it is inspected, processed, packaged and boxed for shipment. The company has six processing/distribution plants and one distribution center located in California, Georgia, Illinois, Pennsylvania and
Texas. Orders for value-added salads and other fresh-cut produce are shipped quickly after processing, primarily to customer distribution centers or third-party distributors for further redistribution. Deliveries are made in temperature-controlled
trucks that are contracted for hire. This distribution network allows for nationwide daily delivery capability and provides consistently fresh products to customers. Furthermore, Chiquita believes more frequent deliveries allow retailers to better
manage their inventory and reduce product spoilage, which helps boost the retailers’ margins.

Sourcing

The company sources all of
its raw products for the Salads and Healthy Snacks segment from third-party growers, primarily located in California, Arizona and Mexico. Often, the company enters into contracts with these farmers to help mitigate supply risk and manage exposure to
cost fluctuations. The company works with the growers and harvesters to develop safe, innovative, quality-enhancing and cost-effective production and harvesting techniques.

FACE="Times New Roman" SIZE="2">Logistics

Once harvested, the produce is typically cooled and shipped by environment-controlled
trucks to the company’s facilities where it is inspected, processed, packaged and boxed for shipment. The company has six processing/distribution plants and one distribution center located in California, Georgia, Illinois, Pennsylvania and
Texas. Orders for value-added salads and other fresh-cut produce are shipped quickly after processing, primarily to customer distribution centers or third-party distributors for further redistribution. Deliveries are made in temperature-controlled
trucks that are contracted for hire. This distribution network allows for nationwide daily delivery capability and provides consistently fresh products to customers. Furthermore, Chiquita believes more frequent deliveries allow retailers to better
manage their inventory and reduce product spoilage, which helps boost the retailers’ margins.

Sourcing

Sourcing commitments with growers for non-banana fresh produce are generally for one year or less. However, the company sources with many of the same growers year after year and, in certain cases, provides growers of non-banana produce pre-shipment advances which are repaid when the produce is harvested and sold. These advances are interest-bearing and short-term in nature. In addition, the company requires property liens and pledges of the season’s produce as collateral to support the advances. The company purchases more than 160 different varieties of fresh produce from growers and importers around the world. Chiquita sources certain seasonal produce items in both the northern and southern hemispheres in order to increase availability of a wider variety of fresh produce throughout the year. The company tries to procure fresh produce directly from growers wherever possible and is not heavily dependent on any single grower for Other Produce products.

The majority of Other Produce items are sourced from growers in Central America, Mexico, and South America. Chiquita also sources a significant amount of Other Produce items from Chile for marketing in North America, Europe and Asia. The primary products sourced from Chile are grapes, stonefruit, apples, pears, kiwis and avocados. Fruit harvested in Chile, in the southern hemisphere, can be shipped to the northern hemisphere during the winter off-season for fruit.

Sourcing


Sourcing commitments with growers for non-banana fresh produce are generally for one year or less. However, the company sources with many of the same
growers year after year and, in certain cases, provides growers of non-banana produce pre-shipment advances which are repaid when the produce is harvested and sold. These advances are interest-bearing and short-term in nature. In addition, the
company requires property liens and pledges of the season’s produce as collateral to support the advances. The company purchases more than 160 different varieties of fresh produce from growers and importers around the world. Chiquita sources
certain seasonal produce items in both the northern and southern hemispheres in order to increase availability of a wider variety of fresh produce throughout the year. The company tries to procure fresh produce directly from growers wherever
possible and is not heavily dependent on any single grower for Other Produce products.

The majority of Other Produce items are sourced
from growers in Central America, Mexico, and South America. Chiquita also sources a significant amount of Other Produce items from Chile for marketing in North America, Europe and Asia. The primary products sourced from Chile are grapes, stonefruit,
apples, pears, kiwis and avocados. Fruit harvested in Chile, in the southern hemisphere, can be shipped to the northern hemisphere during the winter off-season for fruit.

FACE="Times New Roman" SIZE="2">Logistics

Fresh produce is highly perishable and must be brought to market and sold generally within
30 to 60 days after harvest. Some items, such as vegetables, melons and berries, must be sold more quickly, while other items, such as apples and pears, can be held in cold storage for longer periods of time. The company generally uses common
carriers to transport this fresh produce, and in some cases, particularly in Europe, purchases and takes title to the produce in the local market where it will be sold.

FACE="Times New Roman" SIZE="2">*******

For further information on factors affecting Chiquita’s results of operations, including
results by business segment, liquidity and financial condition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 17 to the Consolidated Financial Statements, both included in Exhibit
13, and “Item 1A - Risk Factors.”

 


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Sourcing


Sourcing commitments with growers for non-banana fresh produce are generally for one year or less. However, the company sources with many of the same
growers year after year and, in certain cases, provides growers of non-banana produce pre-shipment advances which are repaid when the produce is harvested and sold. These advances are interest-bearing and short-term in nature. In addition, the
company requires property liens and pledges of the season’s produce as collateral to support the advances. The company purchases more than 160 different varieties of fresh produce from growers and importers around the world. Chiquita sources
certain seasonal produce items in both the northern and southern hemispheres in order to increase availability of a wider variety of fresh produce throughout the year. The company tries to procure fresh produce directly from growers wherever
possible and is not heavily dependent on any single grower for Other Produce products.

The majority of Other Produce items are sourced
from growers in Central America, Mexico, and South America. Chiquita also sources a significant amount of Other Produce items from Chile for marketing in North America, Europe and Asia. The primary products sourced from Chile are grapes, stonefruit,
apples, pears, kiwis and avocados. Fruit harvested in Chile, in the southern hemisphere, can be shipped to the northern hemisphere during the winter off-season for fruit.

FACE="Times New Roman" SIZE="2">Logistics

Fresh produce is highly perishable and must be brought to market and sold generally within
30 to 60 days after harvest. Some items, such as vegetables, melons and berries, must be sold more quickly, while other items, such as apples and pears, can be held in cold storage for longer periods of time. The company generally uses common
carriers to transport this fresh produce, and in some cases, particularly in Europe, purchases and takes title to the produce in the local market where it will be sold.

FACE="Times New Roman" SIZE="2">*******

For further information on factors affecting Chiquita’s results of operations, including
results by business segment, liquidity and financial condition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 17 to the Consolidated Financial Statements, both included in Exhibit
13, and “Item 1A - Risk Factors.”

 


9







Table of Contents


These excerpts taken from the CQB 10-K filed Feb 29, 2008.

Sourcing

Sourcing commitments with growers for non-banana fresh produce are generally for one year or less. However, the company sources with many of the same growers year after year and, in some cases, provides to certain growers of non-banana produce pre-shipment advances which are repaid when the produce is harvested and sold. The company purchases more than 130 different types of fresh produce from growers and importers around the world. Chiquita sources certain seasonal produce items in both the northern and southern hemispheres in order to increase availability of a wider variety of fresh produce throughout the year. The company tries to procure fresh produce directly from growers wherever possible. This is more difficult with certain produce items in Europe, in which case the company purchases from other distributors; in addition, the company makes spot market purchases in local markets to meet customer demand. Other sources are exporters from the country of origin and importers or wholesalers in the country of sale. The company is not heavily dependent on any single grower for Other Produce products.

The majority of Other Produce items are sourced from growers in Central America, Mexico, and South America. Chiquita also sources a significant amount of Other Produce items from Chile for marketing in North America, Europe, Asia and Latin America. The primary products sourced from Chile are grapes, stonefruit, apples, pears, kiwis and avocados. Fruit harvested in Chile, in the southern hemisphere, can be shipped to the northern hemisphere during the winter off-season for fruit. During 2007, Chiquita exited substantially all owned and leased farm operations in Chile. Chiquita still sources these Other Produce items from Chile, largely from the same farms with new owners. (See Note 3 to the Consolidated Financial Statements for further discussion regarding the sale of the Chilean operations.)

Sourcing

FACE="Times New Roman" SIZE="2">Sourcing commitments with growers for non-banana fresh produce are generally for one year or less. However, the company sources with many of the same growers year after year and, in some cases, provides to certain
growers of non-banana produce pre-shipment advances which are repaid when the produce is harvested and sold. The company purchases more than 130 different types of fresh produce from growers and importers around the world. Chiquita sources certain
seasonal produce items in both the northern and southern hemispheres in order to increase availability of a wider variety of fresh produce throughout the year. The company tries to procure fresh produce directly from growers wherever possible. This
is more difficult with certain produce items in Europe, in which case the company purchases from other distributors; in addition, the company makes spot market purchases in local markets to meet customer demand. Other sources are exporters from the
country of origin and importers or wholesalers in the country of sale. The company is not heavily dependent on any single grower for Other Produce products.

FACE="Times New Roman" SIZE="2">The majority of Other Produce items are sourced from growers in Central America, Mexico, and South America. Chiquita also sources a significant amount of Other Produce items from Chile for marketing in North America,
Europe, Asia and Latin America. The primary products sourced from Chile are grapes, stonefruit, apples, pears, kiwis and avocados. Fruit harvested in Chile, in the southern hemisphere, can be shipped to the northern hemisphere during the winter
off-season for fruit. During 2007, Chiquita exited substantially all owned and leased farm operations in Chile. Chiquita still sources these Other Produce items from Chile, largely from the same farms with new owners. (See Note 3 to the Consolidated
Financial Statements for further discussion regarding the sale of the Chilean operations.)

This excerpt taken from the CQB 10-K filed Mar 8, 2007.

Sourcing

Fresh Express sources all of its raw products from third-party growers primarily located in California, Arizona and Mexico. Often, Fresh Express enters into contracts with these farmers to help mitigate supply risk and manage exposure to cost fluctuations. Fresh Express works with the growers to develop safe, innovative, quality-enhancing and cost-effective production techniques. These techniques include removing the core of the lettuce in the field, which reduces transportation costs, production costs and processing time, and developing larger crop beds to increase yield. Fresh Express earns royalties from the use of patented technologies it owns associated with certain of these techniques.

This excerpt taken from the CQB 10-K filed Mar 1, 2006.

Sourcing

Fresh Express sources all of its raw products from third-party growers primarily located in California and Arizona. Often, Fresh Express enters into contracts with these farmers to help mitigate supply risk and manage exposure to cost fluctuations. Fresh Express works with the growers to develop innovative, quality-enhancing and cost-effective production techniques. These techniques include removing the core of the lettuce in the field, which reduces transportation costs, production costs and processing time, and developing larger crop beds to increase yield. Fresh Express earns royalties from the use of patented technologies it owns associated with certain of these techniques.

This excerpt taken from the CQB 10-K filed Mar 16, 2005.

Sourcing

 

Sourcing commitments with growers for non-banana fresh produce are generally for one year or less. However, the Company sources with many of the same growers year after year and, in some cases, provides financial assistance to certain growers. The Company purchases over 150 different types of fresh produce from growers and importers around the world. The Company tries to procure fresh produce directly from the grower, wherever possible. This is more difficult with certain produce items in Europe, in which case the Company purchases from other distributors; in addition, the Company may resort to spot market purchases on local markets to meet customer demand. Other sources are exporters from the country of origin and importers or wholesalers in the country of sale. The Company is not heavily dependent on any single grower.

 

Chiquita owns a subsidiary in Chile that sources fresh produce items from that country for marketing in North America, Europe, Asia and Latin America. The primary products sold by Chiquita Chile are grapes, stonefruit, apples, pears, kiwis and avocados. Fruit harvested in Chile, in the southern hemisphere, can be shipped to the northern hemisphere during the winter off-season for fruit. Until 2004, substantially all of Chiquita Chile’s fruit was purchased from third-party suppliers. However, in August 2004, Chiquita Chile entered into a lease for approximately 5,000 acres in Chile for cultivation of grapes, apples and stonefruit, representing approximately 40% of its total exported volume.

 

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