Fresh Del Monte Produce has admitted that it expects to see "challenging conditions" continuing into fiscal 2010.

The US-based fresh produce giant this morning (29 October) posted a drop in third-quarter sales as higher demand for bananas was offset by a decrease in sales of other produce and prepared products.

Speaking to analysts during a conference call, chairman and CEO Mohammad Abu-Ghazaleh said that the company did not expect a "significant" improvement in the global economic outlook next year.

"In the economic picture I don't believe we will see a significantly better economy in 2010 than in 2009 and that impacts our whole business - be it prepared or fresh cut," Abu-Ghazaleh said. 

"People are cutting down on their purchases and revising the priorities of what they put in their basket and that is why we see less revenues and less sales," he cautioned.

In an effort to boost banana sales during the downturn, US retail giant Wal-Mart has embarked on a deep discounting programme for the fruit.

Abu-Ghazaleh said the move had not hit the price Wal-Mart currently pays Fresh Del Monte for bananas - as they are operating under an existing contract - but he did acknowledge the move had plus and negative points for the banana supplier. 

"Many people are concerned that Wal-Mart are cutting banana prices - this is beneficial as it is driving more banana sales but on the other side it is putting pressure on us to reduce our prices and we cannot do this given our margin structure," he said.

"We do not have access to their [Wal-Mart's] inner thinking. They are going into a promotional period where they would like to introduce cheaper bananas to consumers. Possibly some supermarkets will follow suit, but when fruit will be scarce in a month or so I don't think there will be the volumes to justify this kind of promotional activity," Abu-Ghazaleh added.

Fresh Del Monte saw banana costs increase by 8% on a unit basis. Higher procurement costs outweighed savings at Fresh Del Monte's farms because the company was forced to buy more bananas from third parties in the quarter due to flooding at its own farms.

"Banana costs as far as procurement continues to increase and we don't expect that to come down any time soon," Abu-Ghazaleh predicted.

Abu-Ghazaleh added that banana prices from major producing countries - particularly Columbia, Ecuador and Costa Rica - are not expected to come down in the near-term, with bad yields hitting supplies.

Nevertheless, good weather would mean that the market would "probably see more supplies" in the winter season in 2010 than it has for the past two years, Abu-Ghazaleh said.

"If the weather is favourable we will go back to normal levels and we will see an improved cost structure...There will be a good saving in costs going into 2010," he said.