AgriNurture ends 20-year supply deal with SM group

MANILA, Philippines – Listed agricultural firm AgriNurture Inc. and its two subsidiaries are ending their 20-year fruits and vegetables supply agreements with Sy-led SM Group’s chain of supermarkets, citing unsatisfactory profits.

In a disclosure to the stock exchange on October 25, the agro-commercial processor said this move will free up about P60 million-worth of working capital funds that are tied up in credit lines to the supermarket chain, which has the widest reach in the country.

AgriNurture’s subsidiaries First Class Agricultural Corporation and Fresh and Green Harvest Corp would stop supplying SM Supermarkets and SM Hypermarkets with fresh fruits and vegetables. Formal notice to the SM units have been given, the listed firm added.

“The company shall complete the pull-out of all its inventories in the supermarket chains of the SM Group by 26 October 2012 (for SM Supermarkets) and 31 October 2012 (for SM Hypermarkets),” AgriNurture said in the disclosure.

“The newly freed up capital will be deployed to other more profitable channels of distribution for fresh fruits and vegetables and thus generate better returns for the company,” it said, warning that this move “is expected to have only a small positive effect on the company’s income for the rest of 2012, but will result in a more pronounced positive effect in 2013.”

Sought for comment, SM Investments Corp’s vice president for investor relations Corazon P. Guidote said the pull-out “will not disrupt SM supply chain as SM retail deals with many suppliers.”

She added that AgriNurture accounts for “less than 3%” of the total.

The AgriNurture group is engaged in the commercial distribution of fresh fruits and vegetables to retail establishments as well as to hotels, restaurants, public wet markets and catering companies.

Among AgriNurture’s investors is American agribusiness giant Cargill which has a 28% stake in the local player.

AgriNurture has been aggressive in expanding its food retail business, via The Big Chill, and following the pattern of vertically integrated operations. In a supply chain, members of a vertically integrated companies produce a different product to satisfy a common need.

AgriNurture produces and distributes fruit beverages and puree, dried fruit snacks, processed fruit mix, frozen fruits & vegetables, rice products, tomato paste and fresh flowers, which it distributes to various retail chains, including that of its own The Big Chill. – Rappler.com