Audit of Rezco Agricola, S. de R.L., melon export project

de R.L. to produce and export honeydew melons under the Export Development and Services Project in Honduras. Audit covers the period 6/86- 5/87. Rezco failed to profitably market melons from Honduras to the United States. As a result, the firm discontinued operations and was unable to repay its loan to the Central American Financing Corporation (FICENSA), which had rated the project a high-risk venture to begin with. There were several reasons for the subproject"s failure. (1) Due to crop losses resulting from diseases, pests, and the planting of less acreage than planned, Rezco produced only 201,165 of the targeted 260,000 boxes of melons, and actually sold only 199,874 boxes. This shortfall, coupled with lower than expected selling prices (see below), left Rezco with net sales of $552,959 against a projected $1,365,700. Given the perishability of melons and the need for perfect timing and coordination to avoid crop losses, Rezco and FICENSA should have allowed for a spoilage/loss factor in their planning. (2) The Project Paper estimated an average selling price of $9.00 per box of melons. The actual price, however, turned out to be $7.37 per box due to (a) the poor quality of the melons resulting from Rezco"s production, packing, and shipping problems, and (b) mismanagement by Cal-Fruit, Rezco"s U.S. sales agent, which sold the produce at less than the prevailing market price. Although Cal-Fruit claimed that the low selling price was completely due to the poor quality of the melons it received, an investigation by the U.S. Department of Agriculture found Cal-Fruit liable to Rezco for $214,877 of the $325,795 in lost revenue resulting from the low price. Rezco should have heeded the technical advice it had been given not to tie up its produce with one marketing agent.