A Look at the Banana Supply Chain

A Look at the Supply Chain for Bananas

The WSJ recently reported that costs for producing bananas were rising yet customers were not paying more.

https://www.wsj.com/articles/floods-strikes-and-mudslides-why-american-retailers-are-paying-more-for-bananas-but-you-wont-1523358003

I wanted to look at the current issues in the supply chain and examine how the supply chain is designed.  The supply chain is listed as follows below.

Farming -> Packaging, Traceability and Sourcing -> Transportation, Logistics, and Ripening -> Retail and Consumption

 

Farming is the first part of the banana supply chain.  Bananas are typically grown in warm climate countries in Central and South America.   There are many different types of bananas but the Cavendish banana is most popular in the US.  However, recently floods, mudslides, and cooler temperatures have hindered banana production.  Another factor is working conditions and worker satisfaction when producing bananas.  A strike in Honduras recently affected production and harvesting as well.

 

Packing, Traceability and Sourcing Once bananas are ripe, they are then washed, labeled, and packaged at a facility near the farms.  The labeling allows for tracking once the bananas are shipped.

 

Transportation, Logistics, and Ripening

Once the bananas are ready, they are then loaded onto ships as cargo freight.  Bananas are required to be stored in large refrigerated containers so that they do not spoil or ripen too early.  Once they reach their destination they are then taken to a facility where they are ripened using heat, foil, and air.

 

Retail and Consumption

Once the bananas are ready as a consumer product they are taken from wholesalers to retailers.  Wholesale banana prices have risen recently by 15.5% in Jan and Feb.  However, retailers have to consider that bananas are the most widely eaten fruit in the U.S.  Bananas may be an item that drives trips to the stores.  Therefore, profit margins on bananas are often slim or non-existent.  Amazon and Whole Foods have recently reduced prices, despite the lower costs.  Additionally, bananas are being used in restaurants and businesses which is a model different from grocery stores.

 

“Patrick Galleher, chief executive of SweetFrog, a chain of stores selling frozen yogurt, said he has noticed about an 8% increase in the wholesale price of the thousands of bananas he has to buy weekly to stock his more than 350 stores across the country. He said his company is absorbing the higher prices and notes that bananas are still one of the cheapest fruit toppings.” (WSJ)

Once the weather goes back to normal, banana wholesale prices are likely to decrease.

 

https://medium.com/@KodiakRating/the-journey-of-one-banana-a-supply-chain-in-motion-b82e53fe6816

What do you think?

Should customers be paying more for bananas?  Are there similar products that if costs go up, prices will stay constant?

What other product supply chain do you think is interesting?

10 thoughts on “A Look at the Banana Supply Chain

  • April 12, 2018 at 8:36 am
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    Katherine,

    Thank you for the interesting look into the supply chain of bananas! As you briefly mentioned, the traceability of food in the supply is important, because having perishable food move through the supply chain quickly is important. This article from supplychainbrief.com discusses traceability as one of the five t’s for global food supply chain. Although it is important for many obvious reasons for companies, traceability is important for consumers as well. In July 2012, 70% of European consumers surveyed said that they consider the food’s country of origin as an important factor in buying food. Therefore, having traceability is not only beneficial for the food company, but also for the consumer.

    http://www.supplychainbrief.com/2017/food/supply-chain/?open-article-id=6299657&article-title=the-five-ts-of-the-global-food-supply-chain&blog-domain=supplychainbeyond.com&blog-title=the-network-effect

  • April 12, 2018 at 6:29 am
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    Kate,

    Thank you for your post about the Banana Supply Chain. Like many others have said, it is easy to overlook the simplest products, such as bananas, and consider what their supply chain is. It is fascinating that a food I eat nearly every day has undergone so many ‘stages’ to get to me.
    I am currently in an Italian class that centers around Food and one of our main topics has been the idea that before there were established settlements, the people would relocate based on food availability. Their survival was in some ways completely dependent on the weather and if they would be able to find sustenance in the surrounding environment. Although a very different issue today, we still face the impact of weather on our food.
    I did some research about how this increasing issue of climate change has had and will continue to have an impact on global food supply chains. This article was written in 2015 and says that: “Consumers will feel the harsh impacts of climate change not only in the climate around them but also in their supermarkets where the availability and/or cost will be affected” (WWF Global). The top four affected products listed were coffee beans, oranges, hazelnuts, and bananas. The section about bananas mentioned that the main environmental issue is that warmer temperatures, winds, and flooding favor some bacteria that is deadly to the banana plant. It has been very costly for them to combat the spread of this bacteria. Lastly, it mentions: “In Colombia, the third largest export market, about 60% of the areas suitable for banana cultivation could be lost due to climate change by 2060” (WWF Global). To me – this is a prolonged issue that doesn’t have a foreseeable end. Retailers will be forced to adopt to these increasing prices eventually. If prices keep increasing and retailers do not adjust their prices, they will soon be losing money. It is upsetting, but the agricultural world as we know it is changing and all members across the global supply chain will have to adjust to volatility in prices and less consistent quality due to the ongoing issue of climate change.
    Source: http://wwf.panda.org/what_we_do/footprint/climate_carbon_energy/?256676/Climate-change-food

  • April 11, 2018 at 10:16 pm
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    Katherine,

    The banana supply chain is an interesting supply chain to examine since bananas are a staple in most US households. Bananas make their way into in a bowl of Cheerios, on peanut butter toast, or just as a snack. Bananas are known to be a cheap option for fruit for Americans that are available all year round. As a result, it does not surprise me when you mention that the cost of producing bananas is rising. However, customers are not paying more. I think if the price of bananas increases customers will choose an alternative to bananas especially since the summer months are approaching where melon and berries could be alternatives as they will be in season.

    However, I could be wrong when I state that customers will chose an alternative to bananas if the prices rise. When the prices of avocados rose last year, customers still purchased avocados. Avocados actually have surpassed bananas as the most valuable imported fruit. It is hard to predict what customers would do if the prices of bananas increases since comparing bananas and avocados is like comparing apples to oranges.

    The New York Times articles, “How the Avocado Became the Fruit of Global Trade” (https://www.nytimes.com/2018/03/27/magazine/the-fruit-of-global-trade-in-one-fruit-the-avocado.html), discusses the avocado supply chain and the difficulties it faced with the recent avocado boom in the United States. The owner of the world’s largest avocado distributor states that: “We’re really scrambling. We’re growing at 10 to 15 percent per year, but we still can’t keep up with demand.” Avocado companies are having trouble keeping up with the increasing demand of a supply chain that can be limited by nature and natural resources such as the availability of land for avocado orchards. Other countries have started to enter the avocado market such as Peru, Chile, and China. These countries have seen an opening in the market; especially, since Mexico is struggling to keep up with the demand. It will be interesting to see what happens to the avocado supply chain with the addition of more competitors in the market.

    • April 12, 2018 at 6:52 am
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      Erin,

      I really liked your comparison of this banana issue to a the recent avocado one. I looked into it a bit further and it was interesting to find that the ‘fad’ surrounding avocados and the severe droughts in California were very close together in time. The article I read pointed at Spring 2013 as the time when the US ‘Avocado-ized’. This signaled a large increase in the demand for avocados: consumption of the fruit actually quadrupled from 2000 to 2015. This means that prices were already rapidly increasing. In the three years following the beginning of this fad (2014,15,16) California experienced drops in their production of avocados due to increasing temperatures and decreasing precipitation and availability of water.
      I think the main difference in the effects on the avocado supply chain versus the banana supply chain is their time of relevancy. As you mentioned, bananas have always been a cheap, household staple. I usually associate bananas with a price of $0.15-$0.30 per piece. However, since their increase in popularity, avocados have almost always been moving towards a continually higher price point. This weakened the blow to consumers and allowed retailers to easily pass those prices along because consumers expect to pay more (and non-constant amounts) for avocados. Some grocery stores have good deals for around $1, while I have paid up to $4/avocado in the past.
      Source: https://medium.com/ibmindustrious/will-avocados-be-toast-soaring-demand-and-changing-climate-threaten-global-supply-chains-dca15156f606

  • April 11, 2018 at 7:52 pm
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    Katherine, I find it interesting that you decided to pick Bananas as a focus for supply chain analysis. It is kind of cool to think that such a simple product has such a diverse and complicated supply chain. The fact that ripening is a part of the supply chain is fascinating. There is such a complex system to the things that we consume in our daily lives. Since you bring up the question of should customers be paying more for bananas, I wanted to see if there were any overarching trends that are impacting supply chain costs. Fortunately, the first article I came across was titled “5 Key Trends Impacting Supply Chains.” The top trend within foodservice for 2017 that impacted supply chains was that consumer preferences are becoming increasingly diversified. This is interesting since consumer trends influence the back-end supply chains. You can read more about what trends have implications within the supply chain here: https://www.qsrmagazine.com/news/5-key-trends-impacting-supply-chains. I think it is very intriguing to see how all of these things are interrelated. Thanks Katherine!

    • April 11, 2018 at 9:17 pm
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      Kyle,

      I agree that this is such an interesting product to write about when discussing supply chain design and implementation. Timing the ripening and shelf-life of bananas creates a challenge for managers. Because of this, managers must create reliable and accurate forecasts for banana inventory levels. I also find it interesting that companies must stop ripening during transportation and then speed up ripening before they are put on shelves. The article you provided about consumer’s diversified food preferences makes me wonder if the demand for bananas will ultimately go down, since consumers are becoming less reliant on bananas as their primary supply of fruit.

  • April 11, 2018 at 4:55 pm
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    Thanks for your post!

    Like one of the other comments, this post made me think of avocados and the challenges that this industry faces. The main challenge for fruits and vegetable company are increasing food safety standards. US consumers are, in general, more demanding of a higher product quality, thus it is important to understand the need for a different quality strategy. The popularity of avocados in the US market created a higher requirement for better quality, consistency in product, and faster delivery times.

    Packers play a huge role in the overall supply chain are a crucial player in getting the product into the right customer’s hands. Their main objectives for packers – enhancing product quality and maintaining the quality level throughout the supply chain for the avocado packers, they must find the right product and right producers at the right costs. Producers, on the other hand, have to obtain the right skills and knowledge to be able to grow products at this level of quality. Packers of the product need to invest in a sophisticated sorting and selecting equipment, refrigerated storage, and cleaner packing facilities. There is a high amount of coordination that is needed in a food supply chain and for packers, there are two strategies available. They can vertically integrate with trading companies who have the connections with foreign customers or they can form partnerships with specific buyers and satisfy their demand.

    http://www.scielo.org.mx/pdf/etp/n42/n42a6.pdf

  • April 10, 2018 at 7:44 pm
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    Kate,

    Thank you for detailing the supply chain of my favorite fruit! I had no idea that wholesale prices were rising due to the harsh winters in Central and South America. The current banana situation reminds of the avocado situation that plagued America and, most importantly, Dhall last year. Like bananas, avocados are very weather dependent in their growth, and 2017’s weather was not kind at all to their harvest. As a result of the inclement weather, wholesale prices for avocado’s rose 125% since the beginning of the year compared to the 15.5% increase in wholesale price for bananas. Similar to bananas, avocados are very popular in the United States. However, this wholesale price increase could not be absorbed by retailers. Customers found themselves paying 31% more per avocado over the first half of 2017. For most retailers like grocery stores, avocados were still sold, but for a much higher price. The item’s popularity didn’t stop these retailers from ordering avocados from wholesalers. The University of Richmond, however, didn’t think the 125% increase in price was worth paying. As a result, Dhall stopped offering avocados, and students complained. Overall, the similarities between the banana and avocado supply chains are incredibly similar. The only difference is sensitivity to weather, which cause avocados to spike in price when things go wrong.

    http://money.cnn.com/2017/09/09/news/economy/avocado-prices-soar/index.html

    • April 10, 2018 at 7:57 pm
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      Nick,

      I remember when there was an avocado shortage on campus, people went mad! One way that agricultural companies can ensure a consistent supply is through the use of hydroponic agriculture.

      With hydroponics, the plants are grown in an inert growing medium and a perfectly balanced, pH adjusted nutrient solution is delivered to the roots in a highly soluble form. This allows the plant to uptake its food with very little effort as opposed to soil where the roots must search out the nutrients and extract them. The plants are grown in a temperature controlled greenhouse, safe from the elements and any damage that might be done to the plants.

      Hydroponic agriculture can be used to grow lettuce, avocados, onions, you name it. It’s a new innovative way to protect plants from the element and ensure a consistent supply, in turn preventing a massive increase in prices.

      http://www.simplyhydro.com/whatis.htm

    • April 11, 2018 at 8:51 pm
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      Nick,

      I also remember the avocado shortage last year, and I think it is a great comparison to make with the current banana market. Before reading this post I was not aware that the price of bananas were rising. I fact, I brought three bananas at Kroger this week for under $1. This is because, as Katherine said, retailers are eating the loss in margin. There would be a large controversy if suddenly the price of bananas–one of the most common items on people’s grocery lists–skyrocketed. It reminds me of the conversation we had in class a couple weeks ago on loss leaders, which as products that a store sells at a loss to bring customers into the store.

      I think a difference between the increase in prices of avocados and bananas is that avocados are considered a more ‘luxury’ food. As the fruit as risen in popularity (sales have increased for the past 15 years), it is common to see restaurants have the ability to add on avocado to items like salads and sandwiches at a premium. People are willing to and accept that there is an extra charge with associated with avocados. But I don’t think I can say the same for bananas which are more of a common fruit.

      Source:
      https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/?noredirect=on&utm_term=.b354c89ce2ba

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