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.
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.
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?