The Trade Numerologist: Russia Wants Your Bananas

01 Mar 2018 John Miller

A recent surge in Russian demand for bananas has tightened supplies of the ubiquitous fruit, driving up prices and underscoring how one country can swing global markets.

Trade in bananas, a $12 billion-per-year global industry, also makes for a rich case study in how global agricultural commerce is evolving, with trading companies taking market power away from producers, tariffs dropping over time, and the invention of new methods of shipment.

Bananas were the first globally-traded fruit. Colonization led to the development of widespread banana growing and trade in the 19th century. By 1880, bananas were being exported from Jamaica and other Caribbean nations, finding a niche as an exotic treat in Europe and the U.S. After diseases imperiled the viability of bananas in the 1950s, the development of a new strain, the Cavendish, stabilized production and solidified the banana’s status as a household staple around the world.

Trade has been increasing. “Following two consecutive years of sustained growth, global exports of banana, excluding plantain, are expected to reach 18.1 million tons in 2017,” the Food and Agricultural Organization wrote in a recent report. However, the FAO notes, “a series of tropical storms in the Caribbean in September 2017 caused severe disruptions to supplies and transport in the fourth quarter of the year, resulting in significant crop losses and lower shipments in a number of Caribbean countries.” The weather dinged output in Honduras, Guatemala and Mexico. The winner: Ecuador, which suffered less.

Despite recent subsequent shortages, don’t expect your local gas station to take bananas off the counter. The industry is expanding to meet demands in new markets, and also changing, away from vertically-integrated colonial producers and toward direct supply to supermarket chains by smaller producers.

The banana industry, to be sure, only relies partly on trade. Globally, producers grow over 110 millions tons a year, led by India, China and the Philippines, which make the fruit almost entirely for their domestic eaters. That leaves massive markets that don’t have any banana farmers, especially in Europe, the U.S., Japan, and Russia.

Top bananas importers, first 11 months of 2017

U.S. $1.9 billion (+2.3%)
Belgium $1.1 billion (+13.3%)
Russia $934.5 million (+14.7%)
Germany $847.2 million (-1.2%)
Japan $740.1 million (-9%)
UK $701.8 million (-3.1%)
Netherlands $687.7 million (+58.6%)
France $477.4 million (+26.4%)
China $469.7 million (-8.6%)
Italy $438.8 million (+4.3%)

The global market for bananas has been upended by a ramp-up in Russian appetite for the fruit. Russian imports of bananas have increased 32% to 1.4 million during the first 11 months of 2017, from 946.8 million tons in 2010. The Netherlands, a key trading hub, has ramped up imports in order to increase supply as prices rise.

The world’s big banana producers and trading hubs appear to be up to the task. Exports from nine of the world’s top ten banana exporters increased during the first 11 months of 2017.

Top banana exporters, first 11 months of 2017

Ecuador $2.6 billion (+12.4%)
Belgium $866.6 million (+10.5%)
Colombia $810.3 million (+10.4%)
Guatemala $736.6 million (+13.6%)
Philippines $601.7 million (+20.2%)
Netherlands $469.6 million (+25.2%)
U.S. $374.6 million (+2.8%)
Germany $263.6 million (-8.6%)
Costa Rica $250.4 million (+45.9%)
Honduras $214.6 million (+1.1%)

Banana trade has been deconsolidating. A recent report by the Food and Agricultural Organization in Rome found that the cumulative market share of the top three banana traders – Dole, Del Monte and ChiquitaFyffes – has declined to around 35%, from almost two-thirds in the 1980s.

Instead of purchasing from these companies, supermarket chains in Europe and the U.S. have been buying more fruit straight from producers, forcing the big banana companies into trading firms that must compete to process and ship fruit at competitive prices. Instead of owning and operating plantations in so-called banana republics, they’re becoming traders, more like Glencore or Cargill. For example, Fyffe, now merged with Chiquita, once owned big banana farms in Belize and Jamaica, but now buy bananas from producers.

Ecuador has firmed up its position as the world’s banana superpower, thanks in part to a new trade treaty with the EU that reduces tariffs. Since investing and developing a banana infrastructure in the 1950s of farms, roads, trucks and ports, Ecuador has harvested and shipped bananas almost year-round. It is the country’s second biggest export after oil.

Ecuador banana exports, by kilos, first 11 months, 2012-2017

2012: 4.7 million kilos
2013: 5.1 million kilos
2014: 5.5 million kilos
2015: 5.7 million kilos
2016: 5.6 million kilos
2017: 6 million kilos

Banana demand also test, and offer opportunity for, the world’s fleet of aging refrigerated, or “reefer”, shipping containers, and propel markets for a new line of vessel, the so-called RoRo – short for “roll-on, roll-off” -- Reefer, specially designed to handle trade in bananas.

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The Trade Numerologist is IHS Markit’s unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit’s Global Trade Atlas database, the world’s most complete and accurate set of trade numbers.


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