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Supply and Demand: Banana Economics

Jun 1, 2013 • Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance, Labor • 504 Views    No Comments

At my local supermarket, bananas are 69 cents a pound while Red Delicious apples, grown much closer to home, are $1.49 per pound.

As banana writer Dan Koeppel points out, “That bananas have long been the cheapest fruit at the grocery store is astonishing. They’re grown thousands of miles away, they must be transported in cool containers and even then they survive no more than two weeks after they’re cut off the tree.”

Have you ever wondered why bananas are so cheap?

Supply:

  • On the supply side, production and transport create economies of scale. Cultivating just the Cavendish on large plantations, most banana growers reap the benefits of mass production using inexpensive labor with a standardized product that grows and ripens at the same pace. Then, an efficient transport infrastructure takes bananas to us rapidly.

Demand:

  • Meanwhile, on the demand side, to create popularity, the banana became ubiquitous through catchy advertising like the Chiquita banana song, below. (I’ve never heard an apple or an orange jingle.)

Sadly though, the Cavendish banana is in trouble. Called Tropical Race Four, a devastating banana fungus has struck Cavendish banana plantations in Asia, Australia and the Pacific. Banana experts are worried that Latin America will be next.

Reading all of this about the banana, I started to think about the rise and demise of Henry Ford’s Model T. On the supply side, it too achieved economies of scale. Made only in black after 1914, its standardized parts, its state-of-the-art moving assembly line and its use of unskilled labor minimized production costs. On the demand side, prices were low and sales were huge until consumer interest plunged when General Motors offered cars in different colors and new models each year. In 1927, Ford actually had to close their factory for several months to retool production for the new market.

Maybe cars and bananas that come in only one model are especially vulnerable.

Sources and Resources: Excellent for banana history and production, this NY Times Op-Ed from Dan Koeppel, this Freakonomics post and this New Yorker article and video provided all you would probably want to know about banana economics. Then, for a more recent update, this article was the perfect complement.

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