Cheap Bananas Leave No Room To Absorb Higher Costs
Corrugated boxes are up as much as 50% in Ecuador, protective plastic is up 25%, and fuel raises almost every other cost.
Marketplace · A divided government could shift the bond marketBananas are a low-priced fruit sold on thin margins, and rising costs are squeezing those margins further.
Daniela Velasquez de Leon runs Organics Unlimited, a San Diego company that grows and imports fruit. She says sales have been good this year, but cost increases have taken up most of her attention.
Bananas “are already a very low priced item with a low margin” with “there's not a lot of space to absorb those costs,” she says.
The squeeze comes from three places: packaging, freight, and farm supplies. Corrugated box prices, meaning sturdy cardboard boxes made with wavy paper inside, have risen about 10% in Mexico and as much as 50% in Ecuador.
She ties much of that jump to the large number of paper mills in the United States that shut down over the past few years, which supplied much of the North American capacity.
Plastic is the second pressure, even though bananas use relatively little of it. The small amount used to protect the fruit during shipping has risen 25%.
Fuel is the third, and its effect goes beyond trucking the fruit to the United States. Higher fuel prices also raise the cost of moving fertilizer, packaging materials, and nearly all other supplies needed to grow the fruit.
Passing those costs to grocery stores is complicated because bananas are purchased on contracts, with prices set for the year. The company sometimes must pass along major costs, as with tariffs, but otherwise tries to find efficiencies.
Other companies across the industry are describing the same problem, she says: logistical costs affect the price of bananas.
Questions people ask
Why are bananas usually so cheap to begin with?
Bananas grow in warm climates year round, ship in large volumes, and ripen after harvest, which keeps handling simpler than for many fragile fruits. Stores also tend to keep banana prices low to draw shoppers, which puts steady pressure on suppliers to hold their own prices down.
Why do banana suppliers agree to yearlong contracts?
Annual contracts give retailers predictable prices and give growers and importers predictable sales for a perishable crop that cannot wait in storage. The tradeoff is that the supplier bears most of the risk if boxes, fuel, or farm supplies get more expensive during the year.
How can closed paper mills in the U.S. raise box prices in Mexico and Ecuador?
Corrugated board is paper with a wavy middle layer that makes boxes stiff enough to stack without crushing fruit. When mills close, the remaining mills have more pricing power, and buyers in Mexico and Ecuador can face sharp increases even though the boxes are made and used outside the United States.