Odd Lots - Episode 10: How the World Ended Up With a Boring Banana

Episode Date: January 11, 2016

This week, we're taking on one of the most fragile commodities markets around. No, it's not oil (though we do get to that later in the program), it's the market for bananas. Dangerously reliant on a single, boring breed of the tropical fruit, banana growers now face a rampant disease that threatens one of the world's biggest food supplies. We talk to Dan Koeppel, author of "Banana: The Fate of the Fruit That Changed the World," about the development of a monoculture-based banana market and the pitfalls of having a single breed monopolizing the local supermarket. Speaking of monopolies, we then take a swift detour from the banana republics of yesteryear to visit the oil-drenched Middle East of today, where Saudi Arabia is considering an initial public offering of its massive state-owned oil companySee omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask. Alexa, play the Odd Lots podcast on Amazon Music. Hello, welcome to Odd Lots. It's Monday, January 11th. I'm Tracy Alloway, executive editor of Bloomberg Markets. And I'm Joe Wisenthall managing editor of Bloomberg Markets. Hey, Joe, I brought you something. It's sort of a belated Christmas present. Oh, thanks, Tracy. What is it? A banana. Oh.

There you go. Thanks. Thanks so much. Thanks for this banana. Why did you bring me a banana? Because today we're going to talk about one of the world's most fragile commodities markets. And I'm not talking about oil. I am, of course, talking about bananas, the banana market. I had never even thought before that there was a banana market or even really thought of banana as a commodity. But why are we talking about it? Why are bananas interesting? bananas are interesting because they face a big threat in the form of a fungal disease. And as we're about to find out, that disease could end up having far-reaching implications for the world's food supply. Yeah, one thing about bananas, right, is that, you know, with like apples, there are tons of varieties in the sword, Granny Smith and Fuji or Fiji apples and all these. But there's pretty much just one banana, isn't there? That's exactly right.

Not only is there just one banana, the banana that's grown in 95% of the world's crops. And most likely the type of banana that you are holding in your hand right now called the Cavendish is actually a clone. It's a clone of itself. And it's just been cloned over and over and over. So it's very, very susceptible to this fungus, as we're going to find out. And so because there's just one banana, if it were to get sick, so to speak, that would not be good for the banana eaters and growers of the world. No, it definitely wouldn't, and it would mean that maybe one day you would actually appreciate the banana that I just put into your hands. So here with us today is Dan Copel. He is author of Banana, the fate of the fruit that changed the world.

And we're going to be talking about the market forces that brought us the Cavendish Banana currently sitting in front of Joe, how it got to be there, how we eventually ended up with this monoculture and the problems facing the world's collective banana crops now. Dan, welcome to the show. Thank you so much. So I want to start at the beginning. Let's go back to 1904 when the banana split was invented in Pennsylvania, and that kicked off a craze for bananas in America and a huge jump in the number of bananas imported. Wait, what's the beginning? You want to go back even earlier?

Is that what you're saying? Yeah. Like prehistory? Yeah, I do. Okay. All right. Let's start at the very, very beginning. Why are bananas special?

And we're talking, you know, 10,000 years ago now, are one of the fruits, one of the agricultural products that actually helped humanity emerge from hunter-gatherer cultures and into communities. Bananas are very easy to cultivate, and it's believed that wild bananas, which are basically in edible and have a lot of seeds in them, that mutant versions of them that were taken by these hunter-gatherers and planted. And, you know, when you plant, you have to stay put to watch it grow. So you need to form communities. You need to develop language. You need to develop history so you can pass knowledge on.

So the banana emerges very early as the first staple fruit that helps us, you know, literally get out of the jungle into villages. And the way bananas are planted is kind of special as well, right? Yeah, so, you know, wild bananas, and some of them still exist, have seeds. and they can reproduce like many plants. But what makes bananas so unique is that they also can reproduce when they're seedless through planting a chute. A mother plant will fruit once and then give off a daughter plant. And that generation for hundreds and hundreds of years.

And apparently the banana is so crucial to humanity that it might have actually been the banana, not the apple, that Eve gave to Adam in the Garden of Eden? Yeah, I mean, let me be clear. I am not suggesting or I'm not not suggesting that the Garden of Eden was a real place. Right. That's a theological question. But if you look at the story of the Garden of Eden as historic metaphor, Adam and Eve are those hunter-gatherers we're talking about. They live in the garden, and they can pick whatever they want, they have no worries. But once the forbidden fruit, them to emerge, and literally the Bible says to work the earth, to till the soil,

And so the story of Adam and Eve is the story of the emergence from hunter-gathering its community. And so it makes a lot of sense for a lot of reasons that the banana was that fruit. Pretty sure appears mostly because of our experience with Renaissance paintings, and the Renaissance painters misinterpreted the Hebrew and Greek Bibles, and so painted apples when they probably should. Never trusted those Renaissance paintings. Now, the pomegranate people are going to tell you something totally different. Let's not bring the pomegranate crowd into this.

That just seems too dangerous. People are waste for those guys. All right. So we have these bananas that are relatively easy to cultivate. More importantly, you can carry them around with you all over the world and plant them and get new banana plants. How do we get to the point where banana crops really start to become industrialized and you see the big, big growth in the industry? Well, that happens. thousands and thousands of years later, and it's almost impossible.

The banana is barely known to places where the banana can't grow. So the banana is a tropical fruit, so for it to appear in someplace like North America or Europe is crazy. And in fact, if you look at old etiquette manuals, the banana was known to Thomas Jefferson, for example. He had some books that mentioned it, but it was considered literally a forbidden fruit. Its shape was too suggestive in the Victorian era for ladies to eat. And so the banana had to be sort of prepared in this, if you could find one. It had to be prepared in this crazy way that, you know, cut it up so it wouldn't have any sort of suggestive shape. And by then it was all mushy who wanted to eat it.

It took transportation and sort of audacity. The banana was exhibited at the centennial exhibition in Philadelphia in 1876, and not long after that, a Cape Cod C-Captain named Dow Baker had just failed to find gold in Venezuela, and he was sailing back to, with nothing in his pockets. He stopped in Jamaica for repairs, and he saw a bunch of bananas and thought, gosh, you know, maybe I can cut my loss by bringing us, and maybe I can sell a few of them. It was a crazy idea because his ship was a schooner sail-driven, but the winds were favorable.

The bananas didn't go bad. It took them about eight days. And lo and behold, the bananas were a hit. The company Baker founded was called Boston Fruit. It later changes named to United Fruit, and today it's called Chiquita. But the industry didn't really take off until they could ship them quickly in refrigerated chips. Now, let's talk about, you know, before you joined us, I was sort of talking to Tracy. I find bananas to be a little boring that I don't, they don't have all the same varieties as like apples and apples.

You know, there's so many different types you can buy in the, grocery store of apples, but there's just one banana, the big yellow one. It's kind of plain and boring. How did that happen? How did we end up with this one big boring banana? So let's talk, first of all, about that, you know, the myth that there's only one banana. And yeah, it's true. Let's face it, if McDonald's had its way, you'd think there was only one hamburger, and it wouldn't be something very good to eat. It would be a cheap, disposable, dull, not very tasty commodity. The Cavendish banana, that's the breed we eat, is the same. But I can tell you, having traveled the world for 10 years, tasting bananas, there

are over a thousand different varieties of banana, and every single one of them tastes better. It's all about McDonald's. We cannot think of the banana that we get as an agricultural product. We think of it more of an industrial product, the same way McDonald's produces an industrial hamburger, and it's all about uniformity. The banana is a tough product to ship even today. It has to have a lot of attributes. It has to survive the voyage. It has to ripen at the right speed. Banana trees have to resist certain diseases.

They can't be too high or they're hard to harvest. So as an industrial product, the banana industry made systematic in some genius ways and some terrible ways, the production of the fruit. And so I like to tell people, it's like there's a banana tube, two kind of banana. It's a metaphoric tube, not a physical size. requires different growing and shipping techniques of bringing one banana. So at the turn of the century, when bananas are really sort of taking off, the industrial standard of banana was a variety called the Gross Michelle. Am I saying that right?

Yeah, the Grow Michelle. Grow Michelle. There you. And that was a great banana. It actually tastes better than the cabin. If you look at some of the old movies, you'll see that's because those bananas were so tough. You could throw them into a boat, and they wouldn't bring it. roots. The Cavendish banana has to be boxed in bed. The Gromache shell was industrialized, and it became

a monoculture. And what happened, as often happens with monocultures, between 1900 and 1950, you see the banana industry, doing terrible things to sort of acquire more land to replace their fallowed farms that are blighted by this disease. But eventually, the Gromichel goes functionally extinct. It still exists. I've tasted it, but it cannot be grown commercially. Explain, you mentioned that the groma shell can no longer be produced industrially. Is that because of that same disease, or what's the reason for that? Panama disease. Plants can no longer produce fruit.

It happened in Latin America where they were growing was one field would get contaminated in a few years. And then at this point, there's probably no place in the world where you could grow the Gromichel in industrial quantities. But you'll still find it in many places as a garden banana, as a local banana. So I'm wondering, as Panama disease was going to be. kind of overtaking banana crops in the early 1900s. What did the fruit companies do other than just find new land and use pesticides? Did they try any other methods to combat the disease?

They did terrible, terrible things. They were warned by their scientists. I mean, I have, you know, reports that they wrote in the, the Chiquitas scientists wrote on the 20th thing. You've got to diversify. We can't do monoculture. It's not going to work. There's so many reasons this is a terrible thing. But it was cheaper and easier. Remember that the whole idea of the banana was that it would be the cheapest fruit in the supermarket. This was their business model. And so in order to keep cost down, they had to do terrible things, literally takeover countries, literally massacre workers, happened over and over again in Latin America. These countries were known as banana republics, because with the support of the U.S. government, they were run by the banana companies,

and they were run as terrible, terrible dictatorships. All this to keep bananas. is cheap. And so when the land starts becoming fallow and the groma shell starts having to be chased, they become even more brutal. They start to take more land. They become very aggressive about it. It's a cash 22 in a way. Demand for bananas is increasing because they're genius marketers. The number of places you can grow bananas is decreasing. The costs are going up, but their business model requires the cost to stay down. So with no real hesitation, they went out. And, for example, in 1929, they're emerging from church in a village square in Colombia, more money, and because they're running out of land and because of the banana industry, decides they can't do that. Yeah, I remember that scene makes it into 100 years of solitude.

Right. Yeah. So instead of diversifying crops, though, the fruit companies essentially just switch to another monoculture, which is the Cavendish. Right. You'd think they'll learn their lesson. By 1950, and you now have two. You have two main banana companies, are the smaller one of standard fruit, now known as Dole,

and the large one is Chiquita. Actually, Tequita, by 1960, is on the verge of bankruptcy because it won't switch to Cavendish because it doesn't believe in it. And standard fruit, being smaller and perhaps, you know, more nimble, is able to make the switch, and immediately gained about 50% of the banana market. It becomes dull, and so it's really the story of Tequita losing about 40% of its market share that it never really regained.

and ultimately they had to adopt the Cavendish too. And they pretty much thought all as well. I mean, it's kind of crazy because anyone who grows, even though a garden or grew up on a farm knows, you can't just put all your bananas or whatever in one basket. You've got to have diversity. But the banana industry glibly goes on and thinks everything is going to be okay, but it turns out it's not. Right.

So fast forward to today, and we have yet another disease threatening yet another monoculture in bananas. Right. yet another disease, the same disease. It's a different variation of Panama disease, but it's the same disease. It's the same story, except this disease appears to be more aggressive. It seems to render, and this variation of Panama disease first killed a cavernous crop in Malaysia around 1989, at least that's what most people believe. And then has since then this disease has jumped oceans. It is now in Australia. It's It's in Indonesia.

It's in Philippines. It's in Taiwan. And it was recently discovered in the Middle East and in parts of Africa. And so even though it hasn't affected our banana crop yet, which has grown in South and Central America, you can see the sort of jaws on the map beginning to encircle the most rich commercial banana lands in the world, which are the ones that supply us. So do the growers of bananas have any strategy or better effective techniques to fight this disease than they did decades ago the last time, or are they sort of, is it going to be the same story?

Well, until very recently, the banana companies were in astonishing denial, literally not mentioning this disease, refusing to discuss it. And then finally, when they did discuss, they said it's not a problem. It's going to happen a long time from now. We'll be prepared. You know, they started making some noise about it. I mean, there was a huge commercial plantation in Mozambique last year that was devastated, and that was, that was. was a wake-up call that plantation was started by Chiquita, so Chiquita can't deny that the disease exists. But what to do is a real problem. This fungus remains incurable.

There are some possible replacement varieties, but none have been thoroughly tested, and we don't know if they really resist or how well they resist. And there doesn't seem to be any means of control of this fungus. The answer, again, is going to be diversity. have to have more than one banana. This protects the business. It protects the plant. But the question is, can the banana industry pull up its big board pants and embrace diversity when its hundred-year business model is completely opposed to that? And so far, the jury is out on that. Dan, are we seeing any price increases or shortages showing up yet from

this disease? Have we seen it impact the end consumer in any way yet? Not yet. There have been some shortages in other places that have been affected by the disease. Banana prices, for example, in the Middle East have increased. But the banana industry is very price sensitive. A bad mudslide in Ecuador will raise the price by 10, 15, 20 cents a pound. And there's a big question about how high bananas can go. We saw a few years ago banana prices went up to about 79 to 8. 80 cents a pound, and people kept buying them.

59 to 69 a pound is the usual price. Trader Joe sells them for 49 cents a pound. The banana industry has traditionally believed that there's a dollar a pound threshold, at which point the whole business model collapses. If Panama disease hits this hemisphere, that threshold will be met and we'll have to see. How big is the banana industry? Billions of dollars. I mean, it's the industry is the most, it makes the most popular fruit in the world.

It's the most, we Americans eat more bananas than apples and oranges put together. That's pretty standard all over the world. But even bigger than that is the subsistence banana, places like African, Asia, where people rely on bananas for their daily nutrition, and in the lakes region of Africa and Central Africa, some people get 90% of their calories from bananas. So it would be a business disaster to lose the banana or see that, that configuration of the industry changed, but it could also be a humanitarian disaster, which is something that I worry about a lot.

All right. On that depressing note, we're going to end it. Dan, thank you so much for joining us today. We'd have one more question. Okay. If someone listening to this who wants to eat a truly delicious banana, where should they go and what variety should they get? Oh, I can tell you, without a doubt.

It's a banana that is called in Swahili Ibota Ibota, which means fertile, And it's called that because this banana tree produces 200 plants per bunch. But the banana itself, I'm going to sound like a foofy wine critic. It's got like complex taste. You bite into it, it's sour, and then it gets sweet in the middle. And the texture is very firm and wonderful. It's not mushy. It's a great banana.

Unfortunately, this banana suffers from something called finger drop, which means that when you pull one fruit off the plant, all the fruits fall. Exposes them to air and makes it impossible for them to survive more than a day. So the odds of us getting one here are pretty weak. But, man, that is a great banana. I taste it in the Democratic Republic of Congo. I sense a Congo trip in the West. I said odd lots in Democratic Republic of Congo to our banana tasting tour.

Just for the banana. But if you've got something else to do there, seek out that banana. All right. Thanks so much, Dan. Joe, do you appreciate your Cabin-Dish banana more or less now? It just makes me depressed because I love fruit and, you know, I have had some good bananas in my life and it's depressing that there could be this great fruit that we have and instead we have this really mediocre one.

But I am really fascinated by the industrial aspect of it because it is true. We know how hard it is to store bananas. You can't put them in your refrigerator. They bruise really easily. So I am kind of in awe of the fact that this. banana, it's so cheap and it travels these distances and it comes, arrives in pretty good shape. Yeah, and the banana business and market is really a story of technology and globalization, but those same things and industrialization. And those same things, though, are now kind of

threatening it. Something that I was thinking about, it was interesting the point he made that that one guy became a banana industrialist after a failed search for gold. And that made me think, especially later, talk about the horrible things that were done in the early days of the banana industry reminded me of a lot of the horrible things that have been done in the name of acquiring gold for thousands of years. So there are some interesting parallels there. Absolutely. All right, we're going to move on to a different commodity market now. It is, of course, oil. And listen to my story about a man named Chad. A poor modern ear barely kept his family fed. And then one day he was shooting at some food. And up through the ground come a bubble and crude.

Oil, that is black gold, Texas tea. So there's this big, news, Tracy, going on in the world of oil right now. Obviously, oil has been getting clobbered. It's putting a lot of pressure on Saudi Arabia, obviously, highly dependent oil economy. Indeed. And there's this possibility that Saudi Arabia might do an IPO of its gigantic state-owned oil company Saudi Aramco. It's the biggest oil company in the world in terms of volume. nobody ever thought that it would possibly there be a public flotation before, but it sort of speaks possibly to where we are in the oil cycle and stresses that Saudi Arabia is feeling that it's even thinking about taking public this oil giant.

It's a huge, huge deal for the market, and I can envision hundreds of M&A bankers and lawyers salivating over the prospect of this company going public. It could be epic. All right. So with us to discuss the possibility of an IPO of Saudi Aramco is Javier Blas. He's a star Bloomberg oil reporter in London. Javier, thank you very much for joining us. My pleasure.

Javier, try to describe the significance of this IPO word to happen for people who don't appreciate the size and scale of Saudi Aramco. Well, let me just put it on very simple money terms. An IPO of Saudi Aranko could mean that that trend. trillion company comes to the market. That is, compare that with Apple, that is $600 billion. Wait, did you say $600 billion compared to $10 trillion? $10 trillion. How could it be worth that much? Well, you just start with the amount that ExxonMobil, the largest and a most valuable oil company, actually is about $320 billion, okay? And Exxon has about $25 billion.

billion oils or barrels of oil on his reserves. That compares, that's about a large chunk less, that Saudi Aranco, which has 260 billion, that's 11 times more. And the numbers are huge gigantic for Saudi Aranco. They produce about 15% of the oil that we consume globally. They have refineries in Texas, in Saudi Arabia, in South Korea, in China, in China. in Japan, they are building now a refinery in Indonesia. They have one of the worst-largest fleet of supertankers to transport oil around the world. And also, they are in effect, the central

bank of oil. If we have a problem elsewhere and we need more oil because someone else is going through a strike or weather problems, it's Saudi Arango who can increase the production. It's just a gigantic company. I love that phrase, the central bank of oil. It's like if the Fed was to IPO itself. That's a kind of significance for the oil market. Okay, but why IPO now with oil at something like $30 a barrel? Well, it is a very off timing. So there are many theories, and Saudi Aranko has not explained why he's thinking right now.

Neither the deputy crown prince, Mohamed bin Salman, who first told the economist's newspaper that these plans was under consideration has given much of an explanation. of why. But you could think of several options. One is that Saudi Arabia needs the money, and they are going to IPO to raise more cash to be able to survive when oil prices are the lowest in 12 years. You could also think that Saudi Arabia has decided to let the market worse as a market. And in that case, why not to make their company, the national company, more like Exxomobil and at the same time raise some money? It could be also a case that they want to give up some shares to the local population to keep everyone happy now the oil prices are low.

In a way, a transfer of wealth from the state-owned company into the citizens that they are suffering from the low price. But certainly, the timing is rather odd because you will have expected that the Saudis wanted to sell. They would have sold in 2008 when oil prices were $150 a barrel. And certainly, I cannot be mind what numbers analysts will put for the valuation of Barranco. Let's talk about the history real quickly. How did Saudi Aramco get to be what it is today? The predecessor of Texaco and Chevron went to Saudi Arabia, reached a deal with the government at that point and they started exploring for oil in 1933. They created the first company what will become later Saudi Aranko.

Oil was discovered in Saudi Arabia a few years later in 1938. And then American companies since then were heavily active. and in fact, the company was an American company under an umbrella of Saudi Arabia. The kingdom took over slowly the company, started in the 70s and completed in the 80s. But the mentality of Saudi Arabia is now a fully-owned, state-owned company, and the leadership is Saudi. You still feel very much that it operates an American company. It's very meritocratic, pioneering technology. It's very different to other national or state-owned companies which are associated with corruption

and bad practices. Saudi Oranco probably is the closest that you could find in a national company to an exomobile. So something that you wrote when you think about how the market might value this, typically state-owned oil companies, when they sell to the public, they don't command a particularly high valuation. People don't pay much of a multiple for their earnings. But do you think because Saudi Aramco has run more like an American meritocratic corporation that it could be valued at some kind of premium to another one? I think that it could get a better price because of that and because of its size.

But there will be many pitfalls to convince investors to put money in Saudi Arabia. For the status of the political race of putting money in Saudi Arabia, also an investor in effect, if they buy shares of Aranco will be subsidized in the Saudi government. something that some investors may have a problem with. And I think that the critical aspect is the amount of disclosure that Aranko will need to do. We know very little of the company. We have never seen a balance sheet. We have not seen a profit and loss statement. And we have not seen an audit of its reserves.

So a lot of disclosures will need to happen to convince skeptical investors that actually they need to put the money. But yes, probably it is not going to be a Ross Neff for a person. Petrobras that they're involved in political, political risk or corruption scandals. This is a company that probably could be closer to the valuation of ExxonMobil than anyone else in the world of state-owned companies. I still don't envy anyone having to do due diligence on that, though. Well, and also bear in mind that potentially we are going to have socialized law involvement, so it's going to be Islamic finance.

It will not be, if it happens, it will not be. be an easy IPO, but certainly the size is so big that every banker in the oil industry is salivating until just because it may just happen. All right. Well, thank you so much, Javier. Obviously, this is going to be a fascinating story, particularly if it unfolds. And we'll be watching your writing and you're reporting on Bloomberg TV over the coming months. Thank you for joining us.

Thank you for having me. This concludes another episode of Oblots. Thank you very much for listening. I'm Joe Wisenthall, managing editor of Bloomberg Markets. You can follow me on Twitter at the stalwart. And I'm Tracy Allaway. You can find me on Twitter at Tracy Allaway. And Joe and I are going to go eat some boring bananas now. Joe and I are very proud of our new podcast Oddlots, but we are also very proud of Bloomberg's other growing suite of original podcasts, all designed to help you navigate the complexities of business, financial markets, and the global economy. So in addition to our own podcast, please don't miss Benchmark with Dan Moss, Tori Stillwell, and Aki-Ito, an informative jargon-free look at the inner workings of the global economy.

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