Dividends and Why bananas have avoided inflation so far and how producers want that to change

Most people when they go to the supermarket tend to buy bananas because they are good for you and the price tends to be low. For a number of years, bananas were considered by the supermarkets as a loss leader, or the company kept the price low for people to buy as they saved money on that purchase, perhaps they would not notice they were paying more for other products. There is a science and an art to supermarket pricing for consumers will remember the prices of items they pick up frequently. Supermarkets have teams of people dedicated to where every product goes, in the supermarket world they are called plan-a-grams.

Bananas have a long history since they were brought to America in the 1870’s and evolved to United Fruit which gave the term banana republics to the countries where they are grown. United Fruit paid dividends for decades however it was broken up by the Federal Government and now the big 3 are Dole, Del Monte and Chiquita-Fyffes which control over 80% of the banana sales.

In an article by Matt Lundy, one of the reasons many people buy bananas is they perish within a few weeks of harvest. Most of us eat the type called the Cavendish. The bananas are grown in Latin America, but Ecuador in South America has emerged as the world’s largest exporter according to the Food and Agriculture Organization of the United Nations. The banana is a tropical fruit but grow year around meaning you can buy them anytime you go to the supermarket.

Decades ago, as producers were vying for market share, they started offering longer contracts to their buyers. Now, most of North America supply is sold under rolling one-year contracts, with a fixed price per box. (Bananas come in a box to ensure the bananas are not bruised and can be sold as premium. Even though the Big 3 control 80% of the market, the smaller producers would and do offer lower prices which the supermarkets are very good at ensuring the buyers keep the suppliers fighting one another for sales.

At the moment there is a glut of supply or oversupply, however with bananas having no seasonal variation in consumption, producers have little leverage to push up prices. There are signs of a shift, not much, but signs when Johan Linden, the chief operating officer of Dole told analysts that demand for bananas was increasing. Shoppers are cutting back on other fruits and buying more bananas as they are inexpensive. Can prices rise as costs to producers rise?

Linking to dividend paying stocks, from 1900 to the 1940’s, United Fruit was a stock to be held in a dividend portfolio. Companies that deal in commodities try to keep production costs low and margins healthy and if that happens profits are declared, and dividends paid. Everyone knows some prices of something, often times in the supermarket it is the banana. We look at the price and project it to the rest of the company and that can be a good thing. It is important to do other homework before investing but knowing a price can be a great starting point.

There are more questions than answers, till the next time – to raising questions.


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