Analysis of Banana market in USA

In a recent article written by IFAS I found out that banana is the number one fresh fruit consumed in United States. The volume of banana imports have steadily increased at its peak in 1999, and after that year, continued to fluctuate between 3,800 to 4,100 thousand tons annually. US banana production is very limited in 2009; US total banana production reached at 7000 million metric tons or 0.01% of the total world production. Hawaii is by far the biggest US producer of bananas, followed by Florida.

Recently production of bananas in Hawaii has followed a downward trend; in 2010 from 13,181 million metric tons to 8,090 million metric tons. As I learned in ‘demand and supply’ chapter, two determinants that could result in decrease of banana production are bad weather (supply determinant) and low average income of population (demand determinant). The effects are shown in Fig.1 and Fig.2. 

Fig. 1

As you can see in Fig.1, due to bad weather the supply curve has shifted to the left from S1 to S2. This has probably occurred because of low fruit yield; therefore quantity has decreased from Qd1 to Qd2 - as a result, increasing price from P1 to P2.

US Market for Fresh Bananas

The US banana market is free of tariff unlike the EU market, therefore making it a very competitive market. In 2000, the total value of bananas was at $1.02 billion, representing 32% the total value of fresh fruits imported that year. By 2010, the import value had risen to $1.64 billion, that’s a 64 percent increase over the year 2000 figure. The increase in import value is mainly due to the increase in unit price stemming from weak US dollar and was not a result of increased volume. As shown in Fig.2, total supply of fresh bananas remained relatively constant. This implies in general the US fresh banana market has become saturated. This point is further solidified by the evidence of slight decline in consumption per capita, down from 12.9 kg in 2000 to 11.2 kg per capita in 2009.

US fresh market fruit value of imports, 2000–2010 [Source: USDA/FAS (United States Department of Agriculture Foreign Agricultural Service)]

Price analysis of Fresh Bananas in United States

As I read in the Dole Food Company annual report (it’s in their website), it analyzed the price of conventional bananas among New York City (East Coast) and San Francisco (West Coast), because data on wholesale prices for conventional bananas were limited in Agricultural Marketing Service (AMS) of United States Department of Agriculture (USDA) as mentioned in the report .

I found out that the price of bananas in general increased, significantly in 2008. I suspect this could be because of lower supplies from major producing countries and higher transportation cost due to increase in fuel price. During 2007 to 2010 the price of conventional bananas fluctuated between $12.55 and $24.50 per box, a difference of almost $12 dollar per box. In general prices tend to be higher in the earlier months of the year and then decline in latter parts of the year. This could be because in earlier months of the year weather conditions are too cold across United States, therefore less volume of fresh bananas are yielded from plantation. In later months the climate tends to be relatively warmer, providing an environment to stimulate growth, therefore increasing the yield of fresh bananas harvested.

Demand of Fresh bananas in United States

In a recent journal article I found the retail purchase data of conventional fruits and organic fruits. The study included five major organic fruits and five major conventional fruits including apple, banana, grapes, oranges and strawberries. It was found that demand for both organic and conventional fruits were price inelastic.

The estimated elasticities for organic bananas and conventional bananas were -3.19 and -0.70 respectively. These elasticities are negative, which means, according to economics literature, bananas are inferior goods. Usually low income earners spend a higher proportion of their income buying inferior goods; as income of an individual increases the amount spent on inferior goods decreases. Furthermore, disregarding the negative sign I could conclude that demand for organic bananas is price inelastic, which means demand for organic bananas is very responsive to change in price. A possible reason for this could be that there are many “marginal” consumers. That means if the price of organic bananas rose by 1 percent, quantity demanded will fall significantly more than 1 percent.  On the other hand demand for conventional bananas is price inelastic. So a 1 percent fall in price will have relatively low impact on quantity demanded for conventional bananas.