The Biggest Threat to the Banana Industry Doesn't End With Bananas

Corn and bananas share vulnerabilities that should have Monsanto and Chiquita worried.

Mar 16, 2014 at 1:21PM

Monsanto Company (NYSE:MON) could learn a lot from bananas, and Americans may want to pay attention as well. A fungus that is spreading and destroying Asian banana plantations will inevitably hit the American supply of bananas. When it does, our most beloved version of the fruit may go extinct. Though no such fungus or disease is currently known to be a threat to the world's corn crops, the dominance of a single corn crop in America makes it susceptible to destruction for the same reasons that bananas are currently vulnerable. If a single fungus can wipe out the banana industry due to its dependence on a single cultivar, a similar lack of biodiversity in the corn industry should raise concern among investors and citizens alike. While one might be able to imagine a country without bananas, it may be more difficult to envision a world without corn.

The fall of the banana
Americans love bananas, but the only places where bananas can be grown domestically are Florida and Hawaii, where the crops are small compared with those grown in more tropical climates. This makes the U.S. extremely dependent on imported bananas, mostly sourced from Latin America. The required traits to enable packaging and relatively long shipping times along with the desire for a wider-appealing, blander-tasting, fungus-resistant product has narrowed the American market down to a single banana: the Cavendish.

The Cavendish came to prominence over half a century ago when a strain of Fusarium oxysporum f. sp.cubense (Foc), a fungus responsible for Panama disease, decimated the most dominant banana cultivar of the time (the Gros Michel). Though the Cavendish variety was chosen largely for its resistance to Panama disease, the varietal is susceptible to a new strain of Foc (Foc-TR4) that could wipe out the Cavendish in the same way the fungus took out the Gros Michel decades ago.

Some varietals eaten in other countries are not susceptible to Foc-TR4. The heavy reliance of the industry on the single Cavendish varietal, however, makes the threat of a single fungus strain that much more imposing. Herein lies the biggest liability for leaders in the banana industry like Chiquita (NYSE:CQB) and Fresh Del Monte Produce Inc (NYSE:FDP) as well as Monsanto's corn industry: a lack of biodiversity.

The differences between bananas and corn
Though Cavendish bananas are pretty much the only bananas that Americans consume, local populations are heavily dependent on the crop as well. Of the whopping 40 million tonnes of Cavendish bananas grown annually, only 40% of them are exported, making less nourished countries even more affected by Foc-TR4.

Cavendish bananas make up around 40% of overall banana production worldwide. By comparison, even though Roundup Ready crops have been around for less than 20 years, Monsanto's GMO (genetically modified organism) corn commands about 80% of the U.S. market, and corn is the only genetically modified (GM) crop grown commercially in Europe. The domestic soybean seed market is comparable to that of corn, and Monsanto has specifically developed the INTACTA RR2 PRO soybeans for commercial use in Brazil.

The heavy reliance on a single banana that is not resistant to a new fungus has the $7 billion banana industry in a panic. Realizing that the corn industry generates a whopping $69 billion in annual revenue and that the domestic market is more dominated by a single plant than the banana industry is should generate concern. Unfortunately, the attention toward GMO crops tends to be more centered upon non-verified health implications than on the broader biodiversity issue that could radically change the way corn is consumed for food, fuel, and feed.

The takeaway
The banana industry may be able to survive Foc-TR4, and the corn industry may be able to survive a comparable threat (studies have already shown that weeds have developed resistance to glyphosphate-based herbicides on fields planted with Roundup-Ready seed and treated exclusively with Roundup). But they may not. Regardless, investors should be aware of real and perceived threats to the companies in which they invest, and a lack of biodiversity is a liability that Monsanto and Chiquita investors should watch.

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