Speaker 1: Hello, welcome to add Thoughts. It's Monday, January eleventh. I'm
Speaker 1: Tracy Alloy, Executive editor of Bloomberg Markets, and I'm Joe
Speaker 1: Wi Somethal, Managing editor of Bloomberg Markets. Hey, Joe, I
Speaker 1: brought you something. It's sort of a belated Christmas present. Oh, thanks, Tracy.
Speaker 1: What is it? Uh? Banana? Thanks? Thanks so much? Thanks
Speaker 1: for this banana. Why did you bring me a banana?
Speaker 1: Because today we're going to talk about one of the
Speaker 1: world's most fragile commodities markets. And I'm not talking about oil.
Speaker 1: I am, of course talking about bananas, the banana market.
Speaker 1: I'd never even thought before that there was a banana market,
Speaker 1: or even really thought of banana as a commodity. But
Speaker 1: why are we talking about it? Why are bananas interesting?
Speaker 1: Bananas are interesting because they face a big threat in
Speaker 1: the form of a fungal disease, and as we're about
Speaker 1: to find out, that disease could end up having far
Speaker 1: reaching implications for the world's food supply. Yeah. One thing
Speaker 1: that about bananas, right is that you know, with like apples,
Speaker 1: there are tons of varieties and the sword Granny smith
Speaker 1: and fuji or Fiji apples and all these, But there's
Speaker 1: pretty much just one banana, isn't there. That's exactly right.
Speaker 1: Not only is there just one banana, the banana that's
Speaker 1: grown in of the world's crops, and most likely the
Speaker 1: type of banana that you are holding in your hand
Speaker 1: right now, called the Cavendish, is actually a clone. It's
Speaker 1: a clone of itself and it's just been cloned over
Speaker 1: and over and over. So it's very very susceptible to
Speaker 1: this fungus, as we're going to find out. And so
Speaker 1: because there's just one banana, if it were to get sick,
Speaker 1: so to speak, that would not be good for the
Speaker 1: banana eaters and growers of the world. No, it definitely wouldn't,
Speaker 1: and it would mean that maybe one day you would
Speaker 1: actually appreciate the banana that I just put into your hands.
Speaker 1: So here with us today is Dan Copple. He is
Speaker 1: author of Banana, The Fate of the Fruit That Changed
Speaker 1: the World, And we're going to be talking about the
Speaker 1: market forces that brought us the Cavendish banana currently sitting
Speaker 1: in front of Joe, how it got to be there,
Speaker 1: how we eventually ended up with this monoculture and the
Speaker 1: problems facing the world's collective banana crops. Now, Dan, welcome
Speaker 1: to the show. Thank you so much. So I want
Speaker 1: to start at the beginning. Let's go back to four
Speaker 1: when the banana split was invented in Pennsylvania and that
Speaker 1: kicked off a craze for bananas in America and a
Speaker 1: huge jump in the number of bananas imported. Wait, what's
Speaker 1: the beginning. Uh, you want to go back even earlier?
Speaker 1: Is that what you're saying? Yeah, like prehistory? Yeah, I do. Okay, alright,
Speaker 1: let's start at the very very beginning. Um, why are
Speaker 1: bananas special? Well, bananas are, and we're talking, you know,
Speaker 1: ten thousand years ago now, are one of the to
Speaker 1: one of the agricultural products that actually helped humanity emerge
Speaker 1: from hunter gatherer cultures and into communities. Bananas are are
Speaker 1: very easy to cultivate, and and it's believed that wild bananas,
Speaker 1: which are basically inedible and have a lot of seeds
Speaker 1: in them on that mutant versions of them that were unseated.
Speaker 1: We're taken by these hunter gatherers and planted um and
Speaker 1: and you know when you plant, you have to stay
Speaker 1: put to watch you grow. So you need to form communities,
Speaker 1: you need to develop language, you need to develop history
Speaker 1: so you can pass knowledge on. So the banana emerges
Speaker 1: very early as as the first staple fruits. That that
Speaker 1: helps us, you know, literally get out of the jungle
Speaker 1: and into villages. And the way bananas are planted is
Speaker 1: kind of special as well, right, Yeah, So you know,
Speaker 1: wild bananas would and some of them still exists, have
Speaker 1: seeds um, and they can reproduce like from like like
Speaker 1: many plants. But but what makes banana so unique is
Speaker 1: that they also can reproduce when they're seedless um through
Speaker 1: a planting a shoot. A mother plant will will fruit
Speaker 1: once and then give off a daughter plant, and that
Speaker 1: generation can go on and on and on for hundreds
Speaker 1: and hundreds of years. And apparently the banana is so
Speaker 1: crucial to humanity that it might have actually been the banana,
Speaker 1: not the apple, that Eve gave to Adam and the
Speaker 1: Garden of Eden. Yeah, I mean, let's let's let me
Speaker 1: be clear, you know, and I am not suggesting or
Speaker 1: I'm not not suggesting that the Garden of Eden was
Speaker 1: a real place, but that's a theological question. But if
Speaker 1: you look at the story of the Garden of Eden
Speaker 1: as as historic metaphor Adam and Eve are those hunter
Speaker 1: gatherers we're talking about. They live in the garden and
Speaker 1: they can pick whatever they want. They have no worries.
Speaker 1: But once the forbidden fruit is consumed, they are condemned
Speaker 1: to emerge. And literally the Bible says to work the earth,
Speaker 1: to till the soil. Um. And so they know the
Speaker 1: story of of Adam and Eve is the story of
Speaker 1: the emergence from hunter gathering its community. And so it
Speaker 1: makes a lot of sense for a lot of reasons, Um,
Speaker 1: that the banana was that fruit. Um. And the apple,
Speaker 1: we're pretty sure you know, appears mostly because of our
Speaker 1: experience with Renaissance paintings, and the Renaissance painters misinterpreted um,
Speaker 1: the Hebrew and Greek Bibles and so painted apples when
Speaker 1: when they probably should have painted something else. Never trusted
Speaker 1: those renaissances. Pomegran people are going to tell you something
Speaker 1: totally different, you know. Let's not bring the pomegranate crowd,
Speaker 1: all right. So we have these bananas that are relatively
Speaker 1: easy to cultivate. More importantly, you can carry them around
Speaker 1: with you all over the world and plant them and
Speaker 1: get new banana plants. How do we get to the
Speaker 1: point where banana crops really start to become industrialized, and
Speaker 1: you see, you know, the big, big growth in the industry.
Speaker 1: Well that that that happens, you know, thousands and thousands
Speaker 1: of years later, and and it's almost impossible. The banana
Speaker 1: is barely known to places where the banana camp grows.
Speaker 1: So the banana is a tropical fruit, so for it
Speaker 1: to appear in some place like North America or Europe
Speaker 1: is crazy. And and in fact, you know, if you
Speaker 1: look at old ettukin manuals, the banana was known to
Speaker 1: Thomas Jefferson, for example, he had to he had some
Speaker 1: books that mentioned but it was considered literally a forbidden fruit.
Speaker 1: It's shape with two suggestive were in the Victorian era
Speaker 1: for ladies to eat um and and so the banana
Speaker 1: had to be sort of prepared in this if you
Speaker 1: could find one, it had to be prepared in this
Speaker 1: crazy way that you know, you cut it up so
Speaker 1: it wouldn't have any sort of suggestive shape. And by
Speaker 1: then it was all mushy who wanted to eat it. Um.
Speaker 1: It took transportation and sort of audacity. Um in the
Speaker 1: banana was exhibited at the Centennial Exhibition in Philadelphia in
Speaker 1: seventy six, and not long after that, a cape called
Speaker 1: sea captain named dal Baker had just failed to find
Speaker 1: gold in Venezuela, and he was sailing back to Massachusetts
Speaker 1: with nothing in his in his in his pockets. He
Speaker 1: stopped in Jamaica for repairs um and he saw abouts
Speaker 1: of bananas and thought, gosh, you know, maybe I could
Speaker 1: cut my loss by bringing these bananas to the US,
Speaker 1: and maybe I can sell a few of them. It
Speaker 1: was a crazy idea because the ship was was a
Speaker 1: schooner sail driven, but the winds were favorable, the bananas
Speaker 1: didn't go bad. It took him about eight days and
Speaker 1: lo and behold the bananas were a hint um. The
Speaker 1: company Baker found it was called Boston Fruit. It later
Speaker 1: changed his name to United Fruit, and today it's called
Speaker 1: shakida Um. But the but the industry didn't really take
Speaker 1: off until they could ship them quickly in refrigerated chips.
Speaker 1: Now let's talk about you know, before you joined US,
Speaker 1: I was sort of talking to Tracy. I find bananas
Speaker 1: to be a little boring that I don't They don't
Speaker 1: have all the same varieties as like apples and apples.
Speaker 1: You know, there's so many different types you can buy
Speaker 1: in the grocery store of apples. But there's just one banana,
Speaker 1: the big yellow one. It's kind of plain and boring.
Speaker 1: How did that up and how did we end up
Speaker 1: with there's one big, boring banana? So so let's let's
Speaker 1: talk first of all about that. You know, the myths
Speaker 1: that there's only one banana, and and yeah it's true.
Speaker 1: Let's let's face it. If if McDonald's had its way,
Speaker 1: you think there was only one hamburger, and it wouldn't
Speaker 1: be something very good to eat. It would be a cheap, disposable, dull,
Speaker 1: not very tasty commodity. The cavendish banana that's the breed
Speaker 1: we eat, is the same. But I can tell you,
Speaker 1: having traveled the world for ten years um tasting banas,
Speaker 1: there are over a thousand different varieties of banana, and
Speaker 1: every single one of them tastes better. It's it's all
Speaker 1: about McDonald's. We cannot think of the banana that we
Speaker 1: get as an agricultural product. We take a bit more
Speaker 1: of a as an industrial product, the same way McDonald's
Speaker 1: produces an industrial hamburger. And it's all about uniformity. The
Speaker 1: banana is a tough product to ship even today. Uh,
Speaker 1: it has to have a lot of activiuties. It has
Speaker 1: to survive the voyage. It has to ripen at the
Speaker 1: right speed. Banana trees have to resist certain diseases. They
Speaker 1: can't be too or they're hard to hard to harvest.
Speaker 1: So as an industrial product of the banana industry made
Speaker 1: systematic in some genius ways and some terrible ways, the
Speaker 1: production of the fruit. And so I'd like to tell people,
Speaker 1: it's like there's a banana tube from Central America to
Speaker 1: the United States, but this tube only fits one kind
Speaker 1: of banana. It's it's a metaphoric to not a physical
Speaker 1: size um and every banana requires different growing and and
Speaker 1: and shipping technique. Some are unshippable. So the banana industry
Speaker 1: will tell you, and I'm not sure I totally agree,
Speaker 1: but they've set it up this way that they are
Speaker 1: only capable of bringing one banana to the United States
Speaker 1: at the prices that we want to pay. The banana
Speaker 1: is the cheapest fruit in the supermarket by far, astonishing
Speaker 1: for a fruit that shipped great distances and goes bad
Speaker 1: so quickly. It's all because of the industrialization. So at
Speaker 1: the turn of the century when bananas are really sort
Speaker 1: of taking off the industrial standard of banana was a
Speaker 1: variety called the grow Michelle. Am I saying that right,
Speaker 1: the grow Michelle banana um and that was a great banana.
Speaker 1: It actually tastes better than the Cavendish. It's tougher, it's
Speaker 1: easier to ship. If you look at some of the
Speaker 1: old movies, you'll see, you know, pictures of grocery storces
Speaker 1: bananas ay and big bunches. That's because those bananas were
Speaker 1: so tough you could throw them into a boat and
Speaker 1: they wouldn't bruise. Um. The cavendish banana, by comparison, doesn't
Speaker 1: taste as good um and and it's much more France,
Speaker 1: and it has to be boxed and bagged to ship.
Speaker 1: And the grow machell was industrialized and and it became
Speaker 1: a monoculture. And what happened, as often happens with monocultures,
Speaker 1: it was attacked by disease. And so between fifty you
Speaker 1: see the banana industry struggling and and doing terrible things
Speaker 1: to sort of acquire more land to replace their shallowed
Speaker 1: farms that are blighted by this disease. But eventually the
Speaker 1: grow michelle goes functionally extinct. It still exists, I've tasted it,
Speaker 1: but it cannot be grown commercially. And they adopt the
Speaker 1: cavendish um kicking and screaming. Really they thought it was
Speaker 1: a lousy banana. And it is explain You mentioned that
Speaker 1: the grown machelle can no longer be produced industrially. Is
Speaker 1: that because of that same disease or what's the reason
Speaker 1: for that? Right, So, this disease um, which is a fungus,
Speaker 1: it's called therium wilt. It's commonly known as Panama disease,
Speaker 1: renders banana fields shallow. The banana plants can no longer produce, fruit,
Speaker 1: can no longer grow, and it stays in the soil
Speaker 1: pretty much forever. So what happened in Latin America where
Speaker 1: they were growing was one field would get contaminated and
Speaker 1: they'd go cut down some rainforests and you know, plant
Speaker 1: for a few years, and then the disease would spread
Speaker 1: and spread and spread and spread. So at this point
Speaker 1: there's probably no place in the world where you could
Speaker 1: grow the grow machelle and industrial quantities. But you'll still
Speaker 1: find it um in many places as a garden banana,
Speaker 1: as a local banana. So I'm wondering, as Panama disease
Speaker 1: was kind of um overtaking banana crops in the early
Speaker 1: nineteen hundreds, what did the route companies do other than
Speaker 1: just find new land and use pesticides. Did they try
Speaker 1: any other methods? Tom They did terrible, terrible things, and
Speaker 1: they were warned by their scientists. I mean, I have
Speaker 1: I have you know reports that they wrote in the
Speaker 1: Takeda's scientists wrote in the Twins thing, You've got to diversify.
Speaker 1: We need We can't do monoculture. It's not gonna work.
Speaker 1: There's so many reasons. This is a terrible thing. But
Speaker 1: it was cheaper and easier. Remember, the whole idea of
Speaker 1: banana was that would be the cheapest fruit in the supermarket.
Speaker 1: This was their business model, and so in order to
Speaker 1: keep cost down, they had to do terrible things that
Speaker 1: literally take over countries. Literally massacre workers happened over and
Speaker 1: over again in Latin America. These countries were known as
Speaker 1: banana republics because with the support of the U. S Government,
Speaker 1: they were run by the banana companies and they were
Speaker 1: run as terrible, terrible dictatorships. All this to keep bananas cheap.
Speaker 1: And so when the land starts becoming fallow and the
Speaker 1: grown Michelle starts having to be chased by this this disease,
Speaker 1: they become even more brutal. They start to take more land.
Speaker 1: They become very aggressive about it that it's it's a
Speaker 1: it's a cash twenty two. In a way, demand for
Speaker 1: bananas is increasing because their genius marketers. The number of
Speaker 1: places you can grow bananas is decreasing. Um. The costs
Speaker 1: are going up, but their business model requires the cost
Speaker 1: to stay down. So with with no real hesitation, they
Speaker 1: went out and for example, in Massacre, a thousand banana
Speaker 1: workers and their families as they're emerging from church in
Speaker 1: a village square in Colombia, all because the workers want
Speaker 1: more money and because they're running out of land because
Speaker 1: the banana has to be so cheap, the banana industry
Speaker 1: decides they can't do that. Yeah, I remember that scene.
Speaker 1: Makes it into a hundred years of solitude, right yeah. Um.
Speaker 1: So instead of diversifying crops, though, the fruit companies essentially
Speaker 1: just switched to another monoculture, which is the cavendish. Right
Speaker 1: you think you think they've learned their lesson by nineteen
Speaker 1: fifty and and I have to. You have two main
Speaker 1: banana companies as a smaller one is Standard Fruit now
Speaker 1: known as doll and the larger one is Taquita. Actually
Speaker 1: Takeda by n is on the verge of bankruptcy because
Speaker 1: it won't switch to Cavenist because it doesn't believe in it.
Speaker 1: And Standard Fruit, being smaller and perhaps you know, more nimble,
Speaker 1: is able to make the switch and immediately gained about
Speaker 1: fifty of the banana market. It becomes dull, and so
Speaker 1: it's really the story of Takeda losing about its market
Speaker 1: share that it never really regained um and ultimately they
Speaker 1: had to adopt the Cavendish too, and and they pretty
Speaker 1: much thought all as well, you know that. I mean,
Speaker 1: it's kind of crazy because anyone who grows even a garden,
Speaker 1: who grew up on a farm nose you can't just
Speaker 1: put all your bananas or whatever in one basket. You've
Speaker 1: got to have diversity. But the banana industry b lively
Speaker 1: goes on and then thinks everything is going to be okay,
Speaker 1: but it turns out it's not right. So fast forward
Speaker 1: to today and we have yet another disease threatening yet
Speaker 1: another monoculture in bananas. Right not yet another disease is
Speaker 1: the same disease. It's it's a different variation of Panama
Speaker 1: disease UM. But but it's the same disease. It's the
Speaker 1: same story, except this disease appears to be more aggressive. UM.
Speaker 1: It seems to render plants fallow faster. And this variation
Speaker 1: of Panama disease first killed a cavendist crop in Malaysia
Speaker 1: around at least that's what most people believe, UM, and
Speaker 1: and then has since spread around the world. UM. This
Speaker 1: disease has jumped oceans. UM. It is now in Australia,
Speaker 1: it's in Indonesia, UM, it's in UM in Pakistan, it's
Speaker 1: in the Philippines, it's in Taiwan. UM. And it was
Speaker 1: recently discovered in the Middle East and in parts of Africa.
Speaker 1: And so, even though it hasn't affected our banana crop yet,
Speaker 1: which has grown in South and Central America, you can
Speaker 1: see the sort of jaws on the map beginning to
Speaker 1: encircle the most rich commercial banana lands in the world,
Speaker 1: which are the ones that supply US. So do the
Speaker 1: growers of banaaannas have any strategy or better effective techniques
Speaker 1: to fight this disease. Than they did decades ago the
Speaker 1: last time, or are they sort of is it going
Speaker 1: to be the same story. Well, until very recently, the
Speaker 1: banana companies were in astonishing denial, literally not mentioning this disease, um,
Speaker 1: refusing to discuss it. And then finally when they did discussed,
Speaker 1: they said, it's not a problem. It's going to happen
Speaker 1: a long time from now. We'll be prepared. You now
Speaker 1: they started making some noise about it. Um and and
Speaker 1: I mean there was a huge commercial plantation in in
Speaker 1: Mozambique last year that was devastated, and that was that
Speaker 1: was a wake up call. That plantation was started by chachida.
Speaker 1: So so Chaquina can't deny that that the disease exists.
Speaker 1: But what to do is a real problem. This fungus
Speaker 1: remains incurable. There are no there are there are some
Speaker 1: possible replacement varieties, but none have been thoroughly tested, and
Speaker 1: we don't know if they really resist or how well
Speaker 1: they resist. Uh And and there doesn't seem to be
Speaker 1: any to control of this fungus. The answer again is
Speaker 1: going to be diversity. You have to have more than
Speaker 1: one banana. This protects the business, that protects the plant.
Speaker 1: But the question is can the banana industry pull up
Speaker 1: its big board pants and embrace diversity when it's hundred
Speaker 1: year business model is completely opposed to that, And so
Speaker 1: far the jury is out on that. Dan. Are we
Speaker 1: seeing any price increases or shortages showing up yet from
Speaker 1: this disease? Have we seen it impact the end consumer
Speaker 1: in any way yet? Not yet? Um, There have been
Speaker 1: there there, you know, there there have been some shortages
Speaker 1: in other places that have been affected by the disease.
Speaker 1: Banana prices, for example, in the Middle East have increased,
Speaker 1: but you know, the banana industry is very price sensitive.
Speaker 1: You know, a bad mud slide and Ecuador will raise
Speaker 1: the price by tens a pound. And there's a big
Speaker 1: question about how high bananas can go. But we saw
Speaker 1: a few years ago banana prices went up to about
Speaker 1: seventy cents a pound and people kept buying them. Uh,
Speaker 1: fifty nine to sixty nine pound is the is the
Speaker 1: usual price traded Joe selling for forty nine cents a pound.
Speaker 1: The bananas industry has traditionally believed that there's a dollar
Speaker 1: a pound threshold at which point the whole business model collapses. Um.
Speaker 1: And clearly if Panama disease hits this hemisphere, that threshold
Speaker 1: will be met and we'll have to see. How big
Speaker 1: is the banana industry billions of dollars. I mean, it's
Speaker 1: the it's the it's the most. The industry is the most.
Speaker 1: It makes the most popular fruit in the world. It's
Speaker 1: the most. Um. We Americans eat more bananas than apples
Speaker 1: and oranges put together, and that's pretty pretty standard all
Speaker 1: over the world. Um. But even bigger than that is
Speaker 1: the subsistence banana world, where in places like Africa and
Speaker 1: Asia where people rely on bananas for their daily nutrition,
Speaker 1: and in the Lakes region of Africa and Central Africa,
Speaker 1: if some people get nine of their calories from bananas.
Speaker 1: So it would be a business disaster to to lose
Speaker 1: the banana or see that that that configuration of the
Speaker 1: industry change. But it could also be a humanitarian disaster,
Speaker 1: which is something that I've worried about a lot. All Right,
Speaker 1: on that depressing note, we're going to end it. Dan,
Speaker 1: thank you so much for joining us today. We have
Speaker 1: one more question. If someone listening to this who wants
Speaker 1: to eat a truly delicious banana, where should they go
Speaker 1: and what variety should they get. I can tell you
Speaker 1: without a doubt. Um, it's a banana that is called
Speaker 1: in Swahili ebota ibota, which means fertile, fertile um. And
Speaker 1: it is called that because this banana tree produces two
Speaker 1: plants per bunch. But the banana itself is I mean,
Speaker 1: I'm going to sound like a fufy wine critic. It's
Speaker 1: got like complex taste. You bite into a nes sour
Speaker 1: and then it gets sweet in the middle, and the
Speaker 1: texture is very firm and wonderful. It's not mushy. It's
Speaker 1: a great banana. Unfortunately, this banana suffers from something called
Speaker 1: finger drop, which means that when you pull the fruit
Speaker 1: off the plant, all the fruits fall off the plant,
Speaker 1: which exposes them to air and makes it impossible for
Speaker 1: them to survive more than a day. So the odds
Speaker 1: of us getting one here are pretty weak. But man,
Speaker 1: that is a great banana. I tasted it in the
Speaker 1: Democratic Republic of Congo. I send a Congo chirpy said,
Speaker 1: in a Democratic Republic of Congo to uh our banana
Speaker 1: tasting tour, just for the banana. But if you get
Speaker 1: something else to do their seek out that all right,
Speaker 1: thanks so much. Joe, do you appreciate your cavendish banana
Speaker 1: more or less now? It just makes me depressed because
Speaker 1: I love fruit, and you know, I have had some
Speaker 1: good bananas in my life, and it's depressing that there
Speaker 1: could be this great fruit that we have and instead
Speaker 1: we have this really mediocre one. But I really fascinated
Speaker 1: by the industrial aspect of it, because it is true.
Speaker 1: We know how hard it is to store bananas. You
Speaker 1: can't put them in the refrigerator. They bruise really easily.
Speaker 1: So I am kind of an awe of the fact
Speaker 1: that this banana, it's so cheap, and it travels these
Speaker 1: distances and it comes arrives in pretty good shape. Yeah,
Speaker 1: and the banana business and market is really a story
Speaker 1: of technology and globalization. But those same things and industrialization
Speaker 1: and those same things, though, are now kind of threatening.
Speaker 1: It something that I was thinking about. It was interesting
Speaker 1: the point you made that that one guy became a
Speaker 1: banana industrialist after a failed search for gold, and that
Speaker 1: made me think, especially later, talking about the horrible things
Speaker 1: that were done in the early days of the banana
Speaker 1: industry reminded me of a lot of the horrible things
Speaker 1: that have been done in the name of acquiring gold
Speaker 1: for thousands of years, So there are some interesting parallels there.
Speaker 1: Absolutely all right, we're going to move on to a
Speaker 1: different commodity market now is of course oil. But kept
Speaker 1: his family and then one day he was shooting that
Speaker 1: some food and up to the ground come a bubble
Speaker 1: oil that is black gold Texas. So there's this big
Speaker 1: news tracy going on in the world of oil right now.
Speaker 1: Obviously oil has been getting clawbered. It's putting a lot
Speaker 1: of pressure on Saudi Arabia obviously highly dependent oil economy,
Speaker 1: and there's this possibility that Saudi Arabia might do an
Speaker 1: I p O of its gigantic state owned oil company,
Speaker 1: Saudi Aramco. It's the it's the biggest oil company in
Speaker 1: the world in terms of volume. Nobody ever thought that
Speaker 1: it would possibly there be a public flotation before. But
Speaker 1: it sort of speaks possibly to where we are in
Speaker 1: the oil cycle and stresses that Saudi Arabia is feeling
Speaker 1: that it's even thinking about taking public this oil giant.
Speaker 1: It's a huge, huge deal for the market and I
Speaker 1: can you know, uh, envision hundreds of the bankers and
Speaker 1: lawyers salivating over the prospect of this company going public.
Speaker 1: It could be epic alright. So with us to discuss
Speaker 1: the possibility of an i p O of Saudi Aramco
Speaker 1: is Haveavier Blass. He's a star Bloomberg oil reporter in London.
Speaker 1: Have you a thank you very much for joining us
Speaker 1: by pressure. Have you tried to describe the significance of
Speaker 1: this i p O were it to happen for people
Speaker 1: who don't appreciate the size and scale of Saudi Aramco. Well,
Speaker 1: let me just put it on very simple money terms.
Speaker 1: An IPO Saudi Aramco could mean that that ten trillion
Speaker 1: company comes to the market. That is, compare that with Apple,
Speaker 1: that is six hundred billions. Did you see ten billion
Speaker 1: dollars compared to ten trillion dollars ten trillion dollars? How
Speaker 1: could it be worth that much? Well, just to start
Speaker 1: with the amount of exce Mobil, the largest and most
Speaker 1: valuable oil company, Excell is about three hundred and twenty
Speaker 1: billion dollars okay, and Excellent has about twenty five billion
Speaker 1: oils or barrels of oil on his reserve. That compared
Speaker 1: that's about a large jung less that Saudi Arangco, which
Speaker 1: has two hundred and sixty billion that's eleven times bore
Speaker 1: and and the numbers are just Chianti for Sudi a Anco.
Speaker 1: They produce about fifteen percent of the oil that we
Speaker 1: consume globally. They have refineries in Texas, in Saudi Arabia,
Speaker 1: in uh South Korea, in China, in Japan, they are
Speaker 1: building now a refinery in Indonesia. They have one of
Speaker 1: the world's largest fleet of super tankers to transport oil
Speaker 1: around the world. And also they are in effect the
Speaker 1: central bank of oil. If we have a problem elsewhere
Speaker 1: and we need more oil because someone else is going
Speaker 1: through a strike or whether problems, is Saudi a Anco
Speaker 1: who and increase the production. It's just a gigantic company.
Speaker 1: I love their phrase, the central bank of oil. It's
Speaker 1: like if the FED was to I p O itself,
Speaker 1: that's a kind of significance for the oil market. But
Speaker 1: why I p O now with oil something like well,
Speaker 1: it is a very off timing. So there are many theories,
Speaker 1: and Saudia a Ankle has not explained why is thinking
Speaker 1: right now? Neither the Deputy Crown Prince Muhammad bin Salman,
Speaker 1: who first told the Economist newspaper that these plans was
Speaker 1: under consideration, has given much of an explanation of why.
Speaker 1: But you could think of several options. One is that
Speaker 1: Saudi Arabia needs the money and they're gonna I p
Speaker 1: O to raise more cash to be able to survive
Speaker 1: when oil prices are the lowest in twelve years. You
Speaker 1: could also think that Saudi Arabia has decided to let
Speaker 1: the market works as a market and in that case,
Speaker 1: why not to make their company the national company, were
Speaker 1: more like Exomobile and at the same time race of money.
Speaker 1: It could be also a case that they want to
Speaker 1: give up son shares to the local population to keep
Speaker 1: everyone happy. Now the oil prices are low, in a
Speaker 1: way a transfer of wealth from the state owned company
Speaker 1: into the citizens that they are suffering from the low price.
Speaker 1: But certainly the timing is rather odd, because you will
Speaker 1: have expected that the Sudists wanted to sell, they would
Speaker 1: have sold in two thousand and eight when oil prices
Speaker 1: were a hundred and fifty dollars a barrel. And certainly
Speaker 1: I cannot remind what numbers analysts will put for the
Speaker 1: valuation of our anco. Let's talk about the history real quickly.
Speaker 1: How did Saudi Aramco get to be what it is today? Um,
Speaker 1: the predecessor of Texaco and Chevron went to Saudi to
Speaker 1: Saudi Arabia reach a deal with the government at that
Speaker 1: point and they started exploring for In nineteen thirty three,
Speaker 1: they created the first company what will become later Saudi
Speaker 1: a Anco Oil was discovered in Saudi Arabia a few
Speaker 1: years later in nineteen thirty eight, and then American companies
Speaker 1: in there since then were heavily active and in in
Speaker 1: fact the company was was an American company under an
Speaker 1: umbrella of Saudi Arabia. The kingdom took over slowly. The
Speaker 1: company started in the seventies and complete in the eighties,
Speaker 1: but the mentality of Saudi Arabia, even it is now
Speaker 1: a fully owned, stay owned company and the leadership is Saudi,
Speaker 1: you still feel very much that it operates an American company.
Speaker 1: It's very meritocratic, pioneering technology. It's very different to other
Speaker 1: national or stay owned companies which are associated with corruption
Speaker 1: and bad practices. Saldia Ranco probably is the closest that
Speaker 1: you could find in a national company to an Excell mobile.
Speaker 1: So something that you wrote when you think about how
Speaker 1: the market might value this typically stayed on oil companies
Speaker 1: when they sell to the public. They don't command a
Speaker 1: particularly high valuation. People don't pay much of a multiple
Speaker 1: for their earnings. But do you think because Saudi Aramco
Speaker 1: is run more like an American merito credit corporation, that
Speaker 1: it could be valued at some kind of premium to
Speaker 1: another one. I think that it could get a better
Speaker 1: price because of that and because of its size, But
Speaker 1: there will be many pitfalls for it for to convince
Speaker 1: investors to to put money in Saudi Arabia, for the status,
Speaker 1: the political rates of putting money in Saudi Arabia. Also
Speaker 1: an investor in effect, if the boy shures of of
Speaker 1: a rancor will be subsidized in the Saudi government, something
Speaker 1: that some investors may have a problem with. And the
Speaker 1: I think that the critical aspect is that the amount
Speaker 1: of disclosure that Rancor will need to do. We know
Speaker 1: very little of the company. We have never seen a
Speaker 1: balance sheet, we have not seen a profit and loss statement,
Speaker 1: and we have not seen an audit of its reserves.
Speaker 1: So a lot of disclosures will need to happen to
Speaker 1: convince skeptical investors that actually need they need to put
Speaker 1: the money. But yes, probably it is not going to
Speaker 1: be a ross for a petrogras they're involved in political
Speaker 1: political race or corruption scandals. This is a company that
Speaker 1: probably could could be closer to the evaluation of Excemobile
Speaker 1: than anyone else in the in the world of stay
Speaker 1: own companies. I still don't envy anyone having to do
Speaker 1: due diligence on that. Well, and also bear in mind
Speaker 1: that potentially we're also Sharia law involvement, so it's gonna
Speaker 1: be Islamic finance. Um, it will not be if it happens,
Speaker 1: it will not be an easy I p O. But
Speaker 1: certainly the size is so big that every bunker in
Speaker 1: the oil industry salibrating until uh, just because images happen. Alright, well,
Speaker 1: thank you so much, Javier. Obviously this is going to
Speaker 1: be a fascinating story, particularly if it unfolds, and we'll
Speaker 1: be watching your writing and your reporting on Bloomberg TV
Speaker 1: over the coming months. Thank you for joining us, Thank
Speaker 1: you for having me. All Right, this concludes another episode,
Speaker 1: lad lots, Thank you very much for listening. I'm Joe Wisenthal,
Speaker 1: Managing editor of Bloomberg Markets. You can follow me on
Speaker 1: Twitter at the Stalwart, and I'm Tracy Alloway. You can
Speaker 1: find me on Twitter at Tracy Alloway, and Joe and
Speaker 1: I are going to go eat some boring bananas now.
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