Vanilla, not ubiquitous but precious

• Vanilla, an agricultural commodity and its market
• Reasons attributable to a dire shortfall, specifically Madagascar; one of the world’s poorest countries
• Measures to stabilise the vanilla market

Vanilla is what gives a zing to several food items (cakes, cookies, coffees) often consumed by people and provide fragrance to perfumes among others. The crop garners a lot of interest as it has a range of uses in food, fragrance, spirits and aromatherapy industries. Vanilla beans are the produce of a tropical orchid that was originally from Mexico. However, at present, Madagascar ranks as the largest producers of vanilla after it was introduced in the nation by the French in the 19^th century. 

The vanilla orchids that were evolutionarily fertilised by bees, chiefly the Melipona bee (native of Mexico) are now manually pollinated in a tedious and time-consuming process undertaken by farmers, making it one of the most labour-intensive crops in the world. What further adds to the complexity is the fact that the flowers bloom only once in a year and that too for a day. Furthermore, it takes another nine months post this process for fruits to mature into pods, which requires to be cured for several more weeks.

Vanilla is often taken for granted by consumers for its ubiquity and is the second most expensive spice in the world at $600/kg, this is just behind saffron and costs even higher than silver at ~$500/kg. Amid a lack of availability and high prices, synthetic or chemical based vanilla forms nearly 99% of the total usage globally. Though premium product manufacturers tend to use natural vanilla extracts as their input. Currently, less than 1% of the global demand for the vanilla food flavour is met by the vanilla orchids, while the quality along with changing consumer preferences, especially in developed economies is putting an increased pressure on the use of natural vanilla. This is further making the overall demand-supply scenario tend towards consumers and weighing the companies to scramble for the real natural vanilla. On a macro perspective, excessive dependence on Madagascar, a long cultivation process along with recent adverse weather conditions (in otherwise most suitable climate for natural vanilla) have caused price disruptions and added to supply constraints in the natural vanilla market. Easy access to the ingredient by food and flavours industry among others has faced obstacles and made prices soar through the roof.

According to the United Nations Food and Agriculture Organization (2016), Madagascar harvested 67,823 hectares and produced 2,926 tonnes as compared to 14,104 hectares and 2,304 tonnes produced in Indonesia, 1,863 hectares in Papua New Guinea and only 979 hectares in Mexico. Indonesia’s produce provided a little comfort to the global market in the past two years. However, the quality was poorer and prices were higher in Indonesia. Madagascar’s favourable climate conditions in conjunction with poor economic conditions make the highly labour-intensive production process affordable and add to its supply side reliance. The minimum wage for an agricultural worker amounts to a mere $0.2 per hour. According to Minimum-Wage.org, there are 102 countries with a higher minimum wage than Madagascar.

There were several driving forces in the past periods that led to the supply crunch and knocked out a sense of the price mechanism. Way back in April 2000, a cyclone (Hudah) struck Madagascar and wiped out around 20% of the country’s vanilla plantations. It was due to this that other countries such as Uganda, India, Indonesia and Papua New Guinea tried to take advantage and ramped up their vanilla production. Simultaneously, many Consumer-Packaged Companies (CPGs) began reformulating their products by blending synthetic vanilla with other natural flavours. This was done with an intent to reduce cost. Hence, with a decent supply of vanilla, a depressed demand of the natural vanilla quite naturally sent the prices spiralling downwards. Low vanilla prices made farmers switch to other more profitable crops and the vanilla inventory shrank. By the year 2013, the production of vanilla moved back primarily to Madagascar, again making it the major producer.

However, by 2014-15, the ‘clean label’ movement gained traction, specifically in the US and Europe (which also are vanilla’s major importers) as increasing number of consumers began to demand food with real ingredients and minimal processing. In line with this, big food companies including Nestle, General Mills, Kraft, Hershey’s, Kellogg’s, etc. vouched to remove artificial flavours from their food and beverages. This further exacerbated the vanilla shortage in the global market. By the year 2016, all of the vanilla stock had been exhausted and prices skyrocketed. In 2016, a kilogram of cured black vanilla beans costed c. $250-500 vis-à-vis $30 prior to 2013. This uptick in the demand (owing to the clean label movement) only exacerbated the situation as production was not at the same pace due to the crop’s natural multi-step production process spanning across 10-16 months. More recently, the price volatility of vanilla has made it a riskier crop and thus farmers in other countries chose to stay away from the crop.

If this was not enough, cyclone Gita and Enawo (2018), the strongest cyclones to hit the island state in 13 years destroyed hopes of a bountiful harvest along with most of Madagascar’s vanilla crop, further amplifying the scarcity and pushing up prices. As the prices of pods soared, so did the theft of the precious crop. Ironically, the high prices did not help Madagascar’s farmers, who earn very low wages as they were now faced with vanilla thieves, this took to stealing of crop and its sale in the market. This agitated the villagers due to lack of government support as they grappled to protect their vines and since have taken things into their own hands. It is estimated that on an average about five people are murdered each week in Madagascar. Additionally, farmers began early harvest of beans, even before these could mature, in turn, severely impacting the quality of the crop. Thus, even with an increased production, a majority of the quantity on shelves were inferior or of diminished quality, this further worsened the deficit situation. The middlemen have been another bottleneck for the crop in Madagascar, rendering the supply chain inefficient. It is estimated that 60% cut is taken by middlemen, dampening the income of 80,000 odd farmers in the nation.

All these factors combined together severely hit Madagascar. In order to tackle this situation, the government imposed penalties on anyone caught dealing in unripe beans prior to the regional harvest calendar allowing so. Large corporations, as well as mom-and-pop ice cream shops, faced the brunt alike as these were severely hit by the steep prices and supply chain disruptions. In lieu, the corporations such as Nestle and Mars have worked with suppliers to support the vanilla-producing communities as part of their CSR (Corporate Social Responsibility) and sustainable practices to avoid supply chain disruptions in the coming years. Few of the companies have signed contracts with farmers to directly procure vanilla and to reduce supply chain disruptions. Thereby, eliminating middlemen at a 2-4% premium over the prevailing market price. In return, these farmers would only sell their crops to these investors, aiding in a stable supply of the organic product.  

Therefore, all the above measures, including the ones mandated by the Madagascar government with respect to better harvesting practices and bean picking dates have resulted in better harvest quality and this is said to have improved following years of premature picking. This year farmers finally left a majority of the crop on the vine until maturity. In addition, the government measures have allowed for some level of increased coordination between farmers, police and collectors’ group, in order to put a check on the rampant theft of the crop. The global production of natural vanilla is expected to be further boosted by farmers from Indonesia and Papua New Guinea. Although their quality is inferior to Madagascar vanilla. The current high prices of the Malagasy vanilla is compelling few buyers to choose a cheaper version. But with the added production from these countries to the global supplies, the price of vanilla is expected to stabilise to a more normal level for both the farmers as well as the end users alike.