The fluctuating vanilla market

From ice creams to skincare products, vanilla is one of the most popular species and ingredients in the world. Even when it seems to be a simple product, the complexity behind its vines harvesting process has led vanilla to be more expensive by weight than silver. Certainly, vanilla´s price is volatile, yet its demand seems to be increasing significantly due to the worldwide trend of “natural flavor” consumption within the last ten years. Madagascar, where 80% of vanilla is produced, has benefited from this surge in the market. Nevertheless, regulations and insecurity in the country could bring downfalls in vanilla business.

Vanilla from the African island

Despite being Madagascar´s main export product, vanilla is not a native plant to this area.  During the 19th century, French introduced the Bourbon vanilla orchid (originally from Mexico and some regions of South America) to the African colony. Since then, vanilla has become a pillar for the economy of the country and a valuable source of income for many farmers. Vanilla´s high value comes from the complexity of its harvesting process. It takes three to four years for the crop to mature. Pollination is done by hand once a year, and nine months later, when the vines are ripe, they are hand-picked. After months of preparation, the final product price is $500- 600 a kilo of dried beans (six kilos of green beans).

Downfalls in the market

Vanilla´s market seems attractive, but surely, it wasn´t a few years ago. In the 1980s demand for vanilla decreased due to the increasing demand of synthetic vanilla. This downfall made farmers cut down the production and move towards harvesting other export products in Madagascar. Besides, crops were affected by the effects of the hurricane in 2003, causing production to fall by 75% from the one achieved the previous year. However, in 2011, vanilla market revived when customers demanded natural flavors again. The demand for the product increased due to the shift of big companies (ex. Nestlé) towards the purchase of natural ingredients. Today, the high price of vanilla is attributed not only to the complex harvesting process but also to the increasing theft of the crop. Additionally, this year, Madagascar´s Ministry of Industry, Commerce, and Crafts imposed a 0.5% levy on vanilla exports, which will affect the profit generated by this product. As government regulations rise in Madagascar, production in new countries like Indonesia and Uganda rises. Bad policies and insecurity could erode Madagascar´s privileged position in the vanilla market.

Uncertainty in the future

Vanilla´s market in Madagascar is a clear example of the impact that internal and external factors can have on a product and consequently on a country´s economy. Even though farmers cannot control climate fluctuations, an increase in economic freedom accompanied by a decrease in poor regulatory policies and insecurity would burst incentives among vanilla´s local producers. Consequently, the country would benefit from overall economic growth. Madagascar must make the necessary reforms before demand for its most valued product moves toward smaller or alternative markets.

 

By: Mónica Nitsch