Madagascar's vanilla industry hits slump

by Nicolas Brulliard

On a recent steamy morning, Simon Vanombelona was clearing his vanilla field to

make way for a rice paddy. “If the quantity is sufficient I’ll eat first and then build some stocks,” said the 49-year-old Vanombelona. So severe is the price slump for vanilla in northeastern Madagascar, which is home to the best vanilla in the world, that growers are focusing on subsistence crops at the expense of vanilla beans that just a few years ago fetched several hundred dollars a kilo. Now local farmers say they only get about $5 a kilo for the fruit of their very arduous labor.

The wild fluctuations in prices are primarily the result of exacerbated cycles of supply and demand. When prices shoot up as they did in the early 2000s, growers respond by planting more vanilla but because a vanilla plant takes three years to produce its first pods the timing is often tricky. Growing in tropical areas, vanilla is also vulnerable to cyclones and disease, the effect of which is often amplified by speculators leading to extreme variations in prices. At the moment, prices are exceptionally low because vanilla brokers — taking advantage of cheap vanilla and the fact that vanilla beans can be preserved in warehouses for several years — have been stocking up.

“There have been excess stocks of vanilla beans really for the better part of the last three of four years,” said Rick Brownell, vice president of vanilla products at Virginia Dare, a New York-based company that has manufactured vanilla products for more than 80 years. “There is very little risk in writing forward contracts for vanilla beans and even for the end product, vanilla extracts and flavors at this point. The price can only go higher. It really can’t go any lower.”

The vanilla vine is a plant from the orchid family that is native to Mexico. Originally, the plant couldn’t be grown anywhere else because it was pollinated by a species of bees endemic to Mexico. When it was discovered in the mid-19th century that the plant could be pollinated by hand, it was exported to other tropical regions of the world and is now successfully cultivated in places as diverse as Indonesia, India, Uganda and Papua New Guinea.

Madagascar, the world’s fourth largest island, has proved particularly well suited for the culture of vanilla and has become the world’s largest producer of the spice. The warm climate is propitious, and local farmers have perfected the art of growing vanilla, which requires the right amount of shade, elaborate pruning and frequent weeding around the plant. Madagascar's vanilla is highly prized because it is the richest in vanillin, the compound that gives vanilla its distinctive flavor and smell.

The pods are harvested green and have to be dried for at least six months before they can be exported. Companies such as Virginia Dare then make the vanilla extract that is used in beverages, ice creams, yoghurts and perfumes.

Historically, vanilla has been a very valuable commodity. To prevent the common theft of vanilla pods right before harvest time, some growers mark their pods the way ranchers mark their cows, with intricate designs that remain identifiable after the curing process.

Vanilla theft became a particularly lucrative crime in the early 2000s when demand exceeding production led to prices reaching $400 or $500 a kilo. The high prices proved a boon for the local economy when newly rich vanilla growers raided the region’s auto dealers and electronics stores, even leaving tips to merchants.

Scared by the ballooning prices, some vanilla consumers resorted to using synthetic vanilla, which, along with excess production, contributed to a sudden and sharp fall in prices.

“Vanillin is vanillin. Synthetic or nature-made it’s still the same,” said Daphna Havkin Frenkel, director of research and development at Bakto Flavors LLC and a visiting scientist at Rutgers University. “Don’t believe anyone who tells you otherwise.”

To make matters worse, the government's attempts to control the price for vanilla has backfired. A government decree this summer that set a minimum price of $27 a kilo for vanilla ready for export has brought the industry here to a standstill, local vanilla exporters said. The measure, probably intended to bring economic relief to struggling vanilla farmers, has had an opposite effect.

Claude Andreas, the head of a local vanilla industry group, said the minimum price is much too high for the current market. As a result, Madagascar’s vanilla exporters, who are not authorized to sell below $27, are not buying vanilla from local growers to replenish their stocks. The majority of vanilla exporters have written to Madagascar’s trade minister to repeal the decree because they fear competitors will take away Madagascar’s market share by undercutting the minimum price.

“They won’t buy it for $27,” Andreas said of vanilla brokers, “because they can buy it for $25 in Indonesia.”

Global Post

Uganda's vanilla farmers face continued depressed market, low prices

Vanilla, one of the most sought after spices also recognised as the world’s most popular flavour, has experienced five years of low prices.

“As vanilla beans trickle in from all growing parts of the world, the much-predicted recovery of prices has yet to materialise. The market for cured beans is still saturated with synthetic vanilla at all levels despite some drop in production in certain origins,” a report by Aust&Hachmann said.

Canada-based Aust&Hachmann based in is one of Uganda’s biggest buyers. Farmgate prices today stand between sh1,500 (US 90cents) and sh5,000 per kg compared to last year’s sh7,000/kg. The price depends on the quality and quantity. The low prices are attributed to a rapidly weakening US dollar, which poses the greatest challenge to all stakeholders because the contracts and the prices are locked in one currency.

The production of high-quality organic vanilla in Uganda has not done much to bolster its competitiveness and pricing on the global market. Ugandan vanilla farmers earn 20% less than their counterparts in Madagascar because they do not enjoy the universal acceptance in the market.

“Farmers are depressed. Even after the quality has been improved, they still earn 20% less than farmers in other origins. This has put them under tremendous pressure as it becomes more difficult for them to sell their beans at prices lower than their production costs,” one exporter said.

Ugandan farmers embraced organic vanilla growing hoping to reap big from the lucrative organic market whose premiums are double the ordinary prices. An estimated 200 tonnes of cured vanilla beans were exported last year, fetching $4.8m.

Uganda has had many tonnes of carried over stock in the past few years due to low offers by buyers.

“The buyers are taking advantage of the situation to cheat us. They know we have high-quality beans. They are aware of the rising production costs and the depreciating dollar.”

“Uganda’s vanilla has slowly been chipping away at Madagascar’s dominance in the industrial and food sectors. However, quality problems persist for not being vigilant during the curing and preparation processes. The reason Uganda’s vanilla attracts low prices is due to sudden change of quality and inconsistent volume,” David Vander Walde, one of the Aust&Hachmann directors, explained.

Global prices range from $15/kg to $250/kg. Uganda’s beans cost $20/kg, while other origins like Tahiti price theirs at $250/kg. In 2003, vanilla prices rose $550/kg due to high demand amidst low supply.

New Vision

Uganda : middlemen prejudice vanilla farmers

Ugandan vanilla farmers will continue to lose a lot of money by selling their harvests to middlemen instead of dealing directly with processors and exporters. This was said by Bashir Kasekende, the field director of Vanilla Exporters of Uganda, the country's industry association.

"These middlemen buy from farmers at sh1,000 (US 60 cents) a kilogramme, which they sell to us at sh4,000, The farmer who used all his energy and resources to produce the vanilla gains nothing," lamented Kasekende.

Vanilla Exporters of Uganda association is assisted by USAID through the Agricultural Productivity Enhancement Programme to manage the vanilla industry in the country. Its members include Uganda Crop Industries Ltd, Esco Ltd, Buiga Farm Industries, Land Ways Agencies and Timex Ltd.

Kasekende says the middlemen confuse farmers by telling them to harvest 1-2 months before maturity. As a result, the harvested pods lose the vanillin content in them. "They buy the vanilla and keep it in stores waiting for the official harvesting time. Then they sell to the processors at higher prices. This is exploitation. We want all farmers to benefit from the crop," he said.

Kasekende said, "When vanilla is harvested before its maturity, it loses its quality and value because most of the vanillin is created from the seventh to the ninth month. So harvesting it before the right time gives a poor quality product and low price."

Vanilla is a tropical climbing orchid with a long green fleshy stem that sprouts roots that cling to trees parasitically. Its yellow or orange flowers grow in bunches, blooming one flower each day. The plant, which grows best above 500 meters elevation, is one of the best known flavour used in the food industry in pastries, cakes, desserts, liquors and perfumes.

Kasekende says exporters find themselves exporting extraction vanilla grade, a low-quality vanilla mainly for industrial use. This goes for $8 - $14 a kilogramme, yet the gourmet beans (black vanilla) with high vanillin, harvested at maturity goes for $30 - $35 kilo.

Uganda, which exports to the US, Canada and Europe 200 metric tonnes of vanilla annually from over 10,000 farmers, earns about $30m from the crop.

In 2005-2006, Uganda's vanilla was rated at 3.5%+, the world's highest vanillin content standard. Kasekende said this should be regained if the country is to rebuild international market confidence.

NewVision

Madagascar scheme assists vanilla growers become more businesslike

Madagascar is the world's leading vanilla exporter, accounting for half of global production. But it remains one of the poorest countries in the world. There are also wide disparities between small-scale growers and larger estates that sell vanilla on the international market.

The International Fund for Agricultural Development (IFAD) in 2006 successfully completed a scheme introduced in the late 1990s to tackle the issue of fairer distribution of economic benefits. It sought to help small farmers learn new skills to improve their revenues from vanilla and better manage their irregular income. A goal was the linking of the various aspects of commercial production and the market, while also promoting subsistence farming, traditionally rice growing.

Vanilla farmers were encouraged to form vanilla growers' associations to gain more selling power and negotiate better prices for their crop. They were taught to process vanilla and store it to sell strategically at a better market price. More than 400 local associations of various types were created under the project. The groups include about 10,000 members, and membership is still growing. "Small farmers had previously sold their vanilla green, just after being picked. It doesn't keep when fresh, so they had to sell it immediately at a low price to buyers who came around and collected it straight after harvest," said Fabien Randriambololona, the project manager.

Farmers were also given access to financial services through the establishment of a network of credit unions. Poor farmers were excluded from the banking system and previously had to rely on high-interest loans. "This is probably the most successful aspect of the project, linking production and sales to a system of savings and credit," said Benoît Thierry, IFAD's country programme manager for Madagascar. Previously small rural producers had no way of saving, and would spend their sudden income on disposable goods such as stereos and bicycles, which put them in a dire situation for the rest of the year, as vanilla is sold only between June and October, and they neglected subsistence farming. A total of 18 credit union branches were created, exceeding the programme's target of 14. They covered 43 communities, with savings averaging about US$10 to US$15 million and the total amount of credit granted amounting to about US$32 million.

Despite its success, the project had some drawbacks, particularly because it coincided with a period of highly volatile vanilla prices, which soared to between US$450 and US$500 per kg at their peak in 2003 before plummeting to the level of US$25 to US$70 per kg at the end of the project (which was their level when the project started in 1998-99). The price surge was partly the result of a devastating cyclone in 2000, which destroyed part of the plants and created a shortage.

With the end of the project, the situation remains difficult because vanilla prices remain low. Other tropical countries like India and Uganda began to grow vanilla after the 2003 price hike, increasing international tonnage and keeping prices down. Farmers' associations will need to continue and extend their activities, diversification away from the price volatility of vanilla is necessary, and the credit unions will need to attract more members.

The introduction of an international fair trade certificate for vanilla, which, like those for other commodities, has the aim of guaranteeing a better income for small-scale farmers, will also help improve life for small growers in Madagascar.

IFAD