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When Vanilla Became More Expensive Than Silver

In 2013, the price of one kilogram of natural vanilla was $20. Five years later, it was over $600, more expensive than silver.

80% of the global vanilla supply is generated on the island of Madagascar, and 70% of Madagascar’s people rely on vanilla for their income. Every vine must be hand-planted and every bean hand-harvested and hand-cured. Madagascar also does not have any of vanilla’s very few natural pollinators, so farmers must hand-pollinate each individual orchid themselves, pushing away the tongue-like antenna called the rostellum, separating the male and female parts of the plant with a wooden needle, and then pressing the male and female parts together. The extremely labor-intensive process takes three to four years from start-to-finish, so farmers have no way to respond to changes in market demand. In 2020 for example, when people in quarantine took to baking, vanilla demand doubled. But farmers can’t snap their fingers to fill that demand. With rigid supply and fluctuating demand, price is bound to swing.

Today, supply and demand peculiarities aren’t the only stress on the vanilla market. Malagasy farmers now face a larger threat: cyclones. In 2017, Cyclone Enawo made landfall in Northeastern Madagascar, ripping through two of the island’s major vanilla-producing regions: Sava and Analanjirofo. The winds matched Hurricanes Florence and Laura. 80,000 people were displaced, 400,000 were affected, and 81 were killed. And of course, the region’s vanilla crop, supplying huge percentages of the world’s vanilla, was wiped out. Enawo sent vanilla prices above silver. And now, Madagascar is experiencing 1.5 cyclones per year. Due to climate change increasing ocean surface temperatures, rainfall intensity, and sea levels, the cyclones are set to become more frequent and more severe.

The average person in Madagascar lives on 50 USD per month, and 75% of the country is below the international poverty line. Vanilla was meant to be a way out, where farmers could put in the work no other part of the world was willing to do and reap the benefits. A few have, and have earned the nickname of “vanillionaire.” But the UN’s Commodity Dependence Report suggests countries heavily dependent on a small number of commodity exports regularly see higher poverty rates and inferior education, as is true for Madagascar. Without education, farmers clear forests for new land to grow the crop instead of reusing their old land, contributing to deforestation and threatening a host of rare species found only in Madagascar.

The impacts are tangible for the farmers as well. In a bust year, farmers remain in poverty. Most farmers have diversified through other crops like clove, rice, and cassava, which has slightly hedged their losses. In a boom year, farmers face the threat of robbery. Farmers and their families take shifts sleeping in the field guarding their multi-million dollar crop, and when a thief arrives, it regularly ends in a murder. Out of fear, farmers now pick their vanilla early, which has dramatically lowered the quality of Malagasy vanilla beans. For consumers, that means worse vanilla beans that still cost a fortune.

Rural villages in Sava and Analanjirofo also don’t have banks, and with high crime, keeping money at home is unsafe, leading farmers to spend their money as quickly as possible. Initially, they’ll improve their home, install solar panels and a satellite dish, and invest in their kids’ education. After that, some throw massive parties and buy sports cars and motorcycles. There have even been rumors of one farmer gluing his money onto a chameleon; another going to the carnival, stepping up at the ring toss, and throwing the rings in the opposite direction of the bottles; and another boiling and eating his money. The Malagasies call it vola mafana, or “hot money.” And whether these “hot money sprees” are the outliers or just urban legends, they’re rooted in an undeniable truth: vanilla’s price volatility is chaos.

Wealthier nations have a solution for volatile commodity prices called commodities exchanges, used for items like corn, gold, and crude oil. A corn consumer or corn farmer can buy or sell a futures contract: an agreement to buy or sell a specific amount of corn by a specific date. If the market price of corn ends up higher than the price agreed upon in the contract, the farmer loses out on some potential profits and the consumer gets to save money. If the market price ends up lower, the farmer hedges some losses and the consumer pays more than what would have been necessary. The booms are smaller, but the busts are smaller. Wall Street investors buy and sell futures contracts too—not to actually buy corn or oil, but to gamble that they can buy a contract cheap and sell it for a gain. 

Though commodities exchanges have helped stabilize volatile markets in wealthy nations, according to the International Food Policy Research Institute, they haven’t worked in most African nations, in large part due to lack of education and extreme poverty. Not only do farmers need to come to the exchange floor and bring their commodities, which has been a struggle, but farmers need to understand how futures contracts and the global vanilla market work, and have the infrastructure to participate—not just banks, but buildings, transportation, and connectivity. This lack of infrastructure secludes most farmers from vanilla-using companies and vanilla consumers, leading many farmers to be largely unaware of where their vanilla goes after they sell it to a middle man or on the street. When researchers tell them wealthier nations pay such exorbitant prices for a spice for desserts and perfumes, they’re surprised.

Many major players in the vanilla industry have taken notice of the issues plaguing Malagasy farmers. 28 companies representing 70% of worldwide vanilla bean purchases have entered the Sustainable Vanilla Initiative, aiming to improve farmers’ livelihoods and work with farmers to find solutions to some of the aforementioned challenges. Veolia, Danone, Firmenich, and Mars put ten million dollars into the Livelihood Fund for Family Farming to educate farmers on how to reuse their land, and signed agreements to buy directly from farmers instead of through middlemen. Symrise contributed funds to bring the farmers in a village together to form community watches where they alternate night shifts to protect each other’s crops from thieves, allowing farmers to wait until the vanilla ripens to harvest it. These first steps are pivotal, and while it’s far too soon to tell whether they will find success, the engagement from vanilla-using companies goes to show that investment in the region doesn’t just improve Malagasy farmers’ livelihoods, but it benefits the corporations who use the vanilla.

As climate-induced cyclones increase in frequency and severity, the Malagasy vanilla industry must capitalize on this enthusiasm. To put proven systems like commodities exchanges in place to stabilize vanilla prices and provide steady income to farmers, Madagascar needs vastly improved education, infrastructure, connectivity, and human security. To do that, they need institutions, and they need help. It’s not an easy or clear way forward, but if vanilla farmers can put in the work to hand-plant, hand-pollinate, and hand-pick every single bean, the rest of the world can put in the work to make their toil worth it.

Sources:

Annah Zhu (2018, May). Hot money, cold beer: Navigating the vanilla and rosewood export economies in northeastern Madagascar. American Ethnologist, 45 (2). https://anthrosource.onlinelibrary.wiley.com/doi/10.1111/amet.12636

Ethan Brown. (Host). (2020, September 11). The Sweaty Penguin [Audio podcast]. Retrieved from https://thesweatypenguin.com/podcast/17-vanilla/.

International Federation of Red Cross and Red Crescent Societies (2020, April 20). Madagascar: Tropical Cyclone Enawo/Ava – Final Report (MDRMG012). Retrieved from https://reliefweb.int/sites/reliefweb.int/files/resources/MDRMG012efr.pdf.

Jorge C. Llopis, Clara L. Diebold, Flurina Schneider, Paul C. Harimalala, Laby Patrick, Peter Messerli, & Julie G. Zähringer (2020). Capabilities Under Telecoupling: Human Well-Being Between Cash Crops and Protected Areas in North-Eastern Madagascar. Frontiers in Sustainable Food Systems, 3 (126). Retrieved from https://boris.unibe.ch/140350/.

Moneyweek (2018, August 24). Chart of the week: vanilla is more valuable than silver. Retrieved from https://moneyweek.com/493637/chart-of-the-week-vanilla-is-more-valuable-than-silver.Sustainable Vanilla Initiative – who we are. Retrieved from https://www.idhsustainabletrade.com/sustainable-vanilla-initiative-svi/.

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