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7 Fair Trade - The Future of Vanilla?

Richard J. Brownell, Jr.

7.1 THE CRISIS

In late 1999, the price of vanilla beans began to rise. Four months later, a category 5 cyclone slammed directly into the center of the vanilla bean growing region of Madagascar. Initial reports claimed that 80% of the crop on the vines was destroyed. To make matters worse, beans from the prior year’s crop awaiting export in rudimentary warehouses were damaged by the high winds and heavy rainfall. The price of vanilla beans quadrupled overnight. And that was just the beginning. By the end of 2003, vanilla bean prices were 15 times the 1999 levels (Figure 7.1). What could have prevented this crisis? More importantly, what can prevent it from happening again? The answer may well be Fair Trade.

Fig. 7.1 Historical pricing of Madagascar Bourbon Vanilla beans. Source: Virginia Dare Extract Company, Inc.

The roots of the crisis can be traced back almost a decade earlier. In 1994, underpressure from the World Bank, the government of Madagascar deregulated the pricing and allocation of vanilla beans. Throughout the balance of the decade, prices for vanilla beans steadily fell. By contrast, worldwide demand for vanilla was growing robustly, fueled by three major food trends.

The first of these three trends was the growth of super premium ice cream, notably Haagen Dazs and Ben & Jerry’s. The high fat content and indulgent platform of these products required an especially high flavor dose rate. The second major trend of this period was the shift toward natural, good-for-you foods, especially in Europe and the United States. What could be more natural than pure vanilla extract? Finally, food and beverage marketers looked to globalization for continued growth. Many of the world’s most recognizable brands contain vanilla extract as an ingredient.

On the surface, it would seem inconsistent that vanilla bean prices would be falling, in a period of rising demand for vanilla extract. But, at the time of deregulation, there was a large surplus of vanilla beans. In the ensuing years, production shortfalls were met by the surplus stocks. Under proper conditions, vanilla beans can be stored for several years. By 1999, the surplus had been essentially exhausted. Also, many vanilla bean farmers, discouraged by years of falling prices, had finally abandoned their vines and replaced them with other, more lucrative crops.

Once the deficit between production and demand became apparent, it was too late. It takes 3 to 4 years for new vines to produce vanilla beans. There would be no quick fix on the production side. Equally, vanilla extract consumption was not easily reduced. Reformulation to alternatives would be extremely costly for food and beverage manufacturers. There was also the risk that consumers would recognize and reject the reformulated products. Food and beverage companies initially tried to ride out the crisis. But eventually, the cost of vanilla extract became intolerable and they were forced to seek alternatives. By 2004, worldwide demand for vanilla beans was only half what it had been 5 years earlier.