Handbook of Vanilla Science and Technology

At the other end of the supply chain, are foods and beverages containing vanilla extract. Fair Trade is also a good fit for manufacturers and consumers of products containing vanilla. Vanilla is used in an astoundingly wide range offood and beverage products. In fact, vanilla is the most popular flavor in the world. It is the characterizing flavor in many products including ice creams, yogurts, cookies, shakes, and lattes. But vanilla is also used as a background note in many other products as a flavor enhancer. For example, vanilla provides creaminess and helps magnify the flavor of cola beverages. In another example, vanilla is used extensively as a masking agent for bitterness in chocolate.

Not only is vanilla used in a great range of products, but typically the usage rate is relatively small. On a pound for pound basis, vanilla may be relatively expensive. But, on a cost in use basis, vanilla is usually a minor contributor to the overall cost of a finished food or beverage. So the premium paid by manufacturers and consumers to support Fair Trade Vanilla is relatively small.

7.7 COMMODITY CYCLES

In early 2000, the price of vanilla beans began to rise and by the end of 2003 had increased 15-fold. Worldwide consumption of vanilla beans dropped by 50% during the same period. Five years later, the price had fallen to near all time lows and farmers around the world were abandoning and, in some cases, ripping out their vanilla vines.

Vanilla is particularly vulnerable to commodity cycles for several reasons. First, the global market is relatively small and lends itself to speculation with a relatively modest investment. Second, there is no futures market in play to offset current prices with expectations of future supply and demand. Third, vanilla is produced in a relatively small number of origins and is particularly influenced by events in Madagascar, which routinely accounts for approximately two-thirds of the world’s production.

Madagascar, located to the east of Africa, in the Indian Ocean, lies directly in the path of some of the world’s most intense cyclones (hurricanes). Additional vulnerability stems from the fact that vanilla grows in a relatively concentrated region of Madagascar. Military coups have also been relatively common in the Malagasy Republic. The last two Presidents have been forced to flee the country before their terms in office were completed.

Perhaps the greatest threat to vanilla in Madagascar is the spread of Fusarium wilt, which has been observed since early 2008. This disease has been largely responsible for the demise of vanilla in several other origins, most notably the island of Bali, which was once a very significant producer. Hopefully, the impact of Fusarium in Madagascar will be mitigated by adherence to proper cultivation practices. However, its progress warrants close attention and is yet another example of the vulnerability of vanilla to external events and ultimately commodity cycles fueled by speculation.

Vanilla’s vulnerability to commodity cycles is also affected by its natural growth cycle. When demand exceeds supply, farmers respond predictably by growing more vanilla. Unfortunately, however, newly planted vines typically do not produce significantly until the third year and do not reach full production until the fourth year. So, a severe supply shortage can only be remedied by a reduction in demand, at least for the first 3 or 4 years.

Fair Trade would help to offset the commodity cycles by preventing the price of Fair Trade Certified Vanilla beans to fall to a level that would cause farmers to abandon their vines. The extent of its impact would, of course, depend on the percentage of the overall crop that was produced and sold as Fair Trade. But, clearly the potential of Fair Trade to help stabilize the boom or bust nature of the vanilla market can be seen. And, this stability would benefit farmers, food and beverage manufacturers, and consumers alike.

7.8 ISSUES

While the potential benefits of Fair Trade Vanilla are far reaching, there are still issues to be resolved in order to realize this potential, including:

I the price differential compared to conventional vanilla;

II vanilla quality is not well correlated with cost of production;

III limited availability;

IV ensuring that farmers are really paid the FT price;

V consumer acceptance.

In 2009, FLO International revised the pricing structure for Fair Trade Vanilla, responding to suggestions made by industry experts. Several improvements were made, but the issues outlined so far in large part remain unresolved. Let us examine these issues one at a time: