Vanilla pod prices have rocketed to over $600/kg for the 2018 crop, more than the price of silver at $550/kg. This surge has come from the low rate of only $50/kg in 2013. The price rises have come after devastating storms buffeted Madagascar, which produces over 80% of the world’s vanilla. Human actions have also boosted the cost of the bean, used to flavour everything from ice-cream to perfume.
Most of the world’s vanilla flavour does not come from real vanilla pods. Instead, it is formulated in a lab as synthetic vanilla. However, there has been an increasingly rapid move away from manufactured ingredients of all kinds, and Nestle, as well as its competitors, have announced in recent years that they will soon only use natural vanilla in their products. Supply cannot satiate demand though. Vanilla plants take three to four years before they produce any pods, meaning that the time needed to respond to changes in demand could be as long as half a decade.
Madagascar is a developing country, with estimates as high as 70% of the population living below the poverty line. Theft of the valuable crop has driven up prices, and farmers have demanded armed guards protect their harvest. Speculators are buying up the produce, which only came to around 1,200 tons in 2015, and this is also driving the price rise.
Cyclone Gita hit the island in February this year and destroyed as much as half of the maturing green pods still on the vine. Cyclone Enawo hit the Sava region, the chief vanilla growing area in the north-east of the island, killing 81 people, leaving 250,000 homeless, and destroying a third of the vanilla harvest. These two devastating storms have contributed to the high price of vanilla. Other environmental effects are shifting the price of vanilla. Rainfall is declining in the key Sava region, and this is reducing both the quality and the quantity of the annual harvest.
The effort involved in growing the spice is also high, which again pushes up the cost. Vanilla was introduced to Madagascar by the French. They took the plant, native to Mexico, and started plantations growing it on their African possessions. The Melipona bee naturally pollinates the vanilla plant, but this species does not live on Madagascar. Pollination has to take place by hand, and the plant only flowers one day a year, meaning people have to inspect the plant every day.
Production increases are coming on-line, though they still may be a few years off. If cyclones avoid the island for the next few years, prices may fall back to their previous level. The last time prices got as high as they have this year was in 2004, after another devastating cyclone. Prices dropped back to the $50 level in 2005. Confectioners and chefs will be hoping the same occurs this time.
This commentary first appeared on The Market Mogul.
