Thread by @Dominic_Mart

#Vanilla prices are likely the most volatile of any agricultural commodity.

After a 5-year boom, prices seem to crash this year.

Time for a thread 🧵on vanilla price volatility, the impact of high prices on smallholders in #Madagascar and what might happen now. 👇👇👇

#Madagascar is the largest producer of vanilla today, accounting for roughly 40% of the global harvest.

Almost all Malagasy vanilla is farmed by smallholders in the north-east of the country in agroforestry systems.

(Photo by Dirk Hölscher)

Farming vanilla is highly labour intensive – starting from the establishment of the plantation, over hand-pollination, harvest and curing (clockwise).

No wonder vanilla is expensive!

But has it always been expensive?

No – vanilla prices have been hugely volatile. In fact, I wouldn’t know of any other agricultural commodity which has had price fluctuations by factor 10 within a few years!

(Source: DRAE)

How come this is the case?

Many factors interact here – let’s name a few. Demand for natural flavours has increased in recent years, cyclones affect vanilla harvests, and speculation contributes too.

Here I talk about it on @channel5_tv back in 2018.
youtube.com/watch?v=zMxour…

Furthermore, high prices lead to an expansion of vanilla farming around the world (including in greenhouses; see flic.kr/p/4zs6Cn!).

When the “new“ vanilla hits the markets, prices crash.

The high vanilla prices of the last few years had various impacts on the economy of north-eastern Madagascar.

Many smallholder farmers could build new homes or buy motorbikes and solar panels, thereby increasing their living standard.

Already in 2017, 60% of households had solar power! This is likely one of the highest values throughout Madagascar.

This is one of the results of our @Diversity_Turn baseline survey which you can find here: bit.ly/3d5vOhn

& more in this paper: bit.ly/2TGbUSy

However, vanilla prices have also let to insecurity in the villages. #Vanilla theft is commonplace on the field and at the homes of people.

Unsurprisingly, traps are built to deter thieves: Metal spike deterrent (left) and ditch with sharpened bamboo sticks (right - well hidden)

Farmers also "sign" their #vanilla to avoid theft - using a specialised tool they apply a #tattoo with their unique signature!

Sometimes you can even find this signature on vanilla you buy in the super market - check it out!

Back to the price crash: Evidence accumulated last year that vanilla prices would crash.

Compared to 2018, the 2019 harvests was only roughly half (likely due to little rain during the flowering season), but prices remained stable.

This pointed towards a crash this year.

This week, the green vanilla marked opened in the first locations.

While farmers still asked for circa 75€/kg, the traders now only offer roughly 5€!

Final prices will likely drop by factor 5-10 over just one year – which is crazy!

Photo by @labypat, thanks! (follow him!)

So what does this mean for smallholders in north-eastern #Madagascar?

Many investments will not be possible anymore and running costs (including school fees etc.) will be hard to cover for many #vanilla farmers.

Fortunately, most families aim for rice-subsistence to buffer against vanilla price fluctuations and theft – so hopefully food security is not affected too much.

(see this paper by Laney and Turner for more: link.springer.com/article/10.100…)

And for the urban centers in the region?

The local, vanilla-fuelled economy will likely crash. The busy streets of the “Vanilla capital” Sambava might have fewer 4x4 trucks, fewer Bajaj (TucTuc) and more pedestrians.

So these fluctuating prices are clearly a problem: Fast money and theft during price booms, and unfairly low payback for hard during price lows.

Stable prices of around 25€ per kg green vanilla would be fair, avoid boom-and-bust cycles and allow for sustainable development...

...but don’t ask me with which policy tools the prices could be stabilized on that level.

Minimum prices are only paid via sustainability certification schemes but market shares remain relatively low.

And minimum export prices would likely only boost the profit of exporters…

Thanks for reading until here – I hope you learned something!

To learn more about #vanilla and land-use change in north-eastern Madagascar you can follow:
@Diversity_Turn / uni-goettingen.de/en/529181.html
@R4Telecoupling

And me @Dominic_Mart :-)

For more details on #vanilla prices dynamics you can also read the newest market update by Aust and Hachmann vanilla traders - their perspective on the topic is always an interesting read.
austhachcanada.com/may-2020/