[SCMP Column] Vanilla and the commodity curse

June 09, 2018

As I slurped a sinfully satisfying ice cream last week, to assuage the heat that roasted us through May, I could not help but fall to thinking about the current vanilla boom that puts the drab black pod on a par with silver, weight for weight, and whose vines, each worth US$8,000 or more, are putting kids through university in the poor northern jungle areas of Madagascar.

Vanilla, like most commodities grown in developing countries, is a fickle crop about which we in the rich world think little as we tuck into those little luxuries in life like ice cream or chocolate. It has a remarkable history that starts, like cocoa, with the Aztecs: Itzcoatl, on conquering the Totonac people in Mexico’s Vera Cruz region in the early 1400s, so fell in love with the aroma of tlilxochitl – or “black flower” – that he used it to add flavour to the bitter chocolate drink cacahuatl – along with ground corn and honey. The Totonac people were thereafter forced to grow vanilla as tribute to the Aztec king Montezuma.

It was French colonialists that shifted production to islands in the Indian Ocean, where it struggled because no-one knew where to find bees that could pollinate it – until a slave in Reunion Island called Edmond Albius developed a way of pollinating the vanilla orchid by hand. Production settled serendipitously in Madagascar, where Financial Times Africa editor and author David Pilling noted not only that the climate was perfect, but that it was “one of the only places on earth poor enough to make the laborious process of hand pollination worthwhile.”

Today, over 80 per cent of the world’s fine quality “Bourbon” natural vanilla is exported from Madagascar, for no better reason than that intolerable price volatility has made it impossible for most farmers to make a living. This prevails even to today, as prices over the past five years have whiplashed from a low of US$20 a kilo to a peak earlier this year of US$600. Fortunes are being destroyed almost as soon as they are made.

Apart from Madagascar, the rest of the world’s natural production comes today from Uganda, the Seychelles, Papua New Guinea, and Indonesia – which all share the common characteristic of being grindingly poor in those areas where vanilla farming still prevails. Because of course only a tiny share of the price paid for a kilo of vanilla by rich country importers actually ends up in farmers’ pockets (about US$2 for an importer price of US$70).

And here is the core of the common curse of commodity dependency, whether it is crude oil, or copper, or cocoa or the humble vanilla pod: heavy dependency on exporting a small number of commodities correlates unfailingly with poverty, high mortality rates, low “human development” performance, poor education – and even more perfidiously, corruption and high levels of income inequality.

Look to the UN Conference on Trade and Development’s (UNCTAD) recently-published State of Commodity Dependence Report and the correlation is depressingly consistent: wherever 60 per cent or more of a country’s exports are accounted for by three commodities or less, you will find more than the world’s fair share of poverty, inequality and low mortality rates. Out of 188 countries examined, a total of more than 91 were “commodity dependent” by that measure. That compares with 82 countries in 2010 – a sharp deterioration in terms of many poor countries’ economic vulnerability.

Most of these are countries like Malawi, Zambia and Zimbabwe, concentrated in Africa, but Asia too has its share – like Papua New Guinea (with the top three commodity exports of petroleum, metals and gold accounting for 67 per cent of exports), Myanmar, (71 per cent), Timor Leste (97 per cent) and Laos (71 per cent based mainly on copper and forestry products). All are among the world’s poorest economies.

Asia’s one glaring exception to this depressing story is of course Brunei, which has used its massive reliance on oil and gas to build widely shared wealth.

But it is Madagascar and the story of vanilla that tells the UNCTAD’s depressing story most consistently: its 25m people share a GDP per capita of barely US$400 – 15 times lower than South Africa, 22 times lower than China and 150 times lower than the US. A drab 77 per cent of the population live below the World Bank’s poverty line of US$1.90 a day, with a Human Development Index in the bottom 30 of countries worldwide.

As David Pilling notes, when vanilla prices fell five years ago below US$40: “India’s farmers simply said “No, we are not interested in producing any more.” Madagascar’s farmers can’t do that, because it they do, they starve.”
While times for Madagascar’s 80,000 vanilla farmers are comparatively good at present, the reality of the commodity curse is that it is only a matter of time before the next crash. Since Rhone-Poulenc (now Solvay) learned in the 1970s how to create synthetic vanilla, there has been an inevitable shift away from the “real thing” to synthetic vanillin. A glimmer of hope has arisen from a surge among leading vanilla users, like General Mills, Hershey’s, Kellogg and Nestle, for “all-natural” ingredients, but at present very high price levels, this commitment must be regarded as precarious.

There is a glimmer of similar optimism among other key commodity exporters as the rich western economies have begun to recover from the 2008 financial markets crash. Not only have oil and gas prices rallied, but sustained Chinese demand for many industrial minerals has buoyed commodity prices for many of the “commodity dependent” poor parts of the world.

It would be nice to share their optimism, and it is just possible that this time it is different. But for those Madagascan vanilla farmers at the grindingly poor end of the US$57bn global ice cream market, the likely reality is not so rose-tinted.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entirely his own.

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