Outside In | Why Madagascar’s dependency on vanilla extracts a high price on economic growth

David Dodwell says the story of the vanilla boom shows that reliance on commodities to bolster gross domestic product is a precarious bet for developing countries

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With temperatures soaring in May, desserts such as this vanilla mascarpone with berries were on Hongkonger’s minds. Vanilla prices have soared recently, but this has not translated into stable growth for countries that produce the commodity. Photo: Jonathan Wong

Published: 2:15pm, 8 Jun 2018Updated: 11:08pm, 8 Jun 2018

As I slurped a sinfully satisfying ice cream last week to assuage the heat, I found myself thinking about the current vanilla boom that puts the drab black pod on a par with silver in value, helping put children through university in the poor northern jungle areas of Madagascar.

Vanilla, like most commodities grown in developing countries, is a fickle crop. Like cocoa, its history starts with the Aztecs: Itzcoatl, on conquering the Totonac people in Mexico in the early 1400s, so fell in love with the“black flower” that he added it to the bitter chocolate drink cacahuatl. The Totonac people were thereafter forced to grow vanilla as tribute to the Aztec king Montezuma.

French colonialists shifted production to islands in the Indian Ocean, but it only took off when a way of pollinating the vanilla orchid by hand was devised. Production settled in Madagascar, where Financial Times Africa editor David Pilling noted that not only was the climate perfect, but 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 natural vanilla is exported from Madagascar, although the price volatility has made it difficult for farmers to make a stable living. Prices over the past five years have whiplashed from US$20 a kilo to a peak of US$600 earlier this year. 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 – all grindingly poor in the vanilla farming areas, because only a tiny share of the price paid for a kilo of vanilla by rich country importers ends up in farmers’ pockets (about US$2 for an importer price of US$70).