Vanilla Volatility

Did you know that the price of vanilla, from UK importers’ perspective, can oscillate from 18 pounds/kg to 267 pounds/kg? Incredibly, it did just that, between 2012 and 2016. Bad harvests can precipitate lucrative price hikes, but the rapid fluctuations of the market introduce a factor of unpredictability into the finances of small-scale farmers they have every incentive to mitigate. Already, considering the substantial investment of time and energy needed to grow vanilla, small-scale farmers are fiercely competitive. Indeed, growers have a strong incentive to be the first to market and cut their vanilla early – compromising its quality – to the extent that the government has tried setting a date before which it is illegal to sell vanilla. However, enforcement is uneven, and financially-pressured farmers may succumb to the temptation of selling inferior vanilla to maximize slender margins before its price declines. Monopolistic vanilla exporters, to whom most small-scale farmers sell, reportedly increase pressures to sell early by capitalizing on market information asymmetry and compensating farmers relatively poorly even during vanilla price hikes. Exporters amplify this advantage by stockpiling vanilla purchased from farmers at market lows until the market booms. No wonder the source of the luxurious mansions and yacht we marveled at in Vohemar.

https://www.theguardian.com/global-development/2016/jun/21/madagascar-vanilla-farmers-face-volatile-times-after-poor-harvest

(Emma)