Question

Article from that website address （copy the address and open it for read）, and finish those questions after read article. Thanks

The Hidden Cost of Vanilla

Use the article at https://www.danwatch.dk/en/undersogelse/thehiddencostofvanilla/ to answer the following questions.

1. According to the United Nations Development Programme (UNDP) what is the standard of living in Madagascar (what does the majority of the population live on per day?)

2. Who are the parties involved in producing and distributing vanilla from Madagascar?

3. Who has the most control over price? Why?

4. Why do farmers have no influence on pricing?

5. What type of market structure are vanilla farmers operating in? List some of the characteristics of this type of market structure.

6. What was the international price of vanilla in 2003-2004? In 2008-2010? In 2016?

7. Why does the price of vanilla fluctuate so much?

8. Why are children employed in vanilla farming, even though it is illegal for children under the age of 15 to work?

9. What are the “vanilla flower contracts” referred to in the article?

10. Why is the rampant theft of vanilla not addressed?

11. What steps are being taken to change the lives of vanilla farmers?

12. What else would you suggest to improve the situation?

Answer 1

1. According to the United Nations Development Program, a total of 93 percent of Madagascar's working population is works under two dollars (approximately DKK 13) a day.

2. Farmers sell their vanillas to collectors who then resell these to other intermediaries who either process the vanilla or directly send it to Madagascar exporters. From here vanilla is exported to different importing countries in the world.

3. Intermediaries and exporters control the price of vanilla and make good money. This is because farmers have no other option but to sell the vanilla to intermediary. They do not have direct access to exporters or companies or international markets.

4. Farmers have no influence to pricing because, a) They do not have holding capacity to wait till prices increase b) Even if the prices outside are high, they do not have access to international markets / companies who can buy at higher price from them. Hence Farmers have no influence on pricing.

5. Vanilla farmers operate in Market structure Oligopoly i.e. a market where many sellers can be present but meet only a few buyers. The three most important characteristics of oligopoly are: (1) an industry dominated by a small number of large firms, (2) firms sell either identical or differentiated products, and (3) the industry has significant barriers to entry.

6. International prices of Vanilla a) in 2003 -2004 = $600/ Kg b) 2008 -2010 = $25/kg c) 2016 = $400/kg

7. The prices of vanilla is affected by supply and demand, and today the vanilla supply is down and hence the prices are way up. Between 2005 and early 2014, there was an overabundance of vanilla. As a result, the price for both green and cured, dried vanilla dropped to very low levels. Because farmers weren’t making enough to survive, many finally burned their vanilla vines and switched to growing other crops. This eventually led to a vanilla shortage, and with the shortage of vanilla beans, prices shot through the roof. During periods like this a “feeding frenzy” occurs as rumours abound, and the middlemen in vanilla-producing countries take advantage of this opportunity to put more money in their pockets.

8. In small communities in Madagascar’s Sava region, the heavy workload involved in growing vanilla and the poor price that farmers receive for their pods mean child labour is often a necessity. The International Labour Organisation estimates 20,000 children are working in the Madagascan vanilla trade, the majority of them in the Sava region. The country has ratified international child labour conventions and set a minimum working age of 15, but the ILO says there are 2 million children between the ages of five and 17 engaged in various forms of work on the island; nearly 9% of the total population.

9. The vanilla flower contract is a system of loans that feed Madagascar's vanilla farmers when they are at their most desperate. But these loans can be costly, and occasionally it is the farmers' children who must pay the price.

10. Farmers do not have enough money to keep guards for protection of Vanilla crop. Additionally when the prices of Vanilla shot up, thieves steal from the fields to get good returns when they sell the product to intermediary. Hence it is difficult to control the theft.

11. Steps taken to improve life of farmers: 1) Some companies are coming forward to set up supply chain for vanilla, which will maintain quality of the product and make sure farmers get good prices 2) Equal opportunities to women are provided

12. Suggestion for improvement in situation:

a) Vanilla crop should have agreed minimum support price, which will help and encourage farmers to grow the commodity

b) Theft of the crop should be stopped either with the support of govt or steps like common patrolling

c) Some initial financial support to the farmers should be provided, so that they can come out of debt cycle. This will improve their life.

d) They should be given access to international markets to sell their goods. This will make sure that they will get good prices for their crop.

e) Good warehousing facilities should be provided, so that farmers have collective holding power, in case they are not getting adequate prices for their crop.