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 UN Development programme, almost 93% of working population is available or living on UD$ 2 (or DKK 13: (Danish Krona)) a day.

2. a. Producers: According to vanilla importers, about 80 percent of the world's vanilla is grown on small family-owned fields in the island off the southeast coast of Africa. 80% of Madagascar's Vanilla is produced in country's Sava region in northeastern Madagascar, where about 80,000 small farmers grow vanilla - typically on small family farms.

b. As per article, producers/ farmers sell their Vanilla produce to Collectors for a very small fee(wherein this trade is mostly without any receipts), who often mix up the produce (without labeling) before reselling it for processing or to other intermediaries or directly to exporters in Madagascar. Then Vanilla is exported to other countries by ship to importers to again resell it to Manufacturers. These Manufacturers/ producers then sell it to supermarkets. It is difficult to track a farmer's produce's journey to supermarket shelfs.

3. I suppose intermediaries have most control over the price. As these collectors travel far and beyong to unpassable areas to find Vanilla farmers who would sell them their produce at cheapest possible rate. Then these collectors sell the Vanilla to other intermediaries or exporters at a good price, Collectors margin being minimum 20%. They have most control over the price as they find Vanilla farmers and negotiate well with them to sell their produce at cheapest rate.

4. As mentioned in the article, Vanilla farmers are really poor/ uneducated and only know collectors who come looking for their produce. These small farmers have no idea about major distributors, intermediaries and export houses of Vanilla, so that they themselves can get a good price for it. Similarly, big exporters don’t know about these small farmers as well.

5. The type of market structure the Vanilla Farmers are dealing with is opaque and unethical. Characteristics are:

- Farmers are really poor with no education or knowledge about exporters and pricing. They probably have no idea that Vanilla is one of the most expensive spices in the world. Hence they sell their produce at pittance to collectors.

- The market structure is full of debt spirals. If farmer's borrow money from the vanilla dealers for harvest. But if the harvest fails again, or if the vanilla is stolen from the fields, farmers can not pay back the loan - neither in vanilla nor cash. It is particularly bad if vanilla prices have risen, as is the case this year - for the loan rises accordingly.

- Farmer's market structure is unregulated and unethical because majority of labor is underage.

6. The international price of vanilla in

- 2003-2004: US$ 25 to 500 per kg

- In 2008-2010: US$ 20 to 50 per kg

- In 2016: US$ 450 – 500 per kg

7. Generally Vanilla beans are expensive as growing and harvesting it is really labour intensive. Prices of Vanilla is fluctuating because of supply and demand curve. In 2004, prices skyrocted because Vanilla was in huge demand. However, by 2008, Indonesia and mexico entered the markets for Vanilla produce and price stabilised. Later, these countries quit for better commodity options and Madagascar had monopoly in producing Vanilla. We are again seeing a rise in Vanilla beans pricing because of cyclone in Madagascar that has limited the supply of beans.

8. Vanilla farming i.e. growing and harvesting is a very labor oriented process. Farmers in Madagascar are so poor that they cant afford to higher labor or give wages to help in farming. Hence, farmer's children as young as 10 years old enter the agriculture field. Even though it is illegal to hire children below 15 years of age, exporters and manufacturers and major sellers (supermarkets) don’t do their due diligence and risk assessment from where they are buying their vanilla beans and hence no step has been taken to curb the practise of this human rights violation.

9. The Vanilla flower contracts is a consistent lean system; under this system Farmers (when they run out of their profits earned from last season) borrow money from collectors – people who drive around town to buy Vanilla beans from farmers at a really low price and sell it at profit. The loan is based on numbers of pollinated Vanilla flowers of next season's Vanilla harvest as collateral. Sometimes farmers take consecutive debts (debts over debts) if harvest fails or produce is stolen.   

When prices of Vanilla skyrockets, collectors ask for the increased prices from farmer as well. Hence, higher prices of Vanilla is actually bad for farmers with Vanilla flower contracts.

10. The rampant theft of Vanilla is not adressed as this market is hughly unregulated, opaque and unethical. Because of poverty and lack of security, many vanilla beans are stoen from farmers. Once collectors come to buy the produce, farmers have no way of recognising their produce as it is not tagged. Frankly, big intermediaries, small collectors and export houses are not interested in knowing about the produce.

11. After knowing about child labor problems, many supermarkets like Dansk Supermarked have asked their principal supplier to give details about producers. The Children's Work Committee in Sava was established in 2011, and in 2012, the CRLTE launched a regional plan to tackle child labor in the vanilla region. The authorities in Madagascar make a great effort to combat child labor, but efforts are still new.

12. Only a combination of socail responsibility and government efforts can tackle this situation. Supermarkets and companies that buy Vanilla need to tag the producer of Vanilla bean through technology.