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
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).
According to the UN Conference on Trade and Development’s 2016 State of Commodity Dependence Report, wherever 60 per cent or more of a country’s exports are accounted for by three commodities or less, there is higher poverty and inequality. Of 188 countries, more than 91 were “commodity dependent”, compared with 82 countries in 2010.
Most of these are concentrated in Africa but Asia too has its share – Papua New Guinea (with the top three commodity exports of petroleum, metals and gold accounting for 51 per cent of exports), Myanmar, (72 per cent), Timor Leste (99 per cent) and Laos (66 per cent). All are among the world’s poorest economies.
But it is Madagascar and its vanilla that tells the depressing story most consistently: its 25 million people share a GDP per capita of barely US$400 – 13 times lower than South Africa, 20 times lower than China and 143 times lower than the US. Seventy-seven 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.
David Pilling notes that when vanilla prices fell below US$40 five years ago, “India’s farmers simply said ‘No, we are not interested in producing any more’. Madagascar’s farmers can’t do that, because if they do, they starve.”
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$57 billion 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