Vanilla's rise and fall take Madagascar's growers for ride

BEMANEVIKA, Madagascar — The house that vanilla almost built soars above all the others in this remote village of one-story wood huts and dirt lanes.

Jamaro Bernad, a 57-year-old grower, began erecting his four-story concrete dream home two years ago, when the price of vanilla shot to record highs amid cyclone damage and price speculation.

But he finished only the top two floors before the price plunged by 90 percent, a welcome change for American consumers but a dread occurrence here.

"I expected the price to stay high," Bernad said with a what-can-I-say smile. He hoped at least that the price would not fall. "In this region, vanilla is the life of the people. Life depends on vanilla. If the price is cheap, we all have some problems."

This island nation off Africa's southeast coast still produces 60 percent of the world's vanilla beans — used to flavor ice cream, cakes, colas and much more — but the price is at its lowest in years. And the future is hazy, as other countries move to profit from vanilla's enduring popularity and food makers turn to less-expensive imitation flavors.

Looking elsewhere

If that is not enough, the head of Maryland-based McCormick & Co., the world's biggest vanilla buyer, says his company has begun buying more of its vanilla from Indonesia, India and Vietnam. Although some industry experts question his version of events, McCormick's Robert J. Lawless claims Madagascar's President Marc Ravalomanana pushed vanilla prices ever higher in 2003, rattling McCormick's bottom line.

"There's no question in my mind he's going to sell less vanilla over the next five to 10 years," Lawless, who is McCormick's chairman, president and chief executive, said in a telephone interview. "Customers have long memories." He added: "I wanted to go talk to him and say, 'You're killing the golden goose.' If he realized it, he didn't care."

And so a gloominess hangs over this tropical region, where people have long made a living from the vanilla supply chain as growers, collectors or exporters. With the boom but a memory, cars are being sold, children taken out of private schools, houses left unfinished with stairways to nowhere.

The only upside is that armed bandits have less incentive to steal vanilla now that the price has sunk from average highs of about $230 per kilogram at one point in 2003 all the way to $25, a level not seen since the late 1990s.

A brief history

But vanilla is what people do. Despite the price, Bernad goes into the forest every day, tracing the steps of his father before him and those of generations of Malagasy, as people from Madagascar are known.

Vanilla, the only orchid that produces an edible fruit, reached Europe in the 1500s, courtesy of Spanish explorers returning from Mexico, and became a prized perfume and flavor. Thomas Jefferson is credited with introducing it to the United States — now the world's largest consumer — after visiting France in the late 1700s.

By the mid-1800s the vines themselves made it to Madagascar. Because the bees that pollinate the plants in their native Mexico do not thrive here, growers must hand-pollinate every flower. On this morning, Bernad had risen at daybreak and, with three helpers, walked barefoot a mile through the quiet village, over a log submerged in a murky marsh and down a hilly path to his plants.

For two hours they worked separately over an area the size of two football fields, linking each flower's anther and stigma with sharpened bamboo sticks so that a vanilla pod, or bean, could emerge. The green-and-yellow flowers bloom from September through December; each blossom lasts just one day.

Returning later, Bernad re-laced the vanilla vines over and through the branches of 12-foot coffee trees — "money in money," as they say here — to get the right blend of shade and sun preferred by the orchid.

Commercial hierarchy

In Madagascar, growers like Bernad sell to collectors, who then sell to exporters, many of them in the city of Sambava, a hour's drive east. Sometimes small collectors sell to large collectors.

Sambava's mayor, Jean-Claude Pierre-Nadal, said Madagascar can no longer afford to rest on its reputation as the source of the best vanilla, a distinction owed to its climate and tradition.

"We have to fight for our product, to grow high quality," he said in a gravelly voice. "You can't be protected. Better quality, better quality, better quality."

That fight has intensified since 2000, when a cyclone damaged a portion of the vanilla crop, pushing up prices. Prices had been rising as worldwide supplies failed to keep pace with international demand in the late 1990s.

In Madagascar and elsewhere, farmers saw the potential for greater profits and began planting more vanilla vines. But because it takes three to four years for a new vine to reach full production, the first half of the decade shaped up early as a seller's market.

More shocks followed within Madagascar. Late in 2002, unusually cool and damp weather here kept many vanilla flowers from blooming. Last year another cyclone hit, causing fresh damage.

Reaching $500

The price marched up. People remember it like a dream: $30 per kilogram in 2000, hitting the $100 mark in 2001, $150 in 2002 and over $200 in 2003. They also remember armed bandits robbing individuals and entire villages of their vanilla, confrontations that on several occasions ended in murder.

In some cases a single kilogram fetched $500. McCormick, looking ahead, made a gamble and locked in $50 million worth of vanilla at 2003 prices. It turned out to be a bad bet. The price tumbled, and Lawless says McCormick only recently put the financial fallout behind it.

"The president pushed the prices up," Lawless said. "There was no economic justification to go over 100, 110 [dollars], not to go up to 220, 230."

Lawless provided no details; neither did a company spokesman. McCormick has never made such claims publicly.

Rick Brownell, vice president of vanilla products at New York-based Virginia Dare, a flavor and extracts manufacturer, said he knew of no manipulation by Ravalomanana.

"It would be news to me," Brownell said. "The sense has always been he's more of a free-market-type person than anybody who would artificially impact a market for short-term gain."

Exporter Thierry Lopat's opinion is that American and European companies drove up the price to ensure a steady supply, and that he and his fellow exporters encouraged the trend to maximize their profits.

"It's business," he said with a shrug. "Now it's natural for people from outside to push the price down because they can have vanilla from Uganda at a lower price."

The price dropped sharply last year. Some of McCormick's big industrial customers switched from natural flavors, and vines in more than a half-dozen countries began bearing fruit. Supply finally caught up with demand.

The long-term view

The rest of this decade should be a buyer's market, with global supply exceeding demand by about 50 percent, Brownell said, "which should keep prices stable at low levels." It could keep prices so low, he said, that some growers might decide it's not worth it to cultivate their vines.

One silver lining for Madagascar is that Brownell expects the country to keep much of its market share because its beans are considered the best, with their smooth and creamy flavor.

But Lopat, 37, who studied business in Paris, worries that quality might do little for Madagascar long-term, "because it's so easy to make low quality and sell it. The world is like this."

The world, he said, is also "looking at ways to have artificial product." Figures are hard to come by, but a rising share of vanilla flavor and fragrance is synthetic, according to Patricia Rain, owner of a California vanilla company and author of "Vanilla: The Cultural History of the World's Favorite Flavor and Fragrance."

Artificial vanilla is usually made from a byproduct of paper processing, or from a substance derived from coal tar, and then chemically treated to mimic vanilla's flavor.

Lopat, overseeing his export operation in a T-shirt and baseball cap, wonders if his son and daughter will follow him into the vanilla trade, as he did his late father and grandfather. He has branched into road building. Vanilla is one of several commodities he exports, although none is a big money maker the way vanilla was.

If it came to it, he said, he could find another way to earn money. The same is not true for growers, who have few options.

Yet the fit-looking Bernad, who left school at age 16 to work in vanilla and planted his first vines in Bemanevika 33 years ago, speaks with a determined optimism.

He says he does not know which countries are growing vanilla or how great a threat imitation flavors pose. What he does know is that vanilla enabled him to provide for his 12 children and made him, if only for a time, a rich man.

"Life is so-so, not bad," he said, sitting under a shade tree. "I'm not working for anyone, just myself. I can do what I want. I'm happy with the job. I know it and did it ever since I was a boy."

Maybe, he said, the price of vanilla will rise again. Maybe one day he'll find a way to finish that house.